PENINSULAR GAS CO V MPSC
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STATE OF MICHIGAN
COURT OF APPEALS
PENINSULAR GAS COMPANY,
UNPUBLISHED
October 29, 1996
Plaintiff-Appellant,
v
No. 185681
LC No. U-10630
MICHIGAN PUBLIC SERVICE COMMISSION
and TOWNSHIP OF CALUMET,
Defendants-Appellees.
Before: Markman, P.J., and McDonald and M.J. Matuzak,*JJ.
PER CURIAM.
Peninsular Gas Company appeals the April 13, 1995 order of the Michigan Public Service
Commission (PSC), which granted an interim rate surcharge to cover a portion of the costs associated
with an environmental assessment and remediation investigation. We affirm.
Peninsular Gas Company is a privately owned gas utility which operates in the Upper Peninsula.
From approximately 1907 to 1947, the company’s predecessors operated a manufactured gas plant in
the Village of Laurium. The manufacturing process produced gas from coal, and generated coal waste
by-products which were disposed of on site. The facility ceased operation in 1947, and was converted
to a propane plant, which the company uses for backup supply. The plant was last used in 1978.
The Department of Natural Resources identified the plant as a site of environmental
contamination, and directed the company to engage in response activities under the Michigan
Environmental Remediation Act, MCL 324.20101 et seq; MSA 13A.20101. The DNR determined
that Peninsular is responsible for conducting assessment and remediation activities due to its ownership
of the property.
Peninsular subsequently filed an application with the PSC requesting authority to implement a
surcharge to cover the clean up costs. Peninsular sought to generate annual revenues of $475,000 for a
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*Circuit Court Judge, sitting on the Court of Appeals by assignment.
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ten year period to cover the estimated remediation costs. The requested surcharge represented a
13.89% annual increase in total rates.
An evidentiary hearing was held in which Peninsular presented evidence as to the history of the
manufactured gas plant, the investigation expenses related to the cleanup and the potential costs of
remediation. The costs of remediation over the life of the project were estimated to range from between
$2,000,000 and $5,000,000. Commission staff members testified that the remediation action was
necessary although they proposed modifications to the surcharges proposed by Peninsular. The hearing
officer issued a proposal for decision in which he concluded that the environmental assessment and
remediation costs were current operating expenses and were recoverable from ratepayers.
In a decision entered April 13, 1995, the PSC found that its prior accounting orders did not
guarantee that all costs associated with assessment and remediation of environmental contamination
arising from manufactured gas plant facilities necessarily constituted reasonable operating costs and,
therefore, would be recoverable from ratepayers. The PSC noted that the burden was on the utility to
show that the costs are properly recoverable from ratepayers and declined to establish a specific limit
for costs that may be recoverable. The PSC concluded that costs associated with the assessment and
remediation of the environmental contamination are unique and extraordinary and may be categorized as
something other than exclusively utility operating costs or exclusively non-utility operating costs.
The PSC found that remediation costs could not be adequately estimated on the record before
it. The remediation investigation plan had yet to be completed and approved by the DNR. The range
of estimates for remediation costs was too broad and uncertain to allow a reasonable estimate of
probable total costs. Further, there was some question about the reasonableness of the cleanup costs
as well as the extent to which the cleanup related to the operation of utility service as opposed to
ownership of the land. As an interim resolution, the PSC allowed Peninsular to recover 50% of the
costs associated with the assessment and remediation investigation before the completion of the general
rate case. The PSC noted that the final percentage of recoverable costs recoverable from ratepayers
may differ as a result of findings in the general rate case.
The PSC also noted that it had a history of being reluctant to authorize single-issue rate
proceedings. It had been 12 years since the PSC last reviewed Peninsular’s rates in a general rate case
and the company had the highest authorized rate of return and the highest equity percentage of any gas
utility in Michigan. The PSC directed Peninsular to file a general rate case no later than April 15, 1996.
Peninsular appealed to this Court, asserting that the PSC order was unlawful or unreasonable in
refusing to permit the company to recover unavoidable and prudently incurred operating expenses. The
PSC responded that it properly granted partial relief pending a full rate review.
This Court’s review of PSC orders is narrow in scope. All rates, fares, regulations, practices
and services prescribed by the PSC are deemed prima facie to be lawful and reasonable, and the party
attacking an order of the PSC bears the burden of proving by clear and satisfactory evidence that the
order is unlawful or unreasonable. MCL 462.26(8); MSA 22.45(8), MCL 462.25; MSA 22.44,
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Antrim Resources v PSC, 179 Mich App 603, 619-620; 446 NW2d 515 (1989). A decision of the
PSC is unlawful when it involves an erroneous interpretation or application of law, and it is unreasonable
when it is unsupported by the evidence. Attorney General v PSC, 165 Mich App 230, 235; 418
NW2d 660 (1987). A reviewing court must give due deference to the PSC’s administrative expertise
and is not to substitute its judgment for that of the commission. Attorney General v PSC, 189 Mich
App 138, 142; 472 NW2d 53 (1991).
The Legislature has delegated to the PSC authority to set just and reasonable rates. MCL
460.6; MSA 22.13(6). Determination of just and reasonable rates requires a determination of the
reasonable costs of doing business. In making that determination, the PSC has reasonable discretion to
determine what charges and expenses to allow as costs of operation. Detroit Edison Co v PSC, 127
Mich App 499, 524; 342 NW2d 273 (1983). A decision to grant interim rate relief is also reasonably
discretionary with the commission. Id at 512.
Peninsular has failed to establish that the PSC abused its discretion in awarding it only partial
relief pending the filing of a general rate case. This decision was based in substantial part on the lack of
information available to the commission. The PSC observed that the investigation was not complete and
that the DNR had yet to approve a remediation plan. Because there was a wide range in the estimates
of the cost of the project, the commission had a reasonable basis for deferring a decision pending the
filing of a general rate case. Although the PSC allowed Peninsular to recover 50% of the remediation
costs from ratepayers under the interim order, it noted that the final percentage may well differ following
completion of the rate case. Given the interim nature of the award, there is no showing that the PSC
abused its discretion. Any errors in the allocation may be corrected in the general rate case. Detroit
Edison, supra at 512. Allegations that the PSC improperly denied recovery of reasonable operating
costs are premature where this issue may yet be addressed in the pending general rate case. We do not
understand that the PSC is ultimately in disagreement with plaintiff that plaintiff is entitled to the full
measure of its reasonable costs of operation, only that what constitutes such measure has yet to be
determined with reasonable precision.
Affirmed.
/s/ Stephen J. Markman
/s/ Gary R. McDonald
/s/ Michael J. Matuzak
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