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In re Application of Detroit Edison Co.

Court of Appeals of Michigan

May 12, 2015

IN RE APPLICATION OF DETROIT EDISON COMPANY FOR 2012 COST RECOVERY PLAN
v.
MICHIGAN PUBLIC SERVICE COMMISSION, Appellee, MICHIGAN ENVIRONMENTAL COUNCIL, Appellant, and DETROIT EDISON COMPANY, Petitioner-Appellee.

LC No. 13-020404-FC

Before: Boonstra, P.J., and Saad and Murray, JJ.

Per Curiam.

Petitioner Michigan Environmental Council (MEC) appeals by right from an order of the Michigan Public Service Commission (PSC) granting the application filed by Detroit Edison Company (Edison) to implement a power supply cost recovery (PSCR) plan in its rate schedules for the 2012 metered jurisdictional sales of electricity, and for approval of its five-year forecast. We affirm.

I. PERTINENT FACTS AND PROCEDURAL HISTORY

This case concerns MEC's challenge to Edison's Reduced Emission Fuel (REF) project. This project involves applying chemical additives to coal to produce REF. Edison maintains that the use of REF results in reduced sulfur dioxide (SO2), mercury, and possibly nitrous oxides (NOx) emissions, and thus reduced emission expenses. Edison proposed to sell at book cost a portion of its coal inventory to affiliated unregulated fuels companies Belle River Fuels Company (BRFC) and the St. Clair Fuels Company (SCFC). The coal would be chemically treated at those plants and then sold back to Edison.

The PSC considered the REF project in an earlier case[1] but did not grant Edison permission to implement the project at that time, finding that it needed more information on the efficacy of the methods for reducing emissions. The PSC also required Edison to demonstrate that the REF project was a reasonable and prudent method of achieving maximum emission reduction at minimum cost, and that the REF project complied with the PSC's Code of Conduct.[2]

On September 30, 2011, Edison filed an application requesting authority to implement a PSCR plan in its rates schedules for the 2012 metered jurisdictional sales of electricity. The application indicated that Edison intended to move forward with implementation of its REF project, but represented that the decision would have no impact on the requested maximum PSCR factor for 2012.

The Proposal for Decision (PFD) issued by the administrative law judge (ALJ) assigned to the case recommended that Edison be denied permission to implement the REF project; however, the PSC granted Edison's application to implement a PSCR plan. The PSC addressed Edison's REF project as follows:

The Commission finds that Detroit Edison's REF project should be approved and that it complies with the Code of Conduct and the Guidelines. The Commission reviewed the company's testimony and Exhibits A-21 through A-23 and finds that Detroit Edison, in compliance with the directive in the December 6 order, provided the Commission with sufficient additional information to evaluate the reasonableness and prudence of the REF project.
The Commission believes that the REF project is a reasonable means of attaining maximum emission reductions for minimum cost. As explained by Detroit Edison, at SCPP and BRPP, PSCR customers will receive a reduction in annual working capital expense through the sale, at market price, of a portion of the company's coal inventory to its affiliated fuels companies. The affiliated fuels companies will treat the coal with REF adder and then resell the treated coal to Detroit Edison. The cost of the REF adder will be offset by a corresponding savings in PSCR emissions allowance expense, resulting in a net cost of zero or less to PSCR customers. At MPP, Detroit Edison receives a coal fee rate from the affiliated fuels company, reducing the cost of every ton of coal treated with REF adder that is consumed, which translates into a credit for the company's PSCR customers.
In response to the ALJ's finding that Detroit Edison did not provide any of the actual contracts between the company and its affiliated fuels companies for consideration, the Commission agrees with Detroit Edison that Act 304 only requires a description of all relevant major contracts, but does not require admission of the actual contracts. In addition, the Commission agrees with Detroit Edison and the Staff that the company's eligibility for the tax credits and the potential for the affiliated fuels companies to profit from the REF project is irrelevant to an Act 304 proceeding. As explained by Detroit Edison, Act 304 does not permit "the Commission to include third party expenses or revenues related to coal or any other fuel supply into Act 304 review and ratemaking." Detroit Edison's replies to exceptions, p. 27. As a result, the Commission may not consider whether the tax credits may be used to offset fuel costs.
The Commission disagrees with the Attorney General that REF costs should be treated as O&M costs. As explained by Detroit Edison, MCL 460.6j(13)(d) refers to "fuel movement that occurs after the utility receives the fuel at the power plant." Detroit Edison's replies to exceptions, p. 21. The Commission finds that all of the coal processing costs take place before the coal is delivered to the company.
Based on the evidence presented in Exhibits A-21 and A-23, the Commission finds that the REF project complies with the Code of Conduct. There is structural separation between the company and its affiliated fuels companies; they do not engage in joint advertising, marketing, or other promotional activities related to the provision of the fuels processing service; and there is no ...

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