in Re Application of Mi Consolidated Gas Co to Increase Rates ( 2014 )


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  •                          STATE OF MICHIGAN
    COURT OF APPEALS
    ________________________________________
    In Re Application of MICHIGAN CONSOLIDATED
    GAS COMPANY to Increase Rates.
    ASSOCIATION OF BUSINESSES                    UNPUBLISHED
    ADVOCATING TARIFF EQUITY,                    December 11, 2014
    Appellant,
    v                                            No. 316141
    MPSC
    MICHIGAN PUBLIC SERVICE COMMISSION,          LC No. 00-016999
    Appellee,
    and
    MICHIGAN CONSOLIDATED GAS COMPANY,
    Petitioner-Appellee.
    In re Application of MICHIGAN
    CONSOLIDATED GAS COMPANY to Increase
    Rates.
    ATTORNEY GENERAL,
    Appellant,
    v                                            No. 316263
    MPSC
    MICHIGAN PUBLIC SERVICE COMMISSION,          LC No. 00-016999
    Appellee,
    and
    MICHIGAN CONSOLIDATED GAS COMPANY,
    -1-
    Petitioner-Appellee.
    Before: RONAYNE KRAUSE, P.J., and K. F. KELLY and STEPHENS, JJ.
    PER CURIAM.
    In these consolidated cases appellants Association of Businesses Advocating Tariff
    Equity (ABATE) and the Attorney General appeal an order of the Michigan Public Service
    Commission (PSC) approving the application by Michigan Consolidated Gas Company, n/k/a
    DTE Gas Company (Mich Con), for an increase in rates.
    I. BACKGROUND
    These cases deal with the PSC’s decision to approve a surcharge mechanism fashioned
    by Mich Con to recover the costs of programs approved by the PSC in prior cases.
    In Case No. U-15985, the PSC Staff submitted evidence regarding Mich Con’s gas main
    system, a significant percentage of which was constructed of cast iron and unprotected steel.
    The evidence showed that the system had numerous leaks and did not comply with applicable
    safety standards. The PSC directed Mich Con to file a plan to renew the system and to reduce
    the amount of cast iron in the system. Mich Con asserted that the high number of inside gas
    meters contributed to the problem; therefore, the PSC directed Mich Con to file a plan to move
    the meters to outside locations. The PSC directed Mich Con to include proposals for financing
    the programs and recovering the costs in its next general rate case.
    In Case No. U-16407, Mich Con filed an application setting out a proposed 10-year main
    renewal program (MRP). Mich Con proposed “a ten-year program to replace and retire
    distribution mains, renew associated service lines, and relocate associated inside meters.” Mich
    Con projected an annual capital expenditure of $17.1 million for the MRP. Mich Con proposed
    to finance the MRP with funds set aside for capital spending, and indicated that if expenses
    exceeded the amount set aside it would file a general rate case proposing methods to generate
    additional capital. The PSC adopted Mich Con’s proposal.
    In Case No. U-16451, Mich Con filed an application setting out a proposed long-term
    meter move-out (MMO) program in compliance with the PSC’s order in Case No. U-15985. The
    PSC found that the MMO proposal as stated met the requirements of the order, and directed
    Mich Con to include a proposal for cost recovery for the MMO program in Mich Con’s next rate
    case.
    II. UNDERLYING PROCEEDINGS IN THE INSTANT CASE
    Mich Con filed an application “requesting authority to increase rates, amend its rate
    schedules, obtain approval of certain accounting matters and modify certain terms and conditions
    of providing natural gas services.” Mich Con sought recovery of its investment in the MMO and
    MRP programs and for capital associated with Pipeline Integrity (PI) through an Infrastructure
    Recovery Mechanism (IRM).
    -2-
    During the pendency of this case the PSC approved a partial settlement agreement. The
    order authorized a rate increase for Mich Con totaling $19.9 million and resolved other issues;
    however, the issue of Mich Con’s proposed IRM was not settled.
    The PSC issued an order approving the application. Regarding the IRM, the PSC stated
    in part:
    The parties dispute whether the IRM constitutes an automatic adjustment
    clause prohibited under MCL 460.6a(2). Mich Con and the Staff contend that
    because the annual surcharges are approved in this fully contested proceeding,
    and because the surcharges can only be reduced in the future if the company
    underspends, then no additional hearings are required. Conversely, the Attorney
    General argues that the IRM surcharges will increase by an unknown amount
    every year and that interested parties are denied a meaningful opportunity to be
    heard before these increases take effect. The ALJ agreed with the Attorney
    General.
    The Commission generally agrees that when rate adjustments occur
    outside of a general rate case, caution must be exercised both to protect the public
    interest and to avoid running afoul of Section 6a(2). Thus, for the great majority
    of trackers that the Commission has approved, the annual reconciliations have
    been conducted as contested cases, whether the outcome was expected to result in
    a surcharge or a refund to customers.
    The Court of Appeals’ decisions concerning automatic adjustment clauses,
    cited by the company and the Staff, involved instances where rates would increase
    and where the Court affirmed the implementation of an adjustment mechanism
    provided that a limited purpose hearing was conducted before any rate increase
    occurred. However, the parties cite no authority to support their claim that if rates
    can only decrease, no additional hearings are required. While the Court has made
    clear that at least a limited purpose hearing is necessary if rates go up, Section
    6a(2) does not specify whether notice and a hearing is only required in the case of
    a rate increase; the section only references the prohibition of “automatic
    adjustment clauses,” without distinguishing whether the adjustment is up or
    down. Therefore, the Commission finds that notice and a hearing should be
    provided annually to permit an examination of Mich Con’s March 31 reports on
    the MMO, the MRP, and the PI. The hearing shall be limited to reviewing the
    work performed, including an assessment of the appropriateness of the costs
    assigned to the various IRM programs, and recommending any downward
    adjustment to the surcharge in the event the company underspends on the various
    gas safety programs.
    ***
    The Attorney General and ABATE argue that the IRM violates the
    provision under Section 6a(1), which states: “A utility may use projected costs
    and revenues for a future consecutive 12-month period in developing its requested
    -3-
    rates and charges.” According to them, the IRM uses costs and revenues
    projected beyond the test year used for base rates and as such cannot be approved.
    The Commission disagrees. As Mich Con pointed out, the IRM surcharges are
    based on the 2013 test year capital expenditures totaling $77.4 million for the
    MMO, MRP, and PI programs. These expenditures will not change and the
    surcharges approved in this proceeding will not be revised unless the company
    underspends.
    The PSC approved the IRM and reconciliation proceedings for the MRP, MMO, and PI
    programs as modified.
    III. STANDARD OF REVIEW
    The standard of review for PSC orders is narrow and well defined. Pursuant to MCL
    462.25, all rates, fares, charges, classification and joint rates, regulations, practices, and services
    prescribed by the PSC are presumed, prima facie, to be lawful and reasonable. Michigan 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 clear 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 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 supported 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 be supported by competent,
    material, and substantial evidence on the whole record. Const 1963, art 6, § 28; Attorney
    General v Pub Serv Comm, 
    165 Mich. App. 230
    , 235; 418 NW2d 660 (1987).
    We give due deference to the PSC’s administrative expertise, and we do not substitute
    our judgment for that of the PSC. Attorney General v Pub Serv Comm No 2, 
    237 Mich. App. 82
    ,
    88; 602 NW2d 225 (1999). We give respectful consideration to the PSC’s construction of a
    statute that the PSC is empowered to execute, and we will not overrule that construction absent
    cogent reasons. If the language of a statute is vague or obscure, the PSC’s construction serves as
    an aid to determining the legislative intent, and will be given weight if it does not conflict with
    the language of the statute or the purpose of the Legislature. However, the construction given to
    a statute by the PSC is not binding upon us. In re Complaint of Rovas Against SBC Michigan,
    
    482 Mich. 90
    , 103-109; 754 NW2d 259 (2008). Whether the PSC exceeded the scope of its
    authority is a question of law that we review de novo. In re Complaint of Pelland Against
    Ameritech Michigan, 
    254 Mich. App. 675
    , 682; 658 NW2d 849 (2003).
    The primary goal of statutory interpretation is to ascertain and give effect to the intent of
    the Legislature. Frankenmuth Mut Ins Co v Marlette Homes, Inc, 
    456 Mich. 511
    , 515; 573
    NW2d 611 (1998). If the plain and ordinary meaning of statutory language is clear, judicial
    construction is neither necessary nor permitted. Cherry Growers, Inc v Agricultural Mktg &
    Bargaining Bd, 
    240 Mich. App. 153
    , 166; 610 NW2d 613 (2000). We review de novo issues of
    statutory interpretation and application. Coblentz v Novi, 
    475 Mich. 558
    , 567; 719 NW2d 73
    (2006).
    -4-
    IV. ANALYSIS
    On appeal, appellants ABATE and the Attorney General argue that the PSC has only that
    authority granted to it by the Legislature, and that the implementation of an IRM is not
    authorized by any statute. Appellants assert that the PSC must use the traditional ratemaking
    process, including the consecutive 12-month test year required by MCL 460.6a(1), to permit
    Mich Con to recover capital expenditures for the MMO, the MRP, and the PI programs. The
    PSC did not do so; therefore, its order is unlawful. We disagree.
    MCL 460.6a(1) provides in pertinent part:
    A gas or electric utility shall not increase its rates and charges or alter, change, or
    amend any rate or rate schedules, the effect of which will be to increase the cost
    of services to its customers, without first receiving commission approval as
    provided in this section. The utility shall place in evidence facts relied upon to
    support the utility’s petition or application to increase its rates and charges, or to
    alter, change, or amend any rate or rate schedules. The commission shall require
    notice to be given to all interested parties within the service area to be affected,
    and all interested parties shall have a reasonable opportunity for a full and
    complete hearing. A utility may use projected costs and revenues for a future
    consecutive 12-month period in developing its requested rates and charges.
    This statute gives the PSC broad authority to regulate rates for public utilities. This
    authority does not include the power to make management decisions for a public utility.
    Consumers Power Co v Pub Serv Comm, 
    460 Mich. 148
    , 157-158; 596 NW2d 126 (1999); Union
    Carbide Corp v Pub Serv Comm, 
    431 Mich. 135
    , 148-150; 428 NW2d 322 (1988). These cases
    do not stand for the proposition that the PSC lacks discretion to approve a cost recovery
    mechanism absent statutory authority for the creation of that specific mechanism. See, e.g.,
    Great Wolf Lodge v Pub Serv Comm, 
    489 Mich. 27
    , 42-43; 799 NW2d 155 (2011) (authority to
    award interest not authorized by statute, but lawful under MCL 460.6(1)).1
    The PSC is not required to use any particular formula when setting rates. Residential
    Ratepayer Consortium v Pub Serv Comm, 
    239 Mich. App. 1
    , 6; 607 NW2d 391 (1999). We have
    repeatedly approved the use of a tracker mechanism, i.e., a mechanism that adjusts future rates in
    light of actual past costs. See In re Applications of Detroit Edison Co, 
    296 Mich. App. 101
    , 112-
    114; 817 NW2d 630 (2012) (and cases cited therein). The IRM is such a tracker mechanism.
    The IRM is designed to allow Mich Con to recover capital expenditures made for the MMO, the
    MRP, and the PI programs.
    1
    The Attorney General cites no applicable authority in support of its assertion that the PSC
    lacked the authority to approve the IRM because no Michigan Supreme Court decision has
    affirmed the PSC’s power in that regard. An appellant cannot simply announce a position and
    then leave it to this Court to locate authority to support that position. Bronson Methodist Hosp v
    Michigan Assigned Claims Facility, 
    298 Mich. App. 192
    , 199; 826 NW2d 197 (2012).
    -5-
    We hold that the PSC did not err by approving the IRM, and that the PSC’s order is not
    unlawful or unreasonable in this regard.
    Next, ABATE argues that the IRM violates MCL 460.6a(2) and constitutes an unlawful
    adjustment clause because it does not provide for a full and complete hearing prior to an
    adjustment in the rates. We disagree.
    MCL 460.6a(2) provides in pertinent part:
    (2) The commission shall adopt rules and procedures for the filing, investigation,
    and hearing of petitions or applications to increase or decrease utility rates and
    charges as the commission finds necessary or appropriate to enable it to reach a
    final decision with respect to petitions or applications within a period of 12
    months from the filing of the complete petitions or applications. The commission
    shall not authorize or approve adjustment clauses that operate without notice and
    an opportunity for a full and complete hearing, and all such clauses shall be
    abolished. . . . As used in this section:
    (a) “Full and complete hearing” means a hearing that provides interested parties a
    reasonable opportunity to present and cross-examine evidence and present
    arguments relevant to the specific element or elements of the request that are the
    subject of the hearing.
    The PSC acknowledged that if rate adjustments occurred outside the context of a general
    rate case, caution was required so that MCL 460.6a(2) was not violated. The PSC found that
    there was no statutory requirement that a hearing under MCL 460.6a(2) must be held if a rate
    could only be adjusted downward. Nevertheless, the PSC ordered that an annual hearing be held
    to examine Mich Con’s report on its work during the previous year.
    The amount of the IRM surcharge for the 2013 test year and beyond was established
    during the contested case hearing. These surcharges cannot increase, but the surcharges can
    decrease if Mich Con spends less than the sum anticipated on the MMO, the MRP, and the PI
    programs.
    ABATE contends that the “full and complete hearing” required by MCL 460.6a(2) is
    essentially a contested case hearing like that defined in MCL 24.203(3).2 ABATE asserts that
    the type of proceeding ordered by the PSC does not allow parties to cross-examine the evidence
    or present argument “relevant to the specific element or elements of the request that is the subject
    of the hearing, all in violation of MCL 460.6a(2).” However, the annual hearing ordered by the
    PSC must include notice and the filing of a report by Mich Con. The hearing as described by the
    PSC would be “limited to reviewing the work performed, including an assessment of the
    appropriateness of the costs assigned to the various IRM programs, and recommending any
    2
    MCL 24.203(3) defines “contested case” as “a proceeding, including rate-making, price-fixing,
    and licensing, in which a determination of the legal rights, duties, or privileges of a named party
    is required by law to be made by an agency after an opportunity for an evidentiary hearing.”
    -6-
    downward adjustment to the surcharge in the event the company underspends on the various gas
    safety programs.” This description of the hearing required by the PSC order affords the parties
    the opportunity to cross-examine the evidence, i.e., Mich Con’s report detailing the work
    performed in the various programs, to argue whether Mich Con’s spending on that work was
    appropriate, and to argue for or against a downward adjustment to the IRM surcharge. Thus the
    hearing process set out by the PSC meets the definition of a “full and complete hearing” in MCL
    460.6a(2)(a).
    Next, ABATE argues that the PSC violated MCL 24.285 by failing to make sufficient
    findings of fact and conclusions of law; the PSC failed to explain why it approved expenditures
    that were outside the test year, and also failed to explain why the hearing procedure it established
    was authorized by law since it did not permit the parties to have a full and complete hearing. We
    disagree.
    MCL 24.285 states in pertinent part:
    A final decision or order of an agency in a contested case shall be made, within a
    reasonable period, in writing or stated in the record and shall include findings of
    fact and conclusions of law[.] . . . Findings of fact shall be based exclusively on
    the evidence and on matters officially noticed. Findings of fact, if set forth in
    statutory language, shall be accompanied by a concise and explicit statement of
    the underlying facts supporting them. . . . Each conclusion of law shall be
    supported by authority or reasoned opinion. A decision or order shall not be
    made except upon consideration of the record as a whole or a portion of the
    record as may be cited by any party to the proceeding and as supported by and in
    accordance with the competent, material, and substantial evidence.
    The PSC’s order must contain sufficient information to permit meaningful appellate review.
    Viculin v Dep’t of Civil Serv, 
    386 Mich. 375
    , 405; 192 NW2d 449 (1971).
    ABATE argues that the PSC failed to explain decisions that ABATE contends are
    erroneous. However, the PSC set out its explanation of why it determined that establishment of
    the IRM surcharge schedule did not violate MCL 460.6a(2) and what kind of annual hearing
    would be necessary. The PSC’s opinion contains sufficient detail to permit meaningful appellate
    review, and thus does not violate MCL 24.285. See ABATE v Pub Serv Comm, 
    205 Mich. App. 383
    , 394; 522 NW2d 140 (1994). ABATE disagrees with the PSC’s findings of fact and
    conclusions of law regarding the test year and the annual hearing, but ABATE has not
    established that these findings and conclusions are insufficient to be reviewed and thus violate
    MCL 24.285.
    V. CONCLUSION
    Neither appellant has raised an argument that warrants relief. The PSC’s order is not
    unlawful or unreasonable.
    -7-
    Affirmed.
    /s/ Amy Ronayne Krause
    /s/ Kirsten Frank Kelly
    /s/ Cynthia Diane Stephens
    -8-