Detroit Edison Co. v. PSC

Decision Date26 May 2004
Docket NumberDocket No. 237874.,Docket No. 237872,Docket No. 237873
Citation680 N.W.2d 512,261 Mich. App. 1
PartiesDETROIT EDISON COMPANY, Appellant, v. MICHIGAN PUBLIC SERVICE COMMISSION, Michigan Alliance for Fair Competition, Midland Cogeneration Venture Limited Partnership, Energy Michigan, Inc., Association of Businesses Advocating Tariff Equity, Alpena Power Company, Exelon Energy Company, Wisconsin Public Service Corporation, Upper Peninsula Power Company, Wisconsin Electric Power Company, and Northern States Power Company Wisconsin, d/b/a XCEL Energy, Appellees. Michigan Electric Cooperative Association, Appellant, v. Michigan Public Service Commission, Michigan Alliance for Fair Competition, Midland Cogeneration Venture Limited Partnership, Energy Michigan, Inc., Association of Businesses Advocating Tariff Equity, Alpena Power Company, Exelon Energy Company, Wisconsin Public Service Corporation, Upper Peninsula Power Company, Wisconsin Electric Power Company, and Northern States Power Company Wisconsin, d/b/a XCEL Energy, Appellees. Consumers Energy Company, Appellant, v. Michigan Public Service Commission, Michigan Alliance for Fair Competition, Midland Cogeneration Venture Limited Partnership, Energy Michigan, Inc., Association of Businesses Advocating Tariff Equity, Alpena Power Company, Exelon Energy Company, Wisconsin Public Service Corporation, Upper Peninsula Power Company, Wisconsin Electric Power Company, and Northern States Power Company Wisconsin, d/b/a XCEL Energy, Appellees.
CourtCourt of Appeal of Michigan — District of US

Bruce R. Maters and John P. Christinidis, and Foster, Swift, Collins & Smith, P.C. (by William K. Fahey and Stephen J. Rhodes), Detroit, Lansing, for Detroit Edison Company.

Dykema Gossett PLLC (by Albert Ernst and Christine Mason Soneral), Lansing, for Michigan Electric Cooperative Association.

David A. Mikelonis, Jon R. Robinson, and John C. Shea, Jackson, for Consumers Energy Company.

Michael A. Cox, Attorney General, Thomas L. Casey, Solicitor General, David A. Voges, Henry J. Boynton, and David M. Gadaleto, Assistant Attorneys General, for Public Service Commission.

Clark Hill PLC (by Roderick S. Coy and Haran C. Rashes), Okemos, for Michigan Alliance for Fair Competition.

Varnum, Riddering, Schmidt & Howlett LLP (by Eric J. Schneidewind), Lansing, for Energy Michigan, Inc.

Clark Hill PLC (by Roderick S. Coy and Haran C. Rashes), Okemos, for Michigan Propane Gas Association. Before: METER, P.J., and TALBOT and BORRELLO, JJ.

BORRELLO, J.

In these consolidated cases, appellants Detroit Edison Company (DEC), Michigan Electric Cooperative Association, and Consumers Energy Company (CEC) appeal as of right from the orders entered by appellee Michigan Public Service Commission (PSC) imposing and modifying a code of conduct governing the relationships between the utilities and their affiliates. We affirm in each case.

I. Underlying Facts and Proceedings

Beginning in 1997, the PSC issued a series of orders establishing the rates, terms, and conditions for retail open access for DEC and CEC, both of which are regulated suppliers of electric power. Retail open access allows the customers of aparticipating utility to purchase electric power from either a competitive affiliate of the utility or an alternative electric power supplier and to have the participating utility deliver the power to the customers. In 1999, the PSC approved provisional codes of conduct for DEC and CEC. These codes of conduct were approved in the context of a voluntary commitment by those utilities to offer retail open access and were designed to ensure that the utilities' unregulated affiliates did not receive preferential treatment in their service areas. On September 14, 1999, the PSC, acting sua sponte, initiated a contested case proceeding, docketed as Case No. U-12134, to determine what modifications, if any, should be made to the codes of conduct. The PSC granted motions to intervene filed by the Attorney General and appellees, and conducted an extensive contested case proceeding pursuant to the Administrative Procedures Act (APA), MCL 24.201 et seq.

Before a final order in Case No. U-12134 was issued, 2000 PA 141, the Customer Choice and Electricity Reliability Act (Act 141), MCL 460.10 et seq., became effective. The Legislature enacted Act 141 to further the deregulation of the electric utility industry in Michigan. Attorney General v. Public Service Comm., 249 Mich.App. 424, 426, 642 N.W.2d 691 (2002). The stated purposes of Act 141 included: (a) ensuring that electric power customers have a choice of electric suppliers, (b) allowing the PSC to foster competition in the provision of electric supply and to maintain regulation of that supply, (c) encouraging the diversification of ownership of electric supply, (d) ensuring that all persons in Michigan are provided reliable electric power at affordable rates, and (e) improving opportunities for economic development in Michigan and promoting competitive and financially healthy utilities. MCL 460.10(2).

Act 141 required the PSC to establish a code of conduct applicable to all regulated electric utilities. MCL 460.10a(4) provided:

Within 180 days after the effective date of the amendatory act that added this section,[1] the commission shall establish a code of conduct that shall apply to all electric utilities. The code of conduct shall include, but is not limited to, measures to prevent cross-subsidization, information sharing, and preferential treatment, between a utility's regulated and unregulated services, whether those services are provided by the utility or the utility's affiliated entities. The code of conduct established under this subsection shall also be applicable to electric utilities and alternative electric suppliers consistent with section 10, this section, and sections 10b through 10bb.

In light of the requirement of MCL 460.10a(4) to produce a generally applicable code of conduct, the PSC issued an order providing for additional hearings in Case No. U-12134. Following the additional hearings, the PSC agreed to read the record, thus obviating the need for a proposal for decision. See MCL 24.281(1).

The PSC then issued an order adopting a new code of conduct applicable to all electric utilities and alternative electric suppliers. The PSC determined that the language of MCL 460.10a(4) indicated that the Legislature intended the code of conduct to apply beyond those services directly related to the retail open access market and stated as follows:

The Commission concludes, from the language of the statute, that the Legislature intended the code of conduct to apply beyond activities in the retail open access market. The language of subsection 10a(4) is broad in declaring that the code of conduct shall prevent subsidization, information sharing, and preferential treatment "between a utility's regulated and unregulated services." The Commission does not view it as an oversight that the Legislature did not say "between a utility's regulated services and retail open access services." In addition, the issue of the scope of the code was before the Legislature. In that context, the use of expansive language about the scope of the code of conduct is a further indication that the Legislature did not intend to limit the scope to only retail open access.

The code of conduct required that competitive services and products be offered through one or more affiliates of a utility, i.e., separate corporations or other entities within a corporate structure, such as a division. To maintain the required separation between a utility and an affiliate or a division, a utility was prohibited from subsidizing its affiliates or other entities; sharing books or records with its affiliates or other entities; sharing facilities, equipment, or operating employees with its affiliates or other entities; supplying financing or loan support for its affiliates or other entities; or engaging in joint advertising with its affiliates or other entities. The code of conduct prohibited a regulated utility from "unduly" discriminating in favor of or against any party, including any of its affiliates. The PSC concluded that the use of modifiers such as "unduly" was appropriate to indicate that any difference in treatment must be justified on a rational basis apart from the relationship or lack of relationship between the parties.

Various parties sought rehearing. The PSC granted rehearing and issued an order making revisions to the code of conduct. The PSC rejected appellants' argument that it lacked the statutory authority to adopt a code of conduct that extended beyond retail open access services, observing that the plain language of MCL 460.10a(4) did not limit the applicability of the code of conduct to only those services directly related to retail open access. The PSC observed that while the promotion of retail open access was one purpose of Act 141, another stated purpose was the promotion of economic development, and it concluded that a broad code of conduct, not one limited only to retail open access services, was consistent with the purposes of Act 141.

II. Analysis2

The standard of review for PSC orders is narrow and well-defined. MCL 462.25 states that all rates, fares, charges, classification and joint rates, regulations, practices, and services prescribed by the PSC are presumed, prima facie, to be lawful and reasonable. Michigan Consolidated Gas Co. v. Public Service Comm., 389 Mich. 624, 635-636, 209 N.W.2d 210 (1973). A party aggrieved by an order of the PSC has the burden of proving by clear and convincing evidence that the order is unlawful or unreasonable. MCL 462.26(8). To establish that a PSC order is unlawful, the appellant must show that the PSC failed to follow a mandatory statute or abused its discretion in the exercise of its judgment. In re MCI, 460 Mich. 396, 427, 596 N.W.2d...

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