In re App of Consumers Energy Reconciliation of 2011 Costs, Docket Nos. 314361

• Decision Date: 28 May 2015
• Docket Number: Docket Nos. 314361,316868.
• Parties: In re APP OF CONSUMERS ENERGY RECONCILIATION OF 2010 COSTS. In re APP OF CONSUMERS ENERGY RECONCILIATION OF 2011 COSTS.
• Court: Court of Appeal of Michigan — District of US

310 Mich.App. 614

874 N.W.2d 136

In re APP OF CONSUMERS ENERGY RECONCILIATION OF 2010 COSTS.

In re APP OF CONSUMERS ENERGY RECONCILIATION OF 2011 COSTS.

Docket Nos. 314361

316868.

Court of Appeals of Michigan.

Submitted July 16, 2014, at Lansing.

Decided May 28, 2015, at 9:10 a.m.

Fraser Trebilcock Davis & Dunlap, PC, Lansing (by David E.S. Marvin ), for T.E.S. Filer City Station Limited Partnership.

Bill Schuette, Attorney General, Aaron D. Lindstrom, Solicitor General, Matthew Schneider, Chief Legal Counsel, and Donald E. Erickson, Assistant Attorney General, for the Attorney General.

Bill Schuette, Attorney General, B. Eric Restuccia, Deputy Solicitor General, and Steven D. Hughey and Anne M. Uitvlugt, Assistant Attorneys General, for the Public Service Commission.

Fraser Trebilcock Davis & Dunlap, PC, Lansing (by David E.S. Marvin and Thomas J. Waters ), for Cadillac Renewable Energy, LLC, T.E.S. Filer City Station Limited Partnership, and others.

Bill Schuette, Attorney General, Aaron D. Lindstrom, Solicitor General, B. Eric Restuccia, Deputy Solicitor General, Matthew Schneider, Chief Legal Counsel, and Steven D. Hughey and Heather M.S. Durian, Assistant Attorneys General, for the Public Service Commission.

Before: RONAYNE KRAUSE, P.J., and WILDER and STEPHENS, JJ.

STEPHENS, J.

In Docket No. 314361, the Michigan Public Service Commission (PSC) issued an order approving the application of Consumers Energy Company (Consumers) for a power supply cost recovery (PSCR) reconciliation for the 2010 calendar year. Relevant to this appeal, it approved Consumers' payments to biomass merchant plants (BMPs) of $10,566,059 for capped excess fuel and variable operation and maintenance costs, but denied the request of T.E.S. Filer City Station Limited Partnership (TES Filer), a BMP, for recovery of additional funds for nitrous oxide (NOx) and sulfur dioxide (SO2) allowances. TES Filer appeals as of right.

In Docket No. 316868, the PSC issued an order approving Consumers' application for a PSCR reconciliation for the 2011 calendar year. Relevant to this appeal, it determined that the $1,000,000 monthly capped fuel and variable operation and maintenance costs payment to the BMPs should be adjusted annually by applying the annual United States consumer price index rate to the $1,000,000, and that the request by TES Filer for an additional recovery of $102,799 for NOx and SO2 allowances would be disallowed. Appellants, TES Filer and others, appeal as of right.

These two appeals were consolidated. See In re Application of Consumers Energy for Reconciliation of Costs, unpublished order of the Court of Appeals, entered May 21, 2014 (Docket Nos. 314361 and 316868). We conclude that the PSC properly disallowed TES Filer's request for recovery of additional funds for NOx and SO2 allowances. However, we conclude that the PSC erred in adjusting the $1,000,000 monthly cap on the fuel and variable operation and maintenance costs payable to the BMPs.

I. STANDARD OF REVIEW

In In re Application of Consumers Energy Company For Rate Increase, 291 Mich.App. 106, 109–110, 804 N.W.2d 574 (2010), the applicable standard of review was set forth as follows:

The standard of review for PSC orders is narrow and well defined. Pursuant to MCL 462.25, 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. See also Mich. Consol. Gas Co. v. Pub. Serv. 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 statutory requirement or abused its discretion in the exercise of its judgment. In re MCI Telecom. Complaint, 460 Mich. 396, 427, 596 N.W.2d 164 (1999). A reviewing court gives due deference to the PSC's administrative expertise, and should not substitute its judgment for that of the PSC. Attorney General v. Pub. Serv. Comm. No. 2, 237 Mich.App. 82, 88, 602 N.W.2d 225 (1999).

A final order of the PSC must be authorized by law and be supported by competent, material, and substantial evidence on the whole record. Const. 1963, art. 6, § 28 ; In re Application of Consumers Energy Co., 279 Mich.App. 180, 188, 756 N.W.2d 253 (2008). Whether the PSC exceeded the scope of its authority is a question of law that is reviewed de novo. In re Complaint of Pelland Against Ameritech Mich., 254 Mich.App. 675, 682, 658 N.W.2d 849 (2003).

The standard of review for an agency's interpretation of a statute was set forth in In re Complaint of Rovas Against SBC Mich., 482 Mich. 90, 103, 754 N.W.2d 259 (2008), quoting Boyer–Campbell Co. v. Fry, 271 Mich. 282, 296–297, 260 N.W. 165 (1935) :

[T]he construction given to a statute by those charged with the duty of executing it is always entitled to the most respectful consideration and ought not to be overruled without cogent reasons. However, these are not binding on the courts, and [w]hile not controlling, the practical construction given to doubtful or obscure laws in their administration by public officers and departments with a duty to perform under them is taken note of by the courts as an aiding element to be given weight in construing such laws and is sometimes deferred to when not in conflict with the indicated spirit and purpose of the legislature.

This standard requires "respectful consideration" and "cogent reasons" for overruling an agency's interpretation. Furthermore, when the law is "doubtful or obscure," the agency's interpretation is an aid for discerning the Legislature's intent. However, the agency's interpretation is not binding on the courts, and it cannot conflict with the Legislature's intent as expressed in the language of the statute at issue. [Second alteration in original.]

II. STATUTE AT ISSUE

With 2008 PA 286, the Legislature enacted statutes that allow a qualifying biomass merchant plant to recover, subject to the limitation set forth in MCL 460.6a(8), "reasonably and prudently incurred actual fuel and variable operation and maintenance costs [that] exceed the amount that the merchant plant is paid" for those costs under a contract with an electric utility. MCL 460.6a(7). Appellants are qualifying BMPs under this statute. The Subsection (8) limitation on recovery, in pertinent part, limits the total aggregate additional amounts that an electric utility will have to pay to merchant plants to $1,000,000 per month, but provides for annual review of this limit upon petition of a merchant plant and adjustment if each affected merchant plant files a petition and "the commission finds that the eligible merchant plants reasonably and prudently incurred actual fuel and variable operation and maintenance costs" that exceeded $1,000,000 per month. Subsection (8), in pertinent part, further provides:

The annual amount of the adjustments shall not exceed a rate equal to the United States consumer price index.... As used in this subsection, "United States consumer price index" means the United States consumer price index for all urban consumers as defined and reported by the United States department of labor, bureau of labor statistics. [MCL 460.6a(8) ].

Subsection (8) continues:

The $1,000,000.00 limit specified in this subsection, as adjusted, shall not apply with respect to actual fuel and variable operation and maintenance costs that are incurred due to changes in federal or state environmental laws or regulations that are implemented after the effective date of the amendatory act that added this subsection. [Emphasis added.]

Thus, the BMPs are entitled to a collective capped amount of up to $1,000,000 per month, as adjusted, and an uncapped amount if the costs are incurred because of changes in federal or state environmental laws or regulations that are implemented after the effective date of 2008 PA 286, which was October 6, 2008.

III. TES FILER'S ENTITLEMENT TO RECOVER FOR NOX AND SO2 ALLOWANCES

TES Filer challenges the denial of its requests for recovery of costs for NOx and SO2 allowances, explaining that the allowances are limited authorizations to emit these substances. It established that these were "actual fuel and variable operation and maintenance costs." It asserts that they were "incurred due to changes in federal or state environmental laws or regulations" "implemented after" October 6, 2008, maintaining that "implementation" must refer to the date that some action is required by a law or regulation. The PSC interpreted MCL 460.6a(8) to mean that the term "implemented" refers to the date that a federal or state environmental law or regulation was enacted or promulgated. It further determined that TES Filer was not entitled to recover the costs of the NOx and SO2 allowances incurred in the 2010 and 2011 calendar years because the laws or regulations requiring the allowances predated October 6, 2008. We find no cogent reason to overturn the PSC's interpretation.

The facts relevant to this issue are as follows:

May 12, 2005: The United States Environmental Protection Agency (EPA) promulgated the Clean Air Interstate Rule (CAIR), requiring changes to State Implementation Plans (SIPs) to include measures to reduce NOx and SO2 emissions. 70 Fed. Reg. 25162et seq. (May 12, 2005).

August 24, 2005: In proposed rules, the EPA notes that the CAIR requires emission reduction implementation in two phases, with the first phase of NOx reductions starting in 2009 and the first phase of SO2 reductions starting in 2010. 70 Fed. Reg. 49721 (August 24, 2005).

June 25, 2007: The Michigan Department of Environmental Quality (MDEQ) promulgates rules on NOx allowances, subjecting them to regulation commencing in 2009. See 2007 Mich. Reg. 12, pp. 2–23 (indicating the rules were filed with the Secretary of State on June 25, 2007, and became effective immediately).

July 16, 2007

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