Attorney General v. MPSC, Docket No. 115549, COA No. 205844.

Citation463 Mich. 912,618 N.W.2d 904
Decision Date22 November 2000
Docket NumberDocket No. 115549, COA No. 205844.
PartiesATTORNEY GENERAL, Plaintiff-Appellant, v. MICHIGAN PUBLIC SERVICE COMMISSION and Peninsular Gas Company, Defendants-Appellees.
CourtSupreme Court of Michigan

On order of the Court, the application for leave to appeal from the June 18, 1999 decision of the Court of Appeals is considered, and it is DENIED, because we are not persuaded that the questions presented should be reviewed by this Court.

CORRIGAN, J., concurs and states as follows:

I concur in the denial of leave to appeal. The Court of Appeals correctly declined to second-guess the Michigan Public Service Commission's (PSC) discretionary exercise of its legislative ratemaking authority. The PSC acted in the interest of Michigan utility customers by ensuring that a small utility company does not go bankrupt.

Peninsular Gas Company serves fewer than 4,000 customers in Michigan's Upper Peninsula. The Michigan Department of Environmental Quality (MDEQ) identified contamination on Peninsular's plant site and a nearby wetland. The contamination resulted from manufactured gas operations that had occurred several decades earlier. Under the Michigan environmental remediation act (MERA), 1982 PA 307; MCL 324.20101 et seq.; MSA 13A.20101 et seq., the MDEQ ordered Peninsular to pay assessment and remediation costs, initially estimated in the range of two to five million dollars. Peninsular was unable to pay the costs or obtain a loan.

Peninsular filed an application with the PSC for a rate increase to cover the environmental costs. The Michigan Attorney General intervened and opposed the application. The PSC determined that the environmental costs were unusual and would probably force Peninsular into bankruptcy. Granting rate relief to Peninsular would therefore serve the public interest. The PSC offered two options: 1) deferring the environmental costs and amortizing them over ten years, or 2) surcharging customers for seventy-five percent of the costs. Peninsular chose the latter option. The Court of Appeals affirmed the PSC's ruling. Attorney General v. PSC, unpublished opinion per curiam of the Court of Appeals, issued June 18, 1999 (Docket No. 205844). The Attorney General now appeals to this Court.

I agree with and adopt the reasoning contained in the Court of Appeals opinion:

The PSC's rate order is presumed prima facie to be lawful and reasonable. MCL 462.25(1); MSA 22.44(1). On appeal, appellants have the burden to show by clear and satisfactory evidence that the PSC's order was unlawful or unreasonable. MCL 462.26(8); MSA 22.45(8); Michigan Intra-State Motor Tariff Bureau, Inc. v. PSC, 200 Mich.App. 381, 387, 504 N.W.2d 677 (1993). Appellants have not satisfied their burden.
In determining Peninsular's just and reasonable rates, the PSC had to determine Peninsular's reasonable costs of doing business. Detroit Edison v. PSC, 221 Mich.App. 370, 374, 562 N.W.2d 224 (1997); Detroit Edison v. PSC, 127 Mich.App. 499, 524, 342 N.W.2d 273 (1983). The PSC had the discretion to determine what charges and expenses to allow as costs of operation. Detroit v. Michigan Public Service Comm., 308 Mich. 706, 716-717, 14 N.W.2d 784 (1944); Detroit Edison v. PSC, supra at 524, 342 N.W.2d 273.

Appellants are not persuasive in arguing that any portion of the environmental clean-up costs should not be considered operating expenses of Peninsular. The costs must be paid by Peninsular.

The costs are based upon Peninsular's ownership of property which the PSC found was currently needed in the ordinary course of Peninsular's service to its customers. The evidence did not indicate to the PSC that standards were violated when the waste dumping occurred which resulted in the contamination which now must be cleaned up. The evidence strongly indicated that Peninsular would face bankruptcy if rate relief were not provided.
The PSC's ratemaking process involved a balancing of the interests of Peninsular and its customers. Building Owners & Managers Ass'n of Metropolitan Detroit v. Public Service Comm., 424 Mich. 494, 510, 383 N.W.2d 72 (1986); Detroit v Michigan Public Service Comm., supra at 716, 14 N.W.2d 784; ABATE v. PSC, 208 Mich.App. 248, 267, 527 N.W.2d 533 (1994). The financial solvency of Peninsular was a legitimate factor for the PSC to consider. Michigan Bell Telephone Co. v. PSC, 332 Mich. 7, 38, 50 N.W.2d 826 (1952); Attorney General v. PSC, 189 Mich.App. 138, 472 N.W.2d 53 (1991). There is a value in continuity of service to ratepayers and there is a risk to ratepayers in the uncertainty accompanying the bankruptcy of their utility. The PSC performed the necessary balancing.
Appellants have not shown that the PSC abused its discretion in exercising its legislative ratemaking authority. Detroit Edison v. PSC, supra at 524, 342 N.W.2d 273. This Court accords deference to the judgment of the PSC in exercising its legislative function. Consumers Power Co. v. Public Service Comm., 226 Mich.App. 12, 21, 572 N.W.2d 222 (1997). The fact that the contamination arose from a different utility service provided to different customers in past years or that some of the environmental expense is associated with contamination which leeched into property not owned by Peninsular and which never provided utility service, does not change the fact that Peninsular is incurring a significant expense in the course of its business in the present. The costs involved are necessary costs for Peninsular to operate, and the costs are actually related to Peninsular's current property because that property is the source of the contamination.

We note that other courts have reached a similar result. See Chesapeake Utilities v. Delaware Public Service Comm., 705 A.2d 1059 (Del.Super., 1997), In the Matter of the Request of Interstate Power, 559 N.W.2d 130 (Minn.App., 1997), and Citizens Utility Bd. v. Illinois Commerce Comm., 166 Ill.2d 111, 117, 122-125, 209 Ill.Dec. 641, 651 N.E.2d 1089 (1995). An exception is Indiana Gas Co. v. Office of Utility Consumer Counselor, 675 N.E.2d 739 (Ind.App., 1997). However, in Indiana Gas Co. the contamination related to sites purchased by the utility after the polluting activity had ceased. The Indiana Court expressly recognized that its result might be different if the utility had owned the sites when they were used as manufactured gas facilities. [Attorney General v. PSC, at pp. 54-55.]

Our dissenting colleague questions the Court of Appeals analysis. She would grant leave to review the Attorney General's contention that the rate increase was unlawful, i.e., that it involved an erroneous interpretation or application of law. Associated Truck Lines, Inc. v. Public Service Comm., 377 Mich. 259, 140 N.W.2d 515 (1966). Specifically, the dissent relies on the Legislature's findings and declarations set forth in subsections 20102(e) and (f) of the MERA:

(e) That the responsibility for the cost of response activities pertaining to a release or threat of release and repairing injury, destruction, or loss to natural resources caused by a release or threat of release should not be placed upon the public except when funds cannot be collected from, or a response activity cannot be undertaken by, a person liable under this part.

(f) That liability for response activities to address environmental contamination should be imposed upon those persons who are responsible for the environmental contamination.

The Attorney General argues that Peninsular has shifted responsibility for the contamination to the public, contrary to the legislative intent behind the MERA.

The Attorney General's argument is not persuasive. The MERA does not affect the PSC's ratemaking authority. It contains no language purporting to limit the kinds of expenses that the PSC may consider when setting utility rates.

Section 20102 states that the government may not charge the public for environmental cleanup expenses unless the responsible person cannot pay or undertake the cleanup. The MERA does not, however, purport to govern the manner in which a responsible person generates the funds to pay cleanup expenses. Businesses and utilities generally derive income from customers and, by the same token, offset expenses by passing them onto customers. Nothing in the MERA stands for the extraordinary proposition that a public utility must face bankruptcy rather than seek to increase its rates. The Attorney General's position lacks any basis in statutory or case law. If adopted, the availability of utility service for thousands of Michigan citizens would be disrupted.

I reject the dissent's contention that my position frees the PSC from the provisions of the MERA. Concededly, the PSC's orders must be lawful and reasonable, but the Attorney General has not shown by clear and satisfactory evidence that the PSC's order was unlawful. Neither the Attorney General nor our dissenting colleague have identified any provision of the MERA that confines the PSC's discretion to determine what charges and expenses to allow as costs of operation.

The dissent confuses the imposition of liability on a responsible person with the normal business practice of passing expenses on to customers. The dissent has not considered subsections 20102(i) and (j), which require a unit of government to assume responsibility when it is liable under the act in the same manner as other responsible persons. When a governmental entity becomes liable, the taxpayers inevitably foot the bill. Under the dissent's reasoning, § 20102 is internally inconsistent. On the one hand, subsections e and f bar a responsible person from passing on costs, but on the other hand, subsections (i) and (j) require a responsible governmental entity to pass costs on to taxpayers.

Fortunately, this contradiction does not arise because the dissent's construction has no basis in the text of subsections (e) and (f). As discussed, those subsections do not govern the means by which a responsible...

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