Michigan Gas Storage Co. v. Michigan Public Service Commission, Docket No. 59196

Decision Date05 February 1979
Docket NumberNo. 17,Docket No. 59196,17
Citation405 Mich. 376,275 N.W.2d 457
PartiesMICHIGAN GAS STORAGE COMPANY, Plaintiff-Appellee, v. MICHIGAN PUBLIC SERVICE COMMISSION, Defendant-Appellant. Calendar405 Mich. 376, 275 N.W.2d 457
CourtMichigan Supreme Court

Law Offices of Albert J. Thorburn, Albert J. Thorburn, James R. Anderson, Lansing, and David A. Mikelonis, Jackson, for plaintiff-appellee.

Frank J. Kelley, Atty. Gen., Robert A. Derengoski, Sol. Gen., Walter V. Kron, Robert J. Taube, Asst. Attys. Gen., for defendant-appellant.

RYAN, Justice.

The Michigan Public Service Commission (the Commission or PSC), an administrative agency of the State of Michigan, pursuant to M.C.L.A. § 460.301; M.S.A. § 22.101, 1 possesses the authority to regulate the security issuances of certain companies.

On March 11, 1974, appellant Michigan Gas Storage Company (Storage Company) filed an application for Disclaimer of Jurisdiction or, in the alternative, Application Under Protest for Authorization to Issue Securities with the Commission. Storage Company sought either a determination that the Commission was without authority to regulate its security issuances or, in the event the Commission declined to disclaim jurisdiction, approval of the proposed securities issuance.

Public hearing on the application was held on March 29, 1974. Evidence adduced at the hearing by Storage Company established that it is a corporation organized and existing under the laws of the State of Michigan and is a wholly owned subsidiary of Consumers Power Company.

As authorized by its articles of incorporation, Storage Company is engaged in the purchase and transportation of natural gas in interstate commerce and the sale of such gas at wholesale for resale for ultimate public consumption. Storage Company purchases its natural gas supply from Panhandle Eastern Pipe Line Company and sells it to its sole customer, Consumers Power Company. Consumers Power Company is a public utility which operates in the State of Michigan and sells gas at retail to the public for domestic, commercial and industrial use.

As a natural gas company transporting and selling gas in interstate commerce, the operation of Storage Company was within the jurisdiction of the Federal Power Commission (FPC) under the regulatory powers granted in the Natural Gas Act, 15 U.S.C. § 717 Et seq. At the time this case was initiated, the Federal Power Commission was the regulatory authority under the Federal Power Act. Under 42 U.S.C. § 7101 Et seq., the Department of Energy Organization Act, the functions of the FPC were transferred to the Department of Energy and the Federal Energy Regulatory Commission.

With respect to the securities proposed to be issued in this case, Storage Company had applied neither to the Federal Power Commission, Securities and Exchange Commission or any state regulatory commission for approval prior to the March hearing. The issuance, the borrowing of $7,500,000 in exchange for Storage Company's unsecured note to refinance a note for the same amount, was scheduled to take place on April 30, 1974, the due date for the expiring note. Storage Company had, however, filed an application with the FPC on February 15, 1974, seeking approval of a requested rate change to cover the increased costs that would be incurred as a result of the terms of the refinancing.

On April 15, 1974, the Commission issued its decision and order denying Storage Company's request for disclaimer of jurisdiction and authorized the proposed issuance. Storage Company had previously paid, under protest, the applicable security issuance fee of $7,500. 2

Storage Company's application for rehearing was denied by the Commission on July 28, 1975.

Leave to appeal was granted by the Court of Appeals. The case was consolidated for hearing and argument with Indiana & Michigan Power Co. v. Public Service Commission, 404 Mich. ---, 275 N.W.2d 450 (1979). In an opinion issued November 22, 1976, the Court of Appeals reversed, holding that the Commission was without jurisdiction to regulate the securities issuances of Storage Company and ordered the refund of the statutory issuance fee. 72 Mich.App. 384, 249 N.W.2d 422 (1976).

The Court of Appeals, after reviewing the regulatory structure applicable to Storage Company, concluded that securities regulation under M.C.L.A. § 460.301; M.S.A. § 22.101 "is ancillary to the Commission's general power to control rates, services and facilities."

We granted leave to appeal and also consolidated the case for hearing with Indiana & Michigan Power Co., supra, in which leave was also granted. 400 Mich. 805 (1977).

The sole issue before the Court is whether the PSC may exercise any regulatory authority over the securities of Storage Company. We hold that it may.

I.

We believe some exposition of our understanding of the regulatory framework will assist in setting the issues in perspective. At the outset, we must agree with the Court of Appeals that the record in this case is indeed sparse. As that court noted, Storage Company, the moving party, bears the burden of producing sufficient evidence on which a conclusion of lack of jurisdiction can be based. The company claimed below that the record was sufficient to decide the jurisdictional issue.

As established at the hearing, it appears that Storage Company's operations consist of the purchase, transportation, storage and sale of natural gas. The Company's supply of gas is purchased from an interstate pipe line company. All of that gas is then sold to Consumers Power Company which owns all of the outstanding stock in Storage Company. There is no evidence in the record that Storage Company owns any facilities or significant assets that are located outside the state. Nor is there any evidence whether, or how much, if any, of the gas sold to Consumers is ultimately consumed outside the state.

As a company engaged in the purchase and transportation of natural gas acquired from an interstate pipe line, which gas is sold at wholesale for resale, Storage Company is subject to the provisions of the Federal National Gas Act, Supra. Under that act the Federal Power Commission exercised regulatory authority over Storage Company's rates, services and facilities. The Michigan Public Service Commission does not assert jurisdiction over these aspects of the Company's activities. 3

II.

The holding of the Court of Appeals, as we read that court's opinion, was based on its determination that the Legislature intended securities regulation of utility companies to be ancillary to rate regulation and that therefore no jurisdiction would exist for the Commission to regulate the securities of a company whose rates were not also being regulated by the Commission.

Relying on the decision of another panel of the Court of Appeals in Great Lakes Transmission Co. v. Michigan Public Service Commission, 24 Mich.App. 77, 180 N.W.2d 59 (1970), the court below opined:

"The very standards which the Commission must use in M.C.L.A. 460.301; M.S.A. 22.101 require the exercise of judgment as to whether use of the capital involved is 'reasonably required for the purposes of such * * * corporation'. * * * These judgments necessarily involve consideration of the propriety of Storage Company's rates, services and facilities. As this court recognized in Great Lakes Transmission Co., supra, the capitalization of a company is integrally related to its rates of return and financial status, and in turn must have a direct bearing on the rates set by the agency in oversight. It would be at cross purposes to the legislative schemes of both this state and the Congress to split the authority over rates and security issuances." 72 Mich.App. 384, 396, 249 N.W.2d 422, 428.

Although the court's opinion mentions concern for the effects state securities regulation might have on federal authority over rates, its holding rests on state law grounds. 4

We do not agree with the Court of Appeals' reading of the legislative intent.

Putting aside for the moment the problems presented by federal regulation of rates, services and facilities and the impact of the Commerce Clause of the United States Constitution, we see no basis for concluding that the Legislature intended securities to be regulated only where rates were also being regulated.

First, there is no indication in the language of the statute that regulatory jurisdiction over securities issuances was to be invoked only where rates were also being regulated. The Legislature has, in other provisions of statutes dealing with public utilities, referred to other enactments that must apply in order to trigger applicability of a particular section of the law. The most obvious example in the statutory provisions we are concerned with is the section levying the security issuance fee. It recites "whenever any (securities) * * * are authorized to be issued in accordance with any law of this state". M.C.L.A. § 460.301; M.S.A. § 22.101 makes no similar reference to other activities of the Commission.

Indeed, the plain language of the statute evinces a legislative intent to apply its provisions to the enumerated companies without condition. We are hesitant to read language into the statute which the Legislature, for its own reasons, chose not to use.

Moreover, we are convinced that the regulation of securities of utility companies was intended to serve interests that rate regulation alone might be inadequate to protect.

As the portion of its opinion quoted Supra indicates, the Court of Appeals viewed securities regulation as being complementary to rate regulation and concluded that the Legislature would not choose to regulate securities where it did not assert similar authority over rates.

While we agree that securities regulation and the attendant financial structure resulting from it will clearly have an effect on ratemaking just as the issuance of securities without the approval of a regulatory...

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