Attorney General v. Public Service Commission

597 N.W.2d 264, 235 Mich. App. 308

Opinions

Sawyer, J.

The Attorney General appeals from an order of the Michigan Public Service Commission that authorized Michigan Gas Utilities (mgu) to modify its system of refunds and surcharges. We affirm.

Mgu sought to replace its historical method of refunds and surcharges with a method that allows the utility to roll a projected, prior period underrecovery into a gas cost recovery (GCR) factor for a future period. The psc allowed this, though it rejected mgu’s proposal to adopt a standardized method for reopening a GCR plan case proceeding for the narrow purpose of adjusting the GCR factor in response to spot market volatility.

Pursuant to MCL 460.6h(2); MSA 22.13(6h)(2), a mechanism is created that allows the PSC to include a “gas cost recovery clause” in the rate or rate schedule of a gas utility. Such a clause permits the monthly adjustment of rates for gas in order to allow the utility to recover the booked costs of gas sold by the utility, as long as the utility incurs such costs under reasonable and prudent policies and practices. To implement the gas recovery clause, utilities are required to file annual GCR plan cases describing the expected sources and volumes of the utilities’ gas supply, the changes in the cost of gas anticipated for the following year, and a five-year forecast of gas requirements, sources of supply, and projection of costs. The psc conducts a review as a contested case proceeding to evaluate the reasonableness and prudence of the plan and, in a final order, either approves, rejects, or amends the annual GCR plan and five-year forecast.

The statute further requires the PSC to commence a reconciliation proceeding not less than once a year and not later than three months after the end of each twelve-month period covered by a gas utility GCR plan, during which proceeding the psc reconciles the revenues received against the allowances for costs. The PSC must require a gas utility to refund to customers or credit to their bills any net overrecovery pursuant to the GCR clause, and must authorize the utility to recover for any underrecovery if the utility demon strates by clear and convincing evidence that the excess expenses were beyond the ability of the utility to control through reasonable and prudent actions.

On September 30, 1996, mgu filed its 1997 gcr plan and five-year forecast, along with testimony and exhibits, requesting that the psc, among other things: (1) approve the gcr plan and find that mgu’s decisions underlying the plan were reasonable and prudent, (2) authorize mgu to establish its requested gcr factor of $3.41 a Mcf for each of the twelve months of 1997, (3) find that the decisions underlying mgu’s five-year forecast were reasonable and prudent, and (4) approve mgu’s proposal to include a projected underrecovery in any future calculations of the maximum gcr factor.

Intervenors in the proceedings included the Attorney General, the Association of Businesses Advocating Tariff Equity (abate), and the Residential Ratepayer Consortium (rrc). The staff of the psc’s gas division appeared as a party.

The parties entered into a partial settlement agreement, which was approved by the PSC, leaving two issues to be submitted for a contested case decision. The settlement agreement phrased the remaining issues as follows:

a. whether or not a gas utility may include an allowance for estimated prior GCR under recoveries in any gcr factor which it proposes pursuant to MCL 460.6h; MSA 22.13(6h), and

b. whether or not the [PSC] can limit reopening proceedings under MCL 460.6h(10); MSA 22.13(6h)(10) by adopting guidelines such as those proposed in Exhibit A-15 (JTC-6).

In submitting its materials, mgu projected a 1996 GCR underrecovery of $8,580,700. At issue was whether it could include that figure in its 1997 gcr (which proposed a recovery for gas sold in 1997 of $76,057,584). Mgu also requested that the psc adopt its method for estimating underrecoveries in future gcr factors and as a basis for reopening future plan case proceedings to adjust mgu’s gcr factors when actual market prices for gas escalate beyond what the utility projects in its gcr plan case. The psc’s staff opposed mgu’s proposals. Staff witness Robert G. Ozar opined that § 6h does not allow mgu to incorporate forecasted, prior period underrecoveries into its calculation of future GCR factors. Rather, Ozar testified, the psc could authorize recovery of actual under-recoveries following the reconciliation proceeding.

Ultimately, the PSC approved mgu’s roll-in method for projected, prior period underrecoveries. However, it did reject mgu’s proposed standardized method for reopening GCR plan case proceedings for the narrow purpose of adjusting the GCR factor to reflect spot market volatility. The Attorney General then filed this appeal.

The primary issue for our consideration is whether the statute permits the psc to allow a gcr factor that includes an allowance for an estimated underrecovery relating to a prior GCR period. We agree with the PSC that it does.

The standard of review was summarized in Ford-Motor Co v Public Service Comm, 221 Mich App 370, 373; 562 NW2d 224 (1997):

The standard of review for psc orders is narrow and well established. MCL 462.25; MSA 22.44 provides that all rates, fares, practices, and services prescribed by the PSC are presumed, prima facie, to be lawful and reasonable. Michigan Consolidated Gas Co v Public Service Comm, 389 Mich 624; 209 NW2d 210 (1973); Attorney General v Public Service Comm, 206 Mich App 290, 294; 520 NW2d 636 (1994). An appellant must show by “clear and satisfactory evidence” that the order of the psc complained of is “unlawful or unreasonable.” MCL 462.26(8); MSA 22.45(8); Michigan Consolidated Gas Co, supra at 639; CMS Energy Corp v Attorney General, 190 Mich App 220, 228; 475 NW2d 451 (1991); Attorney General, supra at 294. Courts should not substitute their judgment for that of the administrative agency on a factual issue and must defer to the psc’s administrative expertise. 206 Mich App 294; 190 Mich App 228.

In Attorney General v Public Service Comm, 215 Mich App 356; 546 NW2d 266 (1996) (.Attorney General), we held that the psc’s decision to change the method by which a utility credited or surcharged customers for the differences between the actual cost of gas and its projected cost as embodied in gcr factors, so as to authorize rolling over overrecoveries and underrecoveries into future GCR factors, was lawful and reasonable. Building on Attorney General, the PSC in this case approved mgu’s roll-in method for projected, prior period underrecoveries. After reviewing the parties’ arguments and this Court’s decision in Attorney General, the PSC concluded:

Because the Commission has broad discretion to fashion refund and surcharge procedures pursuant to MCL 460.6h(13) and (14); MSA 22.13[6h](13) and (14), the Commission finds that mgu may be authorized to rely upon a forecast of a prior period underrecovery to roll a prior period GCR underrecovery into a future period GCR factor. Of course, the reasonableness of any forecasted underrecovery included in mgu’s future gcr factor is a matter that is subject to the determination of the Commission in establishing the utility’s gcr factor. Moreover, the amount of the forecasted underrecovery is also subject to review and revision in the utility’s annual gcr reconciliation proceeding.

The Attorney General argues that the PSC’s decision was unlawful and unreasonable because it is inconsistent with the language and purposes of § 6h. In particular, the Attorney General argues that the PSC’s interpretation of subsection 6h(14) is inconsistent with subsection 6h(3), which specifically includes forward-looking language (e.g., “expected,” “anticipated,” and “a future 12-month period”) yet is devoid of language regarding estimated, prior period underrecoveries, and with subsection 6h(12), which requires a GCR reconciliation proceeding not less than once a year. We disagree.

Whether a projected underrecovery included in MGU’s future GCR factor is reasonable and prudent will be subject to review initially in the GCR plan case proceeding and subsequently in the annual reconciliation proceedings. Any concern that reconciliation proceedings will be rendered obsolete and that the utility will have free rein to roll a projected underrecovery into the GCR plan case proceeding without some level of scrutiny by the PSC is unfounded. That is, a reconciliation proceeding will still be necessary to determine if the projected underrecovery was accurate and to make any adjustment necessary.¹

Moreover, the PSC’s decision was reasonable where there was evidence presented that allowing the utility to recover for a projected underrecovery without waiting until completion of the reconciliation proceeding would be expeditious and save consumers a substantial amount of accrued interest. This Court has recognized that factors such as economic bene fits, increased efficiency, and accuracy are relevant in assessing the overall reasonableness of a proposed procedure. Attorney General, supra at 369-370.

Furthermore, we note that subsections 6h(13) and (14) of the statute grant broad discretion to the PSC in establishing how a refund for an overrecovery is to be distributed or a surcharge for an underrecovery is to be collected. In both cases, subsections 6h(13) and (14) direct that it shall be by “utilizing procedures that the commission determines to be reasonable.” The PSC determined the procedure employed here to be reasonable. Therefore, it is explicitly authorized by statute.²

We are not persuaded that the procedure authorized by the PSC is unreasonable. Because we are not persuaded that the PSC’s decision was either unlawful or unreasonable, it would not be appropriate for us to set it aside.

The Attorney General’s next argument is that the PSC erred in concluding that it could approve a contingent GCR factor that is triggered by a future event to address spot market price volatility. However, the PSC did not approve such a proposal in the case at bar. It merely noted in dicta that, in a proper case, it could do so. Because the PSC did not do so in this case, the issue is not ripe for review by us. We decline to offer any opinion on whether the PSC is correct in its state- merit that it could approve such a contingent GCR factor in the appropriate case. That issue may be reviewed by this Court when and if an aggrieved party to a PSC decision on that point asks us to do so.

Affirmed. Appellees, the PSC, mgu, and abate may tax costs.

Footnotes

1

For that matter, we note that the initial gcr factor itself is just an estimate. The method at issue here merely refines that initial estimate before the final determination can be made.

2

The dissent’s argument that the statute only authorizes recovery of actual underrecoveries misses the point. Ultimately, the utility will only recover the actual underrecovery as determined in a gas cost recovery reconciliation case. At issue is whether the procedure employed in reaching that point is reasonable. If the psc determines that it is a reasonable procedure to utilize two stages, first immediately recovering the estimated underrecovery and later acljusting for the actual underrecovery, the psc is authorized by statute to do so.