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A Better Partnership
June 02, 2015

COA clarifies the proper method for annual CPI adjustments for MPSC rate setting and holds that for purposes of rate setting by the MPSC, a statute is implemented when it takes effect

In the consolidated cases of TES Filer City Station Limited Partnership v. Michigan Public Service Commission et al. No 314361, and Cadillac Renewable Energy, LLC et al. v. Michigan Public Service Commission et al. No 316868, the Michigan Court of Appeals held that (1) a statute is implemented for the purpose of rate setting when it initially takes effect, not when compliance is required, and (2) annual adjustments to power supply cost recovery (“PSCR”) are to be calculated by applying the Consumer Price Index (“CPI”) rate for the PSCR year at issue as adjusted in prior years.
 
The Michigan Public Service Commission (“MPSC”) issued an order approving a Consumers Energy Company application for PSCR reconciliation for the 2010 calendar year.  This included approving payments by Consumers to biomass merchant plants (“BMPs”) for capped excess fuel and variable operations and maintenance costs.
 
The first issue on appeal was whether the MPSC properly denied recovery to TES Filer City Station (“TES”), a BMP, for nitrous oxide and sulfur dioxide allowances.  The MPSC based this determination on MCL 460.6a(8), which allows that the $1,000,000 statutory limit on a BMP’s recovery from Consumers may be adjusted if “actual fuel and variable operation and maintenance costs are incurred due to changes in federal or state environmental laws or regulations that area implemented after the effective date of the [MCL 460.6a(8), which is October 6, 2008.]”  The Court of Appeals agreed with the MPSC’s determination and held that regulations at issue were effective in 2007, and simply because TES was not subject to the rules until 2009, this did not change the fact that the rules were effective prior to October 6, 2008.  Thus, TES could not recoup the costs from the regulations under MCL 460.6a8 for nitrous oxide and sulfur dioxide allowances.
 
The Court then considered whether the MPSC’s adjustment methodology to the $1,000,000 monthly-capped limit on fuel and variable operation and maintenance costs payments that Consumers must make to BMPs was correct.  The Court again considered MCL 460.6a(8) which states that “the annual amount of the adjustments shall not exceed a rate equal to the United States” CPI.  The MPSC determined that the CPI language meant that the adjustment should be calculated each year by multiplying the $1,000,000 by the annual CPI, rather than by the cumulative CPI.  Here, however, the Court disagreed.  The Court reasoned that it was clear that the legislature’s intent by adjusting the $1,000,000 to the CPI was to account for inflation, and to hold otherwise would create an absurd result.  Thus, the Court determined that the annual adjustments to the $1,000,000 cap is to be calculated “by applying the CPI rate for the PSCR year at issue to the $1,000,000 cap as adjusted in prior years or by applying the cumulative CPI rate from 2009 forward to the $1,000,000 cap.”
 
Judge Wilder filed a short opinion concurring in part and dissenting in part.  Judge Wilder agreed with the majority on the question of the proper adjustment methodology to the $1,000,000 monthly cap.  However, he believed that the nitrous oxide requirements were not effective until 2009.

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