Court Opinion

ID: 837054
Source: CourtListenerOpinion
Date Created: 2013-03-01 21:19:06.080524+00
Date Added: 2024-06-11T12:36:39.510803
License: Public Domain

Order                                                     Michigan Supreme Court
                                                                Lansing, Michigan

  May 1, 2009                                                           Marilyn Kelly,
                                                                            Chief Justice

  134667-69                                                       Michael F. Cavanagh
  134671                                                          Elizabeth A. Weaver
  134673-74                                                        Maura D. Corrigan
                                                                  Robert P. Young, Jr.
  134676-77                                                       Stephen J. Markman
                                                                  Diane M. Hathaway,
                                                                                 Justices
  ____________________________________________
  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.
                                                                                                               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.

                         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.
                         May 1, 2009                         _________________________________________
        0428                                                                 Clerk