Miller Bros. v. Public Service Com'n

• Court: Court of Appeal of Michigan
• Writing for the Court: SHEPHERD
• Citation: Miller Bros. v. Public Service Com'n, 446 N.W.2d 640, 180 Mich.App. 227 (Mich. App. 1989)
• Decision Date: 26 October 1989
• Docket Number: 104391 and 107930,Nos. 104272,s. 104272
• Parties: , 109 P.U.R.4th 543 In the Matter of the Application of Consumers Power Company for Approval of Prices to be Paid Pursuant to Gas Purchase Contracts with Amoco Production Company and 13 other Producers. MILLER BROTHERS and Delta Oil Company, Inc., Intervenors-Appellants, v. PUBLIC SERVICE COMMISSION, Respondent-Appellee, and Consumers Power Company, Petitioner, and Attorney General, Amoco Production Company and Wolverine Gas & Oil Company, Intervenors. WOLVERINE GAS & OIL COMPANY, INC., Intervenor-Appellant, v. PUBLIC SERVICE COMMISSION, Respondent-Appellee, and Consumers Power Company, Petitioner, and Amoco Production Company, Miller Brothers and Delta Oil Company, Inc., Intervenors, and Attorney General, Intervenor-Appellee. AMOCO PRODUCTION COMPANY, Intervenor-Appellant, v. PUBLIC SERVICE COMMISSION, Respondent-Appellee, and Consumers Power Company, Petitioner, and Miller Brothers, Delta Oil Company, Inc., and Wolverine Gas & Oil Company, Inc., Intervenors, and Attorney General, Intervenor-Appellee.

Page 640

446 N.W.2d 640

180 Mich.App. 227, 109 P.U.R.4th 543

In the Matter of the Application of Consumers Power Company

for Approval of Prices to be Paid Pursuant to Gas

Purchase Contracts with Amoco Production

Company and 13 other Producers.

MILLER BROTHERS and Delta Oil Company, Inc., Intervenors-Appellants, v. PUBLIC SERVICE COMMISSION, Respondent-Appellee, and Consumers Power Company, Petitioner,

and

Attorney General, Amoco Production Company and Wolverine Gas

& Oil Company, Intervenors.

WOLVERINE GAS & OIL COMPANY, INC., Intervenor-Appellant, v. PUBLIC SERVICE COMMISSION, Respondent-Appellee, and Consumers Power Company, Petitioner,

and

Amoco Production Company, Miller Brothers and Delta Oil

Company, Inc., Intervenors,

and

Attorney General, Intervenor-Appellee.

AMOCO PRODUCTION COMPANY, Intervenor-Appellant, v. PUBLIC SERVICE COMMISSION, Respondent-Appellee, and Consumers Power Company, Petitioner,

and

Miller Brothers, Delta Oil Company, Inc., and Wolverine Gas

& Oil Company, Inc., Intervenors,

and

Attorney General, Intervenor-Appellee.

Nos. 104272, 104391 and 107930.

Court of Appeals of Michigan.

Submitted March 7, 1989.

Decided Sept. 18, 1989.

Released For Publication Oct. 26, 1989.

J. Andrew Domagalski, Richland, for Miller Bros. and Delta Oil Co., Inc.

Varnum Riddering, Schmidt & Howlett by Jack D. Sage and Mark L. Collins, Grand Rapids, for Wolverine Gas & Oil Co., Inc.

Lynch, Gallagher, Lynch, Shirley & Martineau by Byron P. Gallagher, Mt. Pleasant, for Amoco Production Co.

Frank J. Kelley, Atty. Gen., Louis J. Caruso, Sol. Gen., and Don L. Keskey and William W. Derengoski, Asst. Attys. Gen., for defendant.

Before SHEPHERD, P.J., and CYNAR and SAWYER, JJ.

SHEPHERD, Presiding Judge.

These three consolidated cases are appeals from the same September 29, 1987, decision of the Michigan Public Service Commission, No. U-8600, which rejected the application of Consumers Power Company for approval of a change in the contract price for natural gas. Appellant Amoco also appeals from a March 18, 1988, PSC order denying its application for rehearing. These appeals are as of right. M.C.L. Sec. 462.26; M.S.A. Sec. 22.45.

On October 13, 1986, Consumers Power Company filed an application with the PSC for approval of increased prices to be paid pursuant to gas purchase contracts with fourteen producers of natural gas who operate in an area known as the Northern Niagaran Reef Trend. Appellants (producers) in these cases are some of those producers; they were permitted to intervene in the proceeding before the PSC.

The contracts involved were executed between June, 1971, and May, 1973, and had durations of approximately twenty years. The terms of all of the contracts were substantially similar. The contract with Amoco Production Company was executed on June 9, 1971, and covered the largest area, approximately 134,000 acres. By virtue of these contracts, Consumers acquired dedicated reserves in an area covering 244,000 acres. The quantity of gas involved and the long-term nature of the contracts enabled Consumers to construct (together with Michigan Consolidated Gas Company) a pipeline to service the dedicated area. The contracts were entered into at a time when Consumers' gas supplies were in jeopardy and a gas shortage was looming.

It is undisputed that the producers were unwilling to enter into long-term contracts without some protection from possible inflation. Consequently, the parties to the contracts negotiated a price redetermination clause, article IX. Article IX required the contract price to be redetermined in 1976, 1981, and 1986, under a formula which was based on the initial contract price, Consumers' interstate cost of gas in the year preceeding the price redetermination, and Consumers' 1970 interstate gas cost. During the period of the first two redeterminations, a time of rising prices, the contract formula yielded a price that was almost always below prevailing market prices. The instant case arises out of the 1986 redetermination, a time of falling market prices.

The redetermined contract prices in 1976 and 1981 were approved by the PSC. The 1981 redetermination resulted in a price of $2.5658 per thousand cubic feet (Mcf), which was the contract price when the 1986 redetermination was sought. In 1986, the contract formula yielded a price of $4.8644 Mcf. When Consumers sought approval of the 1986 redetermined price of $4.8644 per Mcf, the market price was generally in the area of $2.50 per Mcf. The PSC found the 1986 redetermined price "unreasonable" and rejected Consumers' application. The PSC's decision was based on the "large gap between current market prices and the price requested by Consumers."

The producers challenge the PSC's decision on numerous grounds. They claim the PSC does not have authority under 1929 P.A. 9 (Act 9), M.C.L. Sec. 483.101 et seq.; M.S.A. Sec. 22.1311 et seq., to approve contract price changes based on consideration of what is "reasonable" in the interest of the general public; rather, Act 9 was intended to protect producers such as appellants. The producers argue that the PSC was never granted authority to regulate the prices they charge for their gas, and that the PSC's action constituted an unconstitutional infringement of their contract rights. Assuming the PSC had the authority it exercised, the producers contend the PSC acted unreasonably, arbitrarily, or capriciously because the PSC considered, among other things, other gas prices which were not based on comparable long-term contracts covering comparable acreage; because the PSC decision did not take into account the reliability of supply provided by appellants' contracts, the historical context in which the contracts were entered or the fact that for many years the contracts provided for payment of less than market price; and because the PSC decision was improperly based on "incremental" interstate prices which did not account for certain fixed charges that cost Consumers over $170 million per year.

The PSC takes the position that Act 9 is broad enough in scope to provide authority for its review of prices based on "reasonableness" and that the 1986 redetermined price submitted by Consumers was unreasonably high. The PSC contends appellants cannot show that the PSC's decision was unlawful or unreasonable since the criteria it considered were appropriate and led to but one conclusion.

Appellate review of PSC orders is narrow. Our standard of review is whether the PSC's decision is lawful and supported by competent, material, and substantial evidence on the whole record. Const.1963 art. 6, Sec. 28. Under M.C.L. Sec. 462.25; M.S.A. Sec. 22.44, 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. Michigan Consolidated Gas Co. v. Public Service Comm., 389 Mich. 624, 209 N.W.2d 210 (1973). The party attacking an order of the PSC must prove by clear and satisfactory evidence that the order complained of is unlawful or unreasonable. M.C.L. Sec. 462.26; M.S.A. Sec. 22.45; City of Lansing v. Public Service Comm., 330 Mich. 608, 48 N.W.2d 133 (1951); Attorney General v. Public Service Comm., 161 Mich.App. 506, 515, 411 N.W.2d 469 (1987), lv. den. 429 Mich. 879 (1987). A reviewing court gives due deference to the PSC's administrative expertise and is not to substitute its judgment for that of the PSC. Yankoviak v. Public Service Comm., 349 Mich. 641, 648, 85 N.W.2d 75 (1957); Building Owners & Managers Ass'n of Metropolitan Detroit v. Public Service Comm., 131 Mich.App. 504, 517, 346 N.W.2d 581 (1984), aff'd 424 Mich. 494, 383 N.W.2d 72 (1986). But this does not mean that courts abandon or delegate their responsibility to interpret legislative intent. General Motors Corp. v. Erves, 395 Mich. 604, 620-621, 236 N.W.2d 432 (1975).

The PSC possesses no "common law" powers; it is a creature of the Legislature and all of its authority must be found in statutory enactments. Union Carbide Corp. v. Public Service Comm., 431 Mich. 135, 146, 428 N.W.2d 322 (1988); Huron Portland Cement Co. v. Public Service Comm., 351 Mich. 255, 262, 88 N.W.2d 492 (1958). Generally, a statute which grants power to an administrative agency is to be strictly construed. Mason Co. Civic Research Council v. Mason Co., 343 Mich. 313, 326, 72 N.W.2d 292 (1955). Administrative authority must be affirmatively or plainly granted, for doubtful power does...