In re Application of Detroit Edison Co. to Increase Rates

• Decision Date: 26 July 2012
• Docket Number: Docket No. 302110.
• Citation: 823 N.W.2d 433,297 Mich.App. 377
• Parties: In re APPLICATION of DETROIT EDISON COMPANY TO INCREASE RATES.
• Court: Court of Appeal of Michigan — District of US

297 Mich.App. 377

823 N.W.2d 433

In re APPLICATION of DETROIT EDISON COMPANY TO INCREASE RATES.

Docket No. 302110.

Court of Appeals of Michigan.

Submitted April 11, 2012, at Lansing.

Decided July 26, 2012, at 9:00 a.m.

Clark Hill PLC, Birmingham (by Robert A.W. Strong), for the Association of Businesses Advocating Tariff Equity.

Bruce R. Maters, Detroit, Jon P. Christinidis, and Fahey Schultz Burzych Rhodes PLC, Okemos (by William K. Fahey and Stephen J. Rhodes), for the Detroit Edison Company.

Bill Schuette, Attorney General, John J. Bursch, Solicitor General, Richard A. Bandstra, Chief Legal Counsel, and Steven D. Hughey and Kristin M. Smith, Assistant Attorneys General, for the Public Service Commission.

Before: HOEKSTRA, P.J., and SAWYER and SAAD, JJ.

SAWYER, J.

The Association of Businesses Advocating Tariff Equity (ABATE) appeals of right an order of the Michigan Public Service Commission (PSC) providing that Detroit Edison Company was to refund revenue it had collected through self-implemented rates; the rates were self-implemented while Detroit Edison was awaiting a final order on an application for a rate increase. Rather than requiringa refund to each customer based on that customer's overpayment, the PSC held that the refund was to be made prospectively in the January 2011 billing month to classes of customers based on the classes' pro rata share of the self-implemented increase. We affirm.

I. FACTS AND PROCEEDINGS

On January 26, 2009, Detroit Edison applied for an increase in electrical rates in the amount of $378,000,000. Under § 6a(1) of 2008 PA 286 (Act 286), MCL 460.6a(1), the PSC was required to act on this application by January 26, 2010. However, § 6a(1) also provided that Detroit Edison was entitled to self-implement an interim rate unless the PSC acted on its application within 180 days or issued an order preventing or delaying self-implementation for good cause. No such action was taken and no such order issued. Detroit Edison elected to self-implement $280 million of rate relief.

On January 11, 2010, the commission issued a final order approving a rate increase of only $217,392,000. Section 6a(1) required a refund because the new rate was less than the self-implemented rate. The refund amount, with interest, was determined to be $26,872,231.

With respect to the refund, Detroit Edison proposed to allocate the total refund amount among customer classes based upon each customer class's pro rata share of the total revenue collected. ABATE objected to this proposed refund methodology as it pertained to primary customers. It maintained that § 6a(1) required that Detroit Edison calculate a refund for each primary customer based upon each primary customer's actual overpayment and that it refund an amount equal to the actual overpayment to each primary customer. Regarding the refund, § 6a(1) states in pertinent part:

If a utility implements increased rates or charges under this subsection before the commission issues a final order, that utility shall refund to customers, with interest, any portion of the total revenues collected ... that exceed the total that would have been produced by the rates or charges subsequently ordered by the commission in its final order. The commission shall allocate any refund required by this section among primary customers based upon their pro rata share of the total revenue collected through the applicable increase, and among secondary and residential customers in a manner to be determined by the commission. [Emphasis added.]

The PSC held that the refund did not have to be “precisely tailored to each and every Detroit Edison customer who paid a self-implemented rate.” It continued:

Other than requiring that the refund to primary customers be based on their pro rata share of the total revenues collected through the applicable increase, the statute leaves the method of the refund up to the Commission's discretion. MCL 460.6a(1). The Commission has long rejected the notion that historical perfection must be achieved with refunds or surcharges. The Commission has authority to exercise discretion in fashioning a refund procedure, and the most precise procedure may have disadvantages, such as attendant costs or administrative burdens, that outweigh the apparent advantages. See, Attorney General v. Public Service Comm., 235 Mich.App. 308, 597 N.W.2d 264 (1999) [Mich. Gas ]; Attorney General v. Public Service Comm., 215 Mich.App. 356, 546 N.W.2d 266 (1996) [Mich. Consol. ]; May 17, 2005 order in Case No. U–13990, pp. 21–22. And, as the Staff correctly notes, the refund must be allocated based on the pro rata share of the revenue from the self-implemented increase, not on the precise dollar amount paid in excess revenue; thus, ABATE's argument in favor of a refund that reflects what each primary customer “actually paid” is inconsistent with the language of the statute. Finally, were the Commission persuaded to order a refund based on the amount each primary customer paid during self-implementation, the administrative costs associated with making those individual determinations would be addressed in a future rate case, and, under basic principles of cost causation, would likely be borne by the primary class.

The Commission approves the refund procedure proposed by the Staff and agreed to by the company, which bases the refund on rate schedule class, and forecasts sales for the refund month. Further, the Commission approves the use of the [Power Supply Cost Recovery] reconciliation proceeding as a mechanism to complete the refund, in order to make the refunded amount as exact as possible.

ABATE claimed that two unidentified ABATE members who were primary customers subject to the self-implemented rates signed up for service from alternative electric suppliers during the period that these rates were in place rather than continuing to receive bundled service from Detroit Edison. ABATE pointed out that under the refund methodology approved by the PSC, these two primary customers would not receive a refund because they were no longer in the class of customers that would receive the refund. ABATE argued that their exclusion was arbitrary and capricious. The PSC held:

The Commission does not agree with ABATE that primary customers who chose to switch from bundled to choice service during the period of self-implementation are treated unfairly under this refund method. There was nothing hidden from such customers. The possibility that the rate increase adopted in the final order would differ from the unapproved rate increase self-implemented by the company was always present, as was the possibility that the final rate design would differ, however slightly, from the self-implemented rate design. Such customers would have (or should have) been aware of that fact at the point in time when they decided to switch. Indeed, any customer who made that switch early in the self-implementation period likely underpaid during the self-implementation period, since only one [retail open access] rate schedule overpaid during self-implementation.

II. STANDARD OF REVIEW

In In re Application of Consumers Energy Co. for Rate Increase, 291 Mich.App. 106, 109–110, 804 N.W.2d 574 (2010), the Court stated:

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'sadministrativeexpertise, 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).

It is noted that in Attorney General v. Pub. Serv. Comm., 206 Mich.App. 290, 296, 520 N.W.2d 636 (1994), the Court explained that MCL 462.26(8) “requires a reviewing court to determine only whether an order is unlawful or unreasonable, not whether it is arbitrary and capricious.”

The standard of review for an agency's interpretation of a statute was recently set forth in In re Complaint of Rovas Against SBC Mich., 482 Mich. 90, 103, 754 N.W.2d 259 (2008), quoting Boyer–Campbell 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....