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The Ohio Supreme Court has cleared the way for state regulators to review a complaint by Cleveland Electric Illuminating Co. that American Electric Power (AEP), a utility holding company, used one of its electric generating subsidiaries, Ohio Power Co., as a "straw man" to circumvent the state's utility service territory laws and serve one of its retail customers. The Ohio Public Utilities Commission (PUC) had dismissed the complaint, finding 1) that its review would encroach on Federal Energy Regulatory Commission (FERC) authority over wholesale electric transactions, and 2) that a second part of the transaction involved a municipal utility, exempt from state utility laws.
Cleveland Electric claims that AEP arranged for Ohio Power to sell 50 megawatts of power through a "sham transaction" to Cleveland Public Power that, in turn, contracted to deliver the power to the end user that had failed in an earlier bid to switch from retail to wholesale service schedules. It further alleges that the sale, under federal jurisdiction as a wholesale transaction, coupled with the "exempt sale" to its former customer by the municipal, constituted a "de facto retail" sale in violation of the state's Certified Territory Act.
The court ruled that although the PUC may not have jurisdiction over either the wholesale contract or the exempt sale, it must look beyond the surface for an underlying deal. The court said that PUC review of both transactions to determine whether a straw man was used to circumvent state law would not encroach on federal authority. Cleveland Electric Illuminating Co. v. Ohio PUC, No. 95-2444, Aug. 21, 1996 (Ohio).
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