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In re Application of Indiana Michigan Power Company To Increase Rates

Court of Appeals of Michigan

August 13, 2019


          Public Service Commission LC No. 00-018370

          Before: Letica, P.J., and M. J. Kelly and Boonstra, JJ.

          BOONSTRA, J.

         Petitioner appeals by right the April 12, 2018 order of the Public Service Commission (PSC) authorizing petitioner to adopt a rate increase. We affirm.


         The issues in this case arise following the enactment of 2016 PA 341, sometimes informally called "Act 341," through which the Legislature amended the PSC's enabling act, MCL 460.1 et seq.[1] The PSC's April 12, 2018 order includes a concise summary of the proceedings leading to the decision below:

On May 15, 2017, [petitioner] filed an application seeking authority to increase its rates for the sale of electric energy, approval of depreciation accrual rates, and other related matters. The rate increase sought in this proceeding is based on the company's projections for relevant items of investment, expenses, and revenues for a test year covering the calendar year ending December 31, 2018. In its application, [petitioner] averred that, without rate relief, the company will experience a jurisdictional electric revenue shortfall of $51, 700, 000, on an annual basis, during the test year.
* * *
According to [petitioner], the net impact of all matters to be considered in this proceeding supports the company's requested rate relief of $51, 700, 000. The company maintained that, absent rate relief in this amount, it will experience revenues so low as to deprive it of a reasonable return on its investments in violation of the federal and state constitutions.
Administrative Law Judge Mark E. Cummins (ALJ) held a prehearing conference on June 22, 2017. At the prehearing conference, the ALJ granted petitions to intervene filed by the Michigan Department of the Attorney General (Attorney General) and [the Association of Businesses Advocating for Tariff Equity (ABATE)]. The Commission Staff (Staff) also participated.
An evidentiary hearing was held on November 15, 2017, after which timely briefs and reply briefs were filed. On February 8, 2018, the ALJ issued his Proposal for Decision (PFD). The parties filed exceptions to the PFD on February 26, 2018, and replies to exceptions on March 8, 2018.

         The PSC granted petitioner's request for rate relief, but applied the "net CONE [Cost of New Entry]" methodology to adjust certain costs related to petitioner's provision of "capacity" services to customers who have chosen an alternative electric supplier. It therefore granted rate relief in the amount of $49, 895, 000.[2] The order granting the rate relief further specified that the new rates would go into effect two weeks after the order was entered.

         This appeal followed. On appeal, petitioner challenges two aspects of the PSC's order: (1) the two-week delay in implementation; and (2) the use of the CONE methodology. This Court granted the motion of the Michigan Electric and Gas Association (MEGA) to file a brief as amicus curiae.[3]


         This Court's standard of review for PSC orders is narrow and well defined. Under MCL 462.25, "[a]ll rates, fares, charges, classification and joint rates fixed by the [PSC] and all regulations, practices, and services prescribed by the [PSC]" are presumed to be lawful and reasonable. See also Mich Consol Gas Co v Pub Serv Comm, 389 Mich. 624, 635-636; 209 N.W.2d 210 (1973). A reviewing court should defer to the PSC's administrative expertise in reviewing an order setting rates, and should not substitute its judgment for that of the PSC. Attorney General v Pub Serv Comm No 2, 237 Mich.App. 82, 88; 602 N.W.2d 225 (1999). However, a final order of the PSC must be authorized by law and must be supported by competent, material, and substantial evidence on the whole record. Const 1963, art 6, § 28; In re Consumers Energy Co, 279 Mich.App. 180, 188; 756 N.W.2d 253 (2008). A party aggrieved by an order of the PSC has the burden of proving by clear and convincing 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 statutory requirement or abused its discretion in the exercise of its judgment. In re MCI Telecom Complaint, 460 Mich. 396, 427; 596 N.W.2d 164 (1999).

         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 Mich, 254 Mich.App. 675, 682; 658 N.W.2d 849 (2003). This includes issues of statutory interpretation. In re Complaint of Rovas, 482 Mich. 90, 102; 754 N.W.2d 259 (2008). We give an administrative agency's interpretation of relevant statutes respectful consideration, but not deference. Id. at 108.


         Petitioner and amicus MEGA argue that the PSC erred by ordering that the rate relief it granted in its April 12, 2018 order apply only to service provided on and after April 26, 2018, i.e., that the order essentially not take effect until that later date. We disagree.

         MCL 460.6a(1) conditions changes in rates or rate schedules by regulated gas or electric utilities on PSC approval. MCL 460.6a(5) requires that the PSC make a "final decision with respect to a completed petition or application to increase or decrease utility rates within the 10-month period following the filing of the completed petition or application;" otherwise, "the petition or application is considered approved." That subsection further provides that where the petitioning utility "makes any significant amendment to its filing, the commission has an additional 10 months after the date of the amendment to reach a final decision, and also that "[i]f the utility files for an extension of time, the commission shall extend the 10-month period by the amount of additional time requested by the utility."

         In this case, the parties stipulated to extend the 10-month period by 28 days, and the PSC entered its April 12, 2018 order granting rate relief precisely 10 months and 28 days after petitioner filed its petition, i.e., on the last day available for a timely decision under MCL 460.6a(5). Although that order, as adjusted by the April 27 amendatory order, substantially granted petitioner's request for a rate increase, it declared that petitioner "is authorized to implement the rates approved by this order on a service rendered basis for service provided on or after April 26, 2018." Petitioner argues that the two-week implementation delay will cost it $1.9 million, to which it claims it is entitled, which amount petitioner arrived at by calculating the weekly average of the total annual increase and then doubling that value. Petitioner also argues that by delaying implementation of the new rates by two weeks, the PSC was attempting to extend the statutory period available for it to reach a decision, and that the April 12, 2018 order, as amended, should therefore not be considered a "final decision" for purposes of MCL 460.6a(5). The result would be that petitioner's original petition should be deemed approved as filed. Both arguments hinge on the extent to which the PSC may issue an order providing that some of its aspects would not go into effect immediately. We conclude that the PSC acted within its authority in this case.


         Before addressing the issues raised by petitioner, we must first address the PSC's contention that petitioner's claim is an impermissible collateral attack on the PSC's earlier decision in In the Matter, on the Commission's Own Motion, to Revise the Standard Rate Application Filing Forms and Instructions (Case No. U-18238). In that case, the PSC undertook to reevaluate its standard filing requirements for rate cases following the enactment of Act 341. Among the issues considered was whether the PSC ...

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