Attorney General v. Public Service Com'n, Docket No. 112586

• Decision Date: 07 May 1991
• Docket Number: Docket No. 112586
• Citation: 189 Mich.App. 138,472 N.W.2d 53
• Parties: , Util. L. Rep. P 26,095 ATTORNEY GENERAL, Plaintiff-Appellant, v. PUBLIC SERVICE COMMISSION, Defendant-Appellee, and Consumers Power Company, Intervening Defendant-Appellee, and ABATE, Amicus Curiae.
• Court: Court of Appeal of Michigan — District of US

Page 53

472 N.W.2d 53

189 Mich.App. 138, Util. L. Rep. P 26,095

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

Docket No. 112586.

Court of Appeals of Michigan.

Submitted June 4, 1990, at Lansing.

Decided May 7, 1991, at 9:05 a.m.

Released for Publication July 29, 1991.

Frank J. Kelley, Atty. Gen., Gay Secor Hardy, Sol. Gen., and Luis F. Fernandez, Asst. Atty. Gen., for plaintiff.

Don L. Keskey, Henry J. Boynton, and Musette A. Michael, Asst. Attys. Gen., for Public Service Com'n.

Loomis, Ewert, Ederer, Parsley, Davis & Gotting, Lansing (by George W. Loomis, Michael G. Oliva, and Ronald W. Bloomberg), and David A. Mikelonis and H. Richard Chambers, Jackson, for Consumers Power Co.

Hill Lewis (by Douglas H. West, Roderick S. Coy, and Louis J. Porter), Lansing, for amicus curiae Ass'n of Businesses Advocating Tariff Equity.

Before SAWYER, P.J., and MICHAEL J. KELLY and MURPHY, JJ.

PER CURIAM.

Plaintiff appeals as of right from an opinion and order entered by the Ingham Circuit Court which affirmed the March 29 and July 24, 1985, orders of defendant Public Service Commission awarding an electric rate increase to intervening defendant Consumers Power Company in order to ensure the continued solvency of the utility in the face of the debt incurred in the construction of its Midland Nuclear Power Plant. The circuit court reasoned that the costs of the Midland project had not been shifted to Consumers' customers because these costs were expressly eliminated from the rate base calculation in the PSC's Step 1 order issued in 1984. The court also found that Sec. 7 of the transmission of electricity act, M.C.L. Sec. 460.551 et seq.; M.S.A. Sec. 22.151 et seq., authorized the PSC to consider the risks of business and the value of service to customers as independent bases for the financial stabilization rate increase, regardless of the fact that the utility's financial troubles were caused by its Midland plant investment. We affirm.

Consumers commenced this utility rate proceeding by applying for authority to increase its rates for the sale of electricity in three steps: Step 1, interim rate relief of $192,723,000 annually; Step 2, final rate relief of an additional $19,637,000 annually, based on a projected 1985 test year; and Step 3, additional rate relief in the annual amount of $564,252,000 to reflect the ratemaking effect of the future commercial operation of its Midland Unit No. 2. While these proceedings were pending, Consumers cancelled construction of the Midland Nuclear Power Plant. Subsequently, Consumers amended its rate relief application by revising its Step 3 request to reflect the cessation of construction at Midland. Step 1 of the proceedings was completed when the PSC awarded Consumers partial and immediate rate relief in the amount of $137,023,000 annually. In that order, the PSC recognized that the cancelled Midland project could no longer be considered construction work in progress and, therefore, eliminated Midland project expenses from the rate base and cost of service calculations for the 1985 test year.

Thereafter, the PSC interrupted its consideration of Step 2 of Consumers' rate relief request and immediately proceeded to Step 3 by dividing that inquiry into two steps: Step 3A, Consumers' request for prompt financial stabilization rate relief in the amount of $205 million annually in order to remedy the financial distress caused by debt related to the Midland project; and Step 3B, consideration of the rate treatment of Consumers' request for recovery of its investment in the Midland plant project in view of the reasonableness and prudence of the project's expenditures. The present appeal involves the disposition of the Step 3A proceedings only. The Step 3B proceedings are still pending before the PSC.

Following exhaustive hearings on the question of financial stabilization or cash-flow relief, the PSC entered its March 29, 1985, opinion and order. Consumers' request for a $205 million rate increase was denied because it would place the largest portion of the burden of improving the utility's financial condition on its ratepayers. However, the PSC also found that Consumers' approximately $1.9 billion in bank debt and other obligations arising out of the Midland project impaired the utility's ability to finance its seasonal fuel and gas inventories or to develop new generating capacity for future energy demands and threatened to send the company into bankruptcy. The PSC concluded that a rate increase of $99 million annually for a period of six years, conditioned upon Consumers' compliance with strict cost-cutting and debt-restructuring measures, was the option with the least total cost and the greatest benefit to the ratepaying public. The PSC reasoned that requiring Consumers to absorb the total cost of restoring the utility to financial health would inevitably impair both Consumers' ability to serve its customers and, ultimately, the growth of the state economy. Citing its authority under Sec. 7 of the transmission of electricity act, M.C.L. Sec. 460.557; M.S.A. Sec. 22.157, to consider the value of service to the customer as a factor in setting electric rates, the PSC granted a rate increase of $594 million over a six-year period, predicated upon twelve express conditions involving various cost-cutting and debt-restructuring measures.

In the July 24, 1985, opinion and order, the PSC found that Consumers had complied with the twelve conditions of its previous order and authorized the rate increase, subject to offset for the proceeds from the sale of the Midland project's nuclear fuel for a total rate increase of $564 million over six years, or $94 million annually. The PSC later reduced the annual amount of the rate increase to approximately $90 million per year to reflect the proceeds of the sale of certain salvage from the Midland project and, ultimately, to $79 million annually in 1988. Additionally, the approximately $435 million in surcharge rates received by Consumers would be set off against any relief awarded under Step 3B.

The standard by which this Court reviews decisions of the Public Service Commission is whether they are reasonable and lawful. Rates set by the PSC are presumed to be lawful and reasonable. M.C.L. Sec. 462.25; M.S.A. Sec. 22.44. The challenger has the burden of proving by clear and satisfactory evidence that the PSC's order is unlawful or unreasonable. M.C.L. Sec. 462.26; M.S.A. Sec. 22.45; Attorney General v. Michigan Public Service Comm., 122 Mich.App. 777, 796-797, 333 N.W.2d 131 (1983). Moreover, it must be shown that the PSC's findings of fact were not supported by competent, material, and substantial evidence. Const. 1963, art. 6, Sec. 28; Consumers Power Co. v. Public Service Comm., 181 Mich.App. 261, 266, 448 N.W.2d 806 (1989). The reviewing court must give due deference to the PSC's administrative expertise and is not to substitute its judgment for that of the commission. General Motors Corp. v. Public Service Comm. No. 2, 175 Mich.App. 584, 589, 438 N.W.2d 616 (1988).

I

The Attorney General argues that the Step 3A financial stabilization rate increase is unlawful because it improperly shifted the cost of the abandoned Midland Nuclear Power Plant from consumers' investors to its ratepayers in contravention of Michigan's regulatory scheme. Citing Attorney General v. Michigan Public Service Comm., 412 Mich. 385, 316 N.W.2d 187 (1982), the Attorney General contends that this state's utility regulation system does not provide for the recovery of costs incurred in the construction of unused power plants. We disagree.

We have reviewed the Supreme Court's opinion and conclude that plaintiff's reliance is misplaced. The Supreme Court considered only the scope of inquiry by the PSC when a public utility requests authorization to issue securities to finance a new power plant. In addressing the concern that the failure to inquire into a project's reasonableness before authorizing the issuance of securities would force ratepayers to bear the costs of failed projects, the Court recognized that such costs may be excluded, in whole or in part, from a utility's rate base if they are found to be unreasonable. Id., at 410-428, 316 N.W.2d 187. The opinion does not, as the Attorney General argues, suggest that all costs associated with an abandoned plant are unreasonable per se or that a utility may not recover its reasonable and prudent investment in an unused plant.

Moreover, plaintiff's argument is premature because the commission delayed consideration of the reasonableness and recoverability of Consumers' Midland project cost until Step 3B of the proceedings. By contrast, the Step 3A proceeding was not concerned with the utility's recovery of its investment in new generating capacity. Rather, it separately addressed the financial distress caused by the utility's investment in the Midland project and the resultant threat to the utility, its existing and future customers, other utilities, the state economy, and the continued regulatory authority of the commission itself. The commission essentially found that the financial stabilization relief was necessary to avoid the inevitable "cost" of allowing the utility to become insolvent. There was competent, material, and substantial evidence on the record to support this conclusion.

II

Next, plaintiff argues that the grant of a rate increase for financial stabilization was unlawful because the PSC relied on the factors set forth in Sec. 7 of the transmission of electricity act, M.C.L. Sec. 460.557; M.S.A. Sec. 22.157. According to plaintiff, Sec. 7 only gives the PSC authority to grant a rate increase to a utility when a utility consumer, city, village, or township files a complaint. Plaintiff relies on Union Carbide v. Public Service Comm., 431 Mich. 135, 161-162, 428 N.W.2d...