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A Better Partnership
October 27, 2014

COA affirms Public Service Commission order granting first ever certificate of necessity for a nuclear power plant

The Michigan Court of Appeals in Association of Business Advocating Tariff Equity v. Indiana Michigan Power Co., No. 314829, affirmed a Michigan Public Service Commission’s (MPSC) order approving a certificate of necessity (CON) for $773.6 million of improvements to the Donald C. Cook Nuclear Power Plant, but not for an additional 10% management reserve.  The CON allows Indiana Michigan Power (I&M) to proceed with significant improvements to the power plant with the guarantee that it will be able recoup its investment through increased electric rates.  Without the CON, I&M would be required to invest the funds improving the Cook plant with the risk that the MPSC might later determine that not all of the costs were recoverable.  The CON was the first for improvements to an existing nuclear power plant. 
In 2005, I&M obtained permits allowing it to operate the Cook plant’s two reactors into the 2030s.  To extend the plant’s life for the next twenty years, I&M identified more than $750 million of necessary upgrades and replacements.  I&M sought a CON from the Michigan Public Service Commission (PSC) to ensure that it would be able to recoup its investment.  The PSC approved the CON was within the statutory guidelines for utility project funding and granted Indiana Michigan Power $773.6 million and an additional $77 million as a management reserve.
The Association of Business Advocating Tariff Equity (ABATE) and the Attorney General opposed the CON and appealed.  ABATE argued that under MCL 460.6s, the project was not a significant investment in an existing electric generation facility because it was actually more than one hundred subprojects that are not for the singular purpose of increasing capacity. The Attorney General of Michigan also argued that because the MPSC did not specify the costs for each subproject, the case should be remanded to the MPSC for specification.
The court held, “The phrase for the singular purpose of increasing the capacity of an existing electric generation plant was meant to be an example of a singular purpose, not the only singular purpose.” The singular purpose here, the court noted, was to assure that “safe and reliable power can continue to be produced from a nuclear generation facility until the end it its license.”  Thus, the court upheld the CON issued by the MPSC.
The Court also declined to consider the Attorney General’s argument for more specification as it was not argued in the lower court, and the court lacked the requisite factual information to determine the issue.
Lastly, the Court determined that the MPSC’s decision to include a 10% management reserve was not adequately supported by substantial evidence on the whole record, and thus was not reasonable within the meaning of MCL 462.26(8). The court noted however, that I&M is still entitled to these costs if it can establish that the costs were “reasonable and prudent.”
The court upheld the MPSC’s determination on the CON for $773.6 million; it rejected the management reserve.
Disclaimer:  Warner Norcross & Judd LLP successfully represented I&M in this appeal.

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