Cogeneration Venture Limited by dxi20863


									                           STATE OF MICHIGAN




In the matter of the application of Midland    )
Cogeneration Venture Limited                   )
Partnership for the Commission to eliminate )
the “availability caps” which limit            )
Consumers Energy Company’s recovery            )          Case No. U-15320
of capacity payments with respect to its power )
purchase agreement with Midland                )
Cogeneration Venture Limited Partnership.      )


      On May 30, 2007, Midland Cogeneration Venture Limited Partnership (MCV) filed

an application with the Michigan Public Service Commission (Commission). A notice of

hearing was issued on August 22, 2007. Petitions for Leave to Intervene were filed by

numerous parties including The Association of Businesses Advocating Tariff Equity

(ABATE) and the Attorney General for the State of Michigan (AG). On September 4,

2007, ABATE and the AG filed a joint motion for summary disposition. On September

13, 2007 MCV and Consumers Energy Company (Consumers Energy) filed replies in

opposition to the motion for summary disposition. On September 14, 2007, ABATE and

the AG filed a response brief. The motion was noticed for hearing at the prehearing

conference. At the prehearing conference held on September 18, 2007, ABATE, the
AG and Consumers Energy were granted Intervenor status. After Intervenor status was

granted, oral argument was held on the motion.

       ABATE and the AG organized their joint motion for summary disposition into

three separate arguments. The Administrative Law Judge (ALJ) addresses this ruling in

the context of the three arguments raised by ABATE and the AG. The final section of

this ruling is a discussion of MCV’s argument concerning whether there is a genuine

issue of material facts.

I.     The Commission lacks statutory power to consider MCV’s application and the
       MCV lacks standing to request the Commission to increase rates that
       Consumers Energy charges to its retail customers.

       ABATE and the AG contend that the Commission lacks jurisdiction or statutory

authority over MCV and that MCV lacks standing. ABATE and the AG contend that

MCV as a supplier to Consumers Energy or a qualifying facility (QF), the statutory

authority cited by MCV does not empower the Commission to regulate MCV. ABATE

and the AG argue that there is a clear and unmistakable requirement that the

Commission’s power to regulate must flow from statutory mandates and this mandate

applies equally when a statute restricts the parties which the Commission can regulate.

       ABATE and the AG reject the notion that simply because Consumers Energy has

filed to intervene, thus, through this intervention the Commission has jurisdiction to

consider MCV’s application. They argue that even if Consumers Energy had been the

party filing this application, the Commission would still need to determine whether it

could lawfully consider such an application.   Also, if Consumers Energy had filed the

application, which they did not do, then MCV may have standing in that case. But,

Page 2
ABATE and the AG argue standing to intervene in that case does not elevate MCV to

the status of a legal applicant in this case.

        ABATE and the AG argue that MCV does not meet the two-prong standing

requirement in order to file this application.               They note that the Commission has

excluded suppliers for a lack of standing to intervene in rate cases. ABATE and the AG

charge that granting MCV standing in this case would render the standing requirements

meaningless as it applies to suppliers and competitors.

        MCV counters that the Commission clearly has jurisdiction under MCL

460.6j(13)(b) to approve capacity charges in a contract for cost recovery purposes. In

fact, MCV argues that MCL 460.6j(13)(b) anticipates reconsideration of the

Commission’s prior approval of capacity charges in a contested case after the passage

of the requisite period for financing.

        MCV states that there is nothing contained in MCL 460.6j(13)(b) which requires

that it be a “public utility” rather the statute permits the Commission to exercise its

regulatory authority over “any person”. MCV states it does not seek to be regulated as

a public utility. MCV argues that it is not seeking to change the capacity charges or

avoided cost determinations but is only seeking to eliminate limits on capacity charge

payments that Consumers Energy may recoup under MCL 460.6j(13)(b).

        Consumers Energy points out that there is considerable precedent supporting

MCV’s claim to legally file its application. MPSC Case No. U-8871, dated March 31,

1993. Consumers Energy cites numerous other examples of QFs filing petitions1 with

the Commission seeking various forms of relief including approval of cost recovery for

 For a complete listing of all of the authority cited by Consumers Energy refer to page 2 of its reply in
opposition to the motion for summary disposition.

Page 3
payments made under a Power Purchase Agreement (PPA).            Consumers Energy also

notes that in many of the cited cases, the exercise of a regulatory-out clause prompted

the filing. Consumers Energy states that it served MCV with notice of its intent to

exercise its regulatory-out provision effective September 16, 2007. Consumers Energy

concludes its position on this issue by arguing that the federal regulations cited by

ABATE and the AG does not bear on the relief sought by MCV.

      The ALJ concurs with MCV and Consumers Energy. Statutory authority over the

capacity charges is provided to the Commission at MCL 460.6j(13)(b).           While the

specific statutory language is under a heading governing Commission regulation of the

power supply reconciliation, the provision when reviewed in the context of MCV’s

application does, in the opinion of the ALJ, confer statutory authority to the Commission.

      Also, the fact that the MCV is not a public utility does not preclude the

Commission’s exercise of authority.     There are several instances under the broad

regulatory scheme of the Commission involving regulation of subject matter rather than

regulation of a “public utility”. A fine example of that would be provisions under the

Michigan Telecommunication Act (MTA). The legislature provided that certain regulated

services come under the authority of the Commission. The regulation of these services

does not require that the regulated entity be a telephone company in the traditional

sense, only that the services being provided by the regulated entity are a regulated


      Here, even though MCV is not a public utility in the traditional sense, the

statutory authority of the Commission to regulate the subject matter of the complaint

blankets capacity charges with clear authority to the Commission.      As pointed out by

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Consumers Energy, there are numerous examples of QFs filing similar applications. In

fact, the Commission has, in several prior cases, exercised this authority with MCV as

an applicant. The nature of this application by MCV is not significantly different than

prior applications where the statutory authority exercised by the Commission involved

QFs.   Therefore, the ALJ urges the Commission to reject ABATE’s and the AG’s

arguments concerning a lack of statutory authority and a lack of standing.

II.    Prior Commission Orders Legally Bar MCV’s Requested Relief

       Going back to the year 1987, ABATE and the AG recite the procedural

background and substantive history of prior Commission orders which established the

avoided costs, capacity charges and availability caps governing the terms and

conditions found in the PPA.    ABATE and the AG state that most importantly for this

case is that the Commission order approved recovery of an “Option 2” capacity charge

of 3.62¢ per kWh for MCV subject to availability caps set forth in the order. MPSC Case

No. U-8871, supra. They also point out that this Commission order was affirmed by the

Court of Appeals. ABATE v PSC, 216 Mich App 8 (1996).

       Completing their procedural background and substantive review, ABATE and the

AG explain that on November 14, 1996, the Commission added the last 325 MW of

MCV capacity and energy, not included in previous Commission orders. MPSC Case

Nos. U-10685, U-10754 and U- 10787. This order was also affirmed the by Court of

Appeals. Attorney General v PSC, 237 Mich App 82 (1999).

       ABATE and the AG argue that the doctrines of res judicata and collateral

estopppel legally preclude the MCV from seeking the Commission to reverse its

decisions in those cases. These cases, argue ABATE and the AG, were fully, fairly and

Page 5
exhaustively litigated in prior cases. They urge a rejection of any arguments that there

are changed circumstances or new methods of calculating recoverable capacity costs

which would apply to this MCV application.

        MCV responds that its application is being mischaracterized. MCV states it is not

seeking a reconsideration of the capacity charges in the previous Commission orders.

MCV asserts that it is only seeking to exercise its right to request and revisit the 1100

MW availability cap due to changed circumstances. This right of review, argues MCV,

was specifically reserved in the prior Commission orders after the passage of 17.5

years. Nothing, says MCV, contained in previous Commission orders prevents such a


        MCV argues, more to point, that its case is predicated on changed

circumstances.     While MCV argues that the doctrines of res judicata and collateral

estoppel are inapplicable to MCV’s application, MCV asserts that the doctrines would

apply to ABATE’s and the AG’s challenge to the terms of the revised settlement

proposal (RSP) previously approved by the Commission.           MCV argues that since

ABATE and the AG did not object to the terms of the RSP, they cannot now object to

the adjudication of changed circumstances. This question is not properly before the

Commission at this time.

        MCV argues that the Commission is free to establish a change in its orders,

which are legislative in nature, through the establishment of new evidence or through

the showing of changed circumstances. MCV puts forth for consideration six factors

which     it   argues   represent   changed   circumstances.    The   six   factors   are:

        1. Consumers Energy no longer has an ownership interest in MCV.

Page 6
       2. Coal plants (the proxy used to justify the availability caps) have become much

more efficient.

       3. MCV has established verified availability which far exceeds the assumption

used in setting the availability caps.

       4. There are significant benefits which are at risk being currently implemented in

the Reduced Dispatch Agreement (RCP) consistent with the Commission Order in

MPSC Case No. U-10127, dated March 31, 1003.

       5. Increased energy needs throughout the State of Michigan making paramount

the need for reliable base-load generation facilities.

       6.   MCV’s higher level of availability makes lowering Consumers Energy’s

reserve margins possible thereby benefiting customers.

       The ALJ notes that the judicially created doctrines of res judicata and collateral

estoppel are distinguishable but both have genesis in the court’s desire to “relieve

parties of the cost and vexation of multiple lawsuits, conserve judicial resources, and, by

preventing inconsistent decisions, encourage reliance on adjudication.”             Allen v

McCurry, 449 US 90 (1980). The doctrine of Res Judicata states:

       The general principle announced in numerous cases is that a right,
       question or fact distinctly put in issue and directly determined by a court of
       competent jurisdiction, as a ground of recovery, cannot be disputed in a
       subsequent suit between the same parties or their privies; and even if the
       second suit is for a different cause of action, the right, question or fact
       once so determined must, as between the same parties or their privies, be
       taken as conclusively established, so long as the judgment in the first suit
       remains unmodified. Hackley v Hackley, 426 Mich 582 (1986).

       So under the doctrine, the rights, issues, and questions of facts once determined

in a case are put to rest so to speak.        The doctrine prohibits the relitigation in a

subsequent case. For the doctrine to apply to a party to the previous case, the ALJ

Page 7
finds that it doesn’t matter whether the party participated through actual litigation or

through a consent judgment or settlement. There is simply not a distinction in the

doctrine and the doctrine is broad enough to cover the parties involved in a settlement.

However, the doctrine goes so far as to provide that the determinations of the case

decided may be taken as conclusively established between the same parties.

      But, the ALJ finds that the doctrine does not apply in this case.      There are

several reasons to reject the application of Res Judicata. However, the ALJ find the

most compelling reason is that the very nature of the statutory authority under which

MCV seeks relief recognizes that over time it may be necessary to adjust various

factors involved in the determinations of capacity charges.     The statutory authority


      . . . The Commission, upon its own motion or upon the application of any
      person, may reconsider its approval of capacity charges in a contested
      case hearing after the passage of a period necessary for financing the
      qualifying facility, provided that:
              (i) The Commission has first issued an order making a finding
      based on evidence presented in a contested case that there has been a
      substantial change in circumstances since the commission’s initial
      approval….MCL 460.6j(13)(b).

      Statutorily, the Commission may reconsider its approvals after a period of time.

In this case, the requisite period of time is 17.5 years not the 35 years as argued by

ABATE and the AG. The reason being is that the Commission specifically set forth in its

order that the requisite period of time before it would reconsider would be 17.5 years

from the date of the contract not the 35 years set forth in the original PPA. MPSC Case

No. U-10127, supra.

      ABATE and the AG rely on federal statute 16 USC §842a—3 and FERC

regulation 18 CFR 292.304 as prohibiting the recovering of the capacity charges sought

Page 8
by MCV.     They argue that the levels previously set by the Commission are the

appropriate avoided-cost capacity charges.     According to ABATE and the AG, the

Commission approved avoided costs reflected avoided costs as of the time that

Consumers Energy incurred its obligation to MCV. ABATE v PSC, 216 Mich App 8, 29

(1996).   In addition, the Commission ruled that it would not permit ratepayers to pay

more that Consumers Energy’s full avoided costs. ABATE and the AG contend that

while a purchase rate that differs from avoided costs at the time the energy is delivered

under a long term PPA does not violate PURPA,           the Commission cannot legally

change the terms and conditions or rate of recovery for the avoided costs once it has

set those rates.

       The crux of ABATE’s and the AG’s argument is that PURPA and FERC

regulations prohibit the changing of avoided costs which were calculated at the time an

obligation is incurred. The avoided costs does not change with the passage of time—or

with changing market conditions. Independent Energy Producers v California Public

Utilities Comm’n, 36 F 3d 848, 858-859 (CA 9, 1994).

       ABATE and the AG argue that the Commission concluded that the avoided costs

for MCV would be calculated using a capacity charge fixed at the time the legal

obligation was incurred not upon delivery. The application seeks to change recovery of

the avoided costs and doing so would violate federal law as noted above.               In

implementing PURPA and approving contracts between utilities and QFs, the

Commission lacks any authority to change its avoided costs since doing so would

constitute a utility-type regulation prohibited by the FERC regulation.        Freehold

Cogeneration Assoc v NJ Bd of Regulatory Comm’rs, 44 F 3d 1178, 1992-1194 (CA 3,

Page 9
1995); Accord, North American Natural Resources v MPSC, 41 F Supp 2d 736, 739-

740 (WD Mich, 1998); Crossroads Cogeneration Corp v Orange & Rockland Utilities,

Inc., 159 F 3d 129, 138 (CA 3, 1998), and Greenwood v NH Public Utilities Comm’n,

2007 US Dist LEXIS 52524 (D NH, 2007).

       MCV argues that the requested relief will not change the avoided costs

previously approved by the Commission. MCV further argues that avoided costs are a

floor, not a ceiling and there is no federal law preventing the Commission from setting

rates which are above avoided costs.        MPSC Case No. U-10066, et al, dated

August 14, 1992, pp. 16, 24. MCV argues that avoided costs are not static. ABATE v

PSC, 173 Mich App 647, 669 (1988). The Commission has held that under federal law

there is not an irrevocable setting of capacity charges.   MPSC Case No. U-10685,

supra, p. 41.

       Consumers Energy succinctly replies by stating that ABATE’s and the AG’s

federal law arguments were previously presented to the Commission. The Commission

rejected the arguments. Id.

       The ALJ finds that the arguments raised here by ABATE and the AG are

sufficiently similar to those arguments raised by the AG and rejected by the

Commission. Id. The Commission in addressing the AG’s argument stated:

       To the extent that federal law applies to this proceeding, the Commission
       finds no support in PURPA or FERC regulations for the Attorney
       General’s argument that the 840 MW ceiling on MCV cost recovery in
       Case No. U-8871, later increased to 915 MW in Cases No. U-10127, had
       the effect of irrevocably setting capacity charges for the remaining
       capacity as zero. Contrary to that argument, the Commission’s earlier
       determinations did not turn on the extent of Consumers’ need for new
       capacity, but rather on an allocation of some of that capacity to other
       projects. Moreover, PURPA does not preclude the Commission from
       phasing in the recovery of the MCV in discrete blocks over a period of

Page 10
          time. Because not all of the MCV capacity was needed at earlier times, it
          was appropriate to make separate provision for each block, permitting
          recovery through rates as the utility’s circumstances and ratepayers’
          needs dictated. Id, p. 41.

          So based on the Commission’s determination the ALJ finds that ABATE and the

AG’s argument should be rejected.            First, the Commission raises a concern as to

whether the federal provisions are even applicable in this case.               Moreover, the

Commission goes on to describe in its determinations the effects of those earlier

determinations turning on the possible phasing in of recovery based on changed

circumstances. The Commission affirmatively states that PURPA does not preclude

phasing in recovery in discrete blocks over a period of time and permitting recovery

from rates as changing circumstances require conditioned on the utility and its

ratepayers needs.

          Furthermore, the ALJ disagrees with the interpretation by ABATE and the AG of

FERC regulations concerning the options available to each QF cited. The regulation


          Each qualifying facility shall have the option either:

                                   *      *        *     *      *
          (2)     To provide energy or capacity pursuant to a legally enforceable
          obligation for the delivery of energy or capacity over a specified term, in
          which case the rates for such purchases shall, at the option of the
          qualifying facility exercised prior to the beginning of the specified term, be
          based on either:
                  (i) The avoided costs calculated at the time of delivery; or
                  (ii) The avoided costs calculated at the time the obligation is

          The ALJ finds ABATE’s and the AG’s interpretation strained. The regulation

clearly recognizes that there will be a specified term over which such energy or capacity

Page 11
is to be provided. Now, at the end of the term as specified by the Commission2, the QF,

MCV in this case, is citing changed circumstances as the basis for its request. ABATE’s

and the AG’s interpretation is simply too restrictive and defeats the purpose and

flexibility mandated by PURPA and the FERC regulation. A mandate of PURPA and

FERC regulations should be noted here.                    QFs in terms of rates shall be treated

reasonably and non-discriminatorily.                   The ALJ believes that failing to recognize

changed circumstances would result in unjust and unreasonable treatment.

          Finally, the ALJ addresses the argument concerning the requirement that

“Nothing in this subpart requires any electric utility to pay more than the avoided costs

for purchases.” 18 CFR 292.304. ABATE and the AG argue that this means that the

avoided costs as determined 17.5 years ago is the maximum that the utility could pay.

MCV argues that this provision does not establish avoided costs as the ceiling but only

the floor. The ALJ finds that MCV’s argument is consistent with prior Commission

determinations on this issue. The Commission has stated:

          The Legislature has directed the price shall not be lower than Detroit
          Edison’s avoided costs, but may be higher. The Legislature has thus
          granted discretion to the Commission, which it exercised to find that
          Detroit Edison has calculated an appropriate cost. MPSC Case No.
          U-10066, supra, p. 16.

          The case cited above involved a plant proxy to establish avoided costs. The

Commission clearly noted that it has discretionary authority to approve a price above

the utility’s avoided cost. The Commission has the discretion to approve a cost higher

than the avoided costs.

    This issue was addressed at p. 8 of this ruling.

Page 12
Factual Disputes

       MCV argues that there are several key factual disputes presented by its

application. As factual disputes, MCV argues, the motion for summary disposition is


       First, MCV asserts that there are six specific changed circumstances which

require factual determinations. Second, MCV contends its application asserts that the

elimination of the availability caps will eliminate a cost recovery mismatch. MCV states

that ABATE and the AG assert in their motion that the elimination of the availability caps

will not eliminate the mismatch.

       ABATE and the AG fail to directly address MCV’s contentions on this point.

Apparently, ABATE and the AG rely on the strength of their arguments concerning the

legal basis for their motion.

       The provisions governing motions for summary disposition are found at MCR

2.116. The grounds for summary disposition include two of the legal grounds raised by

ABATE and the AG which are lack of jurisdiction over the person or property and lack of

subject matter jurisdiction. Also included as grounds is part (10) which states:

       Except as to the amount of damages, there is no genuine issue as to any
       material fact, and the moving party is entitled to judgment or partial
       judgment as a matter of law. MCR 2.116(C)(10).

       The ALJ believes that material to whether the Commission has jurisdiction and

authority are the factual determinations of whether there are in fact changed

circumstances. Changed circumstances is a requirement of MCL 460.6j(13)(b). The

relevant question becomes whether the factual dispute is material. The ALJ finds that

the factual dispute is material based on the grant of authority under MCL 460.6j(13)(b).

Page 13
MCV alleges significant changed circumstances. It cannot be seriously doubted that

ABATE and the AG contest MCV’s allegations. Therefore, the ALJ finds that there

remains a genuine issue of material facts precluding a finding of summary disposition.


       The ALJ finds that the Commission has jurisdiction over the subject matter of the

application pursuant to the statutory provisions found at MCL 460.6j(13)(b). The ALJ

rejects the arguments that MCV lacks standing. The ALJ find that the doctrines of res

judicata and collateral estoppel are inapplicable in this case. The ALJ finds that the

Commission’s jurisdiction and authority is not circumscribed by either PURPA or FERC

regulations. Further, the ALJ finds that there is a genuine issue of material facts barring

summary disposition.     Therefore, the ALJ recommends that the Commission reject

ABATE’s and the AG’s motion for summary disposition.

                                         STATE OFFICE OF ADMINISTRATIVE HEARINGS
                                         AND RULES
                                         For the Michigan Public Service Commission

                                          Daniel E.                Digitally signed by Daniel E.
                                                                   Nickerson, Jr.
                                                                   DN: cn=Daniel E. Nickerson, Jr.,

                                          Nickerson, Jr.           c=US,
                                                                   Date: 2007.10.08 08:49:58 -04'00'
                                         Daniel E. Nickerson, Jr.
                                         Administrative Law Judge
Issued and Served: October 8, 2007

Page 14
                              STATE OF MICHIGAN



                           ) SS.                              Case No. U-15320
County of Ingham           )

                               PROOF OF SERVICE

Dawn M. Prawdzik deposes and says that on the 8th day of October 2007, she served a

copy of the attached Ruling on the Association of Businesses Advocating Tariff Equity’s

and the Attorney General’s Motion for Summary Disposition, upon those persons shown

on Attachment A, by enclosing same in a sealed envelope addressed as indicated

above and delivering the envelope to the Commission's mail courier for (1) postage

prepayment and deposit with the United States Postal Service, or (2) delivery through

interdepartmental mail (I.D.M.).

                                                 Dawn                  Digitally signed by Dawn
                                                                       DN: cn=Dawn Prawdzik, c=US,

                                                 Prawdzik              Date: 2007.10.08 11:58:04

Subscribed to before me this 8th
day of October, A.D. 2007.
                        Digitally signed by Angela Pruitt
                        DN: cn=Angela Pruitt, c=US, o=State
                        of Michigan, ou=Department of Labor
                        and Economic Development,
                        Date: 2007.10.08 12:03:29 -04'00'
Angela Pruitt
Notary Public, Ingham County, Michigan

My Commission expires 10-28-2007.
                                  ATTACHMENT A

Robert A.W. Strong, Esq.
Clark Hill
255 S. Old Woodward Ave.
3rd Floor
Birmingham, MI 48009-6179

David E.S. Marvin, Esq.
Fraser, Trebilcock, Davis & Dunlap, PC
124 W. Allegan, Suite 1000
Lansing, MI 48933

Donald E. Erickson, Esq.
Assistant Attorney General
525 W. Ottawa
7th Floor
Lansing, MI 48933

John C. Shea, Esq.
Consumers Energy Company
One Energy Plaza
Rm EP11-225
Jackson, MI 49201

Don L. Keskey, Esq.
Clark Hill
212 E. Grand River Ave.
Lansing, MI 48906

Jon D. Kreucher, Esq.
Howard & Howard Attorneys, PC
The Pinehurst Office Center
Suite 101
39400 Woodward Ave
Bloomfield Hills, MI 48304-5151

Ken Bromfield
The Dow Chemical Company
Midland, MI 48674

Vincent J. Leone, Esq.
Assistant Attorney General
6545 Mercantile Way
Suite 15
Lansing, MI 48911

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