CONSUMERS ENERGY CO V MPSCAnnotate this Case
STATE OF MICHIGAN
COURT OF APPEALS
DETROIT EDISON COMPANY and MICHIGAN
ELECTRIC & GAS ASSOCIATION,
November 24, 1998
MICHIGAN PUBLIC SERVICE COMMISSION,
MICHIGAN CABLE TELECOMMUNICATIONS
ASSOCIATION, ALPENA POWER COMPANY
and EDUCATIONAL TELECOMMUNICATIONS
NETWORKS COMMITTED CONCERNED
Public Service Commission
LC Nos. U-010741
CONSUMERS ENERGY COMPANY, f/k/a
CONSUMERS POWER COMPANY,
MICHIGAN PUBLIC SERVICE COMMISSION,
MICHIGAN CABLE TELECOMMUNICATIONS
ASSOCIATION, TCI CABLEVISION OF
GREATER MICHIGAN, INC., and
NETWORKS COMMITTED CONCERNED
Before: Talbot, P.J., and McDonald and Neff, JJ.
Public Service Commission
LC Nos. U-010741
In these consolidated appeals, appellants Detroit Edison Company (Edison), Michigan Electric
& Gas Association1 and Consumers Energy Company (Consumers) appeal as of right from the
February 11, 1997, order of the Michigan Public Service Commission (PSC), adopting a statewide
formula for determining the rate that Edison, Consumers, and other utilities may charge third parties to
attach wires to the utilities’ electrical poles. Several other parties have intervened in this matter, but only
the Michigan Cable Telecommunications Association (MCTA) and Educational Telecommunications
Networks Committed Concerned About Costs (EDUNETS) have filed briefs on appeal. We affirm.
Edison and Consumers filed applications seeking permission to increase the rates charged to
attaching parties under MCL 460.6g; MSA 22.13(6g). The PSC ordered a hearing to decide whether
a uniform rate should be adopted for all electric utilities and, if so, what method should be adopted for
determining rates. Edison and Consumers requested a rate based on the utilities’ reproduction costs,
reasoning that attaching parties were able to save a substantial amount by not having to construct their
own separate network of poles. MCTA and EDUNETS urged a reduction in the pole attachment rate,
reasoning that because attaching parties pay for all of their make-ready costs, the utilities incur only
minimal incremental expenses as a result of the attachments. Accordingly, EDUNETS advocated a
charge based only on the incremental costs. In the alternative, MCTA advocated adoption of the
embedded or historical cost method followed by the Federal Communications Commission (FCC).
The Administrative Law Judge (ALJ) who conducted the hearing agreed with the PSC staff’s
recommendation of a rate based on the reproduction costs method. However, the PSC declined to
follow the ALJ’s recommendation and instead adopted the FCC formula for computing a uniform
statewide pole attachment rate. Both appellants now challenge the decision of the PSC. Their appeals
were consolidated on this Court’s motion.
Our role in this appeal is to determine whether the PSC’s rate decision was reasonable and
lawful. By statute, appellants bear the burden of proving by clear and satisfactory evidence that the
PSC’s rate decision was unlawful or unreasonable. MCL 462.26(8); MSA 22.45(8); Association of
Businesses Advocating Tariff Equity v Public Service Comm, 208 Mich App 248, 263; 527 NW2d
533 (1994). They must meet this burden in the face of a presumption that the PSC’s rate decision was
lawful and reasonable. MCL 462.25; MSA 22.44; ABATE, supra, 208 Mich App at 263. A decision
of the PSC is considered unlawful when it involves an erroneous interpretation or application of a law
and unreasonable when it is unsupported by the evidence. Attorney General v Public Service
Comm, 165 Mich App 230, 235; 418 NW2d 660 (1987). A party challenging the PSC’s factual
findings must show that they are not supported by competent, material and substantial evidence on the
whole record. Association of Businesses Advocating Tariff Equity v Public Service Comm, 219
Mich App 653, 659; 557 NW2d 918 (1996). However, when a party challenges the PSC’s
ratemaking authority, this Court does not apply the substantial evidence test, but rather accords
deference to the PSC’s administrative expertise and judgment absent a breach of a constitutional
standard, statutory mandate or other limitation. Consumers Power Co v Public Service Comm, 226
Mich App 12, 21; 572 NW2d 222 (1997). Such policy decisions are reviewable only for unlawfulness
or clear abuses of discretion involving no choice between reasonably differing points of view.2 Id. at 32.
Docket No. 203421
Edison advances several arguments for the proposition that the PSC’s rate decision is unjust
and unreasonable. We conclude that Edison has not satisfied its burden on appeal.
Edison first argues that the PSC improperly failed to address the ALJ’s finding that a low
attachment rate would require Edison’s customers to subsidize the activities of the attaching parties. We
disagree. As an initial matter, we note that the ALJ’s determination that the prior attachment rate
resulted in a subsidy was not a “finding” on a disputed factual issue, as suggested by Edison, but rather
an interpretation of facts proved at the hearing. The PSC addressed the ALJ’s determination regarding
the alleged subsidization problem and, based on the same facts, came to a different, and reasonable,
conclusion. Thus, contrary to Edison’s contention, the PSC complied with its mandate to consider “the
utility and its customers” when deciding upon a just and reasonable rate. See MCL 460.6g(2); MSA
22.13(6g)(2). Moreover, the PSC’s decision to adopt a lower rate than that recommended by the ALJ
was based in part on considerations of policy unrelated to the subsidization issue. As noted above, we
will generally defer to the PSC’s policy determinations. Consumers Power, supra at 21.
Edison next argues that the PSC’s decision to adopt the FCC formula, an embedded costs
formula, over a reproduction costs formula, produced an unjust and unreasonable rate. We disagree.
The PSC is not bound to follow any particular method or formula when determining rates. Detroit
Edison Co v Public Service Comm, 221 Mich App 370, 373; 562 NW2d 224 (1997). Pursuant to
the attachments statute, and the requirements of due process, the PSC is only bound to establish rates
that are “just and reasonable.” See MCL 460.6g(2); MSA 22.13(6g)(2); Northern Michigan Water
Co v Public Service Comm, 381 Mich 340, 351; 161 NW2d 584 (1968).
Edison initially asserts, in a conclusory fashion, that the rate adopted by the PSC is unjust and
unreasonable because it would require Edison’s customers to subsidize the activities of the attaching
parties. However, instead of explaining why the PSC’s embedded costs method fails to provide
adequate compensation, Edison merely states, as if it was a matter of fact on the record, that the
embedded costs method results in an unfair subsidy. A party may not merely announce its position and
leave it to this Court to discover and rationalize the basis for its claims. E.g. Joerger v Gordon Food
Service, Inc, 224 Mich App 167, 178; 568 NW2d 365 (1997). By so doing, Edison has failed to
meet its burden of showing that the PSC’s determination was not supported by the requisite evidence.
ABATE, supra, 219 Mich App at 659. In any event, our review of the record reveals that there was
competent, material, and substantial evidence to support the PSC’s conclusion that a rate based on the
embedded costs method would enable utilities to recover their historical investment.
Edison also briefly suggests that the rate adopted by the PSC constituted an unconstitutional
taking. This argument is unpersuasive for the reasons stated in In re Retail Wheeling Tariffs, 227
Mich App 442, 458-460; 575 NW2d 808 (1998).
Edison further contends that the PSC improperly considered the “promotion of competition in
communication services” as a factor in setting its rate. However, contrary to Edison’s argument, the
PSC’s decision to adopt the FCC method does not appear to have been motivated by a desire to
“manipulate competition” or “favor” the interest of cable television companies, but rather by a desire to
create a sensible rate given the current condition of the market. Accordingly, we are not persuaded the
PSC exceeded its ratemaking authority in the manner alleged by Edison.
Edison also questions the PSC’s “reliance” on § 361 of the Michigan Telecommunications Act,
MCL 484.2101 et seq.; MSA 22.1469(101) et seq. and 47 CFR § 1.1401 et seq. Again, contrary to
Edison’s assertion, the PSC did not base its decision on these sources, but merely noted that its
decision to adopt an embedded cost approach created a “desirable degree of consistency” with other
states adhering to the FCC standard and the rate applicable to telecommunication pole attachments.
Moreover, the fact that the PSC was not bound to adopt the formula mandated by § 361, does not
mean that it could not elect to do so in its discretion. Accordingly, Edison’s contention is misplaced.
Edison next argues that the PSC erred in refusing to take into account the costs associated with
the overhead grounding systems for utility poles. Initially we note that Edison has not shown that the
PSC’s factual findings regarding the overhead grounding system were not supported by competent,
material and substantial evidence. ABATE, supra, 219 Mich App at 659. More important, however,
is the fact that Edison’s argument merely calls into question the soundness of the PSC’s policy decision
with respect to the issue of the overhead grounding systems. In so doing, Edison does not allege a
breach of a constitutional standard, statutory mandate, or other limitation. Based on the PSC’s findings
we cannot say that its decision constituted a clear abuse of discretion. Accordingly, Edison is not
entitled to relief on this issue. See Consumers Power supra at 21, 32.
Finally, Edison questions the PSC’s policy determination with respect to the allocation of costs
associated with the “common spaces” on the utility poles. The rate the PSC adopted assesses a charge
based only on the amount of useable space that the attaching parties occupy. Edison argues that the
PSC should have included other areas of the pole that are necessary for all parties to use the pole, but
which are not occupied by attaching parties, such as the portion of the pole buried in the ground for
support and the neutral zone, where workers can access the lines. Edison’s argument does not question
the PSC’s factual findings with respect to space allocation. Instead, it merely impugns the soundness of
the PSC’s policy determination. Although Edison suggests that the PSC should have followed the
FCC’s lead and allocated two-thirds of the nonuseable space on a pole to attaching parties, see 47
USC 224(e)(2), the PSC was not bound to follow federal law on this point. Because Edison alleges no
other breach of a constitutional or statutory limitation, and based on the PSC’s findings we cannot say
that its policy decision constituted a clear abuse of discretion, Edison is not entitled to relief on this issue.
See Consumers Power supra at 21, 32.
Docket No. 203480
Consumers first contends that the PSC’s order setting the attachment rate constituted an
unconstitutional taking of its private property because it required Consumers “to accept attachments on
its pole system by private attaching parties seeking to increase the profits in their own private endeavors
at a rate which is inadequate to compensate the utility for its investment and the value provided to
attaching parties which then do not need to invest in their own pole network to reach their customers.”
Consumers also contends that the order violated due process because it compelled the utility to use its
property in a manner beyond that which it was willing to undertake. We disagree with these arguments
for the reasons stated in In re Retail Wheeling Tariffs, supra at 458-460. Because Consumers’
property is heavily regulated and used for a public purpose, the PSC’s order did not run afoul of
Consumers’ constitutional rights in the manners alleged. See id.
Consumers next argues that the new statewide pole attachment rate adopted by the PSC
constituted an arbitrary and unconstitutional change from the previous rate. We disagree. As noted
above, a utility rate that is not just and reasonable constitutes a violation of due process. See Northern
Michigan Water, supra at 351. To meet this constitutional requirement when setting rates, the PSC
should consider all reasonable costs of doing business and allow for a reasonable rate of return.
General Telephone Co of Michigan v Public Service Comm, 341 Mich 620, 631; 67 NW2d 882
(1954). A due process violation may also result from an arbitrary change in ratemaking methods
contrary to the reasonable expectations and reliance of investors. Consumers Power, supra at 28.
Consumers contends that the new statewide attachment rate adopted by the PSC is unjust and
unreasonable because the PSC arbitrarily switched methodologies resulting in a lower rate without a
finding of changed circumstances or a showing that the prior rate was excessive. This argument is
flawed because the new pole attachment rate is the first statewide pole attachment rate set by the PSC
after conducting a full hearing. The rate from 1986 was set pursuant to a settlement agreement. Before
then, rates were set in individual cases rather than statewide. Accordingly, there is no factual basis for
Consumers’ contentions (1) that it had a right to rely on
the previous method employed by the PSC, (2) that the PSC arbitrarily switched its method, or (3) that
there was a need to show that the prior pole attachment rate was excessive. Thus, Consumers is not
entitled to relief on appeal.
/s/ Michael J. Talbot
/s/ Gary R. McDonald
/s/ Janet T. Neff
Throughout this opinion we will refer to Edison as the appealing party in Docket No. 203421.
Michigan Electric & Gas Association only marginally participated in these proceedings and Edison is the
primary party to this appeal.
Given this standard of review, one panel of this Court described the PSC’s rate setting decisions as
being “virtually unreviewable.” See North Michigan Land & Oil Corp v Public Service Comm, 211
Mich App 424, 439; 536 NW2d 259 (1995).