Opinion ID: 2125013
Heading Depth: 2
Heading Rank: 2

Heading: Rate Orders

Text: During the oral arguments, Justice KAVANAGH several times asked, Was there any determination made before the plant was started that it was necessary? Mr. D'Hondt for the MPSC replied that the MPSC eventually answered the question as to whether the plant was necessary in 1978 in Re Consumers Power Co, 25 PUR 4th 167 (case no U-5331, July 31, 1978). This case appears to be the first time that the Midland plant was specifically considered by name. This case was a rate hearing case, and the question considered, which is of importance to us, is whether the construction work in progress costs of the Midland plant should be included in the rate base. The Public Interest Research Group in Michigan (PIRGIM) contended that Consumers Power power needs forecasting was so faulty that it could not be relied on and that there was no evidence that the Midland plant would be needed. The MPSC opinion and order's principal comment on PIRGIM's contention follows: Sales and demand forecasting is inexact at best, requiring subjective judgments in the adoption of assumptions and the choice of methods. Although improvements might be made in applicant's methods, the commission finds that on this record applicant's forecast of annual sales growth, the projected load factor, and the projected range of demand are not unreasonable. It is true that applicant's past forecasts have often been too high. However, forecasts are constantly being revised in response to changing conditions. It does not necessarily follow that because previous forecasts were too high that the present forecasts are likewise too high. Perhaps more important, even assuming applicant's forecasts are somewhat high, it does not follow that the Midland project is unneeded and therefore an imprudent investment to be totally excluded from the rate base. The record shows that some growth in demand is to be reasonably expected, in the absence of a drastic shift in usage patterns which cannot be reasonably assumed at this time. The Midland project is designed to be a major baseload plant and if it runs properly it should provide power at a price which is comparable to many other units. A temporary minor overcapacity would not be a justification for excluding the plant from the rate base. In a period of increasing construction costs, it may be cheaper to construct new plant now than to delay construction for a significant period. In addition, applicant may have the opportunity to sell temporarily excess power. In any event, the costs of abandoning the Midland plant, as recommended by PIRGIM, have to be weighed against the benefits. Assuming applicant is close on its sales and demand predictions, abandoning the Midland plant, as PIRGIM contends should be done, would have serious and possibly catastrophic results for the supply of electricity in the 1980's and 1990's not only for applicant's retail customers but also for the whole state of Michigan. Moreover, the forced abandonment of all the Midland plant would be a financial disaster for applicant and would seriously compromise applicant's ability to finance any additional construction, including coal-fired and cogeneration facilities. Finally, to the extent that the financial community perceived the commission as acting irresponsibly by enforcing the abandonment of the total Midland project, all other utilities in Michigan would have increased difficulty in financing their construction projects. For these reasons the commission finds that the construction work in progress (CWIP) associated with the Midland plant should not be excluded from the rate base. 25 PUR 4th 179-180. Obviously the MPSC has come closer to answering the criteria set forth in the securities act in 1978 than in 1968, although, of course, this is a rate, not a securities, case. However, even this much more specific treatment does not completely answer the question whether the property was reasonably required for the purposes of the corporation. Furthermore, this MPSC opinion illustrates the jeopardy in not making a feasibility study at the beginning. The MPSC reaches its conclusion in part by relying on the in terrorem argument that even if not cost effective the forced abandonment of all the Midland plant would be a financial disaster for applicant [Consumers Power Co.]. Further, all other utilities in Michigan would have increased difficulty in financing. VII. PROPOSED FINDINGS STANDARD On the record before us, it would be difficult to attempt to definitively indicate those specific findings appropriate to support a conclusion that expenditure of funds was reasonably required for the purposes of the    corporation. For a new generating plant for an electric utility, however, these are some of the specific findings that should be made: 1. the name and detailed description of the project for which funding is requested; 2. the amount of funding requested; 3. the estimated costs of the project and the bases for the estimates; 4. the amount of power the plant would generate by a particular time plus the amount of power from other sources of the corporation; 5. the amount of demand for that power and the source of such estimates; 6. the amount of reserve power appropriate and the sources for that conclusion; 7. whether there are other more efficient power sources and, if there are, why they are not to be used; 8. what effect the project will have on rates and why. Such a determination should create no strain in the securities regulatory system in Michigan as the MPSC has acknowledged under the existing statute that [a] thorough and complete inquiry by the commission into the necessity of the initial issue of securities for the construction of generating facilities is appropriate. As has been discussed, the paramount purpose of the securities statute is protection of the public which includes both investors and ratepayers. By addressing itself to the legislative standard as we view it before the financing of new energy plant construction commences, the MPSC ensures that the apparent legislative purpose of the statute will be fulfilled. It also ensures that all the citizens of this state shall have sufficient energy at the most reasonable rates. VIII. CONCLUSION The issue before us is what is the extent of protection the Legislature intended to provide utility investors and ratepayers. We hold that the Legislature intended that (1) a complete feasibility examination should be made by the MPSC in connection with approval of the original application for securities, (2) upon subsequent applications it would suffice that the MPSC consider whether the statutory requirements were met with respect to the work to be next undertaken, and (3) a complete feasibility examination should be undertaken in connection with inclusion of the project in the rate base. We further hold that the MPSC in connection with its determinations must make specific, not conclusory, findings of fact.