Great Lakes Steel Division of National Steel Corp. v. Michigan Public Service Commission

344 N.W.2d 321, 130 Mich. App. 470
CourtMichigan Court of Appeals
DecidedNovember 21, 1983
DocketDocket 61299
StatusPublished
Cited by37 cases

This text of 344 N.W.2d 321 (Great Lakes Steel Division of National Steel Corp. v. Michigan Public Service Commission) is published on Counsel Stack Legal Research, covering Michigan Court of Appeals primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Great Lakes Steel Division of National Steel Corp. v. Michigan Public Service Commission, 344 N.W.2d 321, 130 Mich. App. 470 (Mich. Ct. App. 1983).

Opinion

Allen, P.J.

Plaintiffs appeal as of right two opinions and orders pursuant thereto of the Circuit Court for Ingham County. One opinion, issued October 23, 1981, by Acting Circuit Judge Thomas G. Roberts, affirmed a November 6, 1979, order entered by defendant Michigan Public Service Commission (MPSC) authorizing defendant Michigan Consolidated Gas Company (MCG) to increase its rates to produce additional revenues of $56,357,000 and to adopt a new and innovative rate structure allocating to industrial classes of customers a portion of the winter heating costs which otherwise would be borne by residential customers. The second opinion, issued one year earlier on October 23, 1980, by Circuit Judge Michael Harrison, denied plaintiffs’ motion to discover MPSC’s decisional thought process.

Plaintiffs are industrial companies purchasing from MCG some 40 billion cubic feet of natural gas *475 per year at a cost of approximately $124 million a year under the rates established by the MPSC when this action was filed in Ingham County Circuit Court. In addition to Great Lakes Steel, plaintiff companies include the members of the Michigan Energy Users Group, a voluntary association of industrial firms comprised of BASF Wyandotte Corporation, Chrysler Corporation, McLouth Steel Corporation, Monsanto Company, and Pennwalt Corporation.

In 1979, following extensive hearings conducted pursuant to the Administrative Procedures Act, the MPSC found a total revenue deficiency of $56,353,000 and ordered revenues from sales of natural gas increased accordingly so as to provide a reasonable return on investment.

In this situation, having determined that additional revenues are needed, the MPSC must adopt a new rate structure which will yield the additional revenues. This is called the "rate design” phase and is a two-step process. First, the MPSC allocates how much of the new revenue should be borne by each class of customer; viz., commercial, residential, industrial, schools, etc. Second, rates for each class are structured to produce the newly allocated revenues.

In the instant case, as part of this two-step process, the MPSC staff submitted two proposals. Through witness Wilbur McNinch, a rate design proposal was submitted containing the same differentials between classes as last approved by the MPSC in case U-5365 1 and would have resulted, if adopted, in an increase of approximately equal percentage in the revenue of the several rate classes. A second rate design proposal was submit *476 ted by staff witness Hasso Bhatia. This proposal was designed to provide relief to low income residential gas customers who had difficulty paying their winter heat bills and was also intended to encourage gas conservation by all residential gas users. Unlike the primary proposal which allocated the increase approximately equally between classes, the alternate proposal caused the industrial customers as a class to pay some $6,000,000 more than they would pay under the McNinch proposal. However, expressed in percentage terms, the increase over the McNinch proposal was not significant, representing only 1.5% of the total average rate for industrial customers.

The alternate proposal was strongly opposed by plaintiffs and, on August 10, 1979, was rejected by the hearing officer on grounds that it lacked evidentiary support and would not benefit low income customers. The hearing officer recommended adoption of the primary rate design proposal. Nevertheless, on November 6, 1979, a majority of the MPSC overruled the recommendation of the hearing officer and adopted the residential winter heating rate structure proposed by Bhatia. Later, one member of the MPSC filed a dissent on grounds that a factual basis was lacking for achieving the purpose of benefiting low income residential customers and improving conservation of energy.

On December 5, 1979, plaintiffs filed an appeal in the Circuit Court for Ingham County as provided in § 26(a) of 1909 PA 300. MCL 462.26(a); MSA 22.45(a). Plaintiffs’ complaint alleged that the residential winter heating rate established by the MPSC order dated November 6, 1979: (1) exceeded the statutory authority of the MPSC; (2) was violative of due process of law; (3) was not supported by competent, material, and substantial *477 evidence on the record; and (4) was arbitrary, capricious, and clearly an abuse of discretion. On May 22, 1980, the circuit court granted plaintiffs leave to file a second amended complaint alleging that one or more MPSC members had been prejudiced as to the adoption of the residential winter heating rate. In connection with the preparation of the second amended complaint, plaintiffs sought by interrogatories to discover what facts had been considered and what actions had been taken by one member of the MPSC majority in arriving at his decision regarding rate design. Objection was filed by the MPSC on grounds, inter alia, that the thought process rule barred such discovery. In an opinion dated October 23, 1980, Judge Harrision found that none of the exceptions to the thought process rule applied and declined to permit the requested discovery. In a subsequent opinion, dated October 23, 1981, Judge Roberts found that the MPSC decision was supported by competent, material, and substantial evidence on the record. On November 13, 1981, Judge Roberts entered an order affirming the MPSC order.

Both orders were appealed as of right to this Court and come to us on the original record made before the MPSC and on the transcript of the hearings in circuit court. On appeal plaintiffs do not challenge the total revenue requirements found to be necessary as a result of the deficiency of $56,353,000 in gas sales revenues. Plaintiffs concede that this amount of rate relief is appropriate but question both the allocation of the increase among the various classes of MCG’s customers and the rate structure within the residential class. 2 Specifically, plaintiffs claim that the MPSC’s order *478 of December 6, 1979, as approved by the circuit court: (1) is not based upon competent, material, and substantial evidence as mandated in this Court’s opinion in Consumers Power Co v Public Service Comm, 78 Mich App 581; 261 NW2d 10 (1977), (2) is arbitrary and capricious, and (3) results in unlawful and unreasonable rates. Plaintiffs further claim that in connection with the drafting of the second bill of complaint, the circuit court improperly denied discovery into the "thought processes” of the MPSC. Defendants MPSC and MCG argue that: (1) as members of the industrial class of customers, plaintiffs are without standing to challenge the rate structure within the residential class; (2) the function of designing rates and allocating revenues among classes of customers is a legislative function, reviewable on appeal for abuse of discretion; and (3) that imposition of the competent, material, and substantial evidence standard of review would impose new and unwarranted restrictions on the MPSC’s broad discretion to experiment and try new and novel rate structures and policies designed to cope with the recent decline in the long term supply of gas resources.

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Bluebook (online)
344 N.W.2d 321, 130 Mich. App. 470, Counsel Stack Legal Research, https://law.counselstack.com/opinion/great-lakes-steel-division-of-national-steel-corp-v-michigan-public-michctapp-1983.