If this opinion indicates that it is “FOR PUBLICATION,” it is subject to 

revision until final publication in the Michigan Appeals Reports.

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S T A T E O F M I C H I G A N

C O U R T O F A P P E A L S

In re APPLICATION OF CONSUMERS ENERGY 

COMPANY FOR RECONCILIATION.

CONSUMERS ENERGY COMPANY,

Petitioner-Appellant/Cross-Appellee,

FOR PUBLICATION

February 1, 2024

9:10 a.m.

v No. 362931

Public Service Commission

MICHIGAN PUBLIC SERVICE COMMISSION, LC No. 00-020526

Appellee/Cross-Appellee,

and

CADILLAC RENEWABLE ENERGY, LLC, 

GENESEE POWER STATION LIMITED 

PARTNERSHIP, GRAYLING GENERATING 

STATION LIMITED PARTNERSHIP, HILLMAN 

POWER COMPANY, LLC, TES FILER CITY 

STATION LIMITED PARTNERSHIP, NATIONAL 

ENERGY OF LINCOLN, LLC, and NATIONAL 

ENERGY OF MCBAIN, LLC,

Appellees,

and

ASSOCIATION OF BUSINESSES ADVOCATING 

FOR TARIFF EQUITY,

Appellee/Cross-Appellant.

Before: BORRELLO, P.J., and SWARTZLE and PATEL, JJ.
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SWARTZLE, J.

In Michigan, an energy utility estimates its upcoming power-supply costs as part of its ratesetting process. Like any estimate, the utility’s estimate can be off, sometimes way off. 

Anticipating the problem of how to reimburse a utility for increased power-supply costs, our 

Legislature enacted a reconciliation process, by which the utility can apply to the Public Service 

Commission (PSC) to increase upcoming rates to help recoup prior unanticipated costs.

Not all missed estimates are, however, created equal—some are due to acts outside of the 

utility’s control, while others result from the utility’s negligence or imprudent management. In a 

lightly regulated market, short sellers, hostile takeovers, proxy wars, and the like, serve as the 

discipline against poor estimates by management. In a highly regulated market like the one for 

energy in Michigan, however, that discipline must primarily come from elsewhere. Relevant here, 

our Legislature has conditioned a utility’s recoupment of under-recovered costs on that utility 

having acted reasonably and prudently with respect to decisions impacting those costs.

In this appeal, Consumers Energy Company argues that the PSC erred in concluding that 

the utility did not act reasonably and prudently with respect to a prolonged outage. The record 

confirms, however, that Consumers provided “unreasonable or imprudent management” (or, put 

another way, failed to provide “reasonable and prudent management”) with respect to the outage, 

causing the very increased costs of which it now complains. Seeing no reversible error, we affirm.

I. BACKGROUND

To better understand this dispute, it is helpful to look briefly at how the energy market in

Michigan deals with large-scale power outages. When an electricity-generating facility has an 

outage, or when the demand for electricity in a given area is unexpectedly high, the utility that 

services the affected area will provide replacement electricity to its affected customers. The

replacement electricity often comes from electricity-generating facilities owned by other utilities, 

and this electricity is exchanged on a market for “wholesale electricity.” Midcontinent 

Independent System Operator, Inc. (MISO) oversees the market for wholesale electricity in much

of Michigan, and utilities can purchase and sell “zonal credits” through MISO’s “planning resource 

auction.” In essence, a “zonal credit” represents the right of the credit holder to a unit of 

deliverable “unforced capacity” that can be bought or sold on the MISO-managed market.

The cost of this replacement electricity is generally higher than the cost of the electricity

generated by a utility’s own facility. A utility can include the higher cost of replacement electricity

in its cost-recovery plan so that consumers bear the ultimate burden of the higher cost, as opposed 

to the utility. If, at the end of the year, the utility faces an “underrecovery” of power-supply costs, 

then that utility can seek to “true up” the actual costs of power supply with its earlier, too-low 

estimate through the PSC’s reconciliation process. The costs are passed along to consumers in the 

form of higher future rates.

In 2020, Consumers Energy had a planned outage for upgrades at Unit 3 of its Ludington 

Pumped Storage Plant. The upgrades and consequent outage had an original estimated completion 

date in Spring 2020, 140 days after it began. The outage was extended, however, to 366 days after

material defects on a “discharge-ring extension” were found during installation. Consumers 
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Energy had selected Toshiba America Energy Systems Corporation as its contractor on the upgrade 

project, and Toshiba manufactured and installed the defective extension.

The original estimate for the Unit 3 outage was included in Consumers Energy’s powersupply-cost plan for 2020. With the significantly longer outage, however, Consumers Energy had 

to purchase replacement electricity, and the utility claimed that this resulted in an under-recovery

of power-supply costs. Consumers Energy accordingly sought reconciliation between its 

estimated and actual power-supply costs for the year.

The PSC’s Administrative Law Judge Sally L. Wallace presided over the reconciliation 

proceedings. ALJ Wallace permitted several parties to intervene, including the Michigan 

Department of Attorney General and cross-appellant Association of Businesses Advocating Tariff 

Equity (ABATE). The department opposed Consumers Energy’s application for reconciliation 

because, as it argued, the utility’s increased power costs resulted from its unreasonable and 

imprudent management under MCL 460.6j. ABATE agreed with the department and further 

argued, in the alternative, that Consumers Energy generated revenue from the sales of its zonal 

credits through MISO, and that revenue should be included in the overall calculus as an offset 

against the higher cost of replacement power. 

During an evidentiary hearing, a witness for Consumers Energy confirmed that the Unit 3 

outage was longer than expected because material defects on the discharge-ring extension were 

discovered during installation. The witness explained that, to fix the problem, Toshiba ultimately

had to design and manufacture a replacement. He acknowledged that contractor errors were 

responsible for most of the Unit 3 delays, though he cited the COVID-19 pandemic as an additional 

source of increased cost.

Another witness for Consumers Energy testified that the utility owned 51% of the 

Ludington Plant and DTE Energy owned the rest. The scheduled upgrade to the plant was a joint 

project between Consumers Energy, DTE, and Toshiba. Similar to the utility’s other witness, this 

witness put the blame for increased costs on the contractor because it had designed, manufactured, 

and installed the materially defective discharge-ring extension. The witness further explained that

it was a joint decision of both Consumers Energy and DTE that Toshiba should repair the defective 

extension. They moved away from this plan to repair only after several third-party experts 

concluded that any repair would itself be defective. Consumers Energy eventually instructed

Toshiba to manufacture an entirely new discharge-ring extension.

For its part, ABATE provided written testimony from a consultant. The consultant noted 

that Consumers Energy’s revenue from selling zonal credits was larger than its under-recovery of 

power-supply costs for 2020. The consultant argued that Consumers Energy would not have 

realized the increased revenue from sales of the zonal credits but-for the extended outage of Unit 

3. Given this, the consultant concluded that the PSC should offset any purported under-recovery

of Consumers Energy by that utility’s revenues generated from the sale of its zonal credits.

The department’s expert testified that Consumers Energy had incurred higher powersupply costs as a direct result of Toshiba’s manufacture and installation errors, and the expert put 

the fault ultimately on mismanagement by the utility. As for ABATE’s argument in the alternative, 

the expert disagreed that the increased revenue from the sale of zonal credits could be attributed 
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to the outage; instead, the spot-price of zonal credits depended on a myriad of factors, including 

capacity-import limits. To illustrate, the expert pointed to significant price fluctuations for the 

credits throughout Unit 3’s extended outage.

ALJ Wallace subsequently issued a “proposal for decision” recommending that the PSC 

partially approve Consumers Energy’s proposed reconciliation. Relevant to this appeal, the ALJ 

recommended that the PSC (a) reject the utility’s proposal related to the Unit 3 outage extension, 

but also (b) allow the utility to keep certain damages it might collect from Toshiba related to the 

defective equipment. The ALJ specifically found that the outage was a result of Toshiba’s errors

in the manufacture and installation of the discharge-ring extension, and, in overseeing and 

managing its contractor, Consumers Energy did not meet the standard for recouping costs under 

MCL 460.6j(13)(c). As for ABATE’s alternative argument, ALJ Wallace found that the revenues

that Consumers Energy collected from the sale of zonal credits could not be attributed solely to 

the Unit 3 outage, and therefore those revenues could not offset the increased power-supply costs. 

Consumers Energy filed exceptions with the PSC, and the utility argued that it had 

presented clear and satisfactory evidence that the outage was not caused by its own unreasonable, 

imprudent, or negligent actions. ABATE likewise filed exceptions with the PSC, consistent with 

its earlier position. Responses to the exceptions were also submitted.

The PSC subsequently issued its order approving Consumers Energy’s application for 

reconciliation, but as modified by ALJ Wallace. In its ruling, the PSC considered whether cost 

recovery was warranted because (i) the higher costs were incurred as part of reasonable and 

prudent actions of the utility, or (ii) clear and convincing evidence demonstrated that the costs 

were beyond the utility’s control, citing MCL 460.6j(15) as support for its analysis. The PSC 

concluded that “the replacement power costs were incurred as a result of the errors of [Toshiba] 

and that [Toshiba] was acting as an agent of Consumers [Energy] under the overall supervision of 

the utility.” The PSC rejected ABATE’s alternative argument for reasons similar to those set forth 

by the ALJ.

Consumers Energy now appeals, and ABATE cross-appeals.

II. ANALYSIS

“A final order of the PSC must be authorized by law and be supported by competent, 

material, and substantial evidence on the whole record.” In re Application of Consumers Energy 

Co to Increase Rates, 338 Mich App 239, 242; 979 NW2d 702 (2021) (cleaned up). An aggrieved 

party must “show by clear and satisfactory evidence that the order of the [PSC] complained of is 

unlawful or unreasonable.” MCL 462.26(8). “To establish that a PSC order is unlawful, the 

appellant must show that the PSC failed to follow a statutory requirement or abused its discretion 

in the exercise of its judgment.” In re Application of Consumers Energy Co to Increase Rates, 

338 Mich App at 242. This Court accords “due deference to the PSC’s administrative expertise 

and is not to substitute its judgment for that of the PSC.” Id. An order of the PSC “is unreasonable 

if it is not supported by the evidence,” In re Implementing Section 6w of 2016 PA 341 for 

Cloverland Electric Coop, 329 Mich App 163, 175; 942 NW2d 38 (2019) (cleaned up), and the 

PSC’s findings of fact are entitled to deference, In re Complaint of Rovas Against SBC Mich, 482 

Mich 90, 101; 754 NW2d 259 (2008).
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“Issues of statutory interpretation are reviewed de novo.” In re Application of Consumers 

Energy Co to Increase Rates, 338 Mich App at 243 (cleaned up). “If the language of the statute is 

unambiguous, the Legislature must have intended the meaning clearly expressed, and the statute 

must be enforced as written.” In re Implementing Section 6w, 329 Mich App at 177-178 (cleaned 

up).

A. MCL 460.6j

Consumers Energy argues that it should be able to recover its power-supply costs because 

it reasonably and prudently managed all activities relating to the repair and upgrade of Unit 3. 

MCL 460.6j governs the recovery and reconciliation of power-supply costs, and MCL 460.6j(12) 

states in relevant part:

Not less than once a year, and not later than 3 months after the end of the 12-month 

period covered by an electric utility’s power supply cost recovery plan, the 

commission shall commence a proceeding, to be known as a power supply cost 

reconciliation, as a contested case pursuant to chapter 4 of the administrative 

procedures act of 1969, 1969 PA 306, MCL 24.271 to 24.287. The commission 

shall permit reasonable discovery before and during the reconciliation proceeding 

in order to assist parties and interested persons in obtaining evidence concerning 

reconciliation issues including, but not limited to, the reasonableness and prudence 

of expenditures and the amounts collected pursuant to the clause. At the power 

supply cost reconciliation the commission shall reconcile the revenues recorded 

pursuant to the power supply cost recovery factors and the allowance for cost of 

power supply included in the base rates established in the latest commission order 

for the utility with the amounts actually expensed and included in the cost of power 

supply by the utility. The commission shall consider any issue regarding the 

reasonableness and prudence of expenses for which customers were charged if the 

issue was not considered adequately at a previously conducted power supply and 

cost review. [Emphasis added.]

Further, MCL 460.6j(13) provides:

In its order in a power supply cost reconciliation, the commission shall do all of the 

following:

* * *

(c) Disallow net increased costs attributable to a generating plant outage of more 

than 90 days in duration unless the utility demonstrates by clear and satisfactory 

evidence that the outage, or any part of the outage, was not caused or prolonged by 

the utility’s negligence or by unreasonable or imprudent management. [Emphasis 

added.]

And MCL 460.6j(15) provides:

In its order in a power supply cost reconciliation, the commission shall authorize 

an electric utility to recover from customers any net amount by which the amount 

determined to have been recovered over the period covered was less than the 
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amount determined to have been actually expensed by the utility for power supply, 

and to have been incurred through reasonable and prudent actions not precluded 

by the commission order in the power supply and cost review. For excess costs 

incurred through management actions contrary to the commission’s power supply 

and cost review order, the commission shall authorize a utility to recover costs 

incurred for power supply in the reconciliation period in excess of the amount 

recovered over the period only if the utility demonstrates by clear and convincing 

evidence that the excess expenses were beyond the ability of the utility to control 

through reasonable and prudent actions. For excess costs incurred through 

management actions consistent with the commission’s power supply and cost 

review order, the commission shall authorize a utility to recover costs incurred for 

power supply in the reconciliation period in excess of the amount recovered over 

the period only if the utility demonstrates that the level of those expenses resulted 

from reasonable and prudent management actions. . . . [Emphasis added.]

Consumers Energy first argues that the statutory schemes of MCL 460.6j(12), (13)(c), and 

(15) are not interchangeable or compatible because each references a different standard, and the 

PSC erred when it did not apply the correct legal standard under MCL 450.6j(13)(c).

As this Court has explained, “Statutes that relate to the same subject matter or share a 

common purpose are in pari materia and must be read together as one law to effectuate the 

legislative purpose as found in harmonious statutes. If two statutes lend themselves to a 

construction that avoids conflict, that construction should control.” In re Implementing Section 

6w, 329 Mich App at 178 (cleaned up). 

When reading the statutes in pari materia, each provision quoted above states that the PSC 

shall determine whether the utility acted reasonably and prudently when considering the costs that 

the utility is seeking to recoup. There is no grammatical or logical dissonance between the 

operative standards set forth in the subsections—“reasonableness and prudence” (12); 

“unreasonable or imprudent management” (13(c)); and “reasonable and prudent management” 

(15)—regardless of whether they are framed in the affirmative sense (see (12) and (15)) or the 

negative sense (see 13(c)). Each centers on the reasonableness and prudence of acts made by the 

utility, whether in terms of generic “actions” or more specific “management actions.”

In other words, MCL 460.6j as a whole makes clear that, for the utility to recover certain 

costs via reconciliation, the utility has the burden to show that its actions associated with the higher 

costs were reasonable and prudent. Thus, whether the PSC cited MCL 460.6j(15) instead of MCL 

460.6j(13)(c), is a distinction without a difference in the context of this appeal. And, in any event, 

the PSC made clear that it was, in fact, applying the language from MCL 460.6j(13)(c), both (i) 

when it cited an earlier order that relied on that provision in resolving a similar dispute, and (ii) 

when it adopted the ALJ’s recommendation, which cited MCL 406.6j(13)(c) as the basis for 

recommending the disallowance. The claim that the PSC applied the wrong standard is without 

merit.

Similarly, the claim that the PSC applied a strict-liability standard is without merit. The 

PSC performed a straightforward application of the statutory-reconciliation provisions to the facts 

at hand, and it disallowed recovery of certain costs because those costs were associated with 
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unreasonable and imprudent actions of a contractor under the direct and immediate supervision of

Consumers Energy. This is consistent with the standard set in statute by our Legislature, not one 

developed in the common law by judges. As this Court has recently explained, cases like this do 

not present us with “a common-law tort action in which the other parties are seeking to hold 

Consumers Energy liable for negligence.” In re Application of Consumers Energy Co for Gas 

Cost Recovery, ___ Mich App ___, ___; ___ NW2d ___ (2022) (Docket No. 356330). Moreover, 

there is nothing “strict liability” about the standard in MCL 460.6j; rather, there is a form of “fault” 

built into the statute, in the form of the utility having to act in a reasonable and prudent manner to 

qualify for recoupment of expenses.

To be clear, the PSC did not reject Consumers Energy’s proposed reconciliation merely 

because the utility incurred higher expenses. Rather, the PSC concluded that Toshiba, as 

Consumers Energy’s contractor, was the agent of the utility when it engaged in actions that caused 

a longer outage and higher costs, and the utility had responsibility for the supervision of its 

contractor. Moreover, in concluding that Consumers Energy did not satisfy its evidentiary burden 

under MCL 406.6j, the PSC had more than enough evidence in the record to show that the utility’s 

delay and mismanagement of the problem contributed to the outage and associated costs.

The PSC’s conclusions were supported by competent, material, and substantial evidence 

on the whole record. It is undisputed that the Unit 3 outage lasted for more than 90 days, and the 

testimony demonstrated that the outage arose primarily from errors committed by Toshiba as 

supervised by Consumers Energy. The PSC did not err in disallowing the recovery of replacement 

power costs associated with the extension of the Unit 3 outage. 

B. REVENUE FROM ZONAL CREDITS

With respect to ABATE’s cross appeal, we need not reach the merits. During oral 

argument, the Court confirmed that the issues raised in the cross appeal would have practical effect

only if the Court were to agree with Consumers Energy on its main appeal. Although ABATE 

raises interesting, substantive issues of statutory interpretation and pricing of zonal credits on the 

MISO market, even if this Court were to agree with ABATE, this would not alter the end result—

i.e., Consumers Energy’s requested reconciliation of costs associated with the Unit 3 extended 

outage was properly rejected by the PSC. Any analysis of the merits would be dicta, and, therefore, 

resolution of the issues raised by ABATE will have to wait another day.

III. CONCLUSION

For these reasons, the PSC did not reversibly err when it modified Consumers Energy’s 

reconciliation plan to disallow the costs associated with the extension of the outage to Unit 3.

Affirmed. 

/s/ Brock A. Swartzle 

/s/ Stephen L. Borrello 

/s/ Sima G. Patel