North Michigan Land & Oil Corp. v. Public Service Com'n

• Decision Date: 09 June 1995
• Docket Number: Docket Nos. 162164,162190 and 162191
• Citation: 536 N.W.2d 259,211 Mich.App. 424
• Parties: NORTH MICHIGAN LAND & OIL CORPORATION, the Ray D. Markey Testamentary Residual Trust B by Ron D. Markel and James W. Markel, as Co-trustees, Nielson Enterprises Corporation, Nielson Enterprises Limited Partnership, North Michigan Gas & Oil, a Limited Partnership, David E. Nielson, Dale M. Nielson, Gerald J. Talbot, and CMK Enterprises, Inc., Appellants, v. PUBLIC SERVICE COMMISSION, Attorney General and Idonea Hersee, Appellees. ENERGY RESERVES, INC., Appellant, v. PUBLIC SERVICE COMMISSION, Consumers Power Company and Attorney General, Appellees.
• Court: Court of Appeal of Michigan — District of US

Page 259

536 N.W.2d 259

211 Mich.App. 424

NORTH MICHIGAN LAND & OIL CORPORATION, the Ray D. Markey

Testamentary Residual Trust B by Ron D. Markel and James W.

Markel, as Co-trustees, Nielson Enterprises Corporation,

Nielson Enterprises Limited Partnership, North Michigan Gas

& Oil, a Limited Partnership, David E. Nielson, Dale M.

Nielson, Gerald J. Talbot, and CMK Enterprises, Inc., Appellants, v. PUBLIC SERVICE COMMISSION, Attorney General and Idonea

Hersee, Appellees.

ENERGY RESERVES, INC., Appellant, v. PUBLIC SERVICE COMMISSION, Consumers Power Company and Attorney General, Appellees.

Docket Nos. 162164, 162190 and 162191.

Court of Appeals of Michigan.

Submitted Jan. 3, 1995, at Lansing.

Decided June 9, 1995, at 9:00 a.m.

Released For Publication Aug. 30, 1995.

[211 Mich.App. 427] J. Andrew Domagalski and Jeffrey D. VanLeuwen, Richland, for North Mich. Land & Oil Corp. and others.

Lynch, Gallagher, Lynch & Martineau by Byron P. Gallagher, Mt. Pleasant, for Idonea Hersee and others.

Jerome Colligan, Traverse City, for Energy Reserves, Inc.

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

Loomis, Ewert, Ederer, Parsley, Davis & Gotting, P.C. by William D. Parsley, Harvey J. Messing, and Gary L. Field, Lansing, and David A. Mikelonis, Jon R. Robinson, Frank R. Knox, and Francis X. Berkemeier, Jackson, for Consumers Power Co.

Before FITZGERALD, P.J., and MARILYN J. Kelly and BASHARA, ^* JJ.

PER CURIAM.

In these consolidated cases, appellants appeal as of right from a February 8, 1993, decision of the Michigan Public Service Commission (PSC) on Consumers Power Company's application for a change in the price it pays appellants for natural gas. The following statement of facts is condensed from the PSC decision.

Under a July 1, 1977, gas purchase contract, Amoco Production Company agreed to sell to Consumers gas produced in Manistee, Benzie, Wexford, Grand Traverse, Kalkaska, Antrim, Crawford, Otsego, and Montmorency Counties. Appellants are Amoco's successors in interest. The contract was to remain in effect until at least November 1, 1991, and from year to year thereafter, subject to cancellation by either party.

The contract stated that, for periods after June 30, 1978, gas was priced at the lower of a base price and an alternate price. The base price was $1.995 per thousand cubic feet (Mcf) as of July 1, 1978, and escalated by five percent every six months. The alternate price was the reported market price for No. 2 fuel oil.

In Case No. U-8287, Consumers' 1986 gas cost recovery plan, the PSC held in a January 27, 1987, order that the intrastate component of Consumers' gas supply was too costly. That prompted Consumers to seek renegotiation of its intrastate gas purchase contracts, including the 1977 contract.

Eventually, a settlement was reached. Consumers, numerous producers, and other parties entered into a comprehensive settlement agreement, which was approved by the PSC on August 29, 1989, setting ceiling prices for Consumers' purchases of natural gas at $3.050/per Mcf for 1989, $3.924/per Mcf for 1990, and $3.558/per Mcf until November 1991.

In the meantime, Consumers and appellants entered into a separate letter agreement, dated August 7, 1989, which extended the original term of the 1977 gas contract from November 1, 1991, to November 1, 1995, among other things. This agreement superseded a previous agreement between the parties executed on January 1, 1988. That agreement had also provided for an extension of the original ceiling prices in 1989, 1990, and 1991 identical to those set forth in the U-8287 settlement agreement. However, it further provided for a return to the price formula of the original contract after December 1, 1991.

The existence of the private agreement between Consumers and the individual producers was recognized in the August 29, 1989, settlement agreement approved by the PSC in Case No. U-8287. The recognition took the form of a prohibition of recovery from ratepayers of any extra expense incurred due to variation from the terms of the settlement agreement and the letter agreement. However, neither the parties' August 7, 1989, individual agreement nor their previous agreement of January 1, 1988, was submitted to or approved by the PSC.

On November 27, 1991, a few days before the expiration of the period covered by the PSC-approved settlement agreement in Case No. U-8287, Consumers commenced the instant proceeding with the PSC.

Consumers' application, filed pursuant to 1929 PA 9, M.C.L. § 483.101 et seq.; M.S.A. § 22.1311 et seq., sought approval of a proposed price reduction and other modifications of its natural gas contracts with producers. Specifically, Consumers sought approval of a price of $2.80 per million British thermal units (MMBtu) as a just and reasonable price for purchases from December 1, 1991 to March 31, 1993. Also, it sought relief from contractual purchase obligations that had become uneconomical. It sought, also, a determination that gas it was obliged to purchase be recovered as part of its gas-cost recovery, pursuant to 1982 PA 304, M.C.L. § 460.6h et seq.; M.S.A. § 22.13(6h) et seq.

On February 8, 1993, the PSC issued a fifty-one-page opinion and order, reducing the contract price to $2.80 per MMBtu, inclusive of "add-on" charges, among other things. The PSC also held that the original November 1, 1991, cancellation date under the 1977 contract was still in effect. Thus, any party could exercise the right of cancellation on the next anniversary cancellation date, November 1, 1993, or November 1 of any subsequent year. The PSC rejected appellants' reliance upon their August 7, 1989, private agreement with Consumers. The agreement purported to extend the term of the contract until November 1, 1995. It also rejected appellants' argument that this amendment of the original contract had been approved when the PSC approved the settlement agreement in Case No. U-8287. The PSC found that, since the amendment had never been approved by it, it was legally ineffective.

NORTH MICHIGAN AND ENERGY RESERVES' APPEALS

We discuss first the issues raised by North Michigan and Energy Reserves, because several of them are identical. Then, we will discuss the constitutional issues raised by the parties, including, principally, Hersee.

JURISDICTION

North Michigan and Energy Reserves argue that the PSC lacks jurisdiction under Act 9 to change a contract price for gas. They assert that price approval authority is limited to preventing discrimination against producers and to promoting conservation. Appellants distinguish the leading authorities on a number of grounds.

The authorities are Antrim Resources v. Public Service Comm., 179 Mich.App. 603, 446 N.W.2d 515 (1989), and Miller Bros. v. Public Service Comm., 180 Mich.App. 227, 446 N.W.2d 640 (1989).

Those decisions recognize the PSC's authority to approve gas purchase prices between a common purchaser, such as Consumers, and Michigan producers under § 10 of Act 9, M.C.L. § 483.110; M.S.A. § 22.1320, which provides in part:

Thereafter [filing initial price schedule] a going common purchaser or common carrier of natural gas may alter or amend its price paid, rates, charges and conditions of service by application to and approval by the commission in the same manner and by the same process and under the same legal limitations and like right as are now provided by statute for the regulation by the commission of the rates for electricity transmitted in this state. [Emphasis added.]

The statutory reference is to 1909 PA 106, M.C.L. § 460.551 et seq.; M.S.A. § 22.151 et seq.

In Antrim Resources, the central issue "concerned the producers' assertions that ... the PSC did not have jurisdiction under § 10 of 1929 PA 9 to establish prices that MichCon may pay for commonly purchased natural gas." 179 Mich.App. at 608, 446 N.W.2d 515. The Court held that Act 9 was intended to grant the commission power to control and regulate corporations engaged in the business of purchasing or selling natural gas for public use. 179 Mich.App. at 609, 446 N.W.2d 515. The Court concluded that "the statute quite clearly confers jurisdiction on the PSC to approve any alterations or amendments to the price a common purchaser may pay for natural gas." 179 Mich.App. at 611, 446 N.W.2d 515. That jurisdiction includes the power "to inspect and interpret the price aspect of contracts entered into by common purchasers and to determine the reasonableness of requested price changes." 179 Mich.App. at 615, 446 N.W.2d 515.

Contrary to appellants' contention, Act 9 was not designed solely to promote conservation and to prevent discrimination against producers. 179 Mich.App. at 612, 446 N.W.2d 515. The rationale for the decision is that "[p]roducers who enter into contracts with common purchasers are charged with the knowledge that they are subject to the jurisdiction of the PSC to the extent that the pricing provisions in their contracts with common purchasers and any alterations or amendments in the price are subject to PSC approval." Id. The purchase price is simply not a matter of private contract. 179 Mich.App. at 615, 446 N.W.2d 515.

Finally, the Court held that commission scrutiny of prices was not a violation of the constitutional right against impairment of contract, because the contracts had been made after the statute took effect. 179 Mich.App. at 616, 446 N.W.2d 515.

Antrim Resources was approved in Miller Bros, supra at 233, 446 N.W.2d 640, where the Court said:

We agree with the reasoning and conclusion of the Antrim Resources panel that under Act 9 the PSC has jurisdiction to regulate changes and contract prices by way of approving the reasonableness of those prices. Section 10 of Act 9 clearly provides that contract price changes may be made "by application to and approval by" the PSC. And as in Antrim...