ABATE V MPSC
Annotate this Case
Download PDF
STATE OF MICHIGAN
COURT OF APPEALS
ATTORNEY GENERAL,
UNPUBLISHED
March 23, 2001
Appellant,
v
MICHIGAN PUBLIC SERVICE COMMISSION
and DETROIT EDISON COMPANY,
No. 218662
Public Service Commission
MPSC No. U-8789
Appellees.
ASSOCIATION OF BUSINESSES
ADVOCATING TARIFF EQUITY,
Appellant,
v
MICHIGAN PUBLIC SERVICE COMMISSION
and DETROIT EDISON COMPANY,
No. 218737
Public Service Commission
MPSC No. U-8789
Appellees.
Before: Smolenski, P.J., and Holbrook, Jr. and Gage, JJ.
PER CURIAM.
Appellants appeal as of right from a decision of the Michigan Public Service Commission
(PSC) interpreting a 1988 settlement agreement. We affirm.
The settlement agreement at issue was approved by the PSC on December 27, 1988. The
agreement provided, among other things, that Detroit Edison Company (Edison) could recover a
portion of its expenditures related to the Fermi 2 power generating facility. The settlement was
implemented without incident until 1997, when it became apparent to the PSC that a dispute had
arisen regarding section I-E of the settlement agreement, which provided an accounting schedule
for Edison’s phase-in of revenues from the Fermi 2 plant. Section I-E provides as follows:
FERMI 2 PHASE-IN REVENUES
-1-
In accordance with Statement of Financial Accounting Standards (SFAS)
92, the revenue changes recorded pursuant to the final Fermi 2 phase-in plan are:
1988 Actual
$68,379,000
1989
104,695,000
1990
70,800,000
1991
70,800,000
1992
70,800,000
1993
70,800,000
1994
70,800,000
1995-1997
No change
1998
($53,357,000)
1999
($128,049,000)
2000
Revert to non-phase-in ratemaking
The parties agree that the amounts and accounting entries shown on
Attachment C will be included in cost of service for ratemaking purposes and that
the Company [Edison] shall file a timely general rate case with the MPSC on or
before June 1, 1993 . . . to determine the electric rates to be charged retail
customers, taking into account the Fermi 2 phase-in revenues required for the year
1994 and beyond.
The Attorney General and the Association of Businesses Advocating Tariff Equity (ABATE)
contended that under section I-E automatic rate decreases should occur in 1998 and 1999 that
directly corresponded to section I-E’s figures for those years.
On December 28, 1998, the PSC issued an opinion and order rejecting appellants’
argument. The PSC concluded that such an interpretation of section I-E was inconsistent with
the settlement agreement as a whole because, where rate reductions were contemplated, they
were specifically provided for in detail. The PSC noted that if the parties actually had intended
to require rate reductions in 1998 and 1999, “it would have been very easy to include an
unambiguous provision such as: ‘Rates shall be reduced by $53 million on January 1, 1998 and
by an additional $128 million on January 1, 1999.’” The fact that no such provision was
included indicated that no such reduction was intended.
The PSC also noted that although the agreement did not make any direct provision for
implementing the reductions in the cost of service for 1998 and 1999, it did set forth a
mechanism for reviewing the rate effects of the cost allowances in the general rate cases that
-2-
Edison was required to file under the agreement. The PSC observed in its opinion that the
settlement agreement required that the rate cases to be filed by Edison “take into account the
Fermi 2 phase-in revenues required for the year 1994 and beyond, which would appear to include
1998 and 1999.” The PSC pointed to paragraph II-C of the agreement, in which the parties
specifically agreed that the phase-in revenues would be included as a cost of service item for
ratemaking purposes, and noted that the parties “stopped short of requiring a rate reduction.”
Finally, the PSC observed that the amounts that the settlement agreement required Edison to
record in its books under section I-E did not correspond to the actual rate changes in any of the
years listed. The PSC concluded that the only remaining issue was whether the cost of service
reductions in the settlement agreement had been fully accounted for in the rates for 1998 and
1999, and, if not, what further actions should be taken to fully implement the agreement.
Accordingly, the parties were directed to brief that issue.
The parties submitted briefs as directed, but the Attorney General also sought rehearing of
the PSC’s finding that the settlement agreement did not provide any mechanism for directly
implementing the reductions in paragraph I-E. According to the petition for rehearing, the PSC
should have ordered a total rate reduction of $170 million for 1998-1999 because the term
“revenue changes” could only be interpreted to mean “rate changes.” Edison responded that
there was simply no basis for concluding that revenue changes recorded for accounting purposes
were the same as rate changes. Edison also pointed out that such an interpretation was
inconsistent with the parties’ intention in entering into the agreement because no one ever
contended that the revenue requirements for the years 1990 through 1994 should have resulted in
automatic rate increases. The PSC agreed with Edison’s reasoning and denied rehearing.
On appeal, the Attorney General and ABATE contend that the PSC erred in rejecting
their claim that the figures in section I-E of the settlement agreement constitute automatic rate
reductions for 1998 and 1999. This Court’s review of an order of the PSC is limited; pursuant to
MCL 462.25; MSA 22.44, all rates, fares, charges, classification and joint rates, regulations,
practices, and services of the PSC are presumed to be lawful and reasonable. Attorney General v
Public Service Comm, 231 Mich App 76, 77; 585 NW2d 310 (1998). A party challenging an
order bears the burden of demonstrating by clear and satisfactory evidence that the order is
unlawful or unreasonable. MCL 462.26(8); MSA 22.45(8); Attorney General, supra at 77-78.
“An order is unlawful if it is based on an erroneous interpretation or application of the law, and it
is unreasonable if it is not supported by the evidence.” Attorney General, supra at 78, citing
Associated Truck Lines, Inc v Public Service Comm, 377 Mich 259; 140 NW2d 515 (1966). A
reviewing court must accord due deference to the PSC’s administrative expertise, and may not
substitute its judgment for that of the agency. City of Marshall v Consumers Power Co (On
Remand), 206 Mich App 666, 667; 523 NW2d 483 (1994). Based on the well established
precedent cited above, we reject appellants’ assertion that de novo review applies in this case.
We conclude that the PSC did not act unlawfully or unreasonably in interpreting the
settlement agreement to provide that the Fermi 2 phase-in revenue changes listed in section I-E
of the agreement were to be taken into account as “cost of service” items considered in the
context of the total ratemaking equation, rather than dollar for dollar increases or decreases in
utility rates. As the PSC found, in each of the ten years preceding 1998, the amount shown in
section I-E of the settlement agreement was factored into the ratemaking equation along with
-3-
other relevant variables. This is illustrated by the fact that in 1994, although section I-E allowed
Edison to phase in $70,800,000 of the cost of Fermi 2, electric rates for 1994 actually decreased
by more than that amount.
The inclusion of the phase-in revenues under section I-E as one factor in the ratemaking
process also is consistent with section II-C of the agreement, in which the parties expressly
agreed to include the Fermi 2 phase-in revenues as “a cost of service item for ratemaking
purposes.” The cost of service element is only one factor in the ratemaking equation and
represents the cost to the utility, not the cost to the consumer, which instead is reflected in the
rates set by the PSC. See, e.g., MCL 460.6h(1)(d); MSA 22.13(6h)(1)(d), defining a “general
rate case” as involving consideration of the “utility’s total cost of service and all other lawful
elements properly to be considered in determining just and reasonable rates” (emphasis added);
MCL 460.557(2); MSA 22.157(2), listing other elements that may be considered in fixing rates;
and Ass’n of Businesses Advocating Tariff Equity v Public Service Comm, 208 Mich App 248,
258-259; 527 NW2d 533 (1994), in which this Court held that the PSC may consider all relevant
factors in setting rates. Although “cost of service” occasionally has been used in reference to the
ultimate price paid by consumers for utility service, this meaning cannot be imposed where the
agreement specifically states that section I-E revenue changes for each year are to be considered a
cost of service item for ratemaking purposes.
If the amounts shown in section I-E were interpreted to constitute dollar for dollar rate
changes, they would be removed from the ratemaking process completely, since the amounts
would have to be deducted or added after rates already had been determined. Such an
interpretation directly contradicts the agreement’s provisions that the revenue changes be
included in the ratemaking process. Furthermore, we find that the PSC reasonably concluded
that if the parties had intended that the section I-E revenue changes for 1998 and 1999 were to be
implemented as dollar for dollar rate reductions, the agreement would have expressly
denominated them as “rate reductions.” As previously noted, the revenue changes in section I-E
are expressly designated in section II-C as cost of service items, not rate changes.
Appellants also contend that because section I-A of the agreement specifically provides
for rate increases in the years 1989 through 1992, the figures shown for 1998 and 1999 in section
I-E must be corresponding rate decreases. This argument fails to consider the fact that section IA of the agreement makes no reference whatsoever to section I-E. Furthermore, the specific rate
increases in section I-A do not correspond to the amounts shown for the same years in section IE. Consequently, we find this argument lacking merit.1
1
Appellants further argue at length that reductions in revenues necessarily must result in rate
reductions. We note that in this case, the reductions in revenues shown in section I-E for the
years 1998 and 1999 did in fact contribute to substantial rate reductions. In MPSC Case No. U11588, Edison’s rates for 1998 were reduced by approximately $38 million, which reflected the
net effect of the $53 million reduction associated with the Fermi 2 phase-in for 1998 and a twoyear amortization of storm damage expenses. For 1999, the order issued in MPSC Case No. U11726 reduced electric rates by $93.8 million and provided for accelerated amortization of the
Fermi 2 plant and related assets. Consequently, there were rate reductions in 1998 and 1999, but
(continued…)
-4-
Finally, appellants contend that reversal of the PSC’s decision in this case is compelled
by Attorney General v Public Service Comm, unpublished per curiam decision of the Court of
Appeals, issued June 11, 1999 (Docket No. 207993), which incidentally dealt with the same
settlement agreement involved in this case. Appellants contend that this Court viewed the $53
million revenue change for 1998 as a guaranteed rate reduction that resulted in a rate increase
when offset by storm damage expenses incurred in the previous year. However, it is clear from a
reading of the entire opinion that the panel felt that the offset for storm damage expenses should
be considered in the context of a full public hearing, along with the other relevant cost of service
factors, which included the revenue changes listed in section I-E. Accordingly, that opinion does
not provide grounds for disturbing the PSC’s decision in this case. Furthermore, the opinion
does not compel any particular result in this case because, as an unpublished case, it is not
binding precedent. MCR 7.215(C), (H).
Affirmed.
/s/ Michael R. Smolenski
/s/ Donald E. Holbrook, Jr.
/s/ Hilda R. Gage
(…continued)
factors outside the settlement agreement resulted in the reductions not being identical to the
amounts stated in the agreement. Appellants do not contend that these other factors were
improperly considered in the ratemaking process.
-5-
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
