In In re Application of Detroit Edison for 2012 Cost Recovery Plan, No. 318388, the Michigan Court of Appeals affirmed the Michigan Public Service Commission’s approval of DTE’s power supply cost recovery plan and its related Reduced Emission Fuel project. Under the Reduced Emission Fuel project, DTE planned to sell coal to affiliated companies that would add chemicals reducing sulfur dioxide, mercury, and nitrous oxide emissions, and then sell the coal back to the company. The cost of the additives was to be offset by reduced power supply cost recovery emissions allowance expense, resulting in a net cost of zero for customers.
The court rejected the Michigan Environmental Council's argument that the Reduced Emissions Fuel project violated the Public Service Commission’s Code of Conduct because the affiliated fuel companies were subsidized by receiving favorable tax treatment as a result of the transaction and because the sale and repurchase of the coal at the same price violated the Code’s pricing provision. The court reasoned that since DTE could not have obtained the same tax benefits as the fuel companies, and an unaffiliated company would have received the same benefits as an affiliated company, the regulated entity, DTE, did not subsidize the unregulated entities, the fuel companies, as prohibited by the Code of Conduct. With regard to the pricing issue, the court noted that the Michigan Environmental Council had not identified an alternative pricing scheme or indicated how an alternative pricing scheme could have complied with the Code of Conduct.
The court also held that the Commission’s finding that DTE had adequately investigated contracts with unaffiliated companies was supported by the evidence, and that DTE was not required to provide the actual contracts with the affiliated companies as long as they were adequately described.
Finally, the Court rejected the argument that the Commission erred by finding that the approximately $500,000 generated for the affiliated companies by tax credits through the project was irrelevant in determining whether DTE took appropriate steps to minimize costs. The court held that no statutory authority allowed the Commission to consider favorable tax treatment to another party when approving a power supply cost recovery program.