Michigan Supreme Court

Lansing, Michigan

Marilyn Kelly,

 Chief Justice

Michael F. Cavanagh

Elizabeth A. Weaver

Maura D. Corrigan

Robert P. Young, Jr.

Stephen J. Markman

Diane M. Hathaway, Justices

Order 

May 1, 2009 

134667-69 

134671 

134673-74 

134676-77 

____________________________________________ 

In re APPLICATION OF DETROIT EDISON 

COMPANY 

____________________________________________ 

ATTORNEY GENERAL, 

Appellant, 

v SC: 134667 

 COA: 259845 

 MPSC: U-13808 

MICHIGAN PUBLIC SERVICE COMMISSION, 

DETROIT EDISON COMPANY, and 

CONSTELLATION NEWENERGY, INC., 

Appellees. 

____________________________________________/ 

____________________________________________ 

In re APPLICATION OF DETROIT EDISON 

COMPANY 

____________________________________________ 

DETROIT EDISON COMPANY, 

Appellee, 

v SC: 134668 

 COA: 264099 

 MPSC: U-13808 

MICHIGAN PUBLIC SERVICE COMMISSION, 

ASSOCIATION OF BUSINESSES ADVOCATING 

TARIFF EQUITY, MICHIGAN ENVIRONMENTAL 

COUNCIL, PUBLIC INTEREST RESEARCH 

GROUP IN MICHIGAN, and CONSTELLATION 

NEWENERGY, INC., 

Appellees, 

and 
2

ATTORNEY GENERAL, 

Appellant. 

____________________________________________/ 

____________________________________________ 

In re APPLICATION OF DETROIT EDISON 

COMPANY 

____________________________________________ 

ATTORNEY GENERAL, 

Appellant, 

v SC: 134669 

 COA: 264191 

 MPSC: U-13808 

MICHIGAN PUBLIC SERVICE COMMISSION, 

DETROIT EDISON COMPANY, ENERGY 

MICHIGAN, INC., CONSTELLATION 

NEWENERGY, INC., and ASSOCIATION OF 

BUSINESSES ADVOCATING TARIFF EQUITY, 

Appellees. 

____________________________________________/ 

____________________________________________ 

In re APPLICATION OF DETROIT EDISON 

COMPANY 

____________________________________________ 

DETROIT EDISON COMPANY, 

Appellee, 

v SC: 134671 

 COA: 264099 

 MPSC: U-13808 

ASSOCIATION OF BUSINESSES ADVOCATING 

TARIFF EQUITY, MICHIGAN ENVIRONMENTAL 

COUNCIL, PUBLIC INTEREST RESEARCH 

GROUP IN MICHIGAN, CONSTELLATION 

NEWENERGY, INC., and ATTORNEY GENERAL, 

Appellees, 

and 

MICHIGAN PUBLIC SERVICE COMMISSION, 

Appellant. 

____________________________________________/ 

____________________________________________ 

In re APPLICATION OF DETROIT EDISON 
3

COMPANY 

____________________________________________ 

DETROIT EDISON COMPANY, 

Appellee, 

v SC: 134673 

 COA: 264099 

 MPSC: U-13808 

MICHIGAN PUBLIC SERVICE COMMISSION, 

ASSOCIATION OF BUSINESSES ADVOCATING 

TARIFF EQUITY, CONSTELLATION 

NEWENERGY, INC., and ATTORNEY GENERAL, 

Appellees, 

and 

MICHIGAN ENVIRONMENTAL COUNCIL, and 

PUBLIC INTEREST RESEARCH GROUP IN 

MICHIGAN, 

Appellants. 

____________________________________________/ 

____________________________________________ 

In re APPLICATION OF DETROIT EDISON 

COMPANY 

____________________________________________ 

MICHIGAN ENVIRONMENTAL COUNCIL and 

PUBLIC INTEREST RESEARCH GROUP IN 

MICHIGAN, 

Appellants, 

v SC: 134674 

 COA: 264131 

 MPSC: U-13808 

MICHIGAN PUBLIC SERVICE COMMISSION, 

DETROIT EDISON COMPANY, and 

CONSTELLATION NEWENERGY, INC., 

Appellees. 

____________________________________________/ 

____________________________________________ 

In re APPLICATION OF DETROIT EDISON 

COMPANY 

____________________________________________ 
4

DETROIT EDISON COMPANY, 

Appellee, 

v SC: 134676 

 COA: 264099 

 MPSC: U-13808 

MICHIGAN PUBLIC SERVICE COMMISSION, 

MICHIGAN ENVIRONMENTAL COUNCIL, 

PUBLIC INTEREST RESEARCH GROUP IN 

MICHIGAN, CONSTELLATION NEWENERGY, 

INC., and ATTORNEY GENERAL, 

Appellees, 

and 

ASSOCIATION OF BUSINESSES ADVOCATING 

TARIFF EQUITY, 

Appellant. 

____________________________________________/ 

____________________________________________ 

In re APPLICATION OF DETROIT EDISON 

COMPANY 

____________________________________________ 

ASSOCIATION OF BUSINESSES ADVOCATING 

TARIFF EQUITY, 

Appellant, 

v SC: 134677 

 COA: 264156 

 MPSC: U-13808 

MICHIGAN PUBLIC SERVICE COMMISSION, 

DETROIT EDISON COMPANY, ENERGY 

MICHIGAN, INC., CONSTELLATION 

NEWENERGY, INC., and ATTORNEY GENERAL, 

Appellees. 

____________________________________________/ 

 On order of the Court, leave to appeal having been granted and the briefs and oral 

arguments of the parties having been considered by the Court, we REVERSE the July 3, 

2007 judgment of the Court of Appeals on the issue of Detroit Edison Company (Edison) 

recovering a portion of the control premium that DTE Energy paid to acquire MCN 

Energy, and we AFFIRM the Court of Appeals judgment that “transmission costs” may 

be recovered through a power supply cost recovery (PSCR) clause on different grounds. 

The Public Service Commission (PSC) excluded the control premium costs from 
5

Edison’s general rate. On appeal, Edison bore the burden “to show by clear and 

satisfactory evidence that the order of the commission complained of is unlawful or 

unreasonable.” MCL 462.26(8); see MCL 460.4 (adopting MCL 462.26 standards). 

Judicial review of administrative agency decisions must “not invade the province of 

exclusive administrative fact-finding by displacing an agency's choice between two 

reasonably differing views.” MERC v Detroit Symphony Orchestra, 393 Mich 116, 124 

(1974); see also In re Payne, 444 Mich 679, 692-693 (1994) (“When reviewing the 

decision of an administrative agency for substantial evidence, a court should accept the 

agency's findings of fact if they are supported by that quantum of evidence. A court will 

not set aside findings merely because alternative findings also could have been supported 

by substantial evidence on the record.”). The Court of Appeals did not give due 

deference to the PSC’s findings of fact and Edison failed to meet its burden. 

Accordingly, we reinstate the PSC’s decision excluding the control premium costs from 

Edison’s general rates. The Court of Appeals also held that “[p]ayments made by Edison 

for transmission costs . . . are necessarily ‘transportation costs,’ and therefore are 

properly recoverable in a PSCR clause.” In re Detroit Edison Application, 276 Mich App 

216, 229 (2007). Electric utilities can recover two types of power supply costs through a 

PSCR clause: (1) “booked costs, including transportation costs, reclamation costs, and 

disposal and reprocessing costs, of fuel burned by the utility for electric generation;” or 

(2) “booked costs of purchased and net interchanged power transactions.” MCL 

460.6j(1)(a). The Court of Appeals interpretation does not give any meaning to the 

limitation that the “transportation costs” must be those “of fuel burned by the utility for 

electric generation.” (Emphasis added). However, the second clause, “booked costs of 

purchased and net interchanged power transactions,” is a technical phrase that has 

acquired a “peculiar and appropriate” meaning in the regulation of electric utilities to 

include “transmission costs” charged by third-parties. MCL 8.3a; see In re Wisconsin 

Electric Power Company, unpublished opinion and order of the Public Service 

Commission, issued September 16, 2002 (Case No. U-12725) at 16. Accordingly, it 

“shall be construed and understood according to such peculiar and appropriate meaning,” 

MCL 8.3a, and the PSC did not err in permitting Edison to recover transmission costs 

through its PSCR clause. The Court of Appeals affirmance of the PSC decision is thus 

affirmed on this alternate ground. 

 CORRIGAN, J. (concurring in part and dissenting in part). 

 I respectfully dissent from the order reversing the Court of Appeals and reinstating 

the decision of the Public Service Commission (PSC) excluding the recovery of the 

control premium sought by the Detroit Edison Company (Edison) in this general rate 

case. Although I concur with the Court’s decision to affirm the PSC regarding the 

recovery of transmission costs, and although no one disputes that Edison may attempt to 

substantiate savings in its next general rate case to recover a portion of the control 

premium, I write separately because the PSC erred by foreclosing Edison from 

recovering any part of the control premium paid to acquire MCN Energy Group Inc. 
6

(MCN) in this rate case. In my view, the PSC’s decision regarding the control premium 

was not supported by competent, material, and substantial evidence on the whole record. 

Accordingly, I would affirm the Court of Appeals decision to reverse the PSC and 

remand for further proceedings concerning the control premium issue. 

 On June 20, 2003, Edison, the largest electric utility provider in Michigan, filed an 

application for a general rate case. The PSC described the subsequent proceedings as 

“among the most complex cases ever considered.” Indeed, the case involved myriad 

matters, including an increase in Edison’s rate schedules, determination of its stranded 

costs, implementation of its power supply cost recovery clause, and recovery of its 

control premium. Specifically, Edison sought recovery from its ratepayers for an 

allocated share of the control premium arising from the acquisition of MCN. According 

to Edison, its ratepayers benefited financially from the cost savings or synergies that the 

control premium made possible. 

 The PSC staff opined that substantial savings to ratepayers resulted from the 

acquisition and that these synergistic savings justified the pass-through of the acquisition 

control premium. The hearing referee also essentially determined that Edison’s control 

premium argument was persuasive, stating in relevant part: 

 The [hearing referee] finds Detroit Edison’s and Staff’s position 

persuasive. The [hearing referee] finds that the savings are real substantial 

and a direct result of the merger and planning going into the merger which 

contributed to effectuating the savings which justifies the pass through of 

the acquisition control premium with one exception, that exception being 

that the [hearing referee] is persuaded by the arguments of the AG, 

ABATE, and MEC/PIRGIM that 40 years is too long a period of time to 

project savings. 

* * * 

 The [hearing referee] does recognize concerns raised regarding the 

ability of Detroit Edison to show these savings in perpetuity or more 

specifically in this case 40 years into the future. The [hearing referee] 

agrees that such forecasting calls into play too many variables for such 

long-term projections including, regulatory practices, electric choice 

industry restructuring, alternative energy sources, and even the needs of 

DTE Energy, Detroit Edison, and MCN as a result of the merger. The 

[hearing referee] further recognizes that the approval in this rate case is 

limited to those costs and savings actually realized thus far. Detroit Edison 

in its next rate case will, likewise, be required to substantiate the asserted 

savings for continuing recovery. At that time, Staff and Intervenors, as in 

this case, may present challenges to the asserted cost savings. 
7

 Nevertheless, the PSC rejected the hearing referee’s recommendation to include 

$46.2 million for the control premium. The PSC reasoned that 

DTE’s decision to pay $893 million over the market price of MCN to 

acquire MCN’s assets was not subject to any form of oversight by the 

Commission and is curious in light of the acknowledgment by a Detroit 

Edison witness that MCN was “financially distressed” at the time of the 

merger. The Commission is persuaded that Detroit Edison never 

adequately explained why it would pay such an enormous premium for a 

company that was in such poor financial condition. The Commission is 

without any basis to question either the appropriateness of the merger or the 

reasonableness of the price paid by DTE to acquire MCN. Moreover, if 

DTE subsequently sells MCN for a profit, the Commission will likely be 

powerless to recoup any portion of the sale price for Detroit Edison’s 

ratepayers, and could possibly be asked to raise rates again to cover the cost 

of lost synergies. Any system that requires ratepayers to endure rate 

increases for both found and lost synergies is truly dubious. 

 Additionally, the Commission is skeptical of Detroit Edison’s 

contention that the alleged synergy savings associated with the merger 

could be expected to last for the immediate future let alone the next 40 

years. A significant core function of Detroit Edison—its fossil and nuclear 

generation groups—“were excluded from the merger transition process” 

because they “were not impacted by the merger.” Detroit Edison even 

admitted that some of the centralization of activities could have been 

achieved without the merger. 

 According to Detroit Edison, much of the value created from the 

MCN acquisition was in the form of cost reductions realized through 

combining overlapping functions and internal services. But a significant 

portion of the labor savings appears to be attributable to early retirements 

and voluntary resignations, which are not necessarily permanent. Other 

aspects of the merger produced confusion and customer consternation. A 

still pending investigation of Detroit Edison’s and Mich Con’s [Michigan 

Consolidated Gas Company] efforts to combine their billing systems, which 

apparently contributed to the incorrect billing of approximately 480,000 

Mich Con customers in January 2002, has yet to be resolved. The costs 

associated with the billing system problems apparently were not included in 

the calculation of the merger synergies. Still, other savings were derived by 

considering cost savings on early-terminated contracts without any 

consideration of the expenses caused by the early termination of such 

contracts. While Detroit Edison claims that, without the merger, Detroit 

Edison’s O&M expenditures for 2004 would have increased by $84 
8

million, the fact remains that the company’s post-merger O&M spending 

exceeds its pre-merger spending levels by over $100 million. [Citations 

omitted.] 

Disagreeing with the recommendation of the PSC staff and the findings of the hearing 

referee, the PSC held that “none of the control premium requested by Detroit Edison 

should be included in Detroit Edison’s rates.” 

 The Court of Appeals thereafter reversed the PSC’s ruling that Edison may not 

recover its allocated share of the control premium in a unanimous published opinion. In 

re Application of Detroit Edison Co, 276 Mich App 216 (2007). The Court stated: 

 As the PSC staff opined and the hearing referee recommended, we 

hold that the substantial savings to Edison customers are a direct result of 

the acquisition of Michigan Consolidated Gas Company (MichCon) and 

that these synergistic savings fully justify the pass-through of the 

acquisition control premium. Edison seeks and is entitled to that portion of 

the control premium that permits Edison to accomplish these synergistic 

savings. We hold that Edison is clearly entitled to recover its share of the 

control premium that resulted in these synergistic savings. Like the hearing 

referee, we reject the arguments of the AG and MEC/PIRGIM in opposition 

to Edison’s rate request regarding the control premium. Of course, the PSC 

should determine the precise amount of the appropriate recovery and the 

period over which to amortize Edison’s recovery of its portion of this 

control premium. [Id. at 235-236.] 

The Court of Appeals further explained that “[t]he PSC’s clearly erroneous decision 

resulted in a reduction of $46.2 million in Edison’s revenue requirement for 2004, and a 

significant reduction of hundreds of millions in the future.” Id. at 237. Additionally, the 

Court of Appeals held that Edison must “substantiate savings in its next rate case in order 

to continue recovering the control premium.” Id. 

 In my view, the PSC erred when it foreclosed Edison from recovering any control 

premium in this general rate case. The PSC possesses only the authority granted by the 

Legislature. Consumers Power Co v Pub Service Comm, 460 Mich 148, 155 (1999). 

Words and phrases contained in the PSC’s enabling statutes must be read in the context 

of the statutory scheme. Id. at 155-156. Moreover, this Court has often stated that any 

exercise of power by an agency “must be conferred by clear and unmistakable language, 

since a doubtful power does not exist.” Mason Co Civic Research Council v Mason Co, 

343 Mich 313, 326-327 (1955) (citation and quotation marks omitted). Although MCL 

460.6 grants the PSC broad authority over matters pertaining to public utilities, this Court 

has consistently held that the broad language in MCL 460.6 “serves as an outline of the 

PSC’s jurisdiction, not a grant of specific powers.” Consumers Power Co, supra at 160. 
9

Here, the PSC’s determination that “none of the control premium requested by Detroit 

Edison should be included in Detroit Edison’s rates” has precluded Edison from receiving 

a control premium recovery in these rates. No one disputes the Court of Appeals holding 

that Edison may substantiate savings resulting from the control premium in future rate 

cases. In re Application of Detroit Edison Co, supra at 237.1

 Nevertheless, I disagree 

with the PSC’s decision to discount the conclusions of both PSC staff and the hearing 

referee concerning control premium recovery in this particular rate case.2

 As the Court of 

Appeals properly observed, “the PSC’s decision is not supported by competent, material, 

and substantial evidence on the whole record.” Id. at 238.3

 

 I also question the PSC’s rationale for ignoring the recommendation of the hearing 

referee and denying Edison any recovery whatsoever of its control premium in this case. 

After first stating that it had no basis to question the purchase price, the PSC went on to 

question Edison for “never [having] adequately explained why it would pay such an 

enormous premium for a company that was in such poor financial condition.” But, as the 

Court of Appeals stated, the record evidence indicated that MCN’s market value at the 

time it was acquired reflected the diminished financial value of the company and that the 

purchase price was within the range for comparable transactions. In re Application of 

Detroit Edison Co, supra at 238. Thus, the record does not support the PSC’s 

characterization of the amount paid for MCN as being an “enormous premium.” The 

PSC obviously rejected the business judgment of management involved in the acquisition 

of MCN. As this Court has stated, however, “the PSC’s authority to regulate a utility’s 

rates and charges does not include the power to make management decisions.” 

Consumers Power Co, supra at 158. Whether the PSC would have made a different 

management decision concerning the merger is irrelevant to whether Edison can recoup 

synergies or cost savings reaped by its ratepayers. 

 Additionally, the PSC expressed skepticism that “the alleged synergy savings 

associated with the merger could be expected to last for the immediate future let alone the 

next forty years.” Skepticism regarding long term savings is not a valid ground for

 

1

 As counsel for the PSC stated at oral argument: “The Commission ruled on the evidence 

before it. The Commission did not reject the control premium on the basis that they 

could not award such a grant.” 

2

 The control premium recovery sought by Edison was not unprecedented. Indeed, the 

PSC acknowledged its authority to adjust rates in light of acquisition savings in a 

previous case, when it stated that “public policy dictates that we allow recovery of and on 

acquisition adjustments only where ratepayers receive a net benefit from the change in 

ownership.” See order of the PSC, November 23, 2004 (Case No. U-13808), p 46 

(citation and question marks omitted). 

3

 See Const 1963, art 6, § 28. 
I, Corbin R. Davis, Clerk of the Michigan Supreme Court, certify that the 

foregoing is a true and complete copy of the order entered at the direction of the Court. 

 _________________________________________ 

 Clerk

May 1, 2009 

0428 

 

10

denying Edison recovery of the documented net cost savings proven for 2004. Even if 

the PSC’s skepticism regarding long term savings is well-founded, I agree with the PSC 

staff, the hearing referee, and the Court of Appeals that although Edison’s amortization 

forecast may have been too speculative, Edison is nevertheless entitled to recover the 

actual savings proven for 2004 in this case and to attempt to substantiate such savings in 

its next general rate case in order to recover some of the control premium. In re 

Application of Detroit Edison Co, supra at 235-237. 

 The PSC also noted that Edison’s postmerger O & M spending exceeded its 

premerger spending levels by over $100 million. This statement is irrelevant, given 

record evidence that Edison’s O & M expenses would have been significantly higher if 

they had not been offset by the merger savings. A rate cannot be created by recognizing 

reductions in certain costs while ignoring the increases in other costs. Michigan 

Consolidated Gas Co v Pub Service Comm, 389 Mich 624, 633 (1973). 

 Accordingly, because the Court of Appeals correctly resolved the control premium 

issue, I dissent from this Court’s order of reversal because it allows the PSC to foreclose 

any recovery sought by Edison concerning its allocated share of the control premium in 

this case. 

 MARKMAN, J., joins the statement of CORRIGAN, J.