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### STATE OF MICHIGAN

COURT OF APPEALS

ATTORNEY GENERAL,

Appellant, UNPUBLISHED April 30, 2015

v No. 317434
Public Service Commission MICHIGAN PUBLIC SERVICE COMMISSION, LC No. 00-017087

Appellee,

and

CONSUMERS ENERGY COMPANY,

Petitioner-Appellee.

MICHELLE RISON, ANN DEROUIN, MITCHELL DEROUIN, BILLIE J. PREKLESIMER, JOYCE HORNESS, MARCUS HORNESS, MIKE KEMPF, SANDY KEMPF, DAN MARTIN MILLS, CHERYL MCKINNEY, GLORIA GARDNER, KERRY KRENTZ, HEATHER WITKOWSKI, CHRISTINE HUNT, SCOTT BRASPENNINX, and PAM DAZEY,

Appellants,

v No. 317456
Public Service Commission MICHIGAN PUBLIC SERVICE COMMISSION, LC No. 00-017087

Appellee,

and

CONSUMERS ENERGY COMPANY,

Petitioner-Appellee.-2- Before: O’C ONNELL , P.J., and F ORT H OOD and G ADOLA , JJ.

P ER C URIAM

.
In these consolidated cases, the Attorney General and Michelle Rison, et al., appeal a June 28, 2013 order issued by the Michigan Public Service Commi ssion (PSC) approving an application by Consumers Energy Company (Consumers Energy) for a rate increase to continue funding, among other things, its adva nced metering infrastructu re (AMI) program, and approving tariffs for customers who elect to opt-out of the AMI program. For the reasons below, we affirm the stipulation and order for the rate increases in Docket No. 317464, but because of the numerous issues raised on appeal in Docket No. 317456 concernin g tariffs for customers who elect to opt-out of the AMI program, we remand those issues to the PSC and direct the PSC to conduct a contested case hearing on the opt-out tariff. We dir ect the PSC to issue a detailed opinion with sufficient facts and conclusions of law that allow s this Court to review the entire scope of the unusual opt-out tariff.

I. BACKGROUND

Several years ago, Consumers Energy began implementing an AMI 1 program in Michigan. On November 4, 2010, the PSC issued an order in Case No. U-16191 that approved Consumers Energy’s pilot AMI program, but required Consumers En ergy to meet certain conditions, such as providing information on the benefits and c osts of the program, before approving full deployment of the AMI program. In In re Application of Consumers Energy Co

to Increase Rates , unpublished opinion per curiam of the Court of Appeals, issue d November 20, 2012 (Docket Nos. 301318 and 301381), this Court affirmed the P SC’s decision regarding Consumers Energy’s pilot AMI program. On June 7, 2012, the PSC issued an order in Case No. U-16794 authorizing Consumers Energy to proceed with Phase 2 of its AMI deployment program. In that case, the PSC adopted $44.8 million in expend itures for the AMI program in Consumers Energy’s rate base.

On September 19, 2012, Consumers Energy filed an application r equesting rate relief in the case underlying this appeal, Case No. U-17087, to cover, am ong other things, its ongoing investments associated with the AMI program. In addition, Cons umers Energy sought approval of opt-out tariffs for customers who did not wish to participat e in the AMI program. On October 19, 2012, an administrative law judge (ALJ) granted intervenor status to the Attorney General.

On May 7, 2013, the parties filed a settlement agreement in wh ich they agreed to an annual rate increase of $89 million. However, in the agreement , the Attorney General reserved two issues for future resolution, including (1) a request to th e PSC “to direct Consumers Energy to suspend the [AMI] program,” a nd (2) an objection “to the amo unt of the ‘opt-out’ fee.” The

1 An AMI meter, also known as a smart meter, is capable of colle cting near-real-time data on a customer’s energy usage and reporting the data to the utility a t frequent intervals. In re Applications of Detroit Edison Co , 296 Mich App 101, 114; 817 NW2d 630 (2012).-3- PSC entered an order on May 15, 2013, approving the settlement agreement. Thereafter, the Attorney General challenged the PSC’s continued support of Phas e 2 of Consumers Energy’s AMI program and challenged Consumer s Energy’s application for a pproval of its opt-out tariffs.

In response, Consumers Energy argued that it prepared an updat ed business case analysis for its AMI program in March 2012, and that the analysis indica ted a 20-year posi tive net present value (NPV) of $42 million for the AMI program. Consumers Ener gy noted that the Attorney General also sought suspension of its AMI program in Case Nos. U-16191 and U-16794 on the ground that the cost/benefit analys is used in each case was fla wed, but that the PSC rejected the Attorney General’s request in each case. The Attorney General argued that the PSC should suspend Consumers Energy’s AMI program until a cost/benefit ana lysis showed that the program would bring value to customers. The Attorney General asserted that its analysis showed that the AMI program had a negative NPV, and that Consumers Energy’s tes timony regarding savings from the AMI program was speculative.

On June 28, 2013, the PSC issued an order approving Consumers Energy’s continuation of the AMI program and approving Consumers Energy’s opt-out tar iffs. The Attorney General (Docket No. 317434) and Michelle Rison, et al. (Docket No. 3174 56) 2 now appeal from the PSC’s June 28, 2013, order.

II. STANDARD OF REVIEW

The standard of review for PSC orders is narrow and well defin ed. Pursuant to MCL 462.25, all rates, fares, charges, classifications and join t rates, regulations, practices, and services prescribed by the PSC are presumed, prima facie, to be lawful and reasonable. Mich
Consol Gas Co v Pub Serv Comm , 389 Mich 624, 635-636; 209 NW2d 210 (1973). A party aggrieved by an order of the PSC has the burden of proving by c lear and satisfactory evidence that the order 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 mandatory statute or abused its

2 Appellants in Docket No. 317456 we re not parties to the procee dings below. These appellants claim entitlement to an appeal as of right under MCL 462.26(1), which states the following:

Except as otherwise provided . . . any common carrier or other party in interest, being dissatisfied w ith any order of the commission f ixing any rate or rates, fares, charges, classifications, joint rate or rates, or any order fixing any regulations, practices, or servi ces, may within 30 days from th e issuance and notice of that order file an app eal as of right i n the court of appeals. . . .

Appellants claim they are parties in interest under the statute because they are customers of Consumers Energy who will be required to pay tariffs under the opt-out program. The phrase “party in interest” in MCL 462.26(1) is undefined in the statut e, and it is unclear whether this phrase permits any person with an interest in the proceedings to file an appeal as of ri ght, or whether it requires that such a person first be a party to the proceedings to claim such an appeal. On remand, the PSC shall determin e if these parties have standi ng to proceed below.-4- discretion in the exercise of its judgment. In re MCI Telecom Complaint , 460 Mich 396, 427; 596 NW2d 164 (1999). An order is unreasonable if it is not sup ported by the evidence. Associated Truck Lines, Inc v Pub Serv Comm , 377 Mich 259, 279; 140 NW2d 515 (1966).

A final order of the PSC must be authorized by law and must be supported by competent, material, and substantial evidence on the whole record. Const 1963, art 6, § 28. A reviewing court gives due deference to the PSC’s administrative expertise and is not to substitute its judgment for that of the PSC. Attorney General v Pub Serv Comm No 2 , 237 Mich App 82, 88; 602 NW2d 225 (1999). “Whether the PSC exceeded the scope of it s authority is a question of
law that we review de novo.” In re Complaint of Pelland against Ameritech Mich , 254 Mich App 675, 682; 658 NW2d 849 (2003).

III. DOCKET NO. 317434

In Docket No. 317434, the Attorney General argues that the PSC erred in approving the continuation of Phase 2 of Consumers Energy’s $750 million AMI program because the record lacked competent, material, and substantial evidence demonstrat ing that the costs of the AMI program outweighed its benefits. The PSC first argues that the Attorney General lacks standing to challenge the June 28, 2013, order in this case. A party mu st be aggrieved by a lower court’s decision in order to have standing to bring an appeal from that decision. MCR 7.203(A);
Federated Ins Co v Oakland Co Rd Comm , 475 Mich 286, 290-291; 715 NW2d 846 (2006). “To be aggrieved, one must have some interest of a pecuniary nature in the outcome of the case, and not a mere possibility arising from some unknown and future con tingency.” Federated Ins Co

, 475 Mich at 291 (quotation marks and citation omitted).

MCL 462.26(1) provides that “any common carrier or other party in interest, being dissatisfied with any order of the commission fixing any rate o r rates, fares, charges, classifications, joint rate or ra tes, or any order fixing any r egulations, practices , or services, may within 30 days from the issuance and notice of that order file an appeal as of right in the court of appeals.” The Attorney General gave notice of intervention and was granted intervenor status in this case below. The Attorney General had the statutory right to intervene to represent the interests of the people of the state, MCL 14.28, and he stated that he intervened because the case would affect rates paid by Consumers Energy’s customers. The J une 28, 2013, PSC order approved, among other things, opt- out tariffs for Consumers Ene rgy’s customers. Thus, the Attorney General was a party i n interest with standing to appea l the order under MCL 462.26(1).

Although the Attorney General h as standing to bring this appea l, we conclude that the stipulation to the $89 million increase forecloses any objectio n that the Attorney General has to
the rate increase.

As part of Case No. U-17087 underlying this appeal, the Attorn ey General was permitted to contest Consumers Energy’s requested rate increase associate d with the 2013 through 2014 portion of Phase 2 of its AMI program. See MCL 462.26(1). How ever, we determine that the Attorney General, on appeal, may not contest the rate increase because the parties stipulated in the May 7, 2013, settlement agreement to an $89 million revenue increase that covered, in part, Consumers Energy’s ongoing investments in its AMI program. The agreement stated the following:-5- The Attorney General has requested the Commission to direct Co nsumers Energy to suspend the Advanced Met ering Infrastructure (“AMI”) program, and in the event the program continues, has objected to the amount of the “opt-out” fee. These issues are not resolved as part of this settlement. The parties request
the Commission to address these issues based upon the initial a nd reply briefs filed pursuant to the schedule es tablished by the Administrativ e Law Judge in this

case. The parties agree that the $89.0 million annual revenue increase and associated rates specified in this Settleme nt Agreement shall not be affected by the Commission’s ruling on this issue. . . . [Emphasis added.]

Because the Attorney General stipulated to the $89 million rate increase that covered, in part, the 2013 through 2014 portion of Phase 2 of Consumers Energy’s AMI program, the Attorney General has not presented any i ssues warranting relief.

IV. DOCKET NO. 317456

A. AUTHORITY TO APPROVE AMI OPT-OUT PROGRAM

Appellant customers contend that the PSC lacked the statutory authority to impose an opt-out program on customers who do not wish to participate in the AMI program, and that the PSC should have considered an opt-i n program instead. Because this issue was not raised below, we review the unpreserved claim for outcome-determinative plain error. In re Application of Consumers Energy Co , 278 Mich App 547, 568; 753 NW2d 287 (2008).

The PSC possesses only those powers conferred upon it by the L egislature, and thus has no authority to make management decisions on behalf of utilitie s. Union Carbide Corp v Pub

Serv Comm , 431 Mich 135, 148-150; 428 NW2d 322 (1988) (holding that the PSC lacked authority to forbid the operation of a facility). However, und er MCL 460.6(1), the PSC has broad authority to regulate rea sonable rates fo r all public uti lities. Within its ratemaking authority, “[t]he PSC has discretion to determine what charges and expenses to allow as costs of operation.” Ford Motor Co v Pub Serv Comm , 221 Mich App 370, 375; 562 NW2d 224 (1997).

In this case, the PSC’s June 28, 2013, order approved tariff r ates for customers who elected either to retain a standard meter or to replace a trans mitting AMI meter with a standard meter. The approved rates were based on the PSC’s determinatio n of the actual costs associated with maintaining equipment and services for customers with non- transmitting meters. A decision to impose charges and expenses based on a utility’s co sts of operation is well within the ratemaking authority of the PSC. Ford Motor Co , 221 Mich App at 375. Accordingly, the PSC did not exceed its statutory authority.

B. IMPOSITION OF FEES ON OPT-OUT CUSTOMERS

Appellant customers argue that the PSC’s approval of the tarif fs requiring customers who opt-out of the AMI program to pay a one-time charge of either $ 69.39 or $123.91 and a monthly charge of $9.72 was unjust, unreasonable, and unsupported by ev idence in the record. At oral argument before this Court, the parties raised numerous argumen ts regarding whether the tariff amounts approved by the PSC represented the actual costs associ ated with continued use of analog meters, and whether any of these costs were already acco unted for in the utility’s rates.-6- Unfortunately, it appears that these issues were given only cur sory analysis in the PSC lower
court record. We conclude that the record on this issue is ina dequate to support an informed decision by the Court at this time. Accordingly, we remand thi s issue to the PSC to conduct a contested case hearing on this significant issue. 3 The parties are entitled to present their positions, and the PSC shall issue a written opinion on its fin dings of fact and conclusions of
law.

Docket No. 317434 is affirmed. Docket No. 317456 is affirmed in part, reversed in part, and remanded for further proceedi ngs consistent with this opini on. We do not retain jurisdiction.

/s/ Peter D. O’Connell
/s/ Karen M. Fort Hood
/s/ Michael F. Gadola

3 On remand, the PSC should clarify the purpose and nature of th e opt-out tariff by addressing whether the tariff represents a reimbursement for costs of serv ice, or whether the tariff constitutes something more akin to a tax, sanction, or penalty imposed upon customers who choose to opt out of the AMI program.