In re Application of Consumers Energy Co. For Rate Increase.

• Decision Date: 14 December 2010
• Docket Number: Docket Nos. 286477,288728.
• Citation: 291 Mich.App. 106,804 N.W.2d 574
• Parties: In re Application of CONSUMERS ENERGY COMPANY FOR RATE INCREASE.
• Court: Court of Appeal of Michigan — District of US

291 Mich.App. 106

804 N.W.2d 574

In re Application of CONSUMERS ENERGY COMPANY FOR RATE INCREASE.

Docket Nos. 286477

288728.

Court of Appeals of Michigan.

Submitted Oct. 6, 2010, at Lansing.Decided Dec. 14, 2010, at 9:05 a.m.

H. Richard Chambers, Jon R. Robinson, and John C. Shea, Jackson, for Consumers Energy Company.Michael A. Cox, Attorney General, B. Eric Restuccia, Solicitor General, and Steven D. Hughey and Patricia S. Barone, Assistant Attorneys General, for the Public Service Commission.Michael A. Cox, Attorney General, B. Eric Restuccia, Solicitor General, and Michael E. Moody, Assistant Attorney General, for the Attorney General.Phil Forner in propria persona.Before: O'CONNELL, P.J., and BANDSTRA and MARKEY, JJ.MARKEY, J.

These consolidated cases arose from petitioner Consumers Energy Company's filing in March 2007 an application to raise its rates. In Docket No. 286477, appellant Attorney General appeals by right the June 10, 2008, order of the Public Service Commission (PSC) insofar as it (1) required Consumers to modify its customers' rates to reflect actual tree-trimming or forestry expenses; (2) allowed Consumers, through its electric choice incentive mechanism, to modify rates to even out the impact of fluctuations in retail open-access sales; (3) allowed Consumers to require its customers to continue supporting the low-income and energy efficiency fund, and (4) allowed Consumers to provide funding for two consultants to assist the PSC staff in connection with this case. In Docket No. 288728, appellant Phil Forner appeals that order insofar as it did not require Consumers to pay interest on its refunding of an improper subsidy, did not require that certain costs Consumers incurred in providing services to an appliance service program be allocated to that program so that Consumers could lower its costs of providing electricity, and did not require that any related postage costs were among those so allocated.

For the reasons set forth below, we reject all but one of these claims of error: we agree with the objection that the PSC's having allowed Consumers to provide the funding for the experts was wrong but conclude that the error was harmless. Accordingly, we affirm the PSC's order in its entirety.

I. STANDARDS OF REVIEW

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).

II. RETROACTIVE RATEMAKING

The PSC summarized the issue relating to the tree-trimming/forestry expense tracker as follows:

The Staff proposed forestry related costs totaling $41,535,669 for the 2008 test year, a figure that represents the actual 2006 expense level adjusted for inflation. The Staff also supported the continuation of the forestry expense tracker and refund mechanism approved [in an earlier case]....

The Attorney General ... argued that the forestry tracker should be eliminated on grounds that the Commission lacks specific statutory authority to approve the type of retroactive ratemaking embodied by this tracker.

The Staff, Dow/Hemlock, and ABATE responded that it would be irresponsible to eliminate the tracking mechanism at this point, when Consumers has not yet satisfactorily demonstrated that it will spend adequate amounts for tree-trimming and forestry.... The Staff argued that for several years Consumers did not show a willingness to spend adequately for its tree trimming and forestry management and contended that it is imperative to continue the tracking and refund mechanism for sufficient time to ensure that Consumers fully supports the program.

The ALJ found that the Attorney General's argument was without merit and has been repeatedly rejected by the Commission. The ALJ agreed with the Staff, Dow/Hemlock, and ABATE that, despite the substantial increase in forestry expenditures in 2006, Consumers' system reliability has not improved. Thus, a long-term increase in forestry related efforts is required and, because funding can easily be shifted from forestry to other purposes, the tracker is appropriate....

The Commission agrees with the ALJ's reasoning and conclusions on this issue and finds that the forestry tracker should continue until Consumers adequately demonstrates that it has caught up with much neglected tree trimming. The Commission is generally cautious about requiring measures that include tracking or refund mechanisms. However, because Consumers' failure to adequately fund its forestry program for several years has compromised service reliability, quality, and safety, the Commission determines that it is prudent to continue the forestry tracker until the Commission's concerns are allayed.

The PSC summarized the issue relating to the electric choice incentive mechanism (ECIM) as follows:

Consumers proposed an Electric Choice Incentive Mechanism (ECIM) designed to smooth the effect of fluctuations in its retail open access (ROA) sales. According to Consumers, if ROA sales increase or decrease more than 5% from the amount set in rates, a charge or credit would apply to rates of the class where the ROA sales change occurred. Consumers argues that because it is difficult to predict ROA sales, the ECIM would assist the company in its management....

The Staff supported the ECIM and argued that it would provide an incentive for Consumers to further reduce costs in the event of ROA sales changes.

The Attorney General argued that the Commission lacks specific statutory authority to approve the ECIM, which the Attorney General claims violates the rule against retroactive ratemaking. In addition, the Attorney General, Dow/Hemlock, and ABATE claim that because ROA load is expected to be flat for the next few years, the ECIM is unnecessary....

The ALJ recommended that the Commission approve the ECIM observing that although ROA load fluctuation is expected to be flat for the next few years, in the past, annual variations in ROA load have ranged from –64% to +227%.

The Commission agrees with the ALJ, the Staff, and Consumers that the ECIM is reasonable and should be approved.

The Attorney General argues that approval of the tree-trimming/forestry tracker and ECIM constitutes retroactive ratemaking. We disagree.

As an initial matter, we reject Consumers' challenge to the Attorney General's standing to challenge the propriety of the tree-trimming/forestry tracker. Consumers states that it no longer objects to retention of that tracker but argues that the Attorney General lacks standing in the matter because the tracker does not affect customers' rates and has the potential to harm only the now-acquiescent Consumers. But by this reasoning, only Consumers had standing to object to the tracker in the first instance. Yet there was no challenge to the PSC's standing below. Consumers joined the Attorney General in urging discontinuation of the tree-trimming/forestry tracker before the PSC, so it had no incentive to challenge the latter's standing at that time. But the PSC was in a position to do so and did not. Assuming, without deciding, that the Attorney General was vulnerable to a standing challenge below, we deem appellate objections forfeited because none was raised. See In re Complaint of Mich. Cable Telecom. Ass'n, 241 Mich.App. 344, 361–362, 615 N.W.2d 255 (2000) (affirming a decision to reject a challenge to a party's standing on the ground that the challenge was not timely brought); In re Forfeiture of $28,088, 172 Mich.App. 200, 205, 431 N.W.2d 437 (1988) (declining to entertain the appellee's challenge to the claimant-appellant's standing where the issue was not raised below and there was no cross-appeal). For these reasons, we will consider the tree-trimming/forestry tracker as part of the claim that the PSC engaged in improper retroactive ratemaking.

The PSC possesses only that authority granted to it by the Legislature. Attorney General v. Pub. Serv. Comm., 231 Mich.App. 76, 78, 585 N.W.2d 310 (1998). Words and phrases in the PSC's enabling statutes must be read narrowly and in the context of the entire statutory scheme. Consumers Power Co. v. Pub. Serv. Comm., 460 Mich. 148, 155–159, 596 N.W.2d 126 (1999).

In the absence of specific statutory authorization, retroactive ratemaking in utility cases is prohibited. Mich. Bell Tel. Co. v. Pub. Serv. Comm., 315 Mich. 533, 547, 554–555, 24 N.W.2d 200 (1946). This Court has discoursed broadly on the scope of this rule:

Past expenses and costs are factors to be considered in determining what the new rate should be so it is fair and reasonable. Past expenses and costs are not recoverable under a future rate. If a rate structure is wrong and causes a utility...