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IN RE: Application of CONSUMERS ENERGY to Increase Electric Rates. Attorney General, Appellant, v. Michigan Public Service Commission, Appellee, Consumers Energy Company, Petitioner–Appellee.
In In re Application of Consumers Energy to Increase Electric Rates, 498 Mich. 967; 873 NW2d 108 (2016), our Supreme Court reversed the portion of this Court's judgment in Attorney General v. Mich. Pub. Serv. Comm., unpublished opinion per curiam of the Court of Appeals, issued April 30, 2015 (Docket Nos. 317434 & 317456), that addressed the Attorney General's claim of appeal in Docket No. 317434 and remanded the case for consideration of the appeal.1
Our original opinion in this case contains a concise statement of the underlying facts and proceedings:
Several years ago, Consumers Energy began implementing an AMI 1 program in Michigan. On November 4, 2010, the PSC issued an order in Case No. U–16191 that approved Consumers Energy's pilot AMI program, but required Consumers Energy to meet certain conditions, such as providing information on the benefits and costs of the program, before approving full deployment of the AMI program. In In re Application of Consumers Energy Co. to Increase Rates, unpublished opinion per curiam of the Court of Appeals, issued November 20, 2012 (Docket Nos. 301318 and 301381), this Court affirmed the PSC's decision regarding Consumers Energy's pilot AMI program. On June 7, 2012, the PSC issued an order in Case No. U–16794 authorizing Consumers Energy to proceed with Phase 2 of its AMI deployment program. In that case, the PSC adopted $44.8 million in expenditures for the AMI program in Consumers Energy's rate base.
On September 19, 2012, Consumers Energy filed an application requesting rate relief in the case underlying this appeal, Case No. U–17087, to cover, among other things, its ongoing investments associated with the AMI program. In addition, Consumers Energy sought approval of opt-out tariffs for customers who did not wish to participate in the AMI program. On October 19, 2012, an administrative law judge (ALJ) granted intervenor status to the Attorney General.
On May 7, 2013, the parties filed a settlement agreement in which they agreed to an annual rate increase of $89 million. However, in the agreement, the Attorney General reserved two issues for future resolution, including (1) a request to the PSC “to direct Consumers Energy to suspend the [AMI] program,” and (2) an objection “to the amount of the ‘opt-out’ fee.” The PSC entered an order on May 15, 2013, approving the settlement agreement. Thereafter, the Attorney General challenged the PSC's continued support of Phase 2 of Consumers Energy's AMI program and challenged Consumers Energy's application for approval of its opt-out tariffs.
In response, Consumers Energy argued that it prepared an updated business case analysis for its AMI program in March 2012, and that the analysis indicated a 20–year positive net present value (NPV) of $42 million for the AMI program. Consumers Energy noted that the Attorney General also sought suspension of its AMI program in Case Nos. U–16191 and U–16794 on the ground that the cost/benefit analysis used in each case was flawed, but that the PSC rejected the Attorney General's request in each case. The Attorney General argued that the PSC should suspend Consumers Energy's AMI program until a cost/benefit analysis showed that the program would bring value to customers. The Attorney General asserted that its analysis showed that the AMI program had a negative NPV, and that Consumers Energy's testimony regarding savings from the AMI program was speculative.
On June 28, 2013, the PSC issued an order approving Consumers Energy's continuation of the AMI program and approving Consumers Energy's opt-out tariffs.
1 An AMI meter, also known as a smart meter, is capable of collecting near-real-time data on a customer's energy usage and reporting the data to the utility at frequent intervals. In re Applications of Detroit Edison Co., 296 Mich.App 101, 114; 817 NW2d 630 (2012). [Attorney General, unpub op at 2–3.]
The standard of review for PSC orders is narrow and well defined.2 Pursuant to MCL 462.25, all rates, fares, charges, classification and joint rates, regulations, practices, and services prescribed by the PSC are presumed, prima facie, to be lawful and reasonable. Mich Consol. Gas Co. v. Pub. Serv. Comm., 389 Mich. 624, 635–636; 209 NW2d 210 (1973). A party aggrieved by an order of the PSC has the burden of proving by clear and convincing evidence that the order is unlawful or unreasonable. MCL 462.26(8). To establish that a PSC order is unlawful, the appellant must show that the PSC failed to follow a mandatory statute or abused its discretion in the exercise of its judgment. In re MCI Telecom Complaint, 460 Mich. 396, 427; 596 NW2d 164 (1999). An order is unreasonable if it is not supported by the evidence. Associated Truck Lines, Inc v. Pub. Serv. Comm., 377 Mich. 259, 279; 140 NW2d 515 (1966).
A final order of the PSC must be authorized by law and be supported by competent, material, and substantial evidence on the whole record. Const 1963, art 6, § 28; Attorney General v. Pub. Serv. Comm., 165 Mich.App 230, 235; 418 NW2d 660 (1987).
We give due deference to the PSC's administrative expertise, and will not substitute our judgment for that of the PSC. Attorney General v. Pub. Serv. Comm. No. 2, 237 Mich.App 82, 88; 602 NW2d 225 (1999). We give respectful consideration to the PSC's construction of a statute that the PSC is empowered to execute, and this Court will not overrule that construction absent cogent reasons. If the language of a statute is vague or obscure, the PSC's construction serves as an aid to determining the legislative intent, and will be given weight if it does not conflict with the language of the statute or the purpose of the Legislature. However, the construction given to a statute by the PSC is not binding on us. In re Complaint of Rovas Against SBC Mich, 482 Mich. 90, 103–109; 754 NW2d 259 (2008). Whether the PSC exceeded the scope of its authority is a question of law that is reviewed de novo. In re Complaint of Pelland Against Ameritech Mich, 254 Mich.App 675, 682; 658 NW2d 849 (2003).
On appeal, the Attorney General argues that although Consumers maintained that its updated cost/benefit analysis indicated a $42 million NPV over 20 years for the AMI program, Consumers could not confirm the estimated savings and could not support its estimates, and argues that the alleged savings were inflated and were not based on any studies of Consumers' service territory. The Attorney General further argues that the PSC did not do an independent analysis of Consumers' cost/benefit analysis, and erroneously relied on prior factual determinations based on a different cost/benefit analysis to find that Consumers' costs were reasonable and prudent. We disagree .3
Consumers' witness Lauren Youngdahl, the Smart Grid Customer Engagement Programs Manager, testified that the AMI program would advance the modernization of the electric grid, and that its benefits could be divided into five key categories: (1) customer programs such as pricing demand response (35% of total benefits); (2) advanced energy theft detection (22% of total benefits); (3) reduced meter reading costs (19% of total benefits); (4) other operating and maintenance and avoided capital savings (17% of total benefits); and (5) terminal value beyond the end date of the analysis (7% of total benefits).
Youngdahl relied on a business case analysis that was updated in March of 2012, and that indicated that the AMI program had an overall 20–year NPV of $42 million. The business case included final pricing for smart meters, associated components for smart meters, vendor services, and meter installation. The business case reassessed and reduced anticipated IT infrastructure costs. The business case analysis included benefits confirmed by Phase 1 of the AMI pilot programming, including remote metering and meter event capabilities that would facilitate O & M cost reductions, improve employee safety, reduce customers' bills, reduce outage restoration times, and enhance energy consumption management.
Attorney General witness Sebastian Coppola recommended that the PSC suspend Consumers' AMI program. Coppola testified that his calculations showed that the program had a negative NPV of $133.4 million. On appeal, the Attorney General emphasizes that the savings predicted by Consumers could not be confirmed and were not based on studies performed with Consumers' customers.
The essence of the Attorney General's argument is that the PSC's decision to continue to fund Consumers' AMI program was not supported by sufficient evidence on the record. The Attorney General asserts that Consumers' savings figures were aspirational, and were not based on actual studies of Consumers' own customers. The Attorney General relies on In re Applications of Detroit Edison Co., 296 Mich.App 101; 817 NW2d 630 (2012), as support for the proposition that evidence consisting of “aspirational testimony describing [a program] in optimistic but speculative terms[ ]” does not constitute sufficient evidence on which to approve a rate increase. Id. at 115. However, that case is distinguishable from the instant matter in that in this case, the settlement agreement established that Consumers was entitled to a revenue increase in the amount of $89 million. That revenue increase was unrelated to the issue of whether the PSC should direct Consumers to suspend its AMI program.
The parties presented contradictory testimony on Consumers' AMI program and whether the analysis presented by Consumers showing that the program would have an estimated 20–year net positive value of $42 million was sufficient to authorize Consumers to continue the program. However, the PSC was entitled to rely on the testimony presented by Consumers' witness, even though other testimony reached opposite conclusions. See Great Lakes Steel Div. of Nat'l. Steel Corp. v. Mich. Pub. Serv. Comm., 130 Mich.App 470, 481–482; 344 NW2d 321 (1983). The testimony given by Youngdahl was based on the updated business case, which contained data based on Phase 1 of the AMI program and projections based on that data. The PSC emphasized that it would continue to review costs associated with Consumers' AMI program in each future rate case. The PSC's order approving full deployment of Consumers' AMI program was supported by the requisite evidence, and was not unlawful or unreasonable. MCL 462.26(8).
I respectfully dissent.
The Attorney General's settlement in this case preserved two issues for further review: (1) a request to the Public Service Commission (PSC) to suspend the advanced metering infrastructure (AMI) program, and (2) should the program continue, an objection to the amount of the opt-out fee. These issues are based on the PSC's decision regarding the costs and benefits of the AMI program. Unfortunately, the lower court's decision regarding these two issues does not provide this Court with an opportunity to meaningfully review its decision. I would remand this case to the PSC with directions to fully address the two issues reserved by the Attorney General in its stipulated settlement agreement.
A. THE MAJORITY OPINION
Our Supreme Court has remanded this case to specifically address the issues that the Attorney General preserved in its settlement agreement in this case:
On order of the Court, the application for leave to appeal the April 30, 2015 judgment of the Court of Appeals is considered and, pursuant to MCR 7.305(H)(1), in lieu of granting leave to appeal, we REVERSE that part of the Court of Appeals judgment that addressed the claim of appeal filed by the Attorney General, Docket No. 317434, and we REMAND this case to the Court of Appeals for consideration of the merits of that claim of appeal. The fact that the Attorney General stipulated to the settlement agreement that recognized a rate increase is not inconsistent with the Attorney General's appeal from the June 28, 2013 decision of the Michigan Public Service Commission. That decision resolved issues preserved by the Attorney General in the settlement agreement. Those preserved issues can be addressed independent of the $89 million in rate relief approved pursuant to the settlement agreement. This order does not disturb the Court of Appeals disposition in the consolidated case, Docket No. 317456. We express no opinion regarding the merits of the Attorney General's appeal. [Attorney General v. Mich. Pub. Serv. Comm., 498 Mich. 967 (2016) ].
Despite that the PSC made only one finding—that Consumers proved its case, a finding full of conclusory statements and absent reasoning or reference to the proofs—the majority opinion concludes that the PSC made sufficient findings on this issue such that Consumers proved its entitlement to recovery costs. And the majority opinion does not address the opt-out fee other than to note that the PSC entered an order approving Consumers Energy's opt-out tariffs.1 I strongly disagree with the majority's analysis.
In the initial companion cases, In re Application of Consumers Energy to Increase Electric Rates, unpublished opinion per curiam of the Court of Appeals, issued April 30, 2015 (Docket Nos. 317434; 317456), this Court concluded that the PSC gave only a cursory analysis to some of the issues presented in this case on the exact same lower court record, including a cursory analysis of the costs and benefits of the AMI program. As a result, we remanded Docket No. 317456 back to the PSC for a contested case hearing. However, in this instant appeal, the majority relies on the same cursory analysis this Court found fatal in our prior opinion.
I conclude that a cursory analysis is a cursory analysis is a cursory analysis, and no amount of parsing can save this case from the required remand. In my opinion, the majority's decision not to remand this case, which has the same lower court record as Docket No. 317456, is contradictory and defies logic.
B. HISTORY OF THE PRESENT CASE
After this Court issued the first opinion in the initial companion cases, the Attorney General filed a motion for reconsideration, asking this Court to consider two issues we did not consider in our prior opinion. The Attorney General was correct: our opinion did not address the Attorney General's concerns. Without explanation, the majority denied the Attorney General's request to reconsider our prior opinion and address the Attorney General's two issues. In an attempt to convince the majority that the Attorney General's motion for reconsideration was meritorious, I drafted a 22 page opinion on reconsideration. In re Application of Consumers Energy to Increase Electric Rates, unpublished order of the Court of Appeals, issued July 22, 2015 (Docket Nos. 317434 and 317456). At risk of reversal, the majority refused to address the merits of the Attorney General's motion on reconsideration. Appropriately, the Attorney General appealed to the Supreme Court.
In what can only be considered the speed of sound by Our Supreme Court's standards, our Supreme Court reversed our prior opinion for our failure to address the two issues the Attorney General reserved in its stipulated settlement with Consumers Energy. The Supreme Court directed us to consider the Attorney General's arguments that were raised in the Attorney General's motion for reconsideration. But rather than respond to the Supreme Court's directive on remand, the majority's present opinion concludes that the Attorney General did not appeal certain parts of the lower court rulings concerning the cost benefit analysis of the AMI program and, therefore, the majority is free to ignore the Supreme Court's directive. Since the Court of Appeals is an inferior court to the Supreme Court, this Court has a duty to follow the Supreme Court's remand orders.2 In my opinion, the majority's response to the Supreme Court's directions on remand risks a second reversal in the present case.
The Attorney General contends that competent, material, and substantial evidence did not support the PSC's findings below. I agree.
We give due deference to the PSC's administrative expertise and will not substitute our judgment for that of the PSC. Attorney General v. Pub. Serv. Comm. No. 2, 237 Mich.App 82, 88; 602 NW2d 225 (1999). However, a final order of the PSC must be authorized by law and be supported by competent, material, and substantial evidence on the whole record. Const 1963, art 6, § 28; Attorney General v. Pub. Serv. Comm., 165 Mich.App 230, 235; 418 NW2d 660 (1987). Substantial evidence is evidence that a reasonable person would accept as sufficient to support the conclusion. Wayne Co. v. Mich. State Tax Comm., 261 Mich.App 174, 186–187; 682 NW2d 100 (2004).
The Attorney General contested Consumers' right to recover costs. The PSC may allow a utility to recover its costs “only when the utility proves that recovery of the costs is just and reasonable.” In re Applications of Detroit Edison Co., 296 Mich.App 101, 116; 817 NW2d 630 (2012).
In this case, Consumers' AMI program called for installation of smart meters at a total cost of $750 million. Consumers asserted that the program would result in a net savings of $42 million dollars. However, below, only one witness, Lauren Youngdahl, testified regarding the costs and benefits of the program. Youngdahl did not support her testimony with any evidence—neither data nor details—but instead merely speculated on the basis of Consumers' plans for future years and offered conclusory assertions. Consumers refused to respond regarding how it calculated assumed customer savings for the future years, and instead stated that it had estimated it would recover more in uncollectable expenses.
In contrast, the Attorney General's expert Sebastian Coppola testified that the cost/benefit analysis yielded a negative net result of about $133 million dollars.3 Coppola supported his testimony with statistical analysis and data, and pointed out several flaws in Consumers' methodology, including its small sample sizes. Even Consumers admitted that “[t]he savings related to energy conservation benefits cannot be confirmed at this time․”
Regardless of the shortcomings in Consumers' proofs, in a scant three sentences that provided no reasoning whatsoever, the PSC found that Consumers' proofs were “more than sufficient.” The PSC made no specific findings regarding the contested elements of the costs and benefits, but instead stated in general terms that it was not persuaded that the savings were overstated. Unlike the majority, I am not convinced that this analysis was reasonable and supported by sufficient evidence. Consumers' speculative proofs were not sufficient to allow a reasonable person to conclude that Consumers had justified the recovery costs. And regarding the opt-out fee issue (which the majority fails to address entirely), the PSC's decision does not address the Attorney General's concerns or make any specific findings. This Court is unable to conduct a meaningful review of such a deficient decision.
On remand, the Supreme Court has ordered the majority to address the issues preserved in the stipulated settlement agreement. Those issues are (1) whether the AMI program should be suspended because the PSC's decision lacked competent, material, and substantial evidence, and (2) if the program should continue, whether the opt-out tariffs are reasonable. For the reasons stated above, meaningful review of these issues, particularly regarding the opt-out tariffs, is impossible because the record is absent the findings necessary to conduct such a review.
For the reasons stated, I would remand this case to the PSC. I would retain jurisdiction.
1. The Attorney General's appeal was consolidated with that filed by Michelle Rison, et al, individuals who are customers of Consumers Energy Company. That appeal (Docket No. 317456) is not affected by our Supreme Court's remand order.
2. Although the dissent correctly points out that the Attorney General's settlement agreement did not resolve two issues, (1) a request to the PSC to suspend the AMI program and (2) an objection to the amount of the opt-out fee if the program continued, the Attorney General only contested the first issue in its appeal in Docket No. 317434, arguing that the PSC should not have allowed the AMI program to continue because the record lacked competent, material, and substantial evidence demonstrating that the benefits of the program outweighed its costs. The Attorney General did not object to the amount of the opt-out tariffs in its appeal. Rather, the appellant customers, Michelle Rison, et al, in Docket No. 317456 objected to the amount of the opt-out tariffs. In that appeal, we concluded that the opt-out issue was “given only cursory analysis in the PSC lower court record,” and therefore remanded the issue to the PSC for a contested case hearing. Attorney General, unpub op at 6. In its remand order, the Supreme Court directed us to consider the merits of the Attorney General's claim of appeal in Docket No. 317434. In re Application of Consumers Energy to Increase Electric Rates, 498 Mich. at 967. The order did not disturb our ruling in Docket No. 317456. Accordingly, the Supreme Court's remand order provides that, despite the Attorney General's agreement to the $89 million rate increase, the Attorney General could still contest the continuance of the AMI program on the basis that the costs of the program outweighed its benefits. The only issue before the Court, therefore, is whether sufficient evidence supported the PSC's conclusion that the benefits of the AMI program outweighed its costs.
3. We reject the PSC's argument that the Attorney General lacks standing to challenge the PSC's June 28, 2013 order. A party must be aggrieved by a lower court's decision in order to have standing to bring an appeal from that decision. MCR 7.203(A); Federated Ins. Co. v. Oakland Co. Rd. Comm., 475 Mich. 286, 290–291; 715 NW2d 846 (2006). “To be aggrieved, one must have some interest of a pecuniary nature in the outcome of the case, and not a mere possibility arising from some unknown and future contingency.” Federated Ins. Co., 475 Mich. at 291 (internal quotation marks omitted). The Attorney General had the statutory right to intervene to represent the interests of the people of the state. MCL 14.28. The Attorney General intervened because the PSC's decision would affect the rates paid by Consumers' customers. The Attorney General can be said to be a party in interest with standing to appeal the PSC's order. MCL 462.26(1).Similarly, the argument by Consumers and the PSC that the Attorney General's appeal is a collateral attack on prior orders is without merit. Such an attack is precluded. Kosch v. Kosch, 233 Mich.App 346, 353; 592 NW2d 434 (1999). The PSC in its June 28, 2013 order in this case made the latest in a series of decisions to allow Consumers' AMI program to go forward. The PSC's decision was based on an updated cost/benefit analysis prepared by Consumers for this case. The Attorney General may be making arguments similar to those made in prior cases, but the arguments are based on evidence presented in this case. The Attorney General's appeal is not a collateral attack.
1. I read the Michigan Supreme Court's order as instructing this Court to address the issues preserved in the settlement agreement. In the settlement agreement, the Attorney General explicitly preserved the opt-out issue. The opt-out tariff issue is entwined with the recovery costs issue: a reduced opt-out tariff would affect Consumers' expected revenues. Additionally—and most importantly—the PSC's failure to meaningfully address the issue, despite the parties' arguments, illustrates why the PSC's extremely brief decision below is insufficient.
2. This Court must follow clear instructions in the Michigan Supreme Court's remand orders. See K & K Constr., Inc. v. Dep't. of Environmental Quality, 267 Mich.App 523, 544; 705 NW2d 365 (2005).
3. Much like a spouse recently returned from a shopping spree who declares how much they have saved through the use of coupons, when they have still spent an amount far in excess of what they “saved.”
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Docket No: Docket No. 317434.
Decided: July 05, 2016
Court: Court of Appeals of Michigan.
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