Ford Motor Co. v. Public Service Com'n, Docket Nos. 177054

• Court: Court of Appeal of Michigan (US)
• Writing for the Court: PER CURIAM
• Citation: 562 N.W.2d 224,221 Mich.App. 370
• Parties: , Util. L. Rep. P 26,587 FORD MOTOR COMPANY and Chrysler Corporation, Appellants, v. Michigan PUBLIC SERVICE COMMISSION, Detroit Edison Company, General Motors Corporation, et al, Appellees. ATTORNEY GENERAL, Appellant, v. Michigan PUBLIC SERVICE COMMISSION, Ford Motor Company, Chrysler Corporation, et al, Appellees. NORTH STAR STEEL COMPANY, Appellant, v. Michigan PUBLIC SERVICE COMMISSION, Detroit Edison Company, Ford Motor Company, et al, Appellees. AUTOALLIANCE INTERNATIONAL, INC., Appellant, v. Michigan PUBLIC SERVICE COMMISSION, Ford Motor Company, Chrysler Corporation, et al, Appellees. ASSOCIATION OF BUSINESSES ADVOCATING TARIFF EQUITY, Appellant, v. Michigan PUBLIC SERVICE COMMISSION, General Motors Corporation, Autoalliance International, Inc., et al, Appellees. DETROIT EDISON COMPANY, Appellant, v. Michigan PUBLIC SERVICE COMMISSION, Ford Motor Company, Chrysler Corporation, et al, Appellees. , and 177164.
• Decision Date: 07 February 1997
• Docket Number: Docket Nos. 177054,177064,177163,177062,177055

Page 224

562 N.W.2d 224 221 Mich.App. 370, Util. L. Rep. P 26,587 FORD MOTOR COMPANY and Chrysler Corporation, Appellants,
v.
Michigan PUBLIC SERVICE COMMISSION, Detroit Edison Company,
General Motors Corporation, et al, Appellees.
ATTORNEY GENERAL, Appellant,
v.
Michigan PUBLIC SERVICE COMMISSION, Ford Motor Company,
Chrysler Corporation, et al, Appellees.
NORTH STAR STEEL COMPANY, Appellant,
v.
Michigan PUBLIC SERVICE COMMISSION, Detroit Edison Company,
Ford Motor Company, et al, Appellees.
AUTOALLIANCE INTERNATIONAL, INC., Appellant,
v.
Michigan PUBLIC SERVICE COMMISSION, Ford Motor Company,
Chrysler Corporation, et al, Appellees.
ASSOCIATION OF BUSINESSES ADVOCATING TARIFF EQUITY, Appellant,
v.
Michigan PUBLIC SERVICE COMMISSION, General Motors
Corporation, Autoalliance International, Inc., et
al, Appellees.
DETROIT EDISON COMPANY, Appellant,
v.
Michigan PUBLIC SERVICE COMMISSION, Ford Motor Company,
Chrysler Corporation, et al, Appellees. Docket Nos. 177054, 177055, 177062, 177064, 177163, and 177164. Court of Appeals of Michigan. Submitted March 5, 1996, at Lansing.
Decided Feb. 7, 1997, at 9:05 a.m.
Released for Publication April 29, 1997.

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[221 Mich.App. 371] Thomas A. Hughes and Bruce R. Maters, and Fischer, Franklin & Ford by George Hogg, Jr., Pat D. Connor, and Sidney M. Berman, Detroit, for Detroit Edison Company.

James P. Ziety, and Loomis, Ewert, Ederer, Parsley, Davis & Gotting, P.C., Dearborn, by Harvey J. Messing and Michael J. Oliva, Lansing, for Ford Motor Company.

Michael W. Grice, and Loomis, Ewert, Ederer, Parsley, Davis & Gotting, P.C., Auburn Hills, by Harvey J. Messing and Michael J. Oliva, Lansing, for Chrysler Corporation.

Walter H. Makupson, and Verner, Liipfert, Bernhard, McPherson & Hand, Chartered, Detroit, by Clinton A. Vince, J. Cathy Fogel, and MaryLou Lundin, Washington, D.C., for General Motors Corporation.

[221 Mich.App. 372] Frank J. Kelley, Attorney General, Thomas L. Casey, Solicitor General, and Donald E. Erickson, Assistant Attorney General, for Attorney General.

Honigman Miller Schwartz and Cohn by Daniel J. Demlow and Richard J. Aaron, Lansing, and Brickfield, Burchette & Ritts, P.C. by Foster De Reitzes and Philip L. Chabot, Jr., Washington, D.C., for North Star Steel Company.

Honigman Miller Schwartz and Cohn by Daniel J. Demlow and Richard J. Aaron, Lansing, for AutoAlliance International, Inc.

Hill Lewis (by Robert A.W. Strong and John M. Ketcham, Detroit, for Association of Businesses Advocating Tariff Equity.

Don L. Keskey, David A. Voges, and Patricia S. Barone, Assistant Attorneys General, for the Public Service Commission.

Before MARILYN KELLY, P.J., and WAHLS and M.R. KNOBLOCK ^*, JJ.

PER CURIAM.

These six appeals arise from a January 21, 1994, decision of the Michigan Public Service Commission (PSC) and the PSC's June 16, 1994, decision on rehearing in a general rate case initiated by Detroit Edison Company on July 1, 1992. PSC No. U-10102. Detroit Edison sought a rate increase, effective January 1, 1994, of about $82.5 million annually for 1994 through 1996. Detroit Edison asked for additional increases during the course of the proceeding. Numerous parties intervened. The PSC concluded that Detroit Edison's rates should be reduced by $78,025,000. These appeals concern several aspects of the PSC's decision. There is considerable overlap in the arguments of the appellants, particularly concerning[221 Mich.App. 373] the PSC's exercise of authority regarding a "demand-side management" (DSM) program requested by Detroit Edison.

The standard of review for PSC orders is narrow and well established. M.C.L. § 462.25; M.S.A. § 22.44 provides that all

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rates, fares, 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, 209 N.W.2d 210 (1973); Attorney General v. Public Service Comm., 206 Mich.App. 290, 294, 520 N.W.2d 636 (1994). An appellant must show by "clear and satisfactory evidence" that the order of the PSC complained of is "unlawful or unreasonable." M.C.L. § 462.26(8); M.S.A. § 22.45(8); Michigan Consolidated Gas Co., supra at 639, 209 N.W.2d 210; CMS Energy Corp. v. Attorney General, 190 Mich.App. 220, 228, 475 N.W.2d 451 (1991); Attorney General, supra at 294, 520 N.W.2d 636. Courts should not substitute their judgment for that of the administrative agency on a factual issue and must defer to the PSC's administrative expertise. 206 Mich.App. at 294, 520 N.W.2d 636; 190 Mich.App. at 228, 475 N.W.2d 451.

The PSC is a creature of the Legislature, and its authority must be found in statutory enactments. Union Carbide Corp. v. Public Service Comm., 431 Mich. 135, 146, 428 N.W.2d 322 (1988); In re Quality of Service Standards, 204 Mich.App. 607, 611, 516 N.W.2d 142 (1994). Ratemaking by the PSC is a legislative function. Detroit Edison Co. v. Public Service Comm., 127 Mich.App. 499, 524, 342 N.W.2d 273 (1983). The PSC is not bound to follow any particular method or formula when it determines rates. Michigan Bell Telephone Co. v. Public Service Comm., 332 Mich. 7, 36, 50 N.W.2d 826 (1952). Also see Consumers Power Co. v. Public Service Comm., 181 Mich.App. 261, 269, 448 [221 Mich.App. 374] N.W.2d 806 (1989), and Attorney General v. Public Service Comm., 157 Mich.App. 198, 205, 403 N.W.2d 467 (1986). The determination of just and reasonable rates requires a determination of the reasonable costs of doing business. General Telephone Co. v. Public Service Comm., 341 Mich. 620, 67 N.W.2d 882 (1954); Detroit Edison, supra at 524, 342 N.W.2d 273.

SFAS 106

The PSC allowed Detroit Edison to recover in 1994 $3,028,000 of accrued retirement benefits that were deferred from 1993. This cost arose because of a December 1990 change in the generally accepted rules of accounting for the cost of postretirement benefits. These rules were changed by the Financial Accounting Standards Board in its Statement of Financial Accounting Standards (SFAS) 106. SFAS 106 requires companies to account for postretirement benefits on an accrual basis during the working lives of their employees. The accounting change was effective for fiscal years beginning after December 1992. SFAS 106 permits companies to amortize the transitional costs over twenty years, such costs including the costs for previous years of employment when there had been no accrual of postretirement benefits. These costs were around $50 million for Detroit Edison.

In 1992, the PSC initiated its Case Nos. U-10040 and U-10040A to decide how to handle these postretirement costs for utility companies (including Detroit Edison). The PSC determined that SFAS 106 should be followed for ratemaking purposes, but the PSC permitted utilities to defer SFAS 106 accruals for up to three years. The PSC decided U-10040 on December 8, 1992.

[221 Mich.App. 375] Consistent with the decision in U-10040, Detroit Edison deferred its SFAS 106 accrued costs until 1994 and amortized its costs over nineteen years. Permitting Detroit Edison to defer 1993 costs to 1994 was within the broad power of the PSC to regulate utility rates. Costs recognized in 1993 under SFAS 106 were not recognized for utility ratemaking purposes until 1994.

The PSC is entitled to consider "all lawful elements" in determining rates. M.C.L. § 460.557; M.S.A. § 22.157 and M.C.L. § 460.6h(1)(d); M.S.A. § 22.13(6h)(1)(d). The PSC is not bound by any single formula or method and may make pragmatic adjustments when warranted by the circumstances. Michigan Bell Telephone Co., supra at 36-37, 50 N.W.2d 826; Attorney General v. Public Service Comm., 189 Mich.App. 138, 148, 472 N.W.2d 53 (1991); Midland Cogeneration Venture Ltd. Partnership v. Public Service Comm., 199 Mich.App. 286, 314, 501 N.W.2d 573 (1993). The PSC has discretion to determine what

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charges and expenses to allow as costs of operation. Michigan Bell Telephone Co., supra, Detroit Edison, supra at 524, 342 N.W.2d 273. What reasonable accounting method to employ is a legislative decision to be made by the PSC. Attorney General v. Public Service Comm # 1, 171 Mich.App. 696, 698, 431 N.W.2d 47 (1988). The PSC is expressly empowered to prescribe uniform methods of keeping accounts. M.C.L. § 460.556; M.S.A. § 22.156.

In this case, the PSC treated Detroit Edison in the same fashion as other utilities. For ratemaking purposes the expenses under SFAS 106 did not have to be recognized in 1993. Given the circumstances, which included a change in accounting rules that had to be implemented over time, permitting Detroit Edison to [221 Mich.App. 376] begin amortizing the expenses in 1994 was not unlawful or unreasonable. M.C.L. § 462.26(8); M.S.A. § 22.45(8).

Nor did permitting the deferral for ratemaking purposes of SFAS 106 costs that could be attributed to 1993 violate a settlement agreement reached in Case No. U-8789, the previous general rate case of Detroit Edison. Included in the settlement that closed that case was a moratorium on rate increases through the end of 1993. The fact is that Detroit Edison did not increase rates in 1993 in violation of the moratorium. Any increase in Detroit Edison's 1993 expenses that were caused by SFAS 106 were absorbed by Detroit Edison and were not passed on to ratepayers. U-8789 did not preclude consideration in future rate cases of any particular cost item, and U-8789 did not control future accounting decisions.

The PSC's treatment of the SFAS 106 costs did not constitute retroactive ratemaking. Retroactive ratemaking, which is prohibited, involves a change either upward or downward in the rates charged by a utility for its service under a lawful order. Attorney General v. Public Service Comm., 206 Mich.App. 290, 520 N.W.2d 636 (1994). Ratemaking orders are prospective in effect. Michigan Bell Telephone Co. v. Public Service Comm., 315 Mich. 533, 547, 24 N.W.2d 200 (1946). The PSC's decision in this case concerning...