Midland Cogeneration Venture Ltd. Partnership v. Public Service Com'n

• Decision Date: 19 April 1993
• Docket Number: Docket Nos. 124705,128175
• Parties: , 145 P.U.R.4th 576, Util. L. Rep. P 26,316 MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP, Appellant, v. PUBLIC SERVICE COMMISSION, Appellee. CONSUMERS POWER COMPANY, Appellant, v. PUBLIC SERVICE COMMISSION, et al., Appellees.
• Court: Court of Appeal of Michigan — District of US

Page 573

501 N.W.2d 573

199 Mich.App. 286, 145 P.U.R.4th 576,

Util. L. Rep. P 26,316

MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP, Appellant, v. PUBLIC SERVICE COMMISSION, Appellee.

CONSUMERS POWER COMPANY, Appellant, v. PUBLIC SERVICE COMMISSION, et al., Appellees.

Docket Nos. 124705, 128175.

Court of Appeals of Michigan.

Submitted April 22, 1992, at Lansing.

Decided April 19, 1993, at 9:00 a.m.

Released for Publication June 24, 1993.

Steven H. Lasher, George, Van Dam & Camp, P.C. by Philip Van Dam, Midland and Foster, Swift, Collins & Smith, P.C. by William K. Fahey, Stephen O. Schultz, and Glen A. Schmiege, Lansing, for Midland Cogeneration Venture Ltd. Partnership.

Loomis, Ewert, Ederer, Parsley, Davis & Gotting by George W. Loomis, Ronald W. Bloomberg, and Sherri A. Wellman, Lansing, and David A. Mikelonis, Robert M. Neustifter, and James P. Melia, Jackson for Consumers Power Co.

Frank J. Kelley, Atty. Gen., Thomas L. Casey, Sol. Gen., and Don L. Keskey and William W. Derengoski, Asst. Attys. Gen., for Public Service Com'n.

Hill Lewis by Nancy L. Lukey and Donna M. Canada, Lansing, for Association of Businesses Advocating Tariff Equity.

Before McDONALD, P.J., and WAHLS and TAYLOR, JJ.

McDONALD, Presiding Judge.

Consumers Power Company and Midland Cogeneration Venture Limited Partnership (MCV) appeal as of right a December 7, 1989, order of the Public Service Commission (PSC), and related orders subsequently entered by the PSC. The PSC and the Association of Businesses Advocating Tariff Equity (ABATE) respond as appellees.

The consolidated proceedings below covered PSC Docket Nos. U-8678, U-8924, and U-9197. Docket No. U-8678 was commenced in February of 1987 by the PSC, on its own motion, for the purpose of investigating and regulating Consumers' provision of gas-transportation services. Docket No. U-8924 is a gas rate case instituted by Consumers' November 1987 application for an annual rate increase of not less than $2.2 million. Docket No. U-9197 was commenced in August of 1988 on Consumers' application to revise its gas plant and equipment depreciation rates.

Among other things, the PSC ordered a reduction in Consumers' retail gas rates by approximately $28.4 million annually, established tariff rates for the utility's intrastate gas-transportation services, and imposed a number of information access and reporting "conditions" for future cases. The PSC's conditions require Consumers to ensure PSC access to the books and records of its holding company, CMS Energy Corporation (CMS), and each of the utility's corporate affiliates and joint ventures, furnish the PSC with certain financial statements of the holding company and nonutility subsidiaries, and file various annual statements and reports regarding the utility's interaffiliate transfers and transactions. Additionally, the conditions direct Consumers, CMS, and Consumers' subsidiaries and joint ventures to employ certain accounting procedures and controls and keep their books in a manner consistent with general accounting principles.

In its appeal, MCV challenges only the conditions imposed by the PSC, to the extent that they directly apply to MCV as an affiliate or joint venture of Consumers. Consumers' appeal challenges the conditions and raises five issues concerning the gas sales and transportation rates set by the PSC.

I

Consumers reorganized its corporate structure in 1987. CMS was formed as a parent corporation, holding Consumers as its principal subsidiary. New subsidiaries were formed and Consumers transferred a number of its subsidiaries to its parent and sister subsidiaries. For example, an affiliate corporation, Selective Collection Services (SCS), which is engaged in the business of collecting past-due utility bills for Consumers and other utility companies, is a former Consumers subsidiary that was transferred pursuant to the corporate reorganization.

During the course of these proceedings, the PSC's staff indicated that its investigation of Consumers' dealings with its corporate affiliates was frustrated because the staff had been denied access to the records of affiliates such as SCS when the staff sought to compare the rates SCS charged to Consumers with the rates it charged to other utilities. The staff's senior economist testified that Consumers' corporate reorganization raises regulatory concerns about possible cross-subsidization of nonutility investments through utility rates and recommended the imposition of certain reporting, bookkeeping, and information-access conditions covering Consumers' holding company, sister subsidiaries, affiliates, and joint ventures to enable the staff to investigate these concerns in future cases.

In its December 7, 1989, order, the PSC, with slight modification, adopted the following seven conditions proposed by its staff:

1. That the utility ensure that the Commission has access to books and records of the holding company and each of its affiliates and their joint ventures. Any objections to not providing all books and records must be raised before the Commission and the burden of showing that the request is unreasonable or unrelated to the proceeding is on the respondents.

2. Each utility, holding company, and each of its subsidiaries and the joint ventures of the holding company and/or its subsidiaries shall employ accounting and other procedures and controls related to cost allocations and transfer pricing to ensure and facilitate full review by the Commission and to protect against cross- subsidization of non-utility activities by the utility's customers.

3. The holding company and each of its subsidiaries and the joint ventures of the holding company and/or its subsidiaries shall keep their books in a manner consistent with general accounting principles and, where applicable, consistent with the Uniform System of Accounts.

4. The utility shall furnish the Commission with:

a. The quarterly and annual financial statements of the consolidated utility and/or its parent holding company;

b. Annual statements concerning the nature of intercompany transactions concerning the utility and a description of the basis upon which cost allocations and transfer pricing have been established in these transactions;

c. Annual balance sheets and income statements of the non-regulated subsidiaries of the utility and/or the non-consolidated subsidiaries of the holding company.

d. The utility shall submit, as a separate exhibit in its next general rate case an audit report of its transactions between the utility and its non-utility affiliates;

e. Provide federal income tax on a consolidated or non-consolidated basis depending on filing.

5. The utility shall avoid a diversion of management talent that would adversely affect the utility. An annual report identifying personnel transferred from the utility to non-utility subsidiaries is required.

6. The utility shall notify the Commission in writing within thirty days prior to any transfer to non-utility affiliates of any utility assets or property exceeding a fair market value of $100,000. Asset transfers from regulated to non-regulated shall be at the higher of cost or fair market value and non-regulated to regulated shall be at the lower of cost or fair market value. That all services and supplies provided by non-regulated enterprises shall be at market price of 10% over fully allocated cost, whichever is less.

7. Market, technological, or similar data transferred, directly or indirectly, from the utility to a non-utility affiliate shall be transferred at the higher of cost or fair market value.

Conditions 1, 2, 3, and 4(a)-(c), without modification, were imposed on the activities of CMS and Consumers' nonregulated affiliates and joint ventures. However, the PSC modified conditions 4(d), 4(e), 5, 6, and 7 to require only that Consumers file annual reports covering the subject matters discussed in those conditions.

Although MCV had not been a party to the proceedings up to that point, it filed a claim of appeal from the PSC's decision, challenging the PSC's authority to impose conditions upon MCV should it be deemed an "affiliate" or "joint venture" covered by the first three conditions. MCV is a limited partnership created in 1987 for the purpose of constructing and operating a gas-fired electric cogeneration facility at the site of Consumers' abandoned Midland nuclear power plant. CMS Midland, Inc., a wholly owned subsidiary of CMS, is a general partner in MCV and holds a forty-nine percent voting interest in the partnership. CMS or its subsidiaries also hold various debt securities and contractual obligations of MCV. Consumers is a major purchaser of power from MCV, as well as a supplier of natural gas to the cogeneration facility.

MCV moved for peremptory reversal, arguing that the PSC failed to provide adequate notice of its intent to impose the conditions in the rate proceedings or make adequate findings of fact in support of imposing the conditions, that it is a qualifying cogeneration facility under the Public Utility Regulatory Policies Act of 1978 (PURPA), 16 U.S.C. § 823a et seq., and that federal law preempts the PSC from attempting to regulate its affairs through the imposition of conditions. In response to MCV's motion, this Court remanded the case to the PSC for further proceedings and for the preparation of a supplemental opinion clarifying whether MCV is an "affiliate" or "joint venture" covered by the conditions, and if so, explaining the necessity and authority for imposing the conditions on MCV.

The PSC issued its supplemental opinion on August 30, 1990, after hearing additional testimony offered by MCV, the Attorney General, and the PSC's staff. Noting that only the first three conditions were at issue with regard to MCV, the PSC explained that its intent was to apply the conditions to all of the entities over which CMS has exerted or could exert control to such a degree that there is a potential...