Attorney General v. Michigan Public Service Com'n

• Decision Date: 06 May 1983
• Docket Number: Docket No. 58659
• Citation: 122 Mich.App. 777,333 N.W.2d 131
• Parties: ATTORNEY GENERAL, Plaintiff-Appellant, v. MICHIGAN PUBLIC SERVICE COMMISSION, Defendant-Appellee, and Consumers Power Company, Intervening Defendant-Appellee.
• Court: Court of Appeal of Michigan — District of US

Page 131

333 N.W.2d 131

122 Mich.App. 777

ATTORNEY GENERAL, Plaintiff-Appellant, v. MICHIGAN PUBLIC SERVICE COMMISSION, Defendant-Appellee, and Consumers Power Company, Intervening Defendant-Appellee.

Docket No. 58659.

Court of Appeals of Michigan.

Submitted Oct. 12, 1982.

Decided Feb. 8, 1983.

Released for Publication May 6, 1983.

Frank J. Kelley, Atty. Gen., Louis J. Caruso, Sol. Gen., and Hugh B. Anderson, Asst. Atty. Gen., for plaintiff-appellant.

Frank J. Kelley, Atty. Gen., Louis J. Caruso, Sol. Gen., and Arthur E. D'Hondt' and Don L. Keskey, Asst. Attys. Gen., for the Michigan Public Service Com'n.

Lawrence B. Lindemer, Allen B. Bass and David A. Mikelonis, Jackson, and Loomis, Ewert, Ederer, Parsley, Davis & Gotting by George W. Loomis, Harvey J. Messing and Michael G. Oliva, Lansing, for Consumers Power Co.

Before HOLBROOK, P.J., and J.H. GILLIS and DODGE, ^* JJ.

J.H. GILLIS, Judge.

The Attorney General appeals from an Ingham County Circuit Court judgment affirming an April 12, 1976, order of the Michigan Public Service Commission, which incorporated into Consumers Power Company's standard rules and regulations a purchased and net interchange power adjustment clause. The appeal also includes circuit court orders in about 35 other cases which approved monthly increases in the utility's electric rates pursuant to the purchased power adjustment clause.

The issue involved in the appeal is the statutory validity of the purchased and net interchange power adjustment clause, hereinafter referred to as the purchased power adjustment clause.

The case arises from consolidated proceedings before the Michigan Public Service Commission. On July 8, 1974, Consumers Power applied for authority to include purchased and interchange power costs in the fuel adjustment clause, which was then included in its electric rate schedules. That petition was docketed as MPSC Case No. U-4621. On May 28, 1975, Consumers Power filed an application to increase its electric rates annually by at least $118,000,000. That application was docketed as MPSC Case No. U-4840. On July 21, 1975, the commission consolidated the two cases and ordered further hearings on certain matters, including the company's request to authorize a purchased power adjustment clause. Thereafter, the commission held public hearings on the consolidated cases.

On April 12, 1976, the commission entered its final order in the consolidated cases. The decision allows the company to add to its rate schedules a clause permitting rate increases "to recognize in a timely manner increases or decreases in costs incurred or revenues received by Applicant for the purchase or sale of electric energy". The commission allowed the amendment in recognition of the fact that "power pooling transactions are an integral part of the electrical utility business today" and because "this clause will operate in tandem with the FCAC [fuel cost adjustment clause] to assure that Applicant has the incentive to provide the lowest cost available electric energy to its customers at all times". The commission was of the opinion that the FCAC and the purchased power adjustment clause should work in tandem to give the utility incentive to resort to the least costly alternative of either purchasing additional fuel for its own power generation or buying already-generated power from the power pool.

In authorizing the utility to adjust rates for purchased power and increased fuel costs, the commission limited the company to recovering only 90% of either cost as a further economic incentive. The Commission's reasoning is that: "In times of increasing costs, Applicant will necessarily exert every effort to select the particular method of supplying electrical energy which will minimize the 10% portion of the costs which do not pass through either clause. In times of decreasing costs, Applicant will similarly seek the mix which will maximize the reduction and improve revenue recoveries at the same time."

The decision requires that the company maintain a separate accounting for purchased power in order to "eliminate the possibility of any power sales revenue being overlooked in the calculation of the monthly adjustment. Such revenues will act as an offset to expenses incurred for purposes of the adjustment clause."

Recognizing that the Attorney General had ruled in 1974 that public utilities could not pass through the cost of purchased power without notice and hearing, OAG, 1973-1974, No. 4844, p 205 (November 20, 1974), the commission set up an elaborate schedule for monthly notice and hearing for approval of purchased power cost adjustments. In addition, the hearing procedure also provides for semi-annual refunds "through operation of the two adjustment clauses if revenues collected through the combined effect of the clauses exceed 90% of the increase in expense incurred. This will insure a tracking of adjustment clause revenues with expense changes from the customer's point of view. No additional customer charges will be permitted if the review contemplated shows a lesser revenue collection than changes in expenses incurred. This refund procedure provides additional protection to the customer against any potential overcharge."

Finally, the commission's decision provides for a three-month lag between the time that increased or decreased costs under the two adjustment clauses would be incurred and the time they would be billed or refunded to customers. Operating from 1975 test year data, the commission ordered that "the February 1976 fuel cost level should be 'rolled in' the energy charge and the base cost for the new fuel cost adjustment clause set at 11.98 mills per Kwh and the base cost for the purchased and interchange power clause set at 2.55 mills per Kwh to reflect Applicants level of purchases included for the 1975 test year and included in the 1975 Staff adjustments used to establish rates in this proceeding."

Under the commission's decision, the first purchased power rate adjustment would take place for the July, 1976, billing. Notice of that adjustment was given and a hearing was conducted between June 15 and June 17, 1976. By an order entered June 28, 1976, the commission allowed a purchased power cost adjustment, beginning July, 1976, of 1.9 mills per Kwh. Similar monthly hearings were held thereafter and continue to be held at this time. Between July, 1976, and February, 1982, for example, 40 increases in the cost of purchased power were allowed, 26 reductions were ordered and, in two instances, no orders were entered. The amounts of money involved under the purchased power adjustment clause are considerable. Through November, 1981, Consumers Power collected approximately $268,000,000 through purchased and net interchange power adjustments. Detroit Edison and other electric utilities in Michigan have also collected comparable amounts. These amounts represent 90% reimbursement for necessary expenditures actually made by the utilities in providing electric service to customers. The purchased power adjustment capability is important, not only because large amounts of money are involved, but also because the commission found that "there has been increasing reliance on power pooling operations and Applicant's position in recent years [has been] as a net buyer of electrical power from other utilities".

As noted, adjustments for purchased power are made after notice and hearing each month. In addition, under the commission's order, semi-annual reconcilations are conducted to even out increases and decreases in fuel costs and purchased power costs. If one or both costs have increased, then the utility recovers 90% of the increase and if one or both costs have decreased, the utility is required to refund 90% of the savings. For example, the six-month period between April and September, 1976, was reconciled at a hearing and by a June 6, 1977, order of the commission. As a result of that hearing, the commission ordered the company to refund $1,591,000 of overrecoveries by making a credit of .83 mills per Kwh on July, 1977, billings. Similarly, in its July 19, 1979, reconcilation order, covering the period of January through June, 1978, the commission found that the company had an underrecovery of $5,315,627. However, the commission refused to approve an additional charge to cover that deficiency.

The Attorney General timely appealed the commission's April 12, 1976, order to Ingham County Circuit Court. The Attorney General also appealed about three dozen commission orders establishing increases in monthly billing adjustments pursuant to the purchased power adjustment clause. The circuit court affirmed.

On appeal, the Attorney General argues that the purchased power adjustment clause procedure approved by the Public Service Commission violates the transmission of electricity act and the Public Service Commission Act in several respects. The Attorney General argues that the procedure violates Sec. 7 of the transmission of electricity act, 1909 P.A. 106; M.C.L. Sec. 460.551 et seq.; M.S.A. Sec. 22.151 et seq. Section 7 sets out the procedure for rate-making for electric companies and provides, in part, that the Public Service Commission, in setting electric rates, shall consider "all lawful elements properly to be considered to enable it to determine the just and reasonable price to be fixed for supplying electricity, including cost, reasonable return on the fair value of all property used in the service, depreciation, obsolescence, risks of business, value of service to the consumer, the connected load, the hours of the day when used and the quantity used each month". M.C.L. Sec. 460.557; M.S.A. Sec. 22.157. The Attorney General argues that the purchased power adjustment clause violates that section by considering only one factor, cost of purchased power, rather than the several factors enumerated in the section.

The Attorney General also says that purchased power adjustments...