.
~~
!A
Approved. SCAO
STATE OF MICHIGAN
JUDICIAL DISTRICT
30TH
JUDICIAL CIRCUIT
COUNTY PROBATE
Court Address
Oridnat _ cowl
1stMP” - Defendant
I ,3 :kT‘9 Lh.
2nd MPY - Plaintiff
3rd coo” CASE NO.
SUMMONS AND COMPLAINT
_:, ~:/
Plaintiffname(s),address and telephone no(s).
THE DETROIT EDISON COMPANY
2000 Second Avenue, Room 688 WCB
Detroit, MI 48226
,. ,~.,
V
(313) 2357461
,~j-; F;(y:;.;;y :,
Defendant name(s). sddress(es
MlCHtGAN PUBLIC SERVI
6545 Mercantile Way, Suit
P.O. Box 30221
---Lansing, Ml 48909
(517) 241-6180
t=fLED
Plaintiffattorney, bar no., address, and telephone no.
William K. Fahey (P27745)
Stephen J. Rhodes (P40112)
FOSTER. SWIFT. COLLINS &SMITH, PC.
313 S. Washington Square
Lansing, Ml 48933
1 SUMMONS
1 NOTICE TO THE DEFENDANT: In the name of the people of the State of Mi
1. You are being sued.
2. YOU HAVE 21 DAYS after receiving this summons to file an answer with the court and serve a c
party or to take other lawful action (28 days if you were served by mail or you were served outsid
3. If you do not answer or take other action within the time allowed, judgment may be entered again
the relief demanded in the complaint.
d
This summons expires
Court clerk
Is-v
‘ssu~?yp :I 8 20~
nEc. 1 r “Cf?
*This summons is invalid unless served on or before its expiration date.
( COMPLAINT
1 Instruction:
The folIowIng
completed by the p/alntbX Actual allegatIons
to f/l/s b7n.
is information
that is requb’ed to be In the caption
and the claim formgef must be stated on additional
of every complaint and is to be
cornplaInt pages and attached
Family Divlsion Cases
c] There is no other pending or resolved action within the jurisdiction of the family division of circuit court involving the
family or family members of the parties.
17 An action within the jurisdiction of the family division of the circuit court involving the family or family members of the
court.
patties has been previously filed in
pending. The docket number and the judge assigned to the action are:
Theaction
remains
is no longer
Bar no.
Judge
Docketno.
q
q
General Civil Cases
There is no other pending or resolved civil action arising out of the same transaction or occurrence as alleged in the
0
A civil action between these parties or other parties arising out of the transaction or occurrence alleged in the complaint
court.
been previously filed
q
The action
0
remains
Docket no.
0
is no longer
pending. The docket number and the judge assigned to the action are:
Barno.
Judge
VFNllF 1
Plaintiff(s)residence(includecity, township, or village)
lngham County, Michigan
Wayne County, Michigan
Placa
lnoham County
I declare that the complaint
9/16/02
Date
Defendant(s)residence(includecity, township, or village)
information
above and attached
tion,
owledge, and belief.
is true p th
dflr:*A
Signatureof attomeylfiaintiff wBiam K. Fahey (i%745)
If you require special acoommodations to use the oouri because of disabilities, please contact the court immediately to make arrengements.
MCR2.1o*(s~t,).MCR2.104,MCR2.105.MCR2.107.MCR*.KyC~2~a).(b).
MCR3.2c-w
MC 01 (W38)SUMMONSAND COMPLAINT
-
STATE OF MICHIGAN
IN THE CIRCUIT COURT FOR INGHAM
THE
DETROIT
EDISON
COUNTY
COMPANY,
Petitioner/Plaintiff,
V
MICHIGAN
PUBLIC
SERVICE
COMMISSION,
Respondent/Defendant.
William K. Fahey (P27745)
Stephen J. Rhodes (P40112)
FOSTER, SWIFT, COLLINS & SMITH,
Attorneys
for Petitioner/Plaintiff
THE DETROIT EDISON COMPANY
313 South Washington
Square
Lansing, Ml 48933-2193
(517) 371-8100
P.C.
Richard P. Middleton
(P41278)
Jon P. Christinidis
(P47352)
THE DETROIT EDISON COMPANY
2000 Second Ave., Room 688 W C B
Detroit, Ml 48226-l
203
(313) 235-7481
There is no other pending or resolved civil action arising out
of the same transaction or occurrence as alleged in the
complaint, nor has any such action been previously filed
and dismissed or transferred after having been assigned to
a judge in this court.
PETITION FOR INTERLOCUTORY REVIEW
AND COMPLAINT FOR DECLARATORY RELIEF
Petitioner/Plaintiff,
Foster,
Swift,
Collins
The
&
Detroit
Smith,
Edison
P.C.,
and
Company
The
(“Edison”),
Detroit
Edison
by its attorneys,
Company
Legal
.
’
Department,
hereby petitions for interlocutory
by Respondent/Defendant,
“MPSC”)
Michigan
review of the Opinion and Order entered
Public Service Commission
(“Commission”
or
on August 20, 2002, and requests that the Court grant Edison declaratory
relief, and in support thereof states:
COUNT I - PETITION FOR INTERLOCUTORY
REVIEW
1.
Edison’s principal place of business is in Wayne County, Michigan.
2.
The Commission’s
principal
place of business
is in lngham County,
Michigan.
On March 8, 1999, the Commission
3.
Order commencing
of certain so-called
affiliates.
“guidelines”
The Commission
4.
called
a so-called “contested
“guidelines”
Commission
5.
for
transactions
between
public utilities
that case as Commission
after conducting
and their
Case No. U-l 1916.
the proceeding to consider the so-
between
utilities
and their
affiliates,
the
purported to issue an Opinion and Order adopting such “guidelines.”
Edison and other utilities
Opinion and Order in Commission
Appeals.
On July
reversing
and vacating
Commission
case” proceeding to consider the adoption
for transactions
denominated
On May 3, 2000,
sua sponte issued an Opinion and
19, 2002,
appealed the Commission’s
May 3, 2000
Case No. U-l 1916 to the Michigan
the Court of Appeals
the Commission’s
May
issued a published
3, 2000
Opinion
Court of
opinion,
and Order in
Case No. U-l 1916, finding that such Opinion and Order was unlawful and
outside the Commission’s
jurisdiction
and authority
2
for the following
reasons:
6.
(a)
The proceedings in Commission
Case No. U-l 1916 “only
tangentially involved ratemaking,” and therefore the Commission
had no justification under its ratemaking authority to adopt the
Opinion and Order.
(b)
The proceedings in Commission Case No. U-l 1916 were “wholly
incompatible” with the definition of “contested case” under the
Michigan Administrative Procedures Act.
(c)
The proceedings in Commission Case No. U-l 1916 did not involve
“a disputed set of facts-e.g., a license denial, a denial of benefits,
or a statutory violation” such as would provide a proper foundation
for a “contested case” proceeding.
(d)
In Commission
Case No. U-l 1916, the Commission did not
properly follow the procedures for promulgating rules under the
Michigan Administrative
Procedures Act, and could not properly
adopt “guidelines” in lieu of rules under that Act (see Court of
Appeals’ opinion, attached as Exhibit A).
On August 20, 2002, the Commission
Order commencing
another “contested
certain “guidelines”
for transactions
Exhibit B). The Commission
sua sponte issued an Opinion and
case” proceeding to consider the adoption of
between
denominated
Edison and its affiliates
(attached as
this matter as Commission
Case No. U-
13502.
7.
The only difference
and Order in Commission
in Commission
instead of all utilities
the Opinion
proposed by the Opinion
Case No. U-l 3502 and the proceedings
Case No. U-l 1916 is that U-13502
unnamed affiliates,
respects,
between the proceedings
is limited
and Order in Commission
in Commission
to Edison and its
and their unnamed affiliates.
Case No. U-13502
conduct proceedings identical to (and unlawful and unauthorized
as) the proceedings
already conducted
Case No. U-l 1916.
3
In all other
proposes to
for the same reasons
8.
The Commission’s
proceedings in Commission
following
9.
August 20, 2002 Opinion and Order and its proposed
Case No. U-l 3502 are unlawful
and unauthorized for the
reasons, among others:
(a)
The Commission is again attempting to adopt “guidelines” in place
of rules, without complying with the required procedures for rulemaking contained under the Michigan Administrative
Procedures
Act.
(b)
The Commission cannot lawfully commence this proceeding as a
“contested case” as defined by the Michigan Administrative
Procedures Act, since these proceedings do not involve the legal
rights, duties or privileges of a named party, do not involve
ratemaking, and do not involve a disputed set of facts with
respect to a named party.
(cl
The Commission has no authority to conduct a contested case
proceeding in order to determine the legal rights, duties or
privileges of Edison’s unnamed affiliates.
(4
The Commission has no authority to impose regulatory standards
on entities outside its jurisdiction, including Edison’s unregulated
affiliates.
Erased upon the foregoing averments, the Commission’s
Opinion and Order in Commission
August 20,2002
Case No. U-l 3502 should be reversed and vacated
because:
(a)
That Opinion and Order is in excess of the statutory
jurisdiction of the Commission.
(b)
As previously determined by the Michigan Court of Appeals (see
attached
Exhibit A), the proceedings
commenced
by the
Commission’s August 20, 2002 Opinion and Order in Commission
Case No. 13502 are unlawful and in violation of the Michigan
Administrative
Procedures Act, causing material prejudice to
Edison.
4
authority or
10.
Judicial review of the Commission’s
eventual final order in Commission
Case U-l 3502 would not provide Edison an adequate remedy, as demonstrated
proceedings
that previously
occurred in Commission
Case No. U-l 1916, where the
appellants were forced to endure the unlawful and unauthorized
three and one-half years before the Court of Appeals
Commission
11.
against
proceedings for nearly
finally
determined
that the
had no authority to conduct those proceedings.
Since the Commission
Edison, substantially
unauthorized
by the
is now proposing to commence
identical
to those
proceedings
new proceedings
found to have been
by the Court of Appeals, and in direct contravention
of the Court of
Appeals’ directive that such proceedings must comply with the rulemaking procedures
under the Michigan Administrative
this Court directing
proceedings
Procedures Act, Edison is entitled to an order from
the Commission
in Commission
to terminate
the unlawful
and unauthorized
Case No. U-l 3502.
WHEREFORE, Edison respectfully requests that the Court grant Edison’s Petition
for Interlocutory
Opinion
Review,
reverse and vacate the Commission’s
and Order in Commission
Case NO. U-13502,
August
and direct
20, 2002
that
further
proceedings in that case shall be terminated.
COUNT II - DECLARATORY
12.
Edison hereby incorporates
JUDGMENT
by reference
the foregoing
paragraphs
1
through 11, as if fully stated herein.
13.
Interlocutory
In the alternative,
in the event this Court denies Edison’s Petition for
Review, this action presents a case of actual controversy
5
within
this
Court’s jurisdiction,
suitable for relief by way of declaratory judgment
as provided for
by MCR 2.605.
14.
August
In addition to, or as an alternative to judicial review of the Commission’s
20, 2002 Opinion and Order, Edison is entitled to a Declaratory
declaring that the Commission’s
unlawful
proceedings
and outside the Commission’s
WHEREFORE,
Edison a Declaratory
Edison respectfully
Judgment,
No. U-l 3502 are unlawful
in Commission
jurisdiction
Judgment
Case No. U-l 3502 are
and authority,
requests that this Honorable
Court grant
declaring that the proceedings in Commission
and outside the Commission’s
Respectfully
jurisdiction
Case
and authority.
submitted,
FOSTER, SWIFT, COLLINS & SMITH, P.C.
Attorneys for Petitioner/Plaintiff
Dated: September
18, 2002
William K. Fahey (P27745)
Stephen J. Rhodes (P40112)
313 South Washington Square
Lansing, Ml 48933-2193
(517) 371-8100
THE DETROIT EDISON COMPANY
By:
Richard P. Middleton (P41278)
Jon P. Christinidis (P47352)
2000 Second Ave., Room 688 W C B
Detroit, MI 48226-l 203
(313) 235-7481
6
i
STATE
OF MICHIGAN
BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION
*****
In the matter, on the Commission’s own motion,
to considerguidelines or standardsto govern
transactionsbetweenThe Detroit Edison Company
andits affiliates.
)
)
CaseNo. U-13502
At the August 20,2002 meeting of the Michigan Public Service Commission in Lansing,
Michigan.
PRESENT: Hon. Laura Chappelle,Chairman
Hon. David A. Svanda,Commissioner
Hon. Robert B. Nelson, Commissioner
OPINION AN’D ORDER
In the December7,1989 order in CasesNos. U-8678, U-8924, and U-9197, the June29, 1990
orderin CaseNo. U-9323, the May 7,199l order in CaseNo. U-9346, and the October28, 1993
order in CasesNos. U-10149 andU-10150, the Commission establishedguidelines for transactions
betweena utility and its affiliates. These guidelines,which were construedandpartially revised
by the Court of Appeals in Midland CogenerationVenture Limited Partnershiuv Public Service
Camm, 199Mich App 286; 501 NW2d 573 (1993), apply to ConsumersEnergy Company’s
(Consumers)gasand electric operations,SEMCO Energy Gas Company, and Michigan ConsolidatedGasCompany (now owned by DTE Energy Company).
ln the March 8, 1999order in CaseNo. U-l 1916,the Commission concludedthat it should
reexaminethoseguidelines. It stated:
,.
”
Several yearshavepassedsince the Commission imposed theseguidelines . ..
During that time, significant changeshave occurred in Michigan’s electric and gas
industries,including the advent of retail competition, The Commission therefore
finds that it should initiate a contestedcaseproceedingto (1) review these
requirements,(2) determinewhich of the guidelines may no longer be appropriate
or what new conditions may be required in today’s industry, and (3) decide whether
to expandor reduce the list of entities to which theserequirementsshould apply.
March 8, 1999 order, CaseNo. U-l 1916,pp. 1-2.
Iu an order issuedMay 3,200O in CaseNo. U-11916, the Commission revised the guidelines.
The utilities appealed, and the Court of Appeals vacatedthe Commission’s
2002. Michiesn Gas and Electric Ass’n v Michiaan Public Service Comm.
_
NW2d _
decision on July 19,
Mich App -;
(2002).
The effect of the Court’s decision is that utilities, such as Consumers,remain subject to the
guidelinesor standardsthat were previously approvedand upheld by the Court in Midland
CosenerationVenture Limited Partnershiu.suma. On the other hand, as a result of the Court’s
decision, The Detroit Edison Company (Detroit Edison) is not subject to any guidelines or
standardsbecausethe Commission had not previously approvedany to govern its dealingswith
affiliates. Although the Commission has some generalconcern abouthaving different rules and
standardsapply to different utilities, the Commission has a more specific concernwith not having
any apply to Detroit Edison becauseCommission Staff audits for 1997 and 1998and a follow-up
audit for 1999uncoveredirregularities in Detroit Edison’s manner of handling transactionswith its
affiliates.
The Commission concludes,basedon prior audits, that the potential for adverserate effects
still exists, and thereforethe Commission will commence a contestedcaseproceedingwith Detroit
Edison as the namedparty to considerwhether affiliate guidelines or standardsshould be adopted
for Detroit Edison, and if so, what the terms should be. It will also be neoessary for the parties to
Page2
U-13502
.
,-
-
.
A
.
addressthe statutory basis for adopting affiliate guidelines or standards,such as MCL 460.55,.56,
and 556 and any other relevant provisions. Any interestedparty may seek to participate by
intervening, although the proceedingwill addressonly transactionsbetweenDetroit Edison and its
affiliates. The Commission may commenceother proceedingsat a later time to addressaffiliate
guidelines or standardsfor one or more of the remaining utilities that are not subject to affiliate
guidelines or standardsas a result of the Court’s recentdecision. A prehearing conferencewilt be
held on September19,2002 at 9:00 a.m.
The Commission has selectedthis casefor participation in its Electronic Filings program. All
documentsfiled in this casemust be submitted in both paperand electronic versions. An original
and four papercopies and an electronic copy in the portable document format (PDF) should be
tiled with the Commission. Requirementsfor filing electronic documentscan be found in the
Commission’s Electronic Filings UsersManual at:
htto://efile.musc.cis.state.mi.us/efile/usersmanual.odf.You may contact Commission Staff at
(800) 292-9555,(517) 241-6170,or by E-mail at mnsc.efile.cases@michit&an.uovwith any
questionsand/orto obtain accessprivileges prior to filing.
The Commission FINDS that:
a. Jurisdiction is pursuantto 1909PA 106,as amended,MCL 460.551 et seq.; 1919PA 419,
as amended,MCL 460.51 et seq.; 1939PA 3, as amended,MCL 460.1 et seq.; 1969PA 306, as
amended,MCL 24.201 et seq.; and the Commission’s Rules of Practice and Procedure,as
amended,1992 AACS, R 460.17101 et seq.
b. A contestedeaseproceedingshould be initiated to consider whether affiliate guidelines or
standards should be adoptedfor Detroit Edison, and if so, what the terms should be.
Page3
U-13502
.
A
THEREFORE, IT IS ORDERED that:
A. A contestedcaseproceeding should be initiated with The Detroit Edison Company as the
namedparty to consider whether affiliate guidelines or standardsshould be adoptedfor it, and if
so, what the terms should be.
B. A prehearingconferencewill be held in the Commission’s offices located at 6545
Mercantile Way, Lansing, Michigan at 9:00 a.m. on September19,2002.
C. Any personwishing to intervene and becomea party to the caseshall file an original and
15copies of a petition to interveneby September12,2002.
The Commission reservesjurisdiction and may issuefurther orders as necessary.
MICHIGAN PUBLIC SERVICE COMMISSION
/s/ Laura Chaunelle
Chairman
(SEAL)
IsI David A. Svanda
Commissioner
/s/Robert B. Nelson
Commissioner
By its action of August 20,2002.
Is/ Dorothv Wideman
Its Executive Secretary
Page4
u-13502
/7
A
.
THEREFORE, IT IS ORDERED that:
A. A contestedcaseproceedingshould be initiated with The Detroit Edison Company asthe
namedparty to consider whether affiliate guidelines or standardsshould be adoptedfor it, and if
so, what the terms should be.
B. A prehearingconferencewill be held in the Commission’s offices located at 6545
Mercantile Way, Lansing, Michigan at 9:00 a.m. on September19,2002.
C. Any personwishing to intervene andbecome a party to the caseshall file au original and
15 copies of a petition to interveneby September12,2002.
The Commission reservesjurisdiction and may issue further orders as necessary.
MICHIGAN PUBLIC SERVICE COMMISSION
r‘h$-
Commissioner
,*
./’
lizFk&&!cfl ..ommissioner
By its actionfiAugust 20,2002.
Page5
U-13502
f
,
,*
Michigan Elec & Gas Ass’n v Michigan Pub Serv Comm’n
Page 1 of 6
f3
STATE
COURT
MICHIGAN
DETROIT
COMPANY,
COMPANY,
OF MICHIGAN
OF APPEALS
ELECTRIC
AND GAS ASSOCIATION.
EDISON
COMPANY,
CONSUMERS
and MICHIGAN
CONSOLIDATED
FOR PUBLICATION
July 19. 2002
THE
ENERGY
GAS
Appellants,
”
MICHIGAN
PUBLIC
SERVICE
COMMISSION,
MICHIGAN
ALLIANCE
FOR FAIR COMPETITION,
NATIONAL
ENERGY
MARKETERS
ASSOCIATION,
MICHIGAN
CABLE
TELECOMMUNICATIONS
ASSOCIATION,
MICHIGAN
ELECTRIC
COOPERATIVE
ASSOCIATION,
EDISON
SAULT
ELECTRIC
COMPANY,
and ENERGY
MICHIGAN.
INC.,
No. 227713
Public Service
Commission
LC No(s).
No.
PSC
11916
Appellees.
Before:
SAWER.
Owens,
P.J.,
and Sawyer
and Cooper,
JJ.
J.
Appellants
Michigan
Electric
and Gas Association,
The Detroit Edison Company,
Consumers
Energy
Company,
and Michigan
Consolidated
Gas Company
appeal as of right from the May 3. 2000, opinion
and order of the Michigan
Public Service
Commission
(PSC) that issued revised’guidelines”
(or
conditions)
regarding
transactions
between
a regulated
public utility and its nonregulated
holding
company,
subsidiaries,
and affiliates.
Appellees
PSC staff and the Michigan
Cable Telecommunications
Association
have filed appeal briefs in support
of the PSCs order. Because
we conclude
that the
procedure
utilized by the PSC was invalid under the Administrative
Procedures
Act (APA). MCL 24.201
et seq.. we vacate the PSCb order as unlawful.
I. Facts
and Procedural
History
In 1997. the PSC initiated sua sponte
an investigation
of Consumers
Power CampanY
decision
to
restructure
its corporation
into a large holding company,
CMS Energy
Corporation
(CMS).
and a variety
of subsidiaries,
affiliates,
and joint ventures.
including
Consumers
Power Company
and Midland
Cogeneration
Venture
Limited Partnership
(MCV). MCV was a limited partnership
created
to construct
and operate
a gasfired
e&trio
cogeneration
facility at the site of Consumers’abandoned
Midland
nuclear power plant. CMS Midland,
Inc., a wholly owned subsidiary
of CMS, was a general patner
in
MCV and held a forty+ine
percent
voting interest
in the partnership.
CMS or its subsidiaries
held
various
debt Securities
and contractual
obligations
of MCV. and Consumers
was a major purchaser
of
power from MCV, as well es a supplier
of natural gas to the cogeneration
facility. The commission
was
concerned
that its ability to regulate
Consumers
was hindered
by its lack of access
lo the acCOUntS and
records
of the utilitys affiliates
and subsidiaries,
and that the billing practices
of these affiliates
and
.
..
i&higan
Elec & Gas Ass’n v Michigan Pub Serv Comtn’n
Page 2 of6
subsidiaries
could involve “cross-subsidization
of nonutility
investments
through
utility ratesMidland
Cogeneration
Venture
Limited Partnership
Y Public Service
Comm,
199 Mich App 286, 289-291:
501
NW2d 573 (1993).
In light of these concerns,
the staff recommended
the imposition
of certain
reporting,
bookkeeping.
and infonation-access’bonditions”covedng
Consumers’
holding company,
subsidiaries,
affiliates,
and joint ventures.
The PSC adopted
seven conditions
that required
Consumers
to ensure
PSC access
to the books and
records
of CMS and each of the utility&! affiliates,
subsidiaries,
and joint ventures.
furnish the PSC with
certain financial
statements
of the holding company
and nonutility
subsidiaries,
and file various
annual
statements
and reports regarding
the utility& interaffiliate
transfers
and transactions.
See id. at 29+293
for the full text of the original conditions.
In subsequent
orders in the late 1980s and early 1g9Os, the
PSC also applied these conditions
to SEMCO
and Michigan
Consolidated
Gas Company
(Mich Con), in
addition to Consumers
and its holding company,
affiliates,
and subsidiaries.
Although
not a party to the proceeding
initiated by the PSC in 1987, MCV filed a claim of appeal from
the decision.
challenging
the commissionk
authority
to impose
conditions
upon MCV. This Court upheld
the commission’s
authority
to impose reporting
and informationaccess
requirements
on Consumers.
as
well as the utility’s parent corporation
and nonregulated
affiliates
and subsidiaries
“where such
information
is reasonably
necessary
for the proper performance
of the PSC# duties.”
Mid/and
Cogeneration,
supra at 296297.
However.
this Court found no statutory
authority
for the commissiois
imposition
of specific
accounting
and bookkeeping
methods
directly
on MCV. Id. at 3OW34.
Several
years later, on March 8, 1999,
contested
case proceeding
to consider
of the proceeding
as follows:
the PSC
changes
sua sponte
issued
to these guidelines.
an order and notice
The PSC described
of hearing
of a
the objectives
Several
years have passed
since the Commission
imposed
these guidelines
on
[Consumers.
SEMCO,
and Mich Con]. During that time, significant
changes
have
occurred
in Michigan’s
electric
and gas industries,
including
the advent
of retail
competition.
The Commission
therefore
finds that it should initiate a contested
case
pmceeding
to (1) review these requirements,
(2) determine
which of the guidelines
may no longer be appropriate
or what new conditions
may be required
in today’s
industry
and (3) decide whether
to expand
or reduce
the list of entities to which these
requirements
should apply.
Accordingly,
interested
parties are invited to review the previously-adopted
guidelines
and. if they so desire,
participate
in this case to help determine
whether
any or all of
ihe existing
requirements
should be deleted, whether
new requirements
should be
added, and whether
the guidelines
should be imposed
on a larger or smaller
group of
entities.
A hearing referee granted
leave to intervene
to various
interested
parties,
including
appellants,
appellees,
and staff. Following
a hearing.
the hearing referee issued
a proposal
for decision,
recommending
reaffirmam%
of the guidelines,
subject
only to minor revisions
proposed
by staff
On May 3. 2000, after various
parties filed exceptions
to the proposal
exceptions,
the PSC issued its opinion and order in this proceeding.
revised
guidelines:
GUlDELtNES
These
subject
guidelines
apply
to the statutory
1. The utility shall
holding company
providing
access
Commission.
and
to the proceeding
FOR
TRANSACTIONS
for decision
and replies to the
The PSC adopted
the following
BETWEEN
to all public Utilities that provide
authority
of the Michigan
Public
electric
Service
AFFtLtATES
or natural gas
Commission.
SSNiCS
ensure
that the Commission
has access
to books and records
of the
and each of its afflliates
and their joint ventures.
Any objections
to
as requested
under this guideline
must be raised before the
the burden of showing
that the request
is unreasonable
or unrelated
is on the party seeking
to deny or withhold
access.
2. Each utility, holding company.
and each of its subsidiaries
and the joint ventures
of
the holding company
and/or its subsidiaries
shall employ
accounting
and other
procedures
and controls
related to cost allocations
and transfer
pricing to ensure
and
facilitate
full review by the Commission
and to protect
against cmsnubsidization
of
non-utility
activities
by the utilite customers.
3. The holding company
holding company
and/or
with general accounting
and each of its subsidiaries
and the joint ventures
of the
its subsidiaries
shall keep their books in a manner
consistent
principles
and, where applicable,
consistent
with the UnifOrm
3
. .
4
“
MichiganElec & GasAss’nv MichiganPub ServComm’n
Page3 of 6
.
System
4. The
a. Consolidated
holding company
b. Annual
explanation
allocations
of Accounts
utility
shall
furnish
the Commission
IOK reports
and shareholderS
on an annual basis;
with:
reports
of the consolidated
utility
and/or
its parent
reports
concerning
the utilitJs intercompany
transactions.
The report shall provide
a specific
of the nature of each transaction
and a specific
description
of the basis for the cost
and transfer
pricing established
in each transaction;
c. Annual balance
the non-consolidated
sheets and income
statements
subsidiaries
of the holding
of the nonregulated
company:
subsidiaries
of the utility
and/or
d. Reports
of internal audits conducted
regarding
transactions
between
the utility and its nofutility
affiliates,
which shall be submitted
with the annual report for the year 2000 and with subsequent
annual
reports due at the end of each third year following
2000. The audit report shall address
transactions
occurring
since the last audit report and shall determine
whether
appropriate
cost allocation
procedures
and transfer
pricing methodologies
were followed
and whether
the utility and its affiliates
are
maintaining
records
that are adequate
to facilitate
an effective
audit of the transactions.
The
Commission
Staff may require more frequent
reports
or conduct
additional
audits when appropriate:
e. Copies of federal income tax returns.
whether
be submitted
to the Commission.
but they shall
review at the utility& Michigan
business
office.
on a consolidated
or nowxwalidated
basis,
be available
to the Commission
for inspection
need
and
5. The utility shell avoid a diversion
of management
talent that would adversely
affect
the utility. An annual report identifying
employees
transferred
from the utility to non
utility subsidiaries
is required.
The report shall provide
the name of each employee,
the
employee’s
former function
or department
within the utility. and the function
or
department
of the subsidiary
to which the employee
was transferred.
6. The utility shell notify the Commission
in writing within thirty days prior to any
transfer
to noawtility
affiliates
of any utility assets
or property
exceeding
a fair market
value of $100,000.
At the time that notice is provided,
the utility shall make available
to
the Commission
information
that demonstrates
how the transfer
price was determined.
Asset transfers
from regulated
to nonregulated
shall be at the higher of cost or fair
market
value and norwegulated
to regulated
shall be at the lower of cost or fair market
value. All services
and supplies
provided
by nonregulated
enterprises
shall be at
market
price or 10% over fully allocated
cost, whichever
is less.
7. Market,
technological,
to a non-utility
affiliate
or similar data transferred,
directly
or indirectly.
from the utility
shall be transferred
at the higher of cost or fair market
value.
8. In its annual report, each utility shall provide
information
on any arrangement
that
allows an affiliate to obtain credit in a manner
that permits
a creditor,
upon default,
to
have recourse
to or in any way encumber
the utilit*
assets.
9. A utility may file an application
for a waiver from any provision
of these guidelines.
The application
shall demonstrate
the basis for the waiver.
The Commission,
in
deciding
the application.
may consider
the costs and benefits
of compliance.
For good
cause shown,
the Commission
may grant the waiver if compliance
is determined
to be
impractical
or unreasonable
under the circumstances.
10. For purposes
of applying
these guidelines.‘affliate”
and “subsidiary”shall
have the
same meanings
es the definitions
provided
for’bssociated
companies,”
and
“subsidiary
company,”
respectively.
in the Uniform
System
of Accounts
for gas and
electric
utilities, which are adopted
by Commission
rule. Other words defined in the
Uniform
System
of Accounts
that are wed in the definitions
ofassociated
companies”
and “subsidiary
compan)r
(e.g.. ‘contror)
shell also retain their defined meanings.
(See R 460.9001,
R 460.9021.)
In summarizing
its rationale
for adoption
of the guidelines,
the Commission
explained:
The Commission
intended
that the guidelines
would provide
an effective
mechanism
for identification
and disclosure
of affiliate transactions
that pose difficult regulatory
issues. On balance,
the record developed
under the AL&s [hearing
referee’s]
direction
was adewate
for the Commission
to resolve
its concerns
that the guidelines
were
not
.
.a
,-
+ Mi’chiganElec & GasAss’nv Michigan PubServ Comm’n
becoming
outdated
in come respects.
This order updates
the guidelines
contemporary
developments.
It further extends
the guidelines
to embrace
public utilities that are subject
to the Commissioti
jurisdictional
oversight.
in light of
all of the
II. Law and Analysis
Appellants
contend
that the affiliate transaction
guidelines
adopted
by the PSC are in effect rules
because
they are intended
to operate
prospectively
and to bind all electric
and natural gas utilities.
Appellants
contend
that the guidelines
are invalid because
they were adopted
by order in a contested
caee proceeding
rather than by the rulemaking
procedure
under the Administrative
Procedures
Act
(APA). MCL 24.201 ef seq. Appellants
further
contend
that, regardless
of the procedure
chosen
by the
PSC to adopt them, Guidelines
2. 3. 6. and 7 are invalid because
the PSC exceeded
its authority
by
infringing
on utility management
discretion.
While appellants’
arguments
encompass
both a general
procedural
challenge
and a substantive
challenge
to certain
of the guidelines,
we find the procedural
issue to be dispositive
of this case. Simply
put. the proceeding
in this matte, was not properly
initiated by the PSC as a “contested
case&
define
by the APA: therefore,
the resulting
order is unlawful.
A. Standard
of Review
The standard
of review for PSC orders is narrow
and well established.
MCL 462.25
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 Y
Public Service Comm. 389 Mich 624: 209 NWd 210 (1973); Attorney General vPub/ic
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(E): Michigan Consolidated Gas Co, supraat
639: CMS Energy
Co&! Y Attorney General,
190 Mich App 220.228,475
NWd
451
(1991): Attorney
General.
supraat
294. [Ford Motor Co Y Public Service Comm.221
Mich App 370. 373: 562 NW2d 224 (1997).1
In addition,
this Court has held that the question
promulgated
as a rule under the APA is reviewed
/ndependenceAgency,
232 Mich App 391,401:
6. Contested
Case
whether
an agency
policy is invalid because
it was not
de now as a question of law. Faircloth Y Fami/y
591 NWd
314 (1998).
Proceeding
Under
the APA
The PSC, as a creature
of statute,
derives
its authority
from the underlying
statutes.
and possesses
no
common-law
powers.
Union Carbide
Carp Y Public Service
Comm,
431 Mich 135. 146462;
428 NWd
322 (1988).
The PSC’s governing
etatotes
include the Public Service
Commission
Act, MCL 460.W
seq., the Public Utilities Commission
Act, MCL 460.51 et se$ the Transmission
of Electricity
Act, MCL
460.551
et eep., and the Natural Gas Act, 1929 PA 9; MCL 483.101
et seqln patiicular,
we note that
the PSC must promulgate
rules “for the conduct
of its business
and the proper discharge
of its functions
to the extent it intends to make its policies
binding on “all persons
dealing with the commission
or
interested
in any matte, or proceedings
pending
before it.
.‘MCL 460.65;
Union Carbide
Corp. supra
at 152. Rule promulgation
must be conducted
pursuant
to the APA. See, e.g., MCL 460.557(6).
The
APA
defines
a “rule”as
follows,
in pertinent
pert:
“Rule’ means an agency
regulation,
statement,
standard,
policy,
ruling, or instruction
general
applicability
that implements
or applies law enforced
or administered
by the
agency,
or that prescribes
the organization,
procedure,
or practice
of the agency,
including
the amendment.
suspension,
or rescission
of the law enforced
or
administered
by the agency.
[MCL 24.207.)
of
The APA incorporates
several
specific
exemptions
from the definition
of “rule” including
“[a]
determination,
decision,
or order in a contested
case.” MCL 24.207(f).
A&ontested
case”is
defined es
‘“a proceedinQ.
including
ratemaking,
price-fixing.
and licensing,
in which a determination
of the legal
rights, duties, or priVil6ges
of a named party is required
by lew to be made by an agency
after an
opportunity
for an evidentiary
hearing.“MCL
24.203(3).
In its order initiating
this proceeding,
the PSC
invoked
its general
ratemaking
authority
es the basic for its implementation
of the subject
affiliate
transaction
“guidelinee:
:; by order in a contested
case.::‘!
We find both substantive
and procedural
flaws with regard to this action by the PSC.
.
.
.x
*
,
Page 5 of6
Mkhigan Elec & Gas Ass’n v Michigan Pub Serv Comm’n
First, as a substantive
matter.
we find that the proceeding
initiated
ratemaking.
In Consumers
Power Co Y Public Service
Comm.
460
Michigan
Supreme
Court considered
an appeal by electric
utilities
authorized
an experimental”retail
wheeling
program.”
which allowed
third-party
providers
to customers
through
the local utilit$s system.
that the retail wheeling
program
fell within its ratemaking
authorityid.
by the PSC only tangentially
involved
Mich 146; 596 NW2d 126 (1999).
the
and others from a PSC order that
electricity
to be transmitted
from
The Court rejected
the PSCs claim
at 157.159:
The PSC initially characterizes
its retail wheeling
program
as ratemaking.
thus falling
within its authority
under §7 of the electric
transmission
act, MCL 460.557.
andg 22 of
the railroad commission
act MCL 462.22.
See also MCL 460.6%
The challenged
portion of the order does not, however,
involve
ratemaking.
Although
retail wheeling
has a ratemaking
component,
i.e.. the establishment
of the rate a thirf@atty
provider
must pay to transmit
power through
a local utilit@ system,
appellants
do not challenge
that aspect of the experimental
program.
Instead.
appellants
contend
that the PSC
cannot
order local utilities to transmit
electricity
from a thirdparty
provider’s
system
through
its own system
to an enduser.
This aspect
of retail wheeling
is simply
not
ratemaking.
As in the case above, we find that the PSCS adoption
of affiliate transaction
guidelines
may
incorporated
a “ratemaking
component”-e.g..
to ensure
a reasonable
and just rate for utility
through
implementation
of certain
bookkeeping
and accounting
mandates-but
the proceeding
clearly
neither a rate case. MCL 460.let
seq., nor an investigation
of rates upon complaint.
460.56.
Indeed.
the PSC initiated this proceeding
unilaterally
for the sole purpose
of reviewing
revising
its existing
policies
regarding
affiliate transactions,
not to set or review rates. Thus,
underlying
justification
for invoking
a contested
case fails as a matter of law.
have
customers
was
MCL
and
the PS(s
Second,
as a procedural
matter. the proceeding
initiated by the PSC was wholly incompatible
with the
definition
of “contested
case”under
the APA. The PSCs order initiating this contested
case did not list
any named parties,
as required
by MCL 24.203(3),
but instead direct&[a]ny
person
wishing
to
intervene
and become
a party to the case to file a timely intervention
petition.
Numerous
individual
utilities and associations
intervened
in the proceeding.
However,
while each of these intervening
entities
certainly
became
a”party.”
as defined by the APA, MCL 24.205(4),
and the PSCG own rules of practice
and procedure.
1992 AACS.
R 460.17101(f).
they did not become”named”
parties
as required
to invoke
a contested
case in the first instance.
MCL 24.203(3).
Thus, be$xwsdlhe
legal rights, duties. or
privileges
of a named party”were
not determined.
the proceeding
was not a contested
case.
Third, contrary
to the definitional
limitations
of a contested
case, the proceeding
here was initiated by
the PSC against
unnamed
entities
with the express
intent to review and revise existing
regulatory
standards
that would have general
and prospective
application
to all electric
and natural gas utilities
subject to the PSCsjurisdiction,
as well as the nonregulated
affiliates
and subsidiaries
of those utilities.
The typical contested
case proceeding
involves
an individual
named party and a disputed
set of fact+
e.g.. a license denial, a denial of benefits,
or a statutory
violationftom
which results an agency
order
that adjudicates
the specific
factual dispute
and operates
retroactively
to bind the agency
and the
named party. Such orders operate
prospectively
only to the extent that they constitute
binding
precedent
as to the agency&
interpretation
of a statute.
See LeDuc,
Michigan
Administrative
Lawg
1:06. p 12 (an order resulting
from a contested
case proceeding
has binding effect on the parties
to the
case. yet also serves
as precedent
in cases with identical
or closely
related facts).
Invoking
the public interest
and the need for policy that is responsive
to a changing
industry,
the PSC
eschewed
the procedural
mandates
of the APA in favor of its own course of action.
By choosing
to
implement
oguidelines”
by order in a contested
case against
unnamed
parties.
yet with the force and
effect of law, the PSC culled elements
of rulemaking,
adjudication,
and general
policy formulation,
with
little regard for the dictates
of the APA. Wile
we do not doubt the PSC6 legitimate
concerns
of lack of
access
to the accounts
and records
of a utilit$s nonregulated
affiliates
and subsidiaries,
and the
potential
for”Cross-subsidization
of nonutility
investments
through
utility rates.‘See
Midland
Cogeneralion
Venture,
supra at 291. the procedure
utilized by the PSC constituted
a rather heavyhanded rebuke
of established
APA procedures
which we are compelled
to invalidat&:
Is/ David H. Sawyer
kl Donald S. Owens
Is/ Jessica
R. Cooper
1 The Michigan
APA defines
a Quideline”
as %n agency
statement
or declaration
of policy which the
agency
intends to follow, which does not have the force or effect of law, and which binds the agency
but
does not bind any other person:’
MCL 24.203(6).
An agency
may not circumvent
the APA requirements
MichiganElec & GasAss’nv Michigan Pub ServComm’n
Page6 of 6
by adopting
guidelines
in lieu of rules. MCL 24.226.
Here, although
the PSC labeled its regulatory
standards
as “guidelines.‘they
were not adopted
as such in accordance
with Chapter
2 of the Michigan
APA, MCL 24.224 et seq.. which mandates
substantial
compliance
with specific
notice and
dissemination
provisions.
The label an agency
assigns
to a directive
is not dispositive;
instead,
a court
must examine
the actual action undertaken
by the directive
to determine
whether
the policy
implemented
had the effect of a rule. AFSCME.
AFL-CIO
Y Dep’of
Mental Health, 452 Mich 1, 9, IO n
8; 550 NWd
190 (1996). Accordingly,
the PSC’S labeling of its regulatory
standards
as guidelines”
is a
rmsnomer.
2 In its order,
consequences
the PSC declared:
The
of affiliate transactions
Commission’s
statutory
authority
is beyond
serious
dispute.”
to decide
the ratemaking
3 Accordingly,
because
the process
utilized by the PSC has led to an unlawful
order, we leave
unresolved
the portentous
issues whether
the Legislature
has specifically
delegated
authority
to the
PSC to impose
regulatory
standards
on entities
outside
its jurisdiction
and, if such statutory
authority
does exist, whether
the standards
must necessarily
be promulgated
as rules under the APA.
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