Attorney General v. Public Service Com'n, 59051

• Decision Date: 12 October 1982
• Docket Number: No. 59051,59051
• Citation: 118 Mich.App. 311,324 N.W.2d 628
• Parties: ATTORNEY GENERAL, Plaintiff-Appellant, v. PUBLIC SERVICE COMMISSION, Michigan Consolidated Gas Company, and Consumers Power Company, Defendants-Appellees.
• Court: Court of Appeal of Michigan — District of US

Page 628

324 N.W.2d 628

118 Mich.App. 311

ATTORNEY GENERAL, Plaintiff-Appellant, v. PUBLIC SERVICE COMMISSION, Michigan Consolidated Gas

Company, and Consumers Power Company, Defendants-Appellees.

No. 59051.

Court of Appeals of Michigan.

Submitted June 4, 1982.

Decided July 20, 1982.

Released for Publication Oct. 12, 1982.

Frank J. Kelley, Atty. Gen., Louis J. Caruso, Sol. Gen., and Hugh B. Anderson and Roderick S. Coy, Asst. Attys. Gen., for the Attorney General.

Frank J. Kelley, Atty. Gen., Louis J. Caruso, Sol. Gen., and Arthur E. D'Hondt and S. David Kutinsky, Asst. Attys. Gen., for Public Service Com'n.

Gary L. Cowan, David P. Van Note and Dennis R. O'Connell, Detroit, for intervening defendant-appellee Michigan Consol. Gas Co.

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

Before DANHOF, C. J., and BEASLEY and SWALLOW, ^* JJ.

PER CURIAM.

Appellant, the Attorney General, appeals from the July 8, 1981, order of the Ingham County Circuit Court affirming orders of the Public Service Commission of August 26, 1974, April 24, 1975, and January 3, 1977, each of which approved "special contracts" by which Michigan Consolidated Gas Company sold certain quantities of natural gas to Consumers Power Company. The commission assigned case No. U-4498 to the first application for approval of contract, and that case was left open so that the two later contracts were brought to the commission's attention by motion.

The contracts were executed during a time of an acute shortage of natural gas and during a time of accelerating gas prices arising from the world energy crisis. In a prior case, the commission had approved the purchased gas adjustment (hereinafter PGA) by which an energy utility such as Consumers Power Company could automatically increase its retail gas rate to reflect increased prices of purchased gas.

The price offered by Michigan Consolidated under the first of these three contracts (dated October 16, 1973) and finally accepted by Consumers Power Company, was $.87 per thousand cubic feet. That price was approximately the price Michigan Consolidated charged its retail customers. Hearings were held on January 25, 1974, March 27, 1974, and on April 8-16, 1974.

The Attorney General participated in these hearings and presented expert testimony. He contended that Michigan Consolidated should have sold the gas to Consumers Power at its wholesale cost of about $.5462 per Mcf to avoid a "windfall profit" to Michigan Consolidated. The hearing referee and, later, the commission, rejected the testimony and argument of the Attorney General. In its opinion and order of August 26, 1974, the commission approved the contract and the contract rate. It made the following findings, in part:

"On May 25, 1973, this Commission approved a special contract in Case No. U-4333 which called for the sale by Consolidated to Consumers of 10 billion cubic feet of gas at a price of 87 cents per Mcf. * * *

"12. The Commission finds that the contract price of 87 cents per Mcf is reasonable and should be approved. As a unanimous Commission ruled in Case No. U-4333, the test of the reasonableness of a special contract price is whether it makes an appropriate contribution to the utility's cost of service and imposes no cost burden on its other customers. The evidence of record shows that during 1973, the average rate paid by Consolidated's ratepayers for gas purchased under Consolidated's rate schedules was 88.3 cents per Mcf. Thus, the price of 87 cents per Mcf for gas delivered to Consumers in 1973 falls slightly short of making its full contribution to Consolidated's cost of service, but the cost burden on other customers, if any, is not substantial. With respect to the 6.8 billion cubic feet, it is clear that Consolidated's heating customer would have paid in excess of 87 cents per Mcf for the gas had weather been normal in Consolidated's service area. The Commission also finds that the 87 cents per Mcf price is reasonable with respect to the 3.4 billion cubic feet purchased in December, 1973. Inasmuch as it appears its availability was occasioned by warmer than normal weather conditions, the finding as to its price is similar to the 6.8 billion cubic feet optioned in March, 1974. Even if the gas was 'surplus', however, the contract price is reasonable. While much ado has been made of the lack of Consumers' ability to bargain at arms length due to its adverse supply situation, it is apparent that the parties were influenced by this Commission's unanimous decision in Case No. U-4333 which found 87 cents per Mcf a reasonable standard. Moreover, the record is clear that Consumers was in need of this additional supply, priority No. 2 being closed at the time of purchase and proceedings regarding curtailment of firm customers underway before the Commission. Additionally, while the parties dispute the specific methodology of determining the cost of new gas, such as the December, 1973 3.4 billion cubic feet quantity may be characterized, the record shows that the price provided in the contract is less than the cost of new interstate gas to Consolidated when priced on an incremental basis. Similarly there is no dispute that the cost of other competitive energy such as residual fuel oil, distillates and propane, when calculated on a BTU equivalent basis, far exceeds the 87 cent price. Finally, a unanimous Commission approved the sale by Consolidated to Michigan Gas Utilities Company of 2 billion cubic feet of gas at the 87 cent per Mcf price plus purchased gas adjustment on May 20, 1974 in Case No. U-4572 as reasonable.

"13. The sale of 10.2 billion cubic feet of gas to Consumers does not impair or adversely affect Consolidated's ability to meet its responsibility to serve its present customers or continue to furnish additional service requirements under Categories One through Four of its Controlled Service Program. The record does not reflect and the Commission is not satisfied that the 10.2 billion cubic feet of gas...