Attorney General v. Public Service Commission

157 Mich. App. 198 (1986) 403 N.W.2d 467

ATTORNEY GENERAL
v.
PUBLIC SERVICE COMMISSION

Docket No. 86136.

Michigan Court of Appeals.

Decided November 5, 1986.

Frank J. Kelley, Attorney General, Louis J. Caruso, Solicitor General, and Hugh B. Anderson, Assistant Attorney General, for plaintiff.

Frank J. Kelley, Attorney General, Louis J. Caruso, Solicitor General, and Don L. Keskey and Philip J. Rosewarne, Assistant Attorneys General, for the Public Service Commission.

The Detroit Edison Company Legal Department (by A. Robert Pierce, Jr., and Bruce R. Maters), for the Detroit Edison Company.

Consumers Power Company (by Lawrence B. Lindemer, Allen B. Bass, and David A. Mikelonis), and Loomis, Ewert, Ederer, Parsley, Davis & Gotting (by George W. Loomis, Michael G. Oliva, and Ronald W. Bloomberg), for Consumers Power Company.

Before: M.J. KELLY, P.J., and D.E. HOLBROOK, JR., and T.M. GREEN,^[*] JJ.

PER CURIAM.

On January 31, 1983, the Michigan Public Service Commission issued an opinion and order continuing the existing surcharges collected by both Consumers Power and Detroit Edison pursuant to their "Other Operations and Maintenance (O & M) Expense Indexing Systems" until completion of the pending general rate cases of each company. The commission denied each utilities' request for an increase of the existing surcharge. Ingham Circuit Judge Robert Holmes Bell affirmed the commission's order on June 10, 1985. The Attorney General now appeals as of right.

The Other O & M Indexing Systems were originally created for Edison and Consumers Power in 1978. The systems permitted determination of allowable utility rate increases based on increases in Edison's and Consumers' operation and maintenance expenses. Under the system, each utility could impose a surcharge each year on customers' bills equal to the percentage change in the National Consumer Price Index (CPI) occurring during the twelve-month period ending the preceding August. The systems were implemented annually at the request of the utilities. Annual hearings were held for the commission to determine the degree of change in the CPI and to apply the CPI adjustment factor to the indexing system formula (established in the 1978 orders which established the systems) to arrive at the surcharge adjustment. The indexing system was upheld as lawful and reasonable by this Court. Attorney General v Public Service Comm # 1, 136 Mich. App. 52; 355 NW2d 640 (1984); Attorney General v Public Service Comm # 1, 133 Mich. App. 719; 349 NW2d 539 (1984), lv den 422 Mich. 910 (1985); Attorney General v Public Service Comm, 141 Mich. App. 505; 367 NW2d 341 (1984), lv den 422 Mich. 878 (1985).

Proposal H, passed by the Legislature as 1982 PA 212, was submitted to and approved by the electorate at the November 2, 1982, general election. Proposal H amended the title of the Public Service Commission act to include the following purpose: "to abolish automatic adjustment clauses; [and] to prohibit rate increases without notice and hearing."

Proposal H further amended § 6a(1) of the act to include the following language:

There shall be no increase in rates based upon changes in cost of fuel or purchased gas unless notice has been given within the service area to be affected, and there has been an opportunity for a full and complete hearing on the cost of fuel or purchased gas. The rates charged by any utility pursuant to an automatic fuel or purchased gas adjustment clause on the effective date of the amendatory act that added this sentence shall not be altered, changed, or amended unless notice has been given within the service area to be affected, and there has been an opportunity for a full and complete hearing on the cost of the fuel or purchased gas.

Finally, § 6a(2) was amended to include this language:

On and after the effective date of the amendatory act that added this sentence, the commission shall not have the power to 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. The commission may hold a full and complete hearing to determine the cost of fuel, purchased gas, or purchased power, separately from a full and complete hearing on general rate case; such a separate hearing may be held concurrently with a general rate case.... As used in this section, a "full and complete hearing" means a hearing which provides interested parties and a reasonable opportunity to present and cross-examine evidence and present arguments relevant to the specific element or elements of such request which are the subject of the hearing.

At the same time Proposal H passed, Proposal D was also passed. The latter proposal, an initiative grounded on Const 1963, art 2, § 9, amended MCL 460.6a, 460.6b; MSA 22.13(6a), 22.13(6b) to outlaw unilateral fuel, purchased power, and purchased gas adjustment clauses in residential utility rate schedules. Proposal D also prohibited public utilities from passing through fuel costs to customers in increased rates without prior approval at a general rate hearing.

On November 22, 1982, Ingham Circuit Judge Thomas L. Brown issued a temporary restraining order restraining the enforcement of Proposals D and H, both of which purported to abolish utility rate adjustment clauses but in apparently conflicting ways. However, Judge Brown found that Proposals D and H were not conflicting in two respects. Specifically, the rates being charged by a utility pursuant to an automatic fuel or purchased gas adjustment clause could not be altered, changed or amended without notice and a complete hearing, and all adjustment clauses that operate without notice and an opportunity for full and complete hearing were abolished. Judge Brown concluded that in these two respects the proposals should become effective. Subsequently, the Supreme Court held that Proposal H prevailed over Proposal D in its entirety. In re Proposals D & H, 417 Mich. 409; 339 NW2d 848 (1983).

In the meantime, on September 28, 1982, Edison filed a request for hearing in case No. U-6488 seeking authority to bill its customers another O & M indexing surcharge in the amount of 1.58 mills/kwh (.99 mills/kwh authorized in January, 1982, set to expire in January, 1983, plus .59 mills/kwh based on a 5.75 percent increase in the CPI) commencing with the billing month of February, 1983. On November 1, 1982, Consumers filed a similar request for hearing in case No. U-5979 seeking another O & M surcharge of 1.43 mills/kwh (.90 mills/kwh authorized in January, 1982, plus .53 mills/kwh based on the percentage increase in the CPI).

In December, 1982, the Attorney General moved to dismiss the requests on the ground that they violated Judge Brown's November 22, 1982, holding. On January 31, 1983, the commission issued an order freezing the existing 1982 O & M surcharges for both utilities and denying the utilities' requests for increases. The Attorney General filed a complaint in circuit court seeking to set aside the order and requesting refunds of all money collected by the surcharges after November 22, 1982.

The circuit court entered partial summary judgment as to the issues with respect to the legality of the indexing system. The case proceeded on the limited question of the effect of Proposal H on the lawfulness of the January 31, 1983, order. On June 10, 1985, the circuit court affirmed the order of the commission.

On appeal, the Attorney General first contends that the commission's order violated Proposal H by failing to terminate the existing Other O & M Expense Indexing System surcharges as of November 22, 1982. The Attorney General contends that the Other O & M Expense Indexing System provides for automatic surcharges which violate the full and complete hearing provisions of Proposal H. We find plaintiff's argument to be without merit. Proposal H addressed the subject of automatic adjustment clauses and did not abolish or bar use of nonautomatic adjustment clauses operating after notice and hearing. The Other O & M Expense Indexing System utilized the two-step process in which the clause is established in a full and complete hearing and then periodically implemented in a series of annual orders preceded by notice and a limited hearing. In Attorney General, 133 Mich. App. 719, supra, this Court upheld the indexing system in the face of a similar challenge. We find that case to be dispositive with respect to this issue.

The Attorney General next contends that the commission's order allowing the existing surcharge violated the hearing requirement of § 6a of the Public Service Commission act, MCL 460.1 et seq.; MSA 22.13(1) et seq., even without the amendatory language of Proposal H, the rate-making standards of § 7 of the electric act, MCL 460.551 et seq.; MSA 22.151 et seq., and common law. Our decisions in Attorney General v Public Service Comm #1, 133 Mich App 726-728, supra, and Attorney General v Public Service Comm # 2, 136 Mich. App. 515, 518; 358 NW2d 351 (1984), in which we held that the Other O & M Expense Indexing System did not violate notice and hearing requirements, are dispositive on this issue. Accordingly, we find this argument to be without merit.

The Attorney General next contends that the commission's order is not supported by any evidence on the record in contravention of § 85 of the Administrative Procedures Act, MCL 24.285; MSA 3.560(185). The continuances of the existing surcharges ordered by the commission on January 31, 1983, were to apply only until completion of the pending general rate cases when a final decision with regard to the interim validity of the indexing system and with regard to new methods for recovering O & M expenses would be made. We find that the order of the commission continuing the existing surcharges was an interim order and, therefore, was not required to be supported by competent, material and substantial evidence on the whole record. Great Lakes Steel Div of National Steel Corp v Public Service Comm, 416 Mich. 166; 330 NW2d 380 (1982). Rather, an interim order is subject to review under the "unlawful or unreasonable" test provided at MCL 462.26; MSA 22.45. We agree with the circuit court in finding that the commission's order was both lawful and reasonable. The January 31, 1983, order of the commission continued, at a frozen level, those rate adjustments that had previously been authorized in commission orders of January 26, 1982. Hence it was inappropriate to terminate these surcharges prior to the completion of the rate case in which the expenses the surcharges were meant to cover were addressed on a prospective basis.

In view of the foregoing we find it unnecessary to address the Attorney General's final argument with respect to refund the surcharges collected.

Affirmed.

NOTES

[*] Circuit judge, sitting on the Court of Appeals by assignment.