Cleveland Elec. Illum. Co. v. Cleveland (Slip Opinion) , 2021 Ohio 4463 ( 2021 )

[Until this opinion appears in the Ohio Official Reports advance sheets, it may be cited as
Cleveland Elec. Illum. Co. v. Cleveland, Slip Opinion No. 2021-Ohio-4463.]
NOTICE
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promptly notify the Reporter of Decisions, Supreme Court of Ohio, 65
South Front Street, Columbus, Ohio 43215, of any typographical or other
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SLIP OPINION NO. 2021-OHIO-4463THE CLEVELAND ELECTRIC ILLUMINATING CO., APPELLANT AND CROSS-
APPELLEE, v. THE CITY OF CLEVELAND ET AL., APPELLEES AND CROSS-
APPELLANTS.
[Until this opinion appears in the Ohio Official Reports advance sheets, it
may be cited as Cleveland Elec. Illum. Co. v. Cleveland, Slip Opinion No.
2021-Ohio-4463.]
Ohio Constitution, Article XVIII, Sections 4 and 6—Municipal utilities—Surplus
product—Summary judgment—Court of appeals’ judgment reversing trial
court’s grant of summary judgment in favor of municipality affirmed.
(No. 2020-0277—Submitted April 27, 2021—Decided December 21, 2021.)
APPEAL from the Court of Appeals for Cuyahoga County,
No. 108560, 2020-Ohio-33.
_________________
STEWART, J., announcing the judgment of the court.
{¶ 1} Article XVIII, Section 6 of the Ohio Constitution allows a
municipality that operates a public utility for the purpose of supplying the utility’s
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product to the municipality or its inhabitants to generate or purchase electricity and
sell outside the municipality’s boundaries up to 50 percent of the “surplus product.”
The Ohio Constitution, however, “necessarily precludes a municipality from
purchasing electricity solely for the purpose of reselling the entire amount of the
purchased electricity to an entity outside the municipality’s geographic limits.”
Toledo Edison Co. v. Bryan, 90 Ohio St.3d 288, 293, 737 N.E.2d 529. In this
appeal, we consider the concept of an “artificial surplus” of electricity and whether
a municipality violates Article XVIII, Section 6 by selling such a surplus to
customers outside the municipality’s boundaries.
{¶ 2} In 2001, Ohio deregulated the electricity industry. See Migden-
Ostrander v. Pub. Util. Comm., 102 Ohio St.3d 451, 2004-Ohio-3924, 812 N.E.2d
955, ¶ 2. Deregulation led to the rise of wholesale markets through which
electricity distributers may purchase electricity on demand based on the current
power needs of its customers. See generally In re Ohio Power Co., 155 Ohio St.3d
320, 2018-Ohio-4697, 121 N.E.3d 315. Appellee and cross-appellant the city of
Cleveland, through its electricity-distribution company, appellee and cross-
appellant Cleveland Public Power (“CPP”) (collectively, “the city”), sells surplus
electricity outside its boundaries in an amount representing approximately 4 percent
of the electricity that the city sells inside its boundaries. Appellant and cross-
appellee, the Cleveland Electric Illuminating Company (“CEI”), argues that
because the city may purchase the precise of amount of electricity required to
satisfy the current demands of its territorial customers, the electricity that the city
sells extraterritorially as surplus is necessarily acquired solely to sell it beyond the
city’s boundaries, in violation of this court’s decision in Toledo Edison Co. and the
Ohio Constitution.
{¶ 3} The Eighth District Court of Appeals determined below that Article
XVIII, Section 6 of the Ohio Constitution does not require a municipality to buy
“the exact amount” of electricity required by its inhabitants at any given time and
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that there may be other reasons justifying the purchase of electricity beyond a
municipality’s immediate needs. 2020-Ohio-33, ¶ 36. We agree. Neither Article
XVIII, Section 6 nor this court’s decision in Toledo Edison Co. requires a
municipality to purchase the exact amount of electricity required to satisfy the
current needs of its territorial customers. Although a municipal utility may not
acquire surplus product for the sole purpose of selling it extraterritorially, it may
acquire excess capacity for purposes other than reselling it as surplus beyond the
municipality’s boundaries without violating the Ohio Constitution. We also agree
with the court of appeals that questions of material fact exist as to whether the city
obtained surplus electricity for the sole purpose of selling it to a neighboring city.
We therefore affirm the judgment of the Eighth District.
Factual and procedural background
{¶ 4} CEI is an investor-owned utility company regulated by the Public
Utilities Commission of Ohio (“PUCO”). See R.C. 4905.04 (“The public utilities
commission is hereby vested with the power and jurisdiction to supervise and
regulate public utilities * * *”). Article XVIII, Section 4 of the Ohio Constitution
and Cleveland City Charter Chapter 523 authorize the city to operate CPP. Both
CEI and CPP distribute electricity and directly compete with each other to provide
distribution services in Cleveland.
{¶ 5} Both CEI and CPP purchase electricity through the wholesale
electricity market. PJM Interconnection, L.L.C. (“PJM”), a regional transmission
organization (“RTO”), runs the wholesale electricity market in Ohio. PJM’s
mission is to ensure nondiscriminatory access to the electricity-transmission grid.
PJM manages the generation, transmission, and distribution of electricity within its
assigned area by establishing pricing at auction, with market administrators using
algorithms to match the least expensive generation-supply resource with customer
demand. PJM’s customers may buy electricity one day in advance of its expected
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use based on expected customer demand or on a real-time basis to account for
differences between expected and actual customer demand.
{¶ 6} Along with wholesale electricity bought through PJM, CPP has an
interest in several electricity-generation plants through its membership in American
Municipal Power (“AMP”), a nonprofit wholesale-power supplier representing
municipalities in Ohio and other states. Through AMP, the city has a portfolio of
power-generation interests, including hydroelectric, wind, natural gas, and coal.
Some of those interests require long-term purchases that CPP uses to mitigate the
risk of volatility in the PJM energy markets. CPP’s commitments for long-term
purchases from AMP projects and generation assets will result in CPP’s cost of
electricity dropping dramatically when it pays off the bonds used to finance
construction relating to the projects.
{¶ 7} In 2017, the city agreed to buy all the electricity generated by a solar-
energy project in the city of Brooklyn. The city planned to use the electricity
generated by the project to supply power to buildings owned by Cuyahoga County.
The city also signed a ten-year agreement to be the exclusive electricity provider to
several municipal buildings in Brooklyn.
{¶ 8} CEI filed in the Cuyahoga County Court of Common Pleas a
declaratory-judgment action against the city and CPP, alleging that the city had
unlawfully signed an agreement to sell electricity to Brooklyn at a rate 5 percent
below CEI’s statutorily mandated tariff. CEI claimed that the city extended
distribution lines from the solar-energy project solely to poach CEI’s customers. It
alleged that the city did not need the electricity generated by the solar project to
serve its own citizens, because it could satisfy its territorial demands solely with
wholesale electricity purchases, so “any and all sales of electricity to Brooklyn, the
inhabitants of Brooklyn, and other customers outside Cleveland’s municipal
boundaries will derive from an artificial surplus intentionally sustained and
increased by CPP, acting as a de facto extraterritorial broker.”
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{¶ 9} The parties submitted cross-motions for summary judgment. The trial
court determined that electricity from the solar project would be used to serve 12
Cuyahoga County properties and customers in Brooklyn. It also determined that
the city had sold as surplus outside its boundaries “a very small percentage” of the
total electricity that it had sold to customers within its boundaries and that the
amount was “nowhere near” the 50 percent limitation for selling surplus product
under Article XVIII, Section 6 of the Ohio Constitution. Finding that the electricity
that the city had sold outside its boundaries did not exceed the constitutional
limitation, the trial court granted the city’s motion for summary judgment on that
claim.
{¶ 10} CEI appealed the trial court’s judgment to the Eighth District Court
of Appeals, arguing that the trial court erred by not granting summary judgment in
its favor and by granting summary judgment to the city. The Eighth District
reversed the grant of summary judgment in favor of the city. Although the court of
appeals agreed with CEI that the trial court erred in granting summary judgment to
the city because the record did not demonstrate that all the city’s electricity
purchases are for the purpose of providing service to customers within the city’s
boundaries, the court refused to conclude that any surplus electricity CPP possesses
is an artificial surplus acquired only for the purpose of selling it outside the city’s
boundaries. 2020-Ohio-33 at ¶ 35-39. The court determined that a municipality
may, consistent with the Ohio Constitution, “acquire a surplus of electricity for
reasons other than ‘solely for the purpose of reselling’ surplus electricity outside its
municipal boundaries.” Id. at ¶ 36, quoting Toledo Edison Co., 90 Ohio St.3d at
293, 737 N.E.2d 529. But the court also concluded that CPP’s ten-year agreement
to supply electricity to Brooklyn suggested that “the only way [Cleveland] could
ensure that it had a sufficient supply of electricity to fulfill its contractual
obligations to Brooklyn was if it intentionally purchased some electricity solely for
the purpose of reselling it to Brooklyn.” Id. at ¶ 38.
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{¶ 11} CEI appealed to this court, and the city cross-appealed. We accepted
CEI’s appeal on three propositions of law:
1. A municipal utility violates Article XVIII, Sections 4 and
6 if it sells electricity outside municipal boundaries from an artificial
surplus, including any avoidable excess electricity a municipality
purchases that was not to supply the city or its inhabitants.
2. A municipal utility violates Article XVIII, Sections 4 and
6 if it can buy only the amount of electricity needed within the city,
but instead it buys excess electricity and sells electricity outside
municipal boundaries.
3. A municipal utility violates Article XVIII, Sections 4 and
6 if it buys any amount of electricity for a purpose other than
supplying that electricity to itself or its inhabitants, then sells the
resulting excess to customers outside city limits.
See 159 Ohio St.3d 1417, 2020-Ohio-3365, 147 N.E.3d 662. We accepted the city’s
cross-appeal on the following proposition of law:
A municipal corporation has the right to sell electricity to
extraterritorial customers so long as the amount sold to
extraterritorial customers does not exceed fifty percent of the total
electricity consumed within the municipal corporation’s limits, and
so long as the municipal corporation does not purchase electricity
solely for the purposes of reselling the entire amount of that
electricity extraterritorially.
See id.6
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Analysis
{¶ 12} Before 1912, “utilities could only be owned and operated under
power specially conferred by legislative enactment.” Euclid v. Camp Wise Assn.,
102 Ohio St. 207, 213, 131 N.E. 349 (1921). Courts generally employed the rule
that “the jurisdiction of a municipality ceases at its boundaries, and, for it to
exercise extraterritorial jurisdiction, its power to do so must be clearly expressed.”
See Richards v. Portland, 121 Ore. 340, 345, 255 P. 326 (1927). But when the
framers amended the Ohio Constitution in 1912 to establish municipalities’ home-
rule powers, they intended to “remov[e] once and for all, all legitimate questions as
to the authority of municipalities to undertake and carry on essential municipal
activities.” 2 Proceedings and Debates of the Constitutional Convention of the
State of Ohio 1433 (1912).
{¶ 13} Two specific provisions of the Ohio Constitution authorize
municipalities to operate utilities. First, Article XVIII, Section 4 of the Ohio
Constitution states: “Any municipality may acquire, construct, own, lease and
operate within or without its corporate limits, any public utility the product or
service of which is or is to be supplied to the municipality or its inhabitants, and
may contract with others for any such product or service.” Second, Article XVIII,
Section 6 of the Ohio Constitution states:
Any municipality, owning or operating a public utility for
the purpose of supplying the service or product thereof to the
municipality or its inhabitants, may also sell and deliver to others
any transportation service of such utility and the surplus product of
any other utility in an amount not exceeding in either case fifty per
cent of the total service or product supplied by such utility within
the municipality * * *.
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When read in harmony, these sections “allow a municipality to purchase electricity
primarily for the purpose of supplying its residents and reselling only surplus
electricity from that purchase to entities outside the municipality.” Toledo Edison
Co., 90 Ohio St.3d at 292, 737 N.E.2d 529.
{¶ 14} The question then is what does the phrase “surplus product” mean?
In Toledo Edison Co., we observed that the word “surplus,” given its ordinary
meaning, means “ ‘the amount that remains when use or need is satisfied.’ ” Id. at
292, quoting Webster’s Third New International Dictionary 2301 (1993). In that
case, four municipalities had joined to persuade a commercial customer of Toledo
Edison’s to buy electricity from them. Id. at 288-289. The four municipalities
bought electricity on the wholesale market and sold it to the commercial customer,
which was located beyond the municipalities’ territorial boundaries. Id. at 290. We
interpreted Article XVIII, Sections 4 and 6 and concluded that
a municipality is prohibited from in effect engaging in the business
of brokering electricity to entities outside the municipality in direct
competition with public utilities. This prohibition includes a de
facto brokering of electricity, i.e., where a municipality purchases
electricity solely to create an artificial surplus for the purpose of
selling the electricity to an entity not within the municipality’s
geographic boundaries.
Id. at 293.
{¶ 15} CEI argues that any kilowatt of electricity that the city buys beyond
the immediate needs of its territorial customers is, by definition, surplus product.
Yet the framers of Article XVIII, Section 6 understood it differently. Consider that
Section 6 and its 50 percent limitation on “surplus product” applies not only to
traditional utilities like water and electricity, but also to transportation service.
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During the debate on Section 6 during the Ohio Constitutional Convention of 1912,
the following exchange took place:
MR. KRAMER: I want to ask a question or two to find out
how far municipalities will be allowed to go into business. Take
Cincinnati. It has three hundred and fifty miles of street railway.
Suppose Cincinnati should take over that three hundred and fifty
miles of street railway and suppose they take in $2,000,000 a year.
Does this section mean that the city of Cincinnati could go outside
of Cincinnati with a railway to the extent of one hundred and
seventy-five miles of inter-urban roads, or does it mean that
Cincinnati could go outside a sufficient extent to take in $1,000,000?
MR. KNIGHT: It was intended that the mileage outside of
the city in the case of transportation service could not be in excess
of one-half of that within the city itself. In the case of water supply
it may supply outside of the city its surplus, but in no event to exceed
one-half of that actually supplied to the people of the municipality,
and the same way with lighting service.
(Capitalization sic.) 2 Proceedings and Debates of the Constitutional Convention
of the State of Ohio at 1455.
{¶ 16} The debate provided further evidence clarifying that Section 6 works
“the same way with lighting service”:
Mr. HARBARGER: In lines 44 and 45 you say “in an
amount not exceeding in either case fifty per centum of the total
service.” In the case of a municipal lighting plant do I understand
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they are limited to the amount they can sell in the municipality and
that much more?
Mr. KNIGHT: That section applies to selling outside and
you can only sell outside one-half as much as inside.
(Capitalization sic.) 2 Proceedings and Debates at 1445.
{¶ 17} The debate shows that the framers not only intended for
municipalities to be allowed to purchase railways or power plants located outside
their boundaries, but also that they intended to allow municipalities to sell the
services or products therefrom extraterritorially. But under CEI’s rationale
regarding the law relating to electricity surplus, we would also have to consider any
railway established outside a municipality’s territorial boundaries to be “surplus,”
because more railroad tracks would be unnecessary to serve people within the
municipality’s boundaries. As noted above, the debate during the Constitutional
Convention of 1912 refutes that contention.
{¶ 18} CEI maintains that CPP has no constitutionally authorized reason to
buy or resell extra energy. It reasons that the city may fulfill its electricity
requirements solely through the wholesale market, so it never needs to have any
excess electricity that it might sell as surplus.
{¶ 19} Our decision in Toledo Edison Co. forbids the purchase of electricity
“solely for the purpose of reselling the entire amount of the purchased electricity to
an entity outside the municipality’s geographic limits.” (Emphasis added.) 90 Ohio
St.3d at 292, 737 N.E.2d 529. And here, the Eighth District determined that “a
municipality may acquire a surplus of electricity for reasons other than ‘solely for
the purpose of reselling’ surplus electricity outside its municipal boundaries.”
2020-Ohio-33 at ¶ 36, quoting Toledo Edison Co. at 293.
{¶ 20} CEI complains that the court of appeals failed to explain what it
meant by the phrase “reasons other than ‘solely for the purpose of reselling.’ ” Id.,10
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quoting Toledo Edison Co. at 293. That complaint lacks merit. The court of appeals
listed “cost, risk mitigation, economies of scale, environmental impact[,] and
reliability” as reasons that the city might have for purchasing surplus electricity.
Id. at ¶ 39. We agree with the court of appeals. Prices in the RTO markets vary.
Economic practicalities might cause a municipality to commit to long-term
purchases of electricity in quantities beyond the current, real-time demands of its
customers. We also recognize that volume purchasing contracts may be a hedge
against the volatility of the spot wholesale markets. Long-term purchasing
commitments can stabilize a municipality’s supply and cost of electricity.
{¶ 21} The city also offers evidence showing that PJM requires the city to
maintain a capacity-reserve margin. The reserve margin is determined by
calculating the average of CPP’s coincident-peak-capacity demand from the prior
year, adjusted for losses and increased by a PJM-determined reserve factor. The
surplus-reserve margin accounts for generation outages, fluctuations caused by
weather conditions, and other changes in total customer demand.
{¶ 22} CEI argues that even if the city’s long-term commitments and
reserve-margin requirements lead to a surplus, the city may directly sell the surplus
to RTO-administered markets rather than selling it extraterritorially. It thus
concludes that CPP may, once connected to the Brooklyn solar project, sell that
electricity directly to the PJM wholesale market rather than to Brooklyn.
{¶ 23} The city offers evidence indicating that selling surplus electricity to
the wholesale market might sometimes be “a practical impossibility.” And it
submits that selling electricity to the wholesale market might lead to a loss for the
city, because PJM pays a price for wholesale electricity that is lower than the price
for which it sold that same electricity to a utility. In the brief of amici curiae
Buckeye Power, Inc., and Ohio Rural Electric Cooperatives, Inc., amici curiae
claim similar difficulties, arguing that municipal-utility poaching of their customers
“would put cooperative members, the residents of areas abutting municipalities, at
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risk of bearing stranded costs.” Such “stranded costs” arise when a utility loses
customers to a competitor and is left with debts for infrastructure and equipment
that it might no longer need. But CPP has similar costs associated with its long-
term investments in AMP generation projects, and those costs would be stranded if
CPP were to be required to purchase electricity solely on the wholesale market.
Amici curiae offer no compelling reason why priority should be given to
minimizing the impact of their potential stranded costs over those of CPP.
{¶ 24} But more importantly, Article XVIII, Section 6 of the Ohio
Constitution specifically authorizes a municipality to sell excess surplus product
extraterritorially. That provision does not require a municipality to sell surplus
product back to its source. And while it might be more economically advantageous
for CEI if the city pays for electricity as it goes, “the courts cannot prohibit a
municipality from making a profit on the operation of its electric light and power
system.” Niles v. Union Ice Corp., 133 Ohio St. 169, 182, 12 N.E.2d 483 (1938),
citing Shirk v. Lancaster, 313 Pa. 158, 168-169, 169 A. 557 (1933).
{¶ 25} CEI also argues that practices such as those employed by the city
here lead to the type of unfair competition that was feared by the framers of the
Ohio Constitution and this court in Toledo Edison Co. It maintains that its
regulation by the PUCO puts it at a competitive disadvantage with CPP, which
“cherrypicks large, energy-intensive customers outside the city.” CEI also argues
that because the PUCO does not regulate municipal electricity distributers like CPP,
CPP’s activities disrupt the competitive balance and harm the public interest.
{¶ 26} Investor-owned utilities raised the same argument against Article
XVIII, Section 6 during the Ohio Constitutional Convention of 1912. The “chief
assault” against municipal operation of utilities “came from spokesmen for the
public-service corporations who argued that the amendment threatened to destroy
their interests by failing to restrain unfair competition by municipally owned
utilities.” Warner, Ohio’s Constitutional Convention of 1912, 61 Ohio History J.
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11, 24 (1952), available at https://resources.ohiohistory.org/ohj/browse/
displaypages.php?display[]=0061&display[]=11&display[]=31 (accessed Dec. 10,
2021) [https://perma.cc/JS9R-7FJC]. Herbert Seely Bigelow, the president of the
Constitutional Convention of 1912, recalled that the issue of municipal operation
of public utilities “does not tend to sanctify the memories of the Convention for
those whose political views are colored by their own interest in public utility
securities.” Bigelow, Fourth Ohio Constitutional Convention, Ohio Legislative
History 409, 410 (1913), available at https://www.law.csuohio.edu/
sites/default/files/lawlibrary/ohioconlaw/1912delegates.pdf (accessed Dec. 10,
2021) [https://perma.cc/U9EP-5BMJ]. Facing opposition from investor-owned
utilities, the framers were careful as to how they worded Article XVIII, Section 6:
“Now, we took a great deal of time in getting the correct phraseology for this
section. The members will recall how every word was weighed, what its effect was
in relation to what we had in mind.” 2 Proceedings and Debates of the
Constitutional Convention of the State of Ohio at 1458. This consideration led to
plain language in Section 6 that permits a municipality to sell surplus product
extraterritorially, provided that the amount sold does not exceed 50 percent of the
amount the municipality sells within its boundaries. CEI acknowledges in its merit
brief that the city’s extraterritorial sales in 2017 amounted to “approximately [three
percent] of CPP’s total sales.” The fact that such a relatively small amount of
surplus product was sold by CPP extraterritorially belies CEI’s claims of unfair
competition.
{¶ 27} Today’s wholesale electricity market operates in a way that the
framers of the 1912 Constitution could not have foreseen. But the changing
electricity market does not allow us to undermine the clear language of Article
XVIII, Section 6. CEI’s public-policy arguments are no different from the ones
that were made when the people of Ohio adopted the amendments to the Ohio
Constitution in 1912. It is up to the General Assembly and Ohio’s voters, perhaps
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through constitutional amendment, to address any issues of competitive imbalance
between investor-owned utilities and municipal utilities.
{¶ 28} We now turn to the agreement at the heart of this case: the city’s
contract to provide Brooklyn with electricity for ten years. The court of appeals
determined that “since the city currently generates very little power of its own,
arguably the only way the city could ensure that it had a sufficient supply of
electricity to fulfill its contractual obligations to Brooklyn was if it intentionally
purchased some electricity solely for the purpose of reselling it to Brooklyn.” 2020-
Ohio-33 at ¶ 38.
{¶ 29} A court must grant summary judgment if, after viewing the evidence
most favorably to the nonmoving party, “reasonable minds can come to but one
conclusion and that conclusion is adverse to the party against whom the motion for
summary judgment is made.” Civ.R. 56(C).
{¶ 30} The city claims that it obtains electricity from various sources, that
it must purchase some electricity that exceeds the daily needs of its territorial
customers, and that it uses some of that surplus to provide electricity to Brooklyn.
However, the record does not show the amount of electricity that CPP has in surplus
at any given time and how much of that surplus is used to satisfy its commitment
to Brooklyn. We therefore agree with the court of appeals that reasonable minds
could differ on whether the city uses an “artificial surplus” to supply Brooklyn with
electricity. The trial court erred by granting summary judgment in favor of the city.
Conclusion
{¶ 31} Neither Article XVIII, Section 6 of the Ohio Constitution nor this
court’s decision in Toledo Edison Co. requires a municipality to purchase the exact
of amount of electricity necessary to satisfy the current needs of its territorial
customers. A municipal utility may acquire excess electricity capacity for reasons
other than reselling it as surplus beyond the municipality’s boundaries without
violating the Ohio Constitution. A municipal utility may not, however, acquire
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excess capacity for the sole purpose of reselling it outside the municipality’s
territorial boundaries.
{¶ 32} Because there are existing issues of material fact, we affirm the
judgment of the Eighth District Court of Appeals, which reversed the trial court’s
grant of summary judgment in favor of the city and remanded the cause to the trial
court for further proceedings.
Judgment affirmed.
O’CONNOR, C.J., concurs.
DONNELLY, J., concurs in judgment only.
DEWINE, J., concurs in judgment only in part and dissents in part, with an
opinion joined by FISCHER, J.
KENNEDY, J., dissents, with an opinion.
BRUNNER, J., dissents, with an opinion.
_________________
DEWINE, J., concurring in judgment only in part and dissenting in part.
{¶ 33} This case calls for the application of two provisions of the Ohio
Constitution. The first provision authorizes a municipality to operate a public
utility or to purchase products or services from another utility for the use of the
municipality or its inhabitants. Ohio Constitution, Article XVIII, Section 4. The
second provision permits a municipality to dispose of “surplus product” that was
generated from the operation of its own utility by selling it to others outside the
municipality’s limits. Ohio Constitution, Article XVIII, Section 6. Neither
provision allows a municipality to act as a de facto broker by purchasing utility
products and then reselling them to customers outside the municipality.
{¶ 34} The plain text of these constitutional provisions dictates this result.
And history, as well as our caselaw in the years following the adoption of the
constitutional provisions, reinforce the conclusion that this reading is the correct
one. The lead opinion and the dissents, though, have gotten sidetracked. Relying
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on a decision of this court from 2000, they focus almost exclusively on the meaning
of the word “surplus” in determining whether the city of Cleveland may resell
electricity that it has purchased to customers outside the municipality. See Toledo
Edison Co. v. Bryan, 90 Ohio St.3d 288, 737 N.E.2d 529 (2000). But whether
electricity that is resold in a brokered arrangement could be described as “surplus”
is beside the point. Under the constitutional provisions at issue, the city lacks any
authority to resell electricity that it has purchased to those outside the municipality;
it may only sell excess electricity that it has produced.
{¶ 35} I would therefore hold that a municipality’s purchase of electricity
for purposes other than to supply the municipality or its inhabitants is
unconstitutional under Article XVIII, Section 4 of the Ohio Constitution. And I
would hold that Article XVIII, Section 6 of the Ohio Constitution does not permit
a municipality to resell electricity that it has purchased from another utility to those
outside the municipality.
I. The text of the municipal-utility amendments
{¶ 36} The lead opinion devotes relatively little of its analysis to the actual
text of the constitutional provisions at issue. But that’s where we need to start. And
a careful reading of the text dictates the outcome of this case.
{¶ 37} Article XVIII, Section 4 of the Ohio Constitution (“Section 4”)
provides: “Any municipality may acquire, construct, own, lease and operate within
or without its corporate limits, any public utility the product or service of which is
or is to be supplied to the municipality or its inhabitants, and may contract with
others for any such product or service.” (Emphasis added.) By its plain terms,
Section 4 permits a municipality to purchase a product such as electricity for the
purpose of supplying it to the municipality or its residents. But within this grant of
authority is an inherent constraint: the municipality may not purchase electricity for
purposes other than its use within the municipality’s limits.
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{¶ 38} This is clear from the text. Section 4 grants a municipality the
authority to “contract with others” for “any such product or service.” The language
“any such product” refers back to the previous clause, “any public utility the
product or service of which is or is to be supplied to the municipality or its
inhabitants.” Id. In other words, a municipality has the power to establish a public
utility, but there is a limitation: “the product or service” of that utility must “be
supplied to the municipality or its inhabitants.” Id. And it may contract with others
for “any such product or service”—that is, a utility “product or service [that] is or
is to be supplied to the municipality or its inhabitants.” Id. Thus, both the authority
to establish a utility and the authority to contract for utility services are cabined by
the use requirement: the product or service in question must be supplied to the
municipality or its inhabitants.
{¶ 39} Article XVIII, Section 6 of the Ohio Constitution (“Section 6”) is the
counterpart to Section 4. Whereas Section 4 deals with a municipality’s power to
establish its own public utility, Section 6 authorizes the municipality to sell the
utility’s excess product. Section 6 states:
Any municipality, owning or operating a public utility for
the purpose of supplying the service or product thereof to the
municipality or its inhabitants, may also sell and deliver to others
any transportation service of such utility and the surplus product of
any other utility in an amount not exceeding in either case fifty per
cent of the total service or product supplied by such utility within the
municipality * * *.
(Emphasis added.)
{¶ 40} While Section 4 allows a municipality to operate a utility “the
product or service of which” is supplied to the municipality’s residents, Section 6
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allows a limited amount of a surplus produced by a municipal utility to be sold
outside the municipality. But nothing in section 6 authorizes a municipality to
resell any product that was purchased elsewhere.
{¶ 41} This is evident from the structure of Section 6. The phrase “the
surplus product of any other [i.e., nontransportation] utility” relates back to the
“public utility” identified in the first part of the provision. Id. And such a public
utility is specifically identified as “a public utility [owned or operated by the
municipality] for the purpose of supplying the service or product thereof to the
municipality or its inhabitants.” Id.{¶ 42} In short, Section 4 “grants municipalities broad powers to own and
operate public utilities” and authorizes them “to contract for public utility services.”
Steinglass & Scarselli, The Ohio State Constitution 349-350 (2011). Section 6, in
turn, “allows a municipality that owns or operates a utility to sell the surplus product
produced by the utility as long as the surplus does not exceed 50 percent of the total
product used by the municipality owning or operating the utility.” Id. at 351.
Indeed, as one authority has explained:
It is only where a utility is acquired or operated by a municipality
for the purpose of supplying services or products to its inhabitants
under Section 4 that the municipality is further authorized by
Section 6 to treat undisposed of services and products as ‘surplus,’
which may be distributed to consumers other than inhabitants of the
municipality.
Vaubel, Municipal Home Rule in Ohio: Part V, 3 Ohio N.U.L.Rev. 1375, 1459
(1976); see also Miller v. Orrville, 48 Ohio App. 87, 90-91, 192 N.E. 474 (9th
Dist.1934) (“Section 4 expressly authorizes a municipality to own and operate a
utility outside of the municipality if the product or service thereof is to be supplied
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to the inhabitants of such municipality; and section 6 provides that a municipality
which, through its own utility, supplies the service or product to its inhabitants,
‘may also sell and deliver to others * * * the surplus product,’ etc.” [emphasis and
ellipsis in original]).
{¶ 43} The lead and dissenting opinions debate whether the practice of
buying electricity for the purpose of reselling it outside the municipality fits within
the meaning of “surplus” and is thus permitted under Section 6. By homing in on
that word, they overlook the fact that the practice runs afoul of both Section 4 and
Section 6. Section 4 authorizes the purchase of electricity only for the purpose of
supplying it to the municipality or its inhabitants—not for selling it to others outside
the municipality. And Section 6 does not permit a municipality to dispose of excess
product that it purchased for the use of its inhabitants; it speaks to only the disposal
of surplus product created by a municipality’s own utility plant. The two provisions
neither contemplate nor allow a municipality to act as a de facto broker for the sale
of utility products.
{¶ 44} Quite simply, Section 4 requires that a municipality’s acquisition or
operation of a public utility be undertaken for the purpose of supplying the
municipality or its inhabitants, and it is only when the operation of the utility creates
excess product beyond the needs of the municipality or its inhabitants that the
municipality is authorized by Section 6 to sell the excess to others outside the
municipality.
II. The history of the municipal-utility amendments
{¶ 45} History reinforces that the plain meaning of the text is the correct
one. Before the adoption of Article XVIII in 1912, “municipalities could only
exercise those powers granted to them by the General Assembly,” and there was a
growing call for cities to have more control over their own affairs. Steinglass &
Scarselli, The Ohio State Constitution, at 49-50. Thus, a central feature of the Ohio
Constitutional Convention of 1912 was the proposal of a municipal-home-rule
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amendment. This amendment “changed the relationship between state and local
governments by granting municipalities the specific constitutional power to choose
their own form of government,” “to exercise the powers of government over local
affairs independent of the General Assembly,” and “to operate and control public
utilities.” Id. at 345. Following debates, the amendment was proposed by the
convention and adopted by the voters at the September 3, 1912 general election.
Id. at 52-53.
{¶ 46} The topic of municipal ownership and operation of utilities was of
particular concern to the delegates at the 1912 convention. In years prior, the
legislature had granted municipalities that operated water utilities limited authority
to supply water to neighboring municipalities. See G.C. 348, 66 Ohio Laws 207
(1869); G.C. 352, 66 Ohio Laws 208 (1869). Those provisions were later amended
to apply to publicly owned electrical utilities. See Miller, 48 Ohio App. at 92, 192
N.E. 474. But the question of a municipality’s “power to own and operate a public
utility had been open to some question,” Vaubel, Municipal Home Rule in Ohio:
Part V, at 1382-1383, and prior to the adoption of Article XVIII, “the courts had
held that the power to contract with public utilities was dependent upon the
uncertainties of statutory grant, like other municipal authority,” id. at 1383. Thus,
“[t]he convention was to provide a means for alleviating the growing inconvenience
caused [to] municipalities by their continuing need to seek authority from the state
legislature to compete with private firms in the expanding field of public utility
services.” Id. Professor George Knight, one of the drafters of the provisions,
explained that the amendment sought to
make clearer or make broader the power of municipalities to control,
either by leasing, constructing, or acquiring from corporations now
owning or operating the public utilities within the corporation, the
water supply, the lighting and heating supply and other things—
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without specifying—which come within the purview of municipal
public utilities, thus removing once and for all, all legitimate
questions as to the authority of municipalities to undertake and carry
on essential municipal activities.
2 Proceedings and Debates of the Constitutional Convention of the State of Ohio
1433 (1912).
{¶ 47} Still, the discussion of the municipal-utility amendments at the 1912
convention focused on the authority of a municipality to operate public utilities for
the benefit of its inhabitants and to sell the surplus product of those utilities. As
George W. Harris, the chairman of the convention’s committee on municipal
government, explained, “Section 4 confers power to acquire through purchase,
lease or construction any and all public utilities, and the power is given to condemn
for public use any existing private utility.” 2 Proceedings and Debates at 1458.
He elaborated on the meaning of Section 6:
Section 6 gives to the municipality the right to sell an amount
of its surplus product or service in any public utility equal to fifty
per cent of that supplied to the inhabitants of the municipality. .
Now, we took a great deal of time in getting the correct
phraseology for this section. The members will recall how every
word was weighed, what its effect was in relation to what we had in
mind, and it was found an absolute necessity in order to make
municipal ownership feasible, because if you were going to stop a
traction line at the city limits frequently you might as well have no
traction line, but, to prevent that, the limit of fifty per cent excess
product or service was determined on, which seemed very
reasonable.
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(Emphasis added.) Id. It was therefore clear to the delegates that the provision
allowing the municipality to sell or deliver surplus product or services outside the
municipality was necessary to make municipal ownership and operation of a utility
economically viable—it was foreseeable that such a utility would produce more
product than could be used by the municipality and that the municipality would, as
a practical matter, need to sell that surplus product elsewhere.
{¶ 48} The notion that the surplus-sale provision is tied to a municipality’s
own production is reflected elsewhere in the debates. One delegate raised the
question whether a municipality was permitted to acquire a railroad that had more
rail line extending outside the municipality’s limits than within its limits, and the
following exchange occurred:
MR. KRAMER: Where is there anything that prevents the
municipality from owning an interurban line clear to Columbus?
MR. KNIGHT: What would it do with it? What could it do
with it?
MR. KRAMER: Suppose it wanted to go into the railway
service?
MR. KNIGHT: What for?
MR. KRAMER: As a matter of profit.
MR. KNIGHT: It can not do it. It can not furnish service to
anybody outside of the corporate limits in any amount exceeding
fifty per cent of what it furnishes inside the limits.
(Capitalization in original.) Id. at 1444. Knight went on to say that the municipality
“can not furnish transportation outside of its corporate limits exceeding fifty per
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cent of what it furnishes inside. Suppose you built a railroad clear across the state.
The municipality couldn’t operate it.” Id. at 1445.
{¶ 49} Neither the plain language of the municipal-utility amendments nor
the debate surrounding them suggest that the framers understood the provisions to
authorize the resale of utility products purchased by the municipality from other
suppliers. This is consistent with broader views on municipal-utility ownership at
the time. As one contemporary treatise recognized, the authority of a municipality
to provide water or light for its inhabitants does not permit the municipality “to go
into the business of buying and selling water as a commodity to other
municipalities.” (Emphasis deleted.) 3 John F. Dillon, Commentaries on the Law
of Municipal Corporations 2121 (5th Ed.1911). But the treatise also recognized
that
[w]hen a city owns, maintains, and operates its own water or light
plant, it is to be reasonably expected that in the prudent management
of its works some excess beyond the natural requirements of the
public will arise; that there will be some surplus which will be
available for disposal over and above such as it requires for its own
purposes and such as its inhabitants can claim by reason of the prior
duty which it owes them. With reference to the surplus so arising,
the city may contract with private individuals for the private use
thereof so long as it does so without affecting the supply which is
required for public or quasi-public purposes.
(Emphasis in original.) Id. at 2127.
{¶ 50} Another contemporary commentator explained that “a municipality
may contract to furnish a supply from its plant, for use outside of the city, where
not prohibited by statute or charter provision, and where there is sufficient water to
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furnish the residents all that is necessary for their use.” 4 Eugene McQuillin, A
Treatise on the Law of Municipal Corporations, Section 1800, at 3855 (1912). But
even when such implicit authority is recognized, “a distinction is to be drawn
between a municipality which has contracted for a supply of water and then
contracts to furnish a part of it to another municipality, which is unauthorized, and
a municipality which contracts to furnish a supply from its own plant.” Id. at 3857-
3858.
{¶ 51} In sum, at the very same time that the framers otherwise granted
broad home-rule powers to municipalities, they placed explicit limitations on the
power of municipalities to sell utility products and services. Municipalities were
authorized to operate utilities, but they were subjected to restrictions that were
designed to ensure that the utilities stayed within their proper purpose of serving
the inhabitants of the municipality. The framers recognized that economies of
scale, vagaries in supply and demand, and the need to plan for future growth meant
that a prudent municipal utility might sometimes produce more than its residents
then needed. As a consequence, the constitutional provisions allowed a
municipality to sell its own excess product but imposed the 50 percent limitation to
ensure that the municipal utility didn’t stray too far beyond the authorized purpose
of serving its own citizens. Further, the provisions allowed a municipality to make
purchases necessary for it to serve its own citizens but did not permit the resale of
purchased utility services.
III. Caselaw interpreting the municipal-utility amendments
{¶ 52} At least until our decision in Toledo Edison, 90 Ohio St.3d 288, 737
N.E.2d 529, this court’s longtime understanding of Sections 4 and 6 was in accord
with the plain language of their text and the historical context in which they were
adopted by Ohio voters.
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A. Cases decided before Toledo Edison
{¶ 53} Our 20th century caselaw comports with the view that Sections 4 and
6 limit the authority of a municipality to purchase and sell utility products and
services. As far back as 1919, this court described Section 4 as “expressly
authoriz[ing] a municipality to contract with any public utility, the product or
service of which is to be supplied to the municipality or its inhabitants.” Ohio River
Power Co. v. Steubenville, 99 Ohio St. 421, 124 N.E. 246 (1919). In other words,
the municipality may purchase electricity, but only for its own internal use.
{¶ 54} In State ex rel. Wilson v. Hance, 169 Ohio St. 457, 458, 159 N.E.2d
741 (1959), this court considered a contract under which a city was to lease and
operate an electricity-generation plant for the purpose of providing electricity to
nonresident consumers. This court noted that Section 4 authorizes municipalities
to acquire public utilities for the purpose of serving their inhabitants and to contract
with others for utility products or services. Id. at 460. But we went on to stress
that “the disposition of the surplus services of such utilities are strictly limited by
Section 6 of Article XVIII.” Id. In analyzing that provision, this court reasoned:
It is obvious from a consideration of that constitutional
limitation that, although the framers of the Constitution believed that
it would be advantageous for municipal corporations to have the
power to provide public-utility services to their inhabitants and
recognized that such an operation could create a surplus product
which could be disposed of outside the corporate limits of the
municipality, they clearly intended to limit municipalities primarily
to the furnishing of services to their own inhabitants and to prevent
such municipalities from entering into the general public-utility
business outside their boundaries in competition with private
enterprise.
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(Emphasis added.) Id. at 461.
{¶ 55} In Britt v. Columbus, 38 Ohio St.2d 1, 5-6, 309 N.E.2d 412 (1974),
this court considered whether Sections 4 and 6 granted a municipality the authority
to appropriate property outside the municipality’s limits for the purpose of selling
its public-utility product to nonresidents. We held that it was not authorized to do
so. . We recognized that Section 4 unquestionably gave the municipality eminent-
domain authority outside the municipality for the purpose of establishing a public
utility. Id. at 8, citing Blue Ash v. Cincinnati, 173 Ohio St. 345, 182 N.E.2d 557(1962). But we explained that because that power was “expressly restricted to
public utilities, the product[] or service[] of which is or is to be supplied to the
municipality or its inhabitants, the exercise of eminent domain authority for such
purpose under Section 4 is necessarily likewise limited.” Id. at 8-9. And we went
on to note our prior decisions holding that “the power to ‘contract with others for
any such product or service’ confers authority to contract solely for the purchase
by the municipality of utility products or services for its inhabitants.” (Emphasis
added.) Id. at 9, citing State ex rel. Mitchell v. Council of Milan, 133 Ohio St. 499,
14 N.E.2d 772 (1938), and Ohio Power Co. v. Attica, 23 Ohio St.2d 37, 261 N.E.2d
123 (1970). We therefore concluded that because the municipality sought to
exercise its eminent-domain authority “for purposes other than supplying a public
utility product or service to [the] municipality or its inhabitants,” the municipality’s
actions were not authorized by Section 4. Id.{¶ 56} This court in Britt proceeded to consider the question whether
Section 6 independently granted a municipality the authority to acquire land
through eminent-domain powers for the purpose of selling excess product to
nonresidents. We held that Section 6 gave no such authority. We explained that
the framers of the amendment had anticipated that “in the operation of a public
utility by a municipality for its inhabitants, surplus products or services might be
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January Term, 2021
created which could * * * be disposed of beyond the corporate limits of the
municipality.” (Emphasis added.) Id. at 9-10, citing Hance. But we observed that
while the framers had explicitly addressed the power of condemnation with respect
to municipal ownership of public utilities under Section 4, they had not done the
same regarding the sale of surplus product under Section 6. Id. at 11.
{¶ 57} The above cases demonstrate this court’s long-standing recognition
that Section 4 authorizes a municipality to provide utility products or services to its
inhabitants, either through its own operation of a public utility or by contracting
with others for such products or services, and that Section 6 permits the
municipality to sell to others only surplus product that has been generated by the
public utility.
B. Toledo Edison
{¶ 58} The one outlier case is Toledo Edison, 90 Ohio St.3d 288, 737
N.E.2d 529. In that brief, 11-paragraph opinion, we confronted the question
whether “a municipality has constitutional authority to purchase electricity solely
for direct resale to an entity that is not an inhabitant of the municipality and not
within the municipality’s limits.” Id. at 291. The Toledo Edison court began by
emphasizing the language in Section 4 permitting a municipality to operate a public
utility “ ‘the product or service of which is or is to be supplied to the municipality
or its inhabitants.’ ” (Emphasis in original.) Id., quoting Ohio Constitution, Article
XVIII, Section 4. Consistent with our prior cases, this court explained that under
Section 4, “a municipality’s authority to produce or purchase electricity is limited
‘primarily to the furnishing of services to their own inhabitants.’ ” Id. at 291-292,
quoting Hance, 169 Ohio St. at 461, 159 N.E.2d 741.
{¶ 59} The court then turned to the language of Section 6. In accord with
our prior holdings, we recognized that “Section 6 allows a municipality that owns
or operates a utility for the purpose of generating its own electricity to sell surplus
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electricity.” (Emphasis added.) Id. at 292. This court concluded that, read
together,
Sections 4 and 6 only allow a municipality to purchase electricity
primarily for the purpose of supplying its residents and reselling
only surplus electricity from that purchase to entities outside the
municipality. This interpretation necessarily precludes a
municipality from purchasing electricity solely for the purpose of
reselling the entire amount of the purchased electricity to an entity
outside the municipality’s geographic limits.
Id.
{¶ 60} In reaching that conclusion, the Toledo Edison court correctly
determined that the purchase of electricity authorized by Section 4 is limited to that
which is to be supplied to the municipality or its inhabitants. The question in that
case could have been answered on those grounds alone: Section 4 does not permit
a municipality to purchase electricity for the purpose of reselling it to others outside
the municipality. But instead, the court incorrectly assumed that the surplus-sale
provision in Section 6 permitted the resale of excess energy that resulted from a
purchase of electricity. In doing so, the court overlooked the textual constraints
imposed by Sections 4 and 6, which limit resale to the surplus product created
through the municipality’s operation of a public utility.
{¶ 61} Like the lead opinion in this case, the Toledo Edison majority
focused on the meaning of the word “surplus” and whether the practice of buying
extra electricity that is not intended for use within the municipality amounts to
creating an “artificial surplus.” See 90 Ohio St.3d at 292-293, 737 N.E.2d 52. But
the resolution of the issue in that case (and the one here) did not depend on whether
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the sale stemmed from a “genuine” or “artificial” surplus. This is because the resale
of electricity purchased by the municipality isn’t authorized at all.
{¶ 62} Because Section 4 authorizes a municipality to operate an electricity
plant or to purchase electricity for only the purpose of supplying electricity within
the municipality, and because Section 6 sanctions only the sale of surplus product
generated by the municipality’s plant, the municipality has no authority to act as a
de facto broker by purchasing electricity and reselling it to others outside the
municipality’s limits. Thus, the Toledo Edison court’s ultimate conclusion was
correct: “a municipality is prohibited from in effect engaging in the business of
brokering electricity to entities outside the municipality in direct competition with
public utilities.” Id. at 293. But in suggesting that purchased products may in some
situations be resold under Sections 4 and 6, the Toledo Edison court misread the
constitutional text.
IV. Resolution
{¶ 63} I agree with the lead opinion that the Eighth District Court of
Appeals correctly concluded that the trial court erred in granting Cleveland’s
motion for summary judgment. So to that limited extent, I concur in the judgment.
But, unlike the lead opinion, I would instruct the trial court on remand to apply the
plain language of the constitutional provisions: Cleveland may not resell electricity
that it has purchased.
{¶ 64} The Eighth District also affirmed the trial court’s denial of a cross-
motion for summary judgment filed by the Cleveland Electric Illuminating
Company seeking a declaratory judgment as to the meaning of Sections 4 and 6.
2020-Ohio-33, ¶ 19, 42. I would reverse the judgment of the Eighth District on that
point and instruct the trial court on remand to grant Cleveland Electric’s motion
and enter a declaratory judgment consistent with this opinion. Because the court
does otherwise, I concur in judgment only in part and otherwise dissent.
FISCHER, J., concurs in the foregoing opinion.
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_________________
KENNEDY, J., dissenting.
{¶ 65} I dissent. Article XVIII, Section 6 of the Ohio Constitution
empowers municipalities to sell their surplus utility services and products to those
outside of the municipality “in an amount not exceeding * * * fifty per cent of the
total service or product supplied by such utility within the municipality.” Appellee
and cross-appellant the city of Cleveland therefore has express home-rule authority
to contract to sell its surplus electricity to the city of Brooklyn in the amount at
issue here—approximately 4 percent of the electricity that the city supplies inside
its borders. The Ohio Constitution contains no language prohibiting municipalities
from selling electricity to nonresidents from an “artificial,” lead opinion at ¶ 30, or
purposely created surplus of electricity, and this court may not add such language.
Rather, courts should read the words of a constitutional provision as written and
apply their plain meaning. State ex rel. Sylvania Home Tel. Co. v. Richards, 94
Ohio St. 287, 294, 114 N.E. 263 (1916). For these reasons, I dissent and would
reverse the judgment of the Eighth District Court of Appeals and reinstate the trial
court’s grant of summary judgment in favor of Cleveland.
Constitutional Interpretation
{¶ 66} “The purpose of our written constitution is to define and limit the
powers of government and secure the rights of the people.” Cleveland v. State, 157
Ohio St.3d 330, 2019-Ohio-3820, 136 N.E.3d 466, ¶ 16 (lead opinion). Its
language controls as written unless it is changed by the people themselves through
the amendment procedures established by Article XVI of the Ohio Constitution.
The Ohio Constitution is the paramount law of this state, and we recognize that its
framers chose its language carefully and deliberately, employed words in their
natural sense, and intended what the words said, see Gibbons v. Ogden, 22 U.S. 1,
188, 6 L.Ed. 23 (1824), and Lawnwood Med. Ctr., Inc. v. Seeger, 990 So.2d 503,
510 (Fla.2008).
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{¶ 67} Therefore, in construing the Ohio Constitution, our duty is to
determine and give effect to the meaning expressed in its plain language, State ex
rel. LetOhioVote.org v. Brunner, 123 Ohio St.3d 322, 2009-Ohio-4900, 916 N.E.2d
462, ¶ 50, and “ ‘[w]here the meaning of a provision is clear on its face, we will not
look beyond the provision in an attempt to divine what the drafters intended it to
mean,’ ” Toledo City School Dist. Bd. of Edn. v. State Bd. of Edn., 146 Ohio St.3d
356, 2016-Ohio-2806, 56 N.E.3d 950, ¶ 16, quoting State ex rel. Maurer v.
Sheward, 71 Ohio St.3d 513, 520-521, 644 N.E.2d 369 (1994). We give undefined
words in the Constitution their usual, normal, or customary meaning, id. at ¶ 16,
and we may go beyond the text to consider other sources of meaning, such as the
purpose of an amendment, the history of its adoption, or its attending
circumstances, only “when the language being construed is ‘obscure or of doubtful
meaning,’ ” State ex rel. Wallace v. Celina, 29 Ohio St.2d 109, 112, 279 N.E.2d
866 (1972), quoting Cleveland v. Bd. of Tax Appeals, 153 Ohio St. 97, 103, 91
N.E.2d 480 (1950); see also Maurer at 522 (“we will not look to the history of a
provision where * * * the language of the provision is clear”).
The Home Rule Amendment
{¶ 68} Prior to 1912, “the source and extent of municipal power was derived
from the enactments of the General Assembly.” Cincinnati Bell Tel. Co. v.
Cincinnati, 81 Ohio St.3d 599, 605, 693 N.E.2d 212. “[M]unicipalities could
exercise only those powers delegated by statute.” Geauga Cty. Bd. of Commrs. v.
Munn Rd. Sand & Gravel, 67 Ohio St.3d 579, 582, 621 N.E.2d 696 (1993). “Such
power, being legislative only, could be withdrawn from the municipalities, or
amended, at any session of the Legislature, * * * and there was neither stability of
law, touching municipal power, nor sufficient elasticity of law to meet changed and
changing municipal conditions.” Perrysburg v. Ridgway, 108 Ohio St. 245, 255,
140 N.E. 595 (1923).
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{¶ 69} The General Assembly also had the power to create, regulate, and
abolish municipal utilities. Euclid v. Camp Wise Assn., 102 Ohio St. 207, 210, 131
N.E. 349 (1921). “Prior to the 1912 amendment, and subsequent to 1851, utilities
could only be owned and operated under power specially conferred by legislative
enactment.” Id. at 213. Under the 1851 Ohio Constitution, municipalities did not
have the “inherent right” to operate utilities, and when authorized by statute,
municipal utilities were subject to “restrictions and conditions relative to [the
utility] without limit.” Id. at 210.
{¶ 70} To remedy those problems, the people of this state adopted Ohio’s
Home Rule Amendment in 1912, which provides that “[m]unicipalities shall have
authority to exercise all powers of local self-government and to adopt and enforce
within their limits such local police, sanitary and other similar regulations, as are
not in conflict with general laws.” Article XVIII, Section 3, Ohio Constitution.
Article XVIII, Section 7 states that “[a]ny municipality may frame and adopt or
amend a charter for its government and may, subject to the provisions of section 3
of this article, exercise thereunder all powers of local self-government.”
{¶ 71} “[T]he intention of the Home Rule Amendment was to eliminate
statutory control over municipalities by the General Assembly.” Cincinnati Bell
Tel. Co., 81 Ohio St.3d at 605, 693 N.E.2d 212. Accordingly,
“[b]y reason of Sections 3 and 7 of Article XVIII of the Ohio
Constitution, a charter city has all powers of local self-government
except to the extent that those powers are taken from it or limited by
other provisions of the Constitution or by statutory limitations on
the powers of the municipality which the Constitution has
authorized the General Assembly to impose.”
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(Emphasis added in Westlake.) State ex rel. Commt. for the Charter Amendment,
City Trash Collection v. Westlake, 97 Ohio St.3d 100, 2002-Ohio-5302, 776 N.E.2d
1041, ¶ 31, quoting Bazell v. Cincinnati, 13 Ohio St.2d 63, 233 N.E.2d 864 (1968),
paragraph one of the syllabus.
{¶ 72} And “[w]ith respect to a municipally operated public utility, the
municipality’s powers, rights and privileges are derived directly from the people,
pursuant to the provisions of Sections 4 and 6 of Article XVIII of the Constitution,
and not from the General Assembly.” State ex rel. McCann v. Defiance, 167 Ohio
St. 313, 316, 148 N.E.2d 221 (1958). Article XVIII, Section 4 states, “Any
municipality may acquire, construct, own, lease and operate within or without its
corporate limits, any public utility the product or service of which is or is to be
supplied to the municipality or its inhabitants, and may contract with others for any
such product or service.” Article XVIII, Section 6 further provides:
Any municipality, owning or operating a public utility for
the purpose of supplying the service or product thereof to the
municipality or its inhabitants, may also sell and deliver to others
any transportation service of such utility and the surplus product of
any other utility in an amount not exceeding in either case fifty per
cent of the total service or product supplied by such utility within
the municipality, provided that such fifty per cent limitation shall
not apply to the sale of water or sewage services.
{¶ 73} The Home Rule Amendment, then, reversed the balance of power
between the state and municipalities regarding the operation and regulation of
municipal utilities. As this court explained in McCann, “it would appear that the
General Assembly has no power to limit or restrict, by regulation or otherwise, the
power and authority of a municipality to operate a public utility for the purpose of
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supplying the product thereof to such municipality or its inhabitants, or selling and
delivering to others some of the surplus product thereof.” Id. at 316.
Toledo Edison Co. v. Bryan
{¶ 74} In Toledo Edison Co. v. Bryan, this court confronted the same issue
presented in this case: “whether a municipality has constitutional authority to
purchase electricity solely for direct resale to an entity that is not an inhabitant of
the municipality and not within the municipality’s limits.” 90 Ohio St.3d 288, 291,
737 N.E.2d 529 (2000). We explained that in adopting Article XVIII, Section 4,
the people “intend[ed] to limit a municipality’s authority to produce or acquire
electricity primarily for the purpose of serving it or its inhabitants’ needs,” id. at
292, and that the people intended for Article XVIII, Section 6 “to limit a
municipality’s ability to sell only that electricity that is in excess of what is needed
by the municipality or its inhabitants,” id. And we read Sections 4 and 6 in pari
materia to “only allow a municipality to purchase electricity primarily for the
purpose of supplying its residents and reselling only surplus electricity from that
purchase to entities outside the municipality.” Id.
{¶ 75} “This interpretation,” this court determined, “necessarily precludes
a municipality from purchasing electricity solely for the purpose of reselling the
entire amount of the purchased electricity to an entity outside the municipality’s
geographic limits.” Id. “This prohibition includes a de facto brokering of
electricity, i.e., where a municipality purchases electricity solely to create an
artificial surplus for the purpose of selling the electricity to an entity not within the
municipality’s geographic boundaries.” Id. at 293.
{¶ 76} Toledo Edison Co. provides the rule of decision in this case, and the
doctrine of stare decisis generally requires a court to adhere to an established
precedent in subsequent cases in which the same question of law is at issue. Clark
v. Snapper Power Equip., Inc., 21 Ohio St.3d 58, 60, 488 N.E.2d 138 (1986). But
stare decisis does not compel this court to follow an incorrect interpretation of the
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Constitution. As we explained in Rocky River v. State Emp. Relations Bd., “each
judge remembers above all that she or he has sworn to support and defend the
Constitution—not as someone else has interpreted it but as the judge deciding the
case at bar interprets it.” 43 Ohio St.3d 1, 6-7, 539 N.E.2d 103 (1989). Because it
is “beyond the power of the legislature to change or ‘correct’ judicial interpretation
of the Constitution,” id. at 6, “it is incumbent on the court to make the necessary
changes and yield to the force of better reasoning,” id.
{¶ 77} In my view, Toledo Edison Co. should be overruled. To begin, this
court erroneously construed Article XVIII, Section 6 as imposing a prohibition on
reselling electricity. However, the purpose of the Home Rule Amendment was to
rebalance the allocation of power between the state and municipalities. Article
XVIII, Sections 4 and 6 represent a positive grant of power to municipalities,
creating a constitutional default rule that if a municipality owns and operates a
utility within the bounds of the power granted to it, it is immune from regulation
enacted by the General Assembly. See McCann, 167 Ohio St. at 316, 148 N.E.2d
221 (the General Assembly has “no power” to restrict municipalities’ exercise of
power under Article XVIII, Sections 4 and 6). Section 6 therefore limits the extent
of the specific home-rule power granted to municipalities to operate utilities, but it
does not prohibit a municipality from acting in ways otherwise permitted by the
home-rule authority conferred by Article XVIII, Section 3 or by state law. Section
6 says what a municipality may do, not what it shall not do.
{¶ 78} Operating a municipal utility is a proprietary function that is separate
from a municipality’s governmental functions. Akron v. Pub. Util. Comm., 149
Ohio St. 347, 354, 78 N.E.2d 890 (1948); see also R.C. 2744.01(G)(2)(c) (operating
a municipal utility defined as a proprietary function); Schenkolewski v. Cleveland
Metroparks Sys., 67 Ohio St.2d 31, 33, 36-37, 426 N.E.2d 784 (1981) (municipal
corporations have both governmental and proprietary functions). And we have
recognized that “so far as a municipality acts in a proprietary capacity it possesses
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the same rights and powers and is subject to the same restrictions and regulations
as other like proprietors.” Akron at 354. The state generally excludes municipal
utilities from regulation, see R.C. 4928.01(A)(11) and 4933.81(A), and neither the
court below nor the parties point to any statute prohibiting municipalities from
reselling electricity to nonresidents.
{¶ 79} But more fundamentally, this court in Toledo Edison Co. failed to
give effect to the plain meaning of the Ohio Constitution’s language. According to
a dictionary that was published contemporarily with the adoption of the Home Rule
Amendment, the word “surplus” meant “[t]hat which remains when use or need is
satisfied; excess; overplus,” Webster’s New International Dictionary 2086 (1911),
and “[b]eing or constituting a surplus; more than sufficient,” id. at 2087. The word
“surplus” does not have any connotation distinguishing between its being natural
or artificial, or purposeful or accidental. It simply means having more than enough.
Therefore, according to the natural reading of Article XVIII, Section 6, a
municipality has the express constitutional authority to sell its excess electricity to
nonresidents so long as (1) the needs of its residents are satisfied first and (2) sales
to nonresidents do not exceed 50 percent of the total electricity supplied within the
municipality. To hold that Section 6 prohibits sales from an “artificial” or
purposely created surplus, then, is to add words to the constitutional provision;
however, a court may not “add to or subtract from the plain and usual meaning of
[a] constitutional provision,” State v. Billotto, 104 Ohio St. 13, 15-16, 135 N.E. 285(1922).
{¶ 80} We are obligated to construe the words in Article XVIII, Section 6
in the way that the people who adopted the 1912 Ohio Constitution would have
naturally understood them. See Centerville v. Knab, 162 Ohio St.3d 623, 2020-
Ohio-5219, 166 N.E.3d 1167, ¶ 22. Although framed during the Ohio
Constitutional Convention of 1912, the Constitution was adopted through the votes
of the body of electors in this state. And as the United States Supreme Court has
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explained, that is the reason that “[t]he simplest and most obvious interpretation of
a constitution, if in itself sensible, is the most likely to be that meant by the people
in its adoption.” Lake Cty. v. Rollins, 130 U.S. 662, 671, 9 S.Ct. 651, 32 L.Ed. 1060(1889). It is manifest that the people in 1912 were unfamiliar with the current
realities of electricity generation and distribution in this country, including
deregulation, interstate wholesale markets, long- and short-term contracting, and
reserve-capacity regulations. We cannot take the meaning of the word “surplus” as
it is might be understood in the modern-day law of public utilities and project it
onto the 1912 voters.
{¶ 81} Rather, the people who adopted Article XVIII, Section 6 understood
it to mean what it said: municipalities would be permitted to sell as much as one-
third of its utilities’ total product to nonresidents after the needs of its residents
were satisfied. Such a large surplus—one-third of the total supplied to both
residents and nonresidents—could be produced only by operating the utility at a
capacity greater than necessary to serve the municipality’s residents, with the
purpose of selling the excess to nonresidents. As one delegate to the 1912
convention explained, allowing sales to nonresidents was “an absolute necessity in
order to make municipal ownership feasible.” 2 Proceedings and Debates of the
Constitutional Convention of the State of Ohio 1458 (1912). That is, a large amount
of a utility’s production was expected to be sold to nonresidents in order to make
sales to residents cost-effective.
{¶ 82} In this case, Cleveland sells to nonresidents an amount of electricity
that is approximately 4 percent of the electricity that its municipal utility supplies
within the city, and there is no indication that the electricity supplied to
nonresidents prevents the utility from satisfying the demand of Cleveland residents
first. Article XVIII, Section 6 therefore expressly authorizes these sales. The trial
court properly entered summary judgment in favor of the city, and I would reverse
the contrary judgment of the court of appeals. Because this court does not, I dissent.
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_________________
BRUNNER, J., dissenting.
{¶ 83} I agree with the lead opinion that Article XVIII, Section 6 of the
Ohio Constitution does not require a municipal utility to purchase only the exact
amount of electricity that it needs to serve its inhabitants and that there are
numerous lawful reasons why it might acquire a surplus. I disagree, however, with
the judgment affirming the remand of this case to the trial court on the ground that
appellee and cross-appellant, the city of Cleveland, may have violated Article
XVIII, Section 6 when it agreed to provide electricity to appellee and cross-
appellant, the city of Brooklyn. The lead opinion bases its determination on the
rule that this court announced in Toledo Edison Co. v. Bryan, 90 Ohio St.3d 288,
737 N.E.2d 529 (2000). In my view, the facts here do not enable appellant and
cross-appellee, the Cleveland Electric Illuminating Company (“Cleveland
Electric”), to prevail on its claim under Toledo Edison Co.
{¶ 84} In Toledo Edison Co., a public utility sued four municipalities after
the municipalities formed a joint venture and began providing electricity to an
industrial customer located outside their geographic limits. Id. at 288-289. In its
complaint, the public utility identified ordinances by which the individual
municipalities had authorized their respective utilities to enter into power-purchase
agreements with a wholesale electricity supplier. Id. at 289. It also alleged that the
resulting agreements were entered into for the purpose of enabling the
municipalities to provide electricity to the industrial customer. Id. Overall, the
public utility claimed, this meant that the purchase agreements violated Article
XVIII, Section 4 and that the municipalities’ resale to the industrial customer of the
electricity purchased under those agreements violated Section 6. Id.
{¶ 85} When the dispute reached this court, the four municipalities
acknowledged in their briefs to this court that they had entered into the agreements
with the wholesale electricity supplier “[a]s part of their arrangements to supply
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January Term, 2021
electricity to” the industrial customer. Toledo Edison Co. v. Bryan, case No. 1999-
1280, *7-8 (Feb. 23, 2000). They argued, however, that these agreements did not
mean that they acted as electricity brokers. Id. at *8. They also emphasized that
some of the electricity that they provided to the industrial customer came from
another source: it had been “reallocated from preexisting joint wholesale electricity
purchase.” Id.
{¶ 86} Given that background, we observed that “[t]he municipalities had
to purchase electricity in order to fulfill their obligation to provide [the industrial
customer] with electricity.” Toledo Edison Co., 90 Ohio St.3d at 289, 737 N.E.2d
529. . We then held that Sections 4 and 6 prohibit a municipality from “purchasing
electricity solely for the purpose of reselling it to an entity that is not within the
municipality’s geographic limits.” Id. at 293. This includes “a de facto brokering
of electricity, i.e., where a municipality purchases electricity solely to create an
artificial surplus” for resale outside its boundaries. Id. We therefore entered
judgment remanding the case to the trial court for it to determine “whether the
electricity purchased by the municipalities [in the agreements with the wholesale
electricity supplier] was solely for the purpose of resale to an entity outside the
geographic boundaries of the municipalities.” Id.
{¶ 87} In my view, the holding of Toledo Edison Co. is properly understood
as being limited to its facts. That is, the case announces a rule to be applied when
considering specific power-purchase agreements. The dispute before this court was
clearly focused on specific power-purchase agreements that the municipal utilities
acknowledged were entered into for the purpose of resale to the industrial customer.
This court’s holding and remand order therefore provided the trial court with a
concrete and manageable task: it was required to determine whether the specific
agreements with the wholesale electricity supplier were entered into “solely” for
the purpose of resale. If so, they were unlawful.
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{¶ 88} The lead opinion here does not identify any fact indicating that
appellee and cross-appellant, Cleveland Public Power (“CPP”), entered into any
specific power-purchase agreement in order to meet its obligation to provide
electricity to Brooklyn. Nor does Cleveland Electric. Instead, Cleveland Electric
discusses in its briefs CPP’s power-purchase contracts as a whole and argues that
they enable CPP to purchase exactly the amount of electricity that it needs to serve
entities within Cleveland, meaning that any additional electricity that CPP obtains
is an unlawful artificial surplus under Article XVIII, Sections 4 and 6. I agree with
the lead opinion’s rejecting this argument. And because the parties have already
had an opportunity to conduct discovery, no additional facts on these matters should
be identified or developed on remand.
{¶ 89} In my view, Cleveland Electric has not met its burden on summary
judgment. It has not identified any fact that would enable a reasonable juror to
conclude that CPP entered into any power-purchase agreement “solely” for the
purpose of reselling that power to Brooklyn. Cleveland and CPP are therefore
entitled to summary judgment on Cleveland Electric’s claim under Sections 4 and
6.
{¶ 90} For these reasons, I respectfully dissent.
_________________
Benesch, Friedlander, Coplan & Aronoff, L.L.P., Gregory J. Phillips,
Michael J. Montgomery, Michael D. Meuti, James E. von der Heydt, and James J.
Walsh Jr., for appellant and cross-appellee.
Carpenter, Lipps & Leland, L.L.P., Kimberly W. Bojko, Angela Paul
Whitfield, and Stephen E. Dutton, for appellees and cross-appellants the city of
Cleveland and Cleveland Public Power.
Bricker & Eckler, L.L.P., Drew H. Campbell, and Elyse Akhbari, for
appellee and cross-appellant Cuyahoga County.
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January Term, 2021
Kevin M. Butler, Brooklyn Law Director, for appellee and cross-appellant
city of Brooklyn.
Thompson Hine, L.L.P., and Stephanie M. Chmiel; and Kurt Helfrich and
Lija Kaleps-Clark, urging reversal for amici curiae Buckeye Power, Inc., and Ohio
Rural Electric Cooperatives, Inc.
Steven T. Nourse, urging reversal for amicus curiae Ohio Power Company.
James E. McLean, urging reversal for amicus curiae Duke Energy Ohio,
Inc.
Michael J. Schuler, urging reversal for amicus curiae The Dayton Power
and Light Company.
Lisa G. McAlister and Gerit F. Hull, for amicus curiae American Municipal
Power, Inc., in support of appellees and cross-appellants.
Lisa G. McAlister, for amicus curiae Ohio Municipal Electric Association,
in support of appellees and cross-appellants.
Garry E. Hunter; and Paul W. Flowers Co., L.P.A., Paul W. Flowers, and
Louis E. Grube, for amicus curiae Ohio Municipal League, in support of appellees
and cross-appellants.
_________________
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