CMS Energy Corp. v. Attorney General
| Decision Date | 09 July 1991 |
| Docket Number | Docket No. 129241 |
| Parties | , Util. L. Rep. P 26,126 CMS ENERGY CORPORATION, Consumers Power Company, CMS Enterprises Company, CMS Midland, Inc., MEC Development Corporation, CMS Midland Holdings Company, and Midland Group Limited, Plaintiffs-Appellants, v. ATTORNEY GENERAL and Abate, Defendants-Appellees, and Michigan Public Service Commission, Appellee. |
| Court | Court of Appeal of Michigan — District of US |
Dykema Gossett by Richard J. McClear and Robert J. Franzinger, Detroit, and Loomis, Ewert, Ederer, Parsley, Davis & Gotting by George W. Loomis and Michael G. Oliva, Lansing, and David A. Mikelonis and James E. Brunner, Consumers Power Co., Jackson, for the plaintiffs-appellants.
Frank J. Kelley, Atty. Gen., Gay Secor Hardy, Sol. Gen., and Luis F. Fernandez and Paul F. Novak, Asst. Attys. Gen., for the Atty. Gen.
Hill Lewis by Roderick S. Coy, Louis J. Porter, and Joseph R. Assenzo, Lansing, for Association of Businesses Advocating Tariff Equity.
Don L. Keskey and Henry J. Boynton, Asst. Attys. Gen., for the Michigan Public Service Com'n.
Before NEFF, P.J., and MURPHY and MARILYN J. KELLY, JJ.
Consumers Power Company, a regulated utility company, its nonregulated corporate parent, CMS Energy Corporation, and certain nonregulated subsidiaries appeal as of right, M.C.L. Sec. 462.26; M.S.A. Sec. 22.45, from a May 23, 1990, order of the Michigan Public Service Commission. Among other things the PSC found that "proceeds" in the form of cash, debt, and equity received by nonregulated subsidiaries of CMS Energy belonged to Consumers. The PSC ordered the proceeds returned to Consumers, where they would be used to improve Consumers' "financial health." The proceeds were received in exchange for the assets of the unfinished nuclear power plant in Midland that once had been owned by Consumers. The value of the proceeds is in the area of $1.4 to $1.8 billion.
The PSC's order enforced an aspect of its March 29, 1985, order in U-7830 Step 3A known as "condition 11":
(11) Within 45 days of the earlier of receiving, directly or indirectly, any proceeds or notice of the date on which it will receive proceeds from the sale or salvage of the Midland plant, its fuel or related facilities, or from litigation related to their construction or fabrication, Consumers shall file an application specifying how it proposes to use those proceeds. The Commission will schedule a hearing and at the conclusion issue an order specifying the proper use of those funds. Other issues as appropriate may also be addressed in those hearings.
Condition 11 was one of twelve conditions that the PSC required Consumers to agree to in order for Consumers to obtain special rate relief in the form of an annual surcharge. About $434 million was eventually collected by Consumers as a result of that special rate relief. The authority of the PSC to impose the surcharge was considered in Attorney General v. Public Service Comm, 189 Mich.App. 138, 472 N.W.2d 53 (1991). For purposes of this opinion, it is recognized that the rate surcharge was extraordinary and was granted because of Consumers' dire financial condition caused in large part by the costs of the unfinished Midland nuclear plant.
The PSC was willing to grant Consumers' request for extraordinary rate relief only if Consumers first agreed to twelve conditions. The PSC's March 29, 1985, order required that Consumers' board of directors commit itself "to comply fully with the letter and spirit" of the PSC's order, including the twelve conditions. Consumers' board so agreed by adopting a resolution on or about May 1, 1985. Similar resolutions were adopted in 1986, 1987, 1988 and 1989. The PSC formally granted the rate relief in a July 24, 1985, order, after finding that Consumers had satisfactorily complied with or committed itself to comply with the conditions. The PSC granted the rate increase "subject to Consumers' continued compliance with this order and the Commission's March 29, 1985 order."
In 1986, Consumers decided to convert the then-abandoned Midland nuclear plant into a gas-fired cogeneration plant. Under condition 5 of the 1985 orders, all surcharge rates collected were subject to immediate refund if Consumers was involved in any further construction of the Midland plant. On October 22, 1986, as a part of its consideration of U-7830 Step 3A and 3B and U-8431, the PSC granted relief from condition 5 to the extent Consumers' participation in the conversion project did not involve jurisdictional revenues and involved only assets which would never be the basis for any future rates. Consumers then ceased its efforts in U-7830 Step 3B for rate relief related to the Midland assets in order to use those assets in the conversion project.
In late 1986, Consumers created two subsidiaries, CMS Midland, Inc., and MEC Development Corporation, to carry out its participation in the conversion project. In January and August of 1987, Consumers conveyed $1.5 billion of Midland assets to these two companies for stock of the companies. In April 1988, Consumers created a wholly owned subsidiary, Midland Group, Ltd. (MGL), and transferred its stock in CMS Midland and MEC Development to the MGL in exchange for the MGL stock. Also, in May 1987, Consumers underwent a corporate reorganization which created CMS Energy as an unregulated holding company, with Consumers its principal subsidiary.
In connection with the expected commercial operation of the conversion project in the spring of 1990, Consumers anticipated receiving more than $1 billion in securities from the Midland Cogeneration Venture Limited Partnership (MCV), which would operate the Midland facility. The securities were in exchange for the Midland assets contributed to the project by Consumers.
On January 3, 1990, the Association of Businesses Advocating Tariff Equity (ABATE) filed a motion/verified complaint requesting the PSC to restrict Consumers' use of the securities until a condition 11 hearing could be conducted to determine their use as "proceeds." ABATE's request was filed in the ongoing compliance hearing (required by condition 10) for 1988. On January 29, 1990, the PSC ordered an expedited hearing to be held on February 21, 1990, with briefs to be filed on March 2 and 9.
On March 8, 1990, the directors of CMS Energy and Consumers met and authorized the MGL (CONSUMERS' subsidiary) to sell its stock in CMS Midland and MEC Development to CMS Energy. CMS Energy would pay for the stock with a $1.4 billion debenture. Among the reasons given for the transaction at the directors' meetings were to "move cash to CMS to fund non-utility business growth," to "insulate cash from confiscation," and because "recent regulatory proposals related to seizure of shareholder assets precipitate action now." William McCormick, chairman of the board of both CMS Energy and Consumers, confirmed in testimony that one of the objectives of the transaction was to avoid regulatory control of the "proceeds" received from the MCV.
The transaction occurred on March 12, 1990. The "proceeds" received, and at issue here, are the cash, notes, and other debt and equity interests exchanged by the MCV for the Midland plant assets contributed to the conversion project. These "proceeds" went to the subsidiaries that CMS Energy purchased from Consumers for the $1.4 billion debenture.
On March 12, 1990, Consumers also moved to terminate all further surcharge rate relief granted in 1985. The PSC promptly granted Consumers' motion on March 13, but provided that elimination of the surcharge did not resolve all issues relating to the surcharge.
On March 27, the PSC responded to numerous pleadings by ordering a consolidated comprehensive case review of Consumers' compliance with the 1985 orders during 1988, 1989, and 1990. Meanwhile, the Attorney General had obtained a temporary restraining order in the Ingham Circuit Court on March 14, 1990, preventing any transfer of the proceeds. On March 29, the Ingham Circuit Court ordered the PSC to conduct an expedited review of issues pertaining to the proceeds. The PSC did this by "carving out" the proceeds issues from the comprehensive proceeding commenced by its March 27 order. This carved-out proceeding (U-9611 and U-7830 Step 3A) resulted in the PSC's May 23, 1990, opinion and order which is the subject of this appeal.
In its May 23 opinion, the PSC found that the cash, debt, and equity interest received from the sale of the Midland plant assets constituted proceeds under condition 11. The PSC disregarded the corporate restructuring that resulted in the proceeds being received by unregulated subsidiaries of CMS Energy and ruled that the proceeds belonged to Consumers. The PSC left for the future the issue of what could be done with the proceeds under condition 11, but ruled that exchanging the proceeds for the $1.4 billion debenture was not proper, after finding that the debenture was not satisfactory consideration and carried too much financial risk.
Appellants challenge the PSC's authority to control the proceeds that are now in the hands of nonregulated corporate entities. Appellants argue that the PSC's May 23 order constituted a "newly-stated, novel misinterpretation of Condition 11." (Emphasis by appellants.)
This is an appeal from the PSC's May 23, 1990, order, not from the PSC's orders of March 29, 1985, or July 24, 1985, which granted the surcharge rate relief and established condition 11. Appellants admit this and, indeed, this Court is without jurisdiction to review PSC orders from 1985 at this late date. M.C.L. Sec. 462.26(1); M.S.A. Sec. 22.45(1); Attorney General v. Public Service Comm., 172 Mich.App. 778, 432 N.W.2d 437 (1988). Consequently, our review must accept the fact of condition 11. We do not consider the extent of the PSC's authority to impose conditions...
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