Union Carbide Corp. v. Public Service Com'n

• Decision Date: 26 October 1988
• Docket Number: Docket Nos. 79148,79150
• Citation: 428 N.W.2d 322,431 Mich. 135
• Court: Michigan Supreme Court
• Parties: UNION CARBIDE CORPORATION, Plaintiff, and Consumers Power Company, Intervening Plaintiff-Appellant, v. PUBLIC SERVICE COMMISSION, Defendant-Appellee. 431 Mich. 135, 428 N.W.2d 322

Page 322

428 N.W.2d 322

UNION CARBIDE CORPORATION, Plaintiff, and Consumers Power Company, Intervening Plaintiff-Appellant, v. PUBLIC SERVICE COMMISSION, Defendant-Appellee.

Docket Nos. 79148, 79150.

431 Mich. 135, 428 N.W.2d 322

Supreme Court of Michigan.

Argued March 8, 1988.

Decided Aug. 23, 1988.

Rehearing Denied Oct. 26, 1988.

[431 MICH 137] S. Kinnie Smith, David A. Mikelonis, Allen B. Bass, Consumers Power Co., Jackson, George W. Loomis, William D. Parsley, Michael G. Oliva, Loomis, Ewert, Ederer, Parsley, Davis & Gotting, Lansing, for Consumers Power Co., intervening plaintiff-appellant.

Joseph E. Geoghan, Deputy Gen. Counsel, Robert L. Crawford, Div. Atty., Union Carbide Corp., Danbury, Conn., Bodman, Longley & Dahling, Theodore Souris, James A. Smith, Kim Michael Lavalle, Detroit, for plaintiff Union Carbide Corp.

Frank J. Kelley, Atty. Gen., Louis J. Caruso, Sol. Gen., Don L. Keskey, Asst. Atty. Gen., Lansing, for defendant-appellee Michigan Public Service Com'n.

Foster, Swift, Collins & Coey, P.C. by David W. McKeague, Glen A. Schmiege, Matthew F. Pausch, Lansing, for amicus curiae, Michigan Oil & Gas Assn.

The Detroit Edison Co., Solomon Bienenfeld, A. Robert Pierce, Jr., Detroit, for amicus curiae, The Detroit Edison Co.

Robert G. Teeter, Shell Western E & P Inc., John P. Boerschig, Attys., Amoco Production Co., Houston, Tex., George D. Bennett, Atty., Union Oil Company of California, Oklahoma City, Okl., for amicus curiae, Shell Western E & P Inc., Amoco Production Co., and Union Oil Co. of California.

OPINION

BRICKLEY, Justice.

This case presents two questions. First, did the Public Service Commission exceed its statutory authority in ordering Consumers Power Company to cease noneconomic operation of its Karn oil-fired generating plants and to limit acceptance of oil deliveries under its contract with Union Carbide? Second, did the commission's order impair the contractual obligation of Union Carbide to provide oil to Consumers Power?

We hold that, in this case, the commission exceeded its statutory authority by ordering Consumers Power to stop operating its Karn units out of economic order and to limit its acceptance of oil deliveries from Union Carbide to those required for economic operation. Since we resolve this case on the basis of statutory authority, we need not reach the constitutional question of impairment of contractual obligation. Therefore, we reverse the judgment of the Court of Appeals and reinstate the judgment of the Ingham Circuit Court.

I. FACTS

The controversy in this case originated in July of 1981 with Consumers Power Company's application to the Public Service Commission for an increase in Consumers' electric rates. Concurrent with its application, Consumers moved the commission for partial and immediate rate relief, seeking an increase of $339 million annually and a minimum interim increase of not less than $178.3 million. In its notice of hearing, issued on July 28, 1981, however, the commission noted that it had commenced, on its own motion,

"an investigation into the existing electric rates, charges, revenue deficiencies or excesses, services, practices, procedures and operations of Consumers Power Company, and the investigation will not necessarily be confined to matters contained in the application but will include all matters pertaining to the reasonableness and justness of Applicant's electric rates, charges, operations and practices as may be necessary to enable the Commission to determine whether the existing or proposed rates and charges are unreasonable and excessive or inadequate and should therefore be increased, reduced or altered."

Hearings before hearing referee James Rigas began in September of 1981 and continued into 1982. On February 17, 1982, prior to the hearing on Consumers' motion for interim rate relief, the commission staff filed a motion for an expedited partial final order. The staff sought to prevent Consumers from continuing to operate the Karn No. 3 and No. 4 oil-fired generating units "out of economic order." ¹ In its motion, the commission staff calculated that Consumers had overcharged its ratepayers approximately $84 million because of Consumers' uneconomic operation of the Karn No. 3 and No. 4 units. In addition, the commission staff projected that continued operation of the Karn No. 3 and No. 4 units in a noneconomic manner would cost Consumers' ratepayers an additional $86 million in 1982. Since a reconciliation of the added fuel expenses "passed through" ² to ratepayers would not occur until after Consumers had incurred these expenses, and since the possibility of the commission entering a final order before the reconciliation hearing was remote, the staff concluded that a partial final order was necessary to prevent "irreparable harm" to the ratepayers and to Consumers.

"The uncontroverted competent material and substantial evidence on the record as described hereinafter establishes: 1) that Consumers will be forced to purchase oil under its contracts with Imperial Oil Company and Union Carbide Company for the Karn units; 2) that it will operate the Karn units in a noneconomic manner; and, 3) that its customers will be required to pay hundreds of millions of dollars for the uneconomic operation of the Karn units under its authorized fuel and purchased and net interchange power adjustment clauses, unless the commission exercises its authority on an expeditious basis and orders Consumers to cease operating the Karn units in said fashion."

As a result, the commission staff recommended not only that the commission disallow any expenses Consumers incurred while operating Karn No. 3 and No. 4 in a noneconomic manner, but that the commission order Consumers to cease operating its Karn No. 3 and No. 4 units out of economic order.

"WHEREFORE, it is respectfully requested that the [hearing referee] recommend and the Commission enter an Order as follows:

"(a) That Consumers Power Company not operate the Karn 3 and Karn 4 oil-fired generating facilities out of economic order;

"(b) That any expenses incurred while operating Karn 3 and 4 out of economic order shall be disallowed and not passed through to the ratepayers;

"(c) That Consumers Power Company immediately attempt to seek termination and/or renegotiation of its oil contracts with Imperial Oil Limited of Toronto and Union Carbide Company, and advise the Commission of said negotiations; and

"(d) That Consumers Power Company not purchase any oil for the Karn 3 and 4 units, until a need for the same can be demonstrated to the commission, and an appropriate order issues."

In response, Consumers filed procedural objections to the commission staff's motion for an expedited partial final order. Consumers argued, in part, that "the Staff's proposed procedure [was] entirely without precedent." On March 1, 1982, ³ the hearing referee denied the staff's motion for an expedited final order. The staff then filed an appeal with the commission of the hearing referee's denial of the motion.

On May 13, 1982, the commission issued a partial final order which granted both Consumers' motion for interim relief as well as the staff's application for leave to appeal.

"The granting of Staff's Application for Leave to Appeal does not result in a delay of the hearing on Applicant's application for rate relief. There is no necessity for separating this matter into a separate docket, since all the necessary parties were present and the record has been made upon the uncontroverted evidence established by Applicant's witnesses. Furthermore, the requisite exhibits have been marked and received into evidence.

"Based on [sic] the preceding discussion, the Commission finds that the Staff's Application for Leave to Appeal should be granted and that Applicant shall cease taking deliveries under the aforementioned contracts in excess of quantities necessary for operating those units at levels required by economic dispatch of the system. Applicant shall also cease operation out of economic order. Any additional fuel expenses incurred while operating the Karn # 3 and # 4 oil-fired generating units out of economic order shall be disallowed and not passed on to ratepayers unless Applicant demonstrates the reasonableness of its actions from this date forward. The Staff's recommended adjustment to fuel and purchased and net interchange power expense to reflect economic operation of Karn # 3 and # 4 is reasonable for the purpose of determining partial and immediate relief."

Approximately two weeks later, on May 28, 1982, Union Carbide, which was not a party before the commission, filed a complaint and motion in the Ingham Circuit Court, asking the court to stay and vacate the commission's partial final order. Union Carbide argued, in part, that the commission exceeded its statutory authority in ordering Consumers to not operate its Karn No. 3 and No. 4 plants out of economic order and to cease taking deliveries of oil under its contract with Union Carbide. Union Carbide also claimed that the commission's order impaired its contractual obligation to supply oil to Consumers, in contravention of art. I, Sec. 10 of the United States Constitution and art. 1, Sec. 10 of the Michigan Constitution.

Subsequently, Consumers intervened as a party plaintiff in the Ingham Circuit Court action. On June 10, 1982, Ingham Circuit Court Judge Giddings entered a stay during the litigation, limited to those portions of the commission's order which precluded noneconomic operation of the Karn units and acceptance of oil under the Union Carbide-Consumers Power contract. ⁴ Thereafter, both Union Carbide and the commission filed their respective motions for summary judgment, the commission claiming that Union Carbide's complaint failed to state a claim upon which to grant relief and Union Carbide arguing, in part, that the commission's order exceeded its statutory authority.

On August 16, 1984, the Ingham Circuit...