Mich. Pub. Serv. Comm'n v. Ind. Mich. Power Co. (In re Ind. Mich. Power Co.)
| Docket Number | 365180 |
| Decision Date | 18 January 2024 |
| Parties | In re APPLICATION OF INDIANA MICHIGAN POWER COMPANY. v. INDIANA MICHIGAN POWER COMPANY, Appellant. v. MICHIGAN PUBLIC SERVICE COMMISSION and ATTORNEY GENERAL, Appellees, |
| Court | Court of Appeal of Michigan — District of US |
Before: GARRETT, P.J., and LETICA and MALDONADO, JJ.
Appellant Indiana Michigan Power Company (I&M), appeals as of right a final order entered by appellee Michigan Public Service Commission (PSC). I&M had filed for a powersupply-cost-recovery (PSCR) reconciliation, and the PSC approved the majority of requested costs. But, the PSC denied the portion of costs associated with a power-purchase agreement that I&M executed in 1952, then extended in 2004 and 2010. On appeal, I&M alleges that the PSC exceeded its authority, acted unlawfully, and interfered with I&M's contractual rights by applying certain administrative rules to deny costs I&M sought to recover by way of the reconciliation proceedings. Primarily, I&M disputes whether the Code of Conduct, a set of administrative rules promulgated by the PSC, applies to the power-purchase agreement at issue and whether, by applying this code, the PSC exceeded its authority under the code's enabling statute. We conclude that the PSC properly applied the Code of Conduct to the agreement at issue and that this code is in accordance with its enabling statute. Accordingly, we affirm.
The utility's "plan" for the year will set forth its expected sales and propose a per-unit cost, the "PSCR factor," that it wishes to charge. MCL 460.6j(1)(c) and (3). The PSC then establishes the PSCR factor in a contested-case proceeding. MCL 460.6j(5). After the end of the year, the projected calculation of costs is reconciled with the actual collection of costs in a PSCR "reconciliation," and the PSC determines if the utility has acquired power in a reasonable and prudent manner. MCL 460.6j(12)-(16). If the PSC finds that the utility has "overrecovered," the utility must refund or credit the overcollection, plus interest. MCL 460.6j(14) and (16). If there is an "underrecovery," the utility may surcharge its customers and recover interest. MCL 460.6j(15) and (16).
In March 2021, I&M filed an application requesting that the PSC begin a PSCR reconciliation for the 12-month period ending December 31, 2020. I&M sells electricity in Michigan and Indiana and is a wholly-owned subsidiary of American Electric Power Company, Inc. (AEP). In the application, I&M requested that the PSC "approve I&M's reconciliation of its power supply costs, revenues, and interest for January through December 2020, and determine that the power supply costs as presented in this reconciliation filing were reasonably and prudently incurred." It also sought authorization to "roll-in the net actual under-recovered principal and interest" in the amount of $5,386,708.
During the contested case, the Attorney General (AG) presented testimony from Devi Glick, an energy consultant, who evaluated I&M's request to recover, by way of the PSCR reconciliation, expenses paid to the Ohio Valley Electric Corporation (OVEC) for power obtained from OVEC units under an agreement called the Inter-Company Power Agreement (ICPA). Glick explained that OVEC is owned by 12 utilities in six states and supplies power from two coal-fired plants located in Ohio and Indiana. OVEC provides power to the utilities by way of the ICPA, a long-term contract. Glick advised that She said that "[t]he cost of the ICPA is passed through to I&M ratepayers as a direct cost."
Glick also testified that I&M has been purchasing power from OVEC, an affiliate company, at above-market value with those costs passed on to customers. Glick opined that OVEC operated two power plants in an uneconomic manner, causing it to incur net losses relative to market energy prices. It was asserted that I&M customers would have been better off if the OVEC plants had not operated at all in 2020. Glick opined that these losses could be mitigated with more prudent unit commitment practices.
It was recommended that the PSC disallow $3.7 million in connection with I&M's payment for OVEC services under the ICPA. Glick averred that this amount represented "Michigan's jurisdictional share of the total $26.5 million in excess compensation that I&M paid for OVEC services under the ICPA (relative to the market value of the services)."
Glick testified that the PSC had already found that OVEC is an affiliate of I&M. She also noted that the PSC had found that neither the original ICPA nor its 2004 and 2010 extensions had ever been approved by the PSC and that the agreement was now set to last until 2040. In support of these assertions, she cited the PSC's order in In re Application of Indiana Michigan Power Co, order of the Public Service Commission, entered May 13, 2021 (Case No. U-20529). This was the "rate case"[1] order pertaining to I&M's proposed plan for 2020. And in that order, the PSC ruled that I&M and OVEC are affiliates and also ruled that it had never reviewed the ICPA or its amendments. Id. at pp 13, 17.
The term "affiliate" derives from Rule 2 of the Code of Conduct, Mich. Admin Code 460.10101 et seq.; Rule 2 is set forth in Mich. Admin Code, R 460.10102. Mich. Admin Code, R 460.10102(1)(a) states:
"Affiliate" means a person or entity that directly or indirectly through 1 or more intermediates, controls, is controlled by, or is under common control with another specified entity. As used in these rules, "control" means, whether through an ownership, beneficial, contractual, or equitable interest, the possession, directly or indirectly, of the power to direct or to cause the direction of the management or policies of a person or entity or the ownership of at least 7% of an entity either directly or indirectly.
Glick stated, "If I&M can purchase the energy, capacity, or ancillary services that it needs from the PJM market [the Pennsylvania-New Jersey-Maryland Interconnection, a general energy market[2] at a lower cost than it would pay to purchase power from OVEC under the ICPA, then it is paying above the market price for the OVEC power." Glick explained that I&M was paying above market price for OVEC power, "[i]n every month [of 2020], I&M customers were billed substantially more for OVEC power than I&M would have received from the PJM market for OVEC's equivalent levels of capacity, energy, and ancillary services." She advised that end-use customers would have been better off if I&M had simply purchased the OVEC-derived energy from the PJM market.
Glick noted that, despite discovery requests, I&M had not provided any comparators for determining the value of the energy provided by OVEC, and, therefore, had "left it to the Commission to determine an appropriate benchmark." She stated that the power cost under the ICPA was "much higher" than the cost under similar power-purchase agreements in the region. Glick determined that "[t]he power I&M purchased under the ICPA is extremely high cost by any reasonable measure."
The PSC staff submitted testimony and exhibits from Wendy Chanter and Lisa Kindschy. Kindschy, a public-utilities-engineering specialist, addressed Case No. U-20529 (the 2020 I&M rate case) and explained that the PSC, in its order for that case, referred to Mich. Admin Code, R 460.10108 ("Rule 8"), a provision of the Code of Conduct. Rule 8 states, in part:
If a utility provides services or products to any affiliate or other entity within the corporate structure, and the cost of the service or product is not governed by section 10ee(8) of 2016 PA 341, MCL 460.10ee(8), compensation is based upon the higher of fully allocated embedded cost or fair market price. If an affiliate or other entity within the corporate structure provides services or products to a utility, and the cost of the service or product is not governed by section 10ee(8) of 2016 PA 341, MCL 460.10ee(8), compensation is at the lower of market price or 10% over fully allocated embedded cost.... [Mich Admin Code, R 460.10108(4) (emphasis added).]
In turn, MCL 460.10ee(8) provides:
All utility costs directly attributable to a value-added program or service allowed under this section shall be allocated to the program or service as required by this section. The direct and indirect costs of all utility assets used in the operation of the program or service shall be allocated to the program or service based on the proportional use by the program or service as compared to the total use of those assets by the utility. The cost of the program or service includes administrative and general expense loading to...
To continue reading
Request your trial