In re Consumers Energy Co.
| Decision Date | 10 April 2008 |
| Docket Number | Docket No. 275198.,Docket No. 275135. |
| Citation | 279 Mich.App. 180,756 N.W.2d 253 |
| Parties | In re Application of CONSUMERS ENERGY COMPANY. Attorney General, Appellant, v. Michigan Public Service Commission and Consumers Energy Company, Appellees. Association of Businesses Advocating Tariff Equity, Appellant, v. Michigan Public Service Commission and Consumers Energy Company, Appellees. |
| Court | Court of Appeal of Michigan — District of US |
H. Richard Chambers, Jackson, for Consumers Energy Company.
Michael A. Cox, Attorney General, Thomas L. Casey, Solicitor General, and David A. Voges, Michael A. Nickerson, and Kristin M. Smith, Assistant Attorneys General, for the Public Service Commission.
Michael A. Cox, Attorney General, and Susan I. Leffler and Donald E. Erickson, Assistant Attorneys General, for the Attorney General.
Clark Hill, PLC (by Robert A.W. Strong and Leland R. Rosier), Lansing, for the Association of Businesses Advocating Tariff Equity.
Before: FORT HOOD, P.J., and TALBOT and SERVITTO, JJ.
In Docket No. 275135, the Attorney General appeals as of right an opinion and order issued by the Public Service Commission (PSC). The Attorney General asserts that the PSC was not authorized to approve a natural gas rate increase of $80,804,000 a year for Consumers Energy Company (CECo) where the rate enabled CECo to recover $17,427,000 from natural gas ratepayers for contributions to the low-income energy efficiency fund (LIEEF). Further, the Attorney General asserts that the order impermissibly enabled implementation of an equalization mechanism for pension benefits and "other post employment benefits." In Docket No. 275198, the Association of Businesses Advocating Tariff Equity (ABATE) appeals as of right, also challenging CECo's right to recover $17,427,000 from natural gas ratepayers for contributions to the LIEEF. The appeals were consolidated for this Court's review.1 We affirm.
A short history regarding interpretation and administration of the LIEEF is useful to understand both the objections raised by the Attorney General and ABATE and the factors that guide our review of the PSC's decision.
On June 3, 2000, the Customer Choice and Electricity Reliability Act (CCERA), MCL 460.10 et seq., was enacted into law. 2000 PA 141.2 A stated purpose of the act was to "ensure that all persons in this state are afforded safe, reliable electric power at a reasonable rate." MCL 460.10(2)(d). Part of the methodology implemented to achieve this goal included the imposition of a rate freeze for the larger electrical utilities with one million or more retail customers until December 31, 2003. MCL 460.10d(1). In addition, the CCERA created the LIEEF, which was intended "to provide shut-off and other protection for low-income customers and to promote energy efficiency by all customer classes." MCL 460.10d(7). Section 10d(7) specifically provided that the LIEEF would receive as a source of its funding monies derived from securitization savings:
If securitization savings exceed the amount needed to achieve a 5% rate reduction for all customers, then, for a period of 6 years, 100% of the excess savings, up to 2% of the electric utility's commercial and industrial revenues, shall be allocated to the low-income and energy efficiency fund administered by the commission. [MCL 460.10d(7) (emphasis added).]
Consistently with this statutory directive, on November 20, 2001, the PSC issued an opinion and order discussing hearings conducted regarding the development of policies and procedures for administration of the LIEEF. The PSC recognized MCL 460.10d(6) as requiring "a portion of the cost savings from the issuance of securitization bonds to be used as a source of funding" for the LIEEF in addition to "Public Act 119 of 2001," an appropriations bill, which provided "the current fiscal year's appropriation for the Fund." In re Administration and Operation of the Low-Income and Energy Efficiency Fund, unpublished opinion and order of the PSC, issued November 20, 2001 (Case No. U-13129), p. 1. At this time, the PSC indicated that annual disbursements from the LIEEF would encompass "three broad categories: (1) energy assistance for low-income customers, (2) conservation and energy efficiency measures targeted toward reducing the usage and bills of low-income customers, and (3) the development of energy efficiency programs that benefit all customer classes." Id. at 4. The PSC went further and indicated an intention "to create an endowment-type fund to finance programs that assist low-income customers and energy efficiency projects with a time horizon extending beyond the six-year period in Section 10d(6)." Id. Notably, the PSC explained that it interpreted the statutory provision "to provide the basis for funding programs that affect all types of energy assistance and efficiency, not merely electricity, and to cover programs that extend throughout the entire state, not merely Detroit Edison's service territory" and asserted that "[t]he wording of Section 10d(6) does not support a more restrictive interpretation." Id. at 5-6.
ABATE objected and sought a rehearing. The PSC rejected the petition reasoning that its status as a "quasi-legislative/quasi-judicial decision-making body" permitted it to "implement policy through a case-by-case approach as well as through the rulemaking process set forth in the [Administrative Procedures Act, MCL 24.201 et seq.]." In re Administration and Operation of the Low-Income and Energy Efficiency Fund, unpublished order of the PSC, issued October 23, 2003 (Case No. U-13129), p 2. The PSC opined that its November 20, 2001, order "was a proper exercise of its ratemaking and policymaking authority" and that "[s]ection 10(d) does not require the [PSC] to adopt rules or standards." Id. at 3. Citing the broad discretion bestowed on the PSC by the Legislature "to select the beneficiaries of the Fund," the PSC minimized the legitimacy of ABATE's expressed concerns regarding administration of the LIEEF, noting:
Given that the [PSC] must periodically report on the [LIEEF] to the Legislature and that the Legislature annually appropriates the funding for the program, any concern that the implementation of the [LIEEF] by the [PSC] could be inconsistent with the intent of the Legislature rings hollow. [Id. at 3.]
The PSC has submitted periodic reports to the Governor and the Legislature as mandated by MCL 460.10d(7). In its initial report, the PSC advised that Detroit Edison was the sole contributor to the LIEEF because it was the only electric utility able to meet the criteria established for contribution through securitization savings. Further, the PSC reasserted its intent to create a program like the LIEEF indefinitely for both electric and gas consumers, consistently with its opinion and orders in Case No. U-13129. It also noted that actual funds had fallen short of estimated amounts that were used to set the appropriations. This information was reiterated in subsequent reports to the Governor and the Legislature.
In 2004, the PSC reported that the lifting of the rate freeze on December 31, 2003, MCL 460.10d(1), effectively eliminated securitization savings as a source of funding for the LIEEF. Commensurate with its grant of interim rate relief to Detroit Edison, the PSC "rolled the LIEEF funding requirement into base rates for Edison's electric customers and continued funding the LIEEF as part of the utility's cost of service." In re Administration and Operation of the Low-Income and Energy Efficiency Fund, unpublished opinion and order of the PSC, issued August 21, 2007 (Case No. U-13129), p. 1.
Notably, the Legislature has maintained yearly appropriations for the LIEEF program. Through 2004 PA 354, § 105, the Legislature appropriated $45,000,000 for the LIEEF, which required the PSC to provide reports on the distribution of these funds. 2004 PA 354, § 335. In 2005 PA 156, § 117, the Legislature made a $60 million appropriation for the LIEEF and again required a report on distribution of the funds. The PSC subsequently approved similar electric rate orders for CECo.3
On July 1, 2005, CECo filed an application in the PSC addressing, among other issues, rates for the distribution of natural gas but not rates relative to electricity. CECo proposed that it contribute $15 million to the LIEEF. When the PSC staff proposed increasing the contribution to $17.25 million, CECo agreed. The PSC rejected the Attorney General's and ABATE's arguments that LIEEF funding could only derive from electric users, and not from natural gas ratepayers as part of operations and maintenance expenses. Quoting its opinion and order in Case No. U-14346, the PSC held:
The [PSC] agrees with the [hearing referee] and the Staff that under its general ratemaking authority, the [PSC] may authorize the funding of LIEEF through mechanisms in addition to that described in MCL 460.10d(7). As the [PSC] found in Case No. U-14347, pp. 44-45:
The [PSC] observes that LIEEF funds are an essential means to reduce bad debt and uncollectible expenses, which are expenses borne by all ratepayers of both gas and electric utilities. Moreover:
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