consumers power company - michigan · u-10685 et al. that the contracts that consumers filed on...

1Effective March 11, 1997, Consumers Power Company became Consumers EnergyCompany.

S T A T E O F M I C H I G A N

BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION

* * * * *

In the matter of the application of )CONSUMERS POWER COMPANY )for authority to increase its rates for ) Case No. U-10685the sale of electricity. ) )

) In the matter of the application of )CONSUMERS POWER COMPANY for )accounting and ratemaking approval of changes ) Case No. U-10754in plant accounting and depreciation practices )for electric and common utility plant. ) )

) In the matter of the application of )CONSUMERS POWER COMPANY for approval )of a special competitive services rate, for certain ) Case No. U-10787accounting and ratemaking approvals in connec- ) tion with that service, and for other relief. ) )

At the April 10, 1997 meeting of the Michigan Public Service Commission in Lansing, Michigan.

PRESENT: Hon. John G. Strand, ChairmanHon. John C. Shea, CommissionerHon. David A. Svanda, Commissioner

ORDER ON REHEARING

On November 14, 1996, the Commission issued an order in these consolidated cases approv-

ing, with modifications, a settlement agreement filed by Consumers Energy Company1 (Consum-

ers) and the Commission Staff (Staff).

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On December 3, 1996, Consumers filed its acceptance of the terms of the order and a petition

for rehearing and modification of the order. Consumers explained that its acceptance of the order

was not contingent upon the Commission’s favorable response to its petition for rehearing. On

December 23, 1996, the Association of Businesses Advocating Tariff Equity (ABATE) filed a

response. On December 26, 1996, the Staff, The Dow Chemical Company (Dow), and Energy

Michigan and Nordic Power (Nordic) filed responses to the petition for rehearing.

On December 9, 1996, Attorney General Frank J. Kelley (Attorney General) filed a petition for

rehearing. On December 27, 1996, Consumers filed a response.

On December 13, 1996, Consumers filed tariffs, as required by the November 14, 1996 order.

On December 13, 1996, Dow filed a petition for rehearing and clarification. On December 26,

Energy Michigan and Nordic filed a response. On January 3, 1997, Consumers filed a response.

On January 10, 1997, SPX Corporation filed a response.

On December 16, 1996, Tenneco Packaging, Inc., (Tenneco) filed a late petition to intervene

and petition for rehearing. On January 6, 1997, Consumers filed responses.

On December 16, 1996, Energy Michigan and Nordic filed a petition for rehearing and

clarification. On December 30, 1996, Energy Michigan and Nordic filed a supplement to their

petition for rehearing. On January 6, 1997, Consumers filed a response to the initial petition. On

January 10, 1997, SPX filed a response. On January 14, 1997, Consumers filed a response to the

supplement.

On December 16, 1996, the Michigan Public Power Agency and the Michigan South Central

Power Agency (the MPPA/MSCPA) filed a petition for rehearing. On January 6, 1997, Consum-

ers filed a response.

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On December 16, 1996, ABATE filed a petition for rehearing and clarification. On

December 19, 1996, it filed a corrected version. On December 26, 1996, Energy Michigan and

Nordic filed a response. On January 6, 1997, Consumers filed a response. On January 10, 1997,

SPX filed a response. On January 24, 1997, the Midland Cogeneration Venture Limited Partner-

ship (MCV) filed a response to SPX’s filing.

On March 7, 1997, Dow filed a motion to compel Consumers to implement the terms of the

November 14, 1996 order with respect to Rate DA and to require Consumers to file a tariff fully

consistent with the order. On March 24, 1997, Consumers filed a response.

Rule 403 of the Commission's Rules of Practice and Procedure, 1992 AACS, R 460.17403,

provides that an application for rehearing may be based on claims of error, newly discovered

evidence, facts or circumstances arising after the hearing, or unintended consequences resulting

from compliance with the order. An application for rehearing is not merely another opportunity

for a party to argue a position or to express disagreement with the Commission's decision. Unless

a party can show the decision to be incorrect or improper because of errors, newly discovered

evidence, or unintended consequences of the decision, the Commission will not grant a rehearing.

Revenue Deficiency

The November 14, 1996 order accepted the proposal to increase the capitalization threshold

for general and common plant expenditures to $1,000. Order, pp.14 and 61-62. The order rejected

the proposal to transfer $93 million from transmission plant depreciation reserve to nuclear

production plant depreciation reserve. Order, pp. 59-61. The order concluded that the revenue

requirement effect of accepting the capitalization threshold change was offset by the revenue

requirement effect of rejecting the proposed depreciation reserve transfer. The Commission

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therefore concluded that it should not change the revenue requirement determined in the February

5, 1996 partial final order. Order, pp. 17-18.

Consumers argues on rehearing that the November 14, 1996 order did not change the plant

balances, depreciation rates, or depreciation expense that were proposed by the settlement

agreement, and thus, contrary to the Commission’s finding, there was no depreciation expense

change to offset the effect of changing the capitalization threshold.

The Attorney General argues that the order contains an inadvertent error to the extent that the

order implicitly approves depreciation rates that reflect a depreciation reserve transfer that the

order explicitly rejected.

The Commission agrees that the November 14, 1996 order failed to implement the Commis-

sion’s intent with respect to depreciation rates. The Commission has recalculated Consumers’

depreciation rates for transmission plant and nuclear production plant to reflect the rejection of the

proposed $93 million depreciation reserve transfer. Exhibit B, attached to this order. The effect is

a reduction in depreciation expense, and the resulting reduction in the revenue requirement offsets

the increase in the revenue requirement associated with the change in the capitalization threshold.

Standby Service

The order denied the request of Energy Michigan and Nordic to make Rate CG standby service

available to all standby customers. Order, pp. 21-22. Energy Michigan and Nordic argue on

rehearing that this conclusion is not supported by the record.

Energy Michigan and Nordic simply renew arguments that the Commission previously

considered and rejected, and their petition for rehearing therefore fails to meet the requirements of

Rule 403. Further, Energy Michigan and Nordic have erroneously asserted that the Commission

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cannot decide a matter of law and policy, such as the availability of standby service, without a

supporting factual record. Section 72(3) of Administrative Procedures Act of 1969 (APA),

MCL 24.272(3); MSA 3.560(172)(3).

Rate DA Duration

The order refers to a five-year term for Rate DA. Order, pp. 77-78. On the other hand, the

order also refers to a termination date of December 31, 2000 when it notes that the “settlement

does not mandate abolishing . . . Rate DA . . . as of December 31, 2000.” Order, p. 77. The tariff

attached to the order provides for service “through at least December 31, 2000 unless the Michigan

Public Service Commission decides to extend direct access service or implement a comparable

service.” Rate DA tariff, Sheet No. E-105.00.

Energy Michigan and Nordic say that the tariff would permit customers to take Rate DA

service for less than four years from any feasible commencement of service under the rate. They

request that the Commission clarify that Rate DA will be available for five years from the date that

service first commences.

The settlement calls for Rate DA to end on December 31, 2000, unless extended by the

Commission. After considering a longer initial term, the Commission approved that term as

proposed by the settlement. Because Energy Michigan and Nordic have simply reasserted

arguments already considered by the Commission, it declines to modify the order as they request.

On the other hand, the Commission reaffirms that it will review the experience with Rate DA and

may extend the term at a later date.

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Size of the Program

The Commission concluded that 240 megawatts (MW) should be made available for Rate DA

and individual contract service. Order, pp. 80-81.

ABATE notes that requests for approximately 1,100 MW of service under Rate DA and

individual contract service have been filed with the Commission or Consumers. It asserts that the

limited scope of Rate DA, no more than 240 MW, is thus wholly inadequate, especially if

Consumers can immediately allocate 140 MW of that amount to the contracts filed on December 3,

1996.

The Commission fully considered the size of the Rate DA program. ABATE’s petition for

rehearing adds nothing new and therefore does not meet the requirements of Rule 403.

140 MW of Rate DA or Individual Contract Service

The order discussed at length how 240 MW of capacity would be allocated between Rate DA

and individual contract service. Order, pp. 76-81. The Commission concluded that 100 MW

should be made available exclusively for Rate DA for a period of 18 months and another 140 MW

should be made available immediately for competition between Rate DA and individual contract

service. Order, pp. 80-81. On December 3, 1996, after having filed its acceptance of the terms of

the order, Consumers filed contracts with a total capacity in excess of 140 MW.

Dow argues that the Commission’s order envisioned that Consumers would offer individual

contract service in competition with Rate DA. To effectuate that intended competition, Dow

asserts, the Commission must ensure that Consumers may not offer any portion of the 240 MW to

a customer that does not have priority to participate in Rate DA by either having requested

Rate DA service before other customers or having won the lottery for participation. It also argues

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that the contracts that Consumers filed on December 3, 1996 were obviously negotiated before

Consumers accepted the terms of the order and before there was a direct access program in which

those customers could choose to participate. Consequently, it asserts, they had no choice between

Rate DA and individual contract service when they signed their contracts, and none of those

contracts should count toward the 140 MW available for competition between Rate DA and

individual contract service.

ABATE argues that the order does not clearly indicate whether there is any preference or

requirement that some portion of the 140 MW be filled by Rate DA service. It suggests that the

individual contract service customers should be chosen by lottery, as Rate DA customers will be

chosen.

Energy Michigan and Nordic fear that Consumers may allocate the entire 140 MW to the

contracts even though hundreds of megawatts of applications for Rate DA were filed the same day.

They ask the Commission to clarify the allocation process in the following manner: (1) Each

customer location for Rate DA or individual contract service would be treated as a separate

application. (2) All individual contract service contracts and all applications for Rate DA received

on December 3 or 4, 1996 would be placed in the lottery and 240 MW of capacity would be

selected, with at least 100 MW under Rate DA, and another 200 MW would be selected as

alternates. (3) No customer could receive more than 50 MW of capacity. (4) For any winning

customer location with an existing contract and a Rate DA application, the customer would have to

agree, within 30 days, to participate in Rate DA or the capacity would be allocated to an alternate.

It also requests that customers be given the opportunity to present facts that might change their

priority.

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In response, Consumers says that it currently treats each customer meter as a separate account

and plans to conduct the Rate DA lottery accordingly. On the other hand, it also says that, to the

extent it currently treats two or more locations as a single customer account, the lottery will reflect

that treatment. It does not support limiting the Rate DA capacity available to any customer.

In response, SPX says that the proposal to treat each customer location as a separate applica-

tion should not be used to defeat the right of smaller customers to aggregate loads up to 6 MW.

The Commission agrees that the lottery must be conducted in a manner than does not defeat

the right granted by the order for aggregation under the Rate DA program. Order, p. 85. With that

limitation, the Commission agrees that the lottery should be conducted on the basis of customer

accounts, as Consumers proposes, which is consistent with its current treatment of its customers.

As required by the November 14, 1996 order, priority shall be given to applications on a first-

come, first-served basis, with a lottery used to assign a priority to the applications received on the

same day. Order, p. 105. The Commission also agrees that alternates should be selected, and

therefore the lottery should be used to assign a priority to each customer account covered by a Rate

DA application.

The Commission disagrees with Energy Michigan’s and Nordic’s proposal that the contracts

be included in the lottery. The November 14, 1996 order did not require that treatment of the

contracts because the choice between individual contract service and Rate DA was to be made by

customers. The lottery, on the other hand, was to allocate capacity between applications for

Rate DA that were otherwise of equal priority. The Commission also disagrees with their proposal

that no customer should be eligible for more than 50 MW of Rate DA capacity. The selection will

be done randomly by lottery, and fairness does not require a further restriction on the outcome of

the selection process. The Commission agrees with Energy Michigan and Nordic that a customer

2Consistent with the intent of the settlement agreement and the order that customers havean option of choosing up to 100 MW of Rate DA for 18 months, the 18-month period will notbegin until Rate DA is, in fact, available; i.e., both the Commission and the Federal EnergyRegulatory Commission have approved Rate DA tariff sheets.

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with an existing (previously approved) contract that is selected in the lottery must choose to

participate in Rate DA or the capacity will be allocated to another customer willing to take service

under Rate DA. On the other hand, a customer with a Rate DA application to whom Consumers

offers individual contract service need not choose to take service under Rate DA, although, for the

first 18 months, Consumers must continue to offer Rate DA capacity to eligible customers until at

least 100 MW of Rate DA capacity has been filled.2

The remaining question is whether the contracts that Consumers filed on December 3, 1996

fill the 140 MW of capacity that was to be available for competition between Rate DA and

individual contract service. The November 14, 1996 order stated:

[T]o ensure that fair and full competition is created between Consumers (through the useof its individual contract service) and eligible third-party suppliers (through the use ofRate DA), an additional requirement must be imposed. Specifically, service providedunder these individual contracts must comply with all standards and billing practicesimposed, and must include payment for all mandatory charges required, under Rate DA.

Order, p. 119. Presumably, Consumers believes that all of the contracts comply with the relevant

terms of the Rate DA program, even though it is apparent that the contracts contain terms that are

not identical to the terms offered under Rate DA (e.g., the length of the contracts and the power

factor). Because Rate DA involves unbundled access to third-party suppliers and individual

contract service is a form of bundled retail service, the rates, terms, and conditions of the two

cannot be identical. Nevertheless, if competition between the two is to be fair and meaningful, the

Commission can permit only those differences that are absolutely required by the differences in the

nature of the service that the customer has chosen.

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The Commission concludes that it should not resolve this issue without providing the parties

an opportunity to be heard. The Commission will therefore set a hearing at which the parties may

present evidence and argument about which of the rates, terms, and conditions of Rate DA should

apply equally to individual contract service and the extent to which the contracts filed on

December 3, 1996 comply with those provisions. Upon completion of the hearing, the Commis-

sion will decide which of the contracts comply with the requirement of comparability in the

November 14, 1996 order. For the contracts that comply, Consumers may count their capacity

toward the 140 MW. If a portion of the 140 MW remains unfilled, it will be opened to Rate DA,

based upon the priority determined in the lottery. Consistent with the policy of competition

between individual contract service and Rate DA, Consumers may offer individual contract service

to those customers. If they choose the option of a contract, their Rate DA capacity will not be

offered to another customer.

List of Participants

Dow argues that Consumers should be required to file with the Commission, and serve on the

parties, a list of customers that have requested Rate DA service, arranged by the date on which the

customers made their requests, with sufficient documentation to demonstrate that the list is

accurate. Dow asserts that such a list would permit customers to verify that Consumers considers

them to be eligible and would permit those that believe Consumers has unfairly excluded them to

raise the matter with the Commission.

In response, Consumers says that it sent a confirmation to each customer that submitted a

request to participate in Rate DA and Dow has not established a need to know the identity of all

other potential participants.

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The Commission agrees with Dow that requiring Consumers to file and serve a list of

customers that have requested Rate DA service, arranged by the date on which the customers made

their requests, will further the implementation of Rate DA. By reference to such a list, each

applicant can confirm that Consumers has received its application and determine the filing priority

that Consumers has assigned to that customer. Those who believe that the list is in error are then

free to raise that issue with Consumers or, if necessary, with the Commission.

Reciprocity

The Commission concluded that all utilities that wanted to supply power pursuant to Rate DA

would be required, as a condition of participation, to open a comparable amount of their native

load to competition from Consumers. The Commission also concluded that if an affiliate of a

utility participated as a third-party supplier, the utility would be subject to the reciprocity require-

ment, but that if a utility provided power through an unaffiliated power marketer, the utility would

not be subject to the requirement. Order, pp. 90-91.

Consumers argues that the Commission’s decision to exempt the utility supplier of an

unaffiliated power marketer from the reciprocity requirement effectively negates the requirement

because a utility can readily structure its participation through an unaffiliated power marketer.

In defining the scope of the reciprocity requirement, the Commission considered the issue that

Consumers raises. The Commission concluded that it would not impose the reciprocity require-

ment on utility suppliers of unaffiliated power marketers. Consumers has not offered any new

perspective on this issue, and the Commission denies rehearing.

In a related matter, Energy Michigan and Nordic propose that Rate DA customers be permitted

to contract for regulation and frequency response service with municipal utilities or municipal

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power agencies located within Consumers’ service territory. To implement this recommendation,

Energy Michigan and Nordic say that the Commission must determine that the reciprocity

requirement does not apply to those suppliers or applies only to a similar volume and type of

service.

In response, Consumers says that there is no reason to make this change, which will only invite

endless argument about the nature of the service that a municipal utility provides.

Consistent with the Commission’s order, municipal utilities and municipal power agencies

may provide primary power supply or backup service, but will, as a condition of their participation,

be required to offer reciprocity only for the type of service they offer under Rate DA and, as with

all reciprocity under Rate DA, for the same amount of capacity. The Commission does not agree

with Consumers that implementation of this condition will present any serious practical difficul-

ties.

Affiliate Participation

The Commission defined eligible third-party suppliers to include all sources of power, both

within and without Michigan, with the exception of Consumers itself. Order, p. 89.

Dow argues that the Commission should clarify that Consumers and its affiliates are not

eligible to participate as power marketers. It asserts that Consumers should not be permitted to

avoid the limited competition created under Rate DA by competing with others through an

affiliate.

In response, Consumers says that the November 14, 1996 order did not preclude Consumers’

affiliates from acting as third-party suppliers and that it would be inconsistent with the intent of the

order to limit, rather than expand, the number of eligible suppliers.

3With respect to SPX’s assertion that the MCV cannot participate as a third-partysupplier, the Commission notes that the MCV has 1,240 MW under contract to Consumers andConsumers cannot act as a third-party supplier under Rate DA. Consequently, no part of theMCV capacity already under contract to Consumers may be offered under Rate DA, whether byConsumers or the MCV.

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The Commission agrees that Consumers’ affiliates should not be permitted to act as third-party

suppliers for any part of the 100 MW reserved for Rate DA. The effect is to maximize the

competition between Consumers and unaffiliated third-party suppliers, and is consistent with the

rationale for setting aside the 100 MW.3

Energy Michigan and Nordic argue that the Commission must define the term “affiliate” to

ensure that suppliers providing service through power marketers are not subjected to the reciproc-

ity requirement unless they fall within a clearly defined category of relationships to the marketer.

The Commission concludes that this issue is better addressed in a context where the underly-

ing facts may be developed, such as in the contested case proceeding in which the marketer seeks a

certificate of public convenience and necessity or seeks approval of its contracts.

Separate Metering

The Commission approved the requirement of the settlement agreement that Rate DA service

be separately metered, by which the Commission meant that a single meter could not be used to

record a customer’s demand and energy usage for load that was served under Rate DA and any

other tariff or contract. Order, pp. 92-93.

ABATE points out that there was extensive testimony on the issue of separate metering in the

retail wheeling cases involving Consumers and The Detroit Edison Company, Cases Nos. U-10143

and U-10176. It argues that the testimony showed that separate metering is unnecessary, overly

expensive, and a significant, if not completely prohibitive, cost of participation.

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Energy Michigan and Nordic argue that the Commission’s decision on separate metering is not

supported by record evidence. They also request that the Commission rule that the customer may

provide the meter and that Consumers must use that meter for all purposes.

The arguments raised on rehearing do not satisfy the requirements for rehearing. The parties

have simply re-offered the evidence and arguments that the Commission has considered and

rejected. In addition, Energy Michigan and Nordic erroneously assert that a matter of policy, such

as whether to require separate metering, must be supported by record evidence. Section 72(3) of

the APA.

As to the practical consequences, it would appear that if a customer chooses to take Rate DA

service for the entire load that is currently served by a single meter, the requirement of separate

metering would have no effect. On the other hand, if customers cannot or will not choose to place

the entire load served by one meter on Rate DA, or third-party suppliers will not or cannot serve

the entire load of a single meter, the Commission invites the parties to offer additional information

on this issue at an appropriate time. That information would have important implications for the

development and viability of a competitive electric industry. For purposes of this program, the

Commission has determined that a customer should not have the choice of metering its load served

by both Rate DA and another tariff or contract service with one meter. It is not legal error to

approve a limited direct access program as an initial step toward opening the electric generation

market to competition.

As to Energy Michigan’s and Nordic’s request that the customer be permitted to provide the

meter, the tariff that Consumers filed says that the customer “is responsible for the purchase and

installation of all separate metering equipment necessitated by its switch to Direct Access Service.”

Rate DA tariff, Sheet No. E-106.00. Thus, Rate DA customers are free to contract with others for

4Open Access Rule, 61 Fed. Reg. 21,540 (1996)(to be codified at 18 CFR 35.15, 35.26-.28, 385.2011).

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any new meters and related installation. On the other hand, the Commission does not interpret the

tariff as requiring the replacement of meters already in place simply because the customer chooses

to take service under Rate DA.

Deadband Service

The Commission approved a “deadband” of plus or minus 3% as the range within which a

third-party supplier must balance the energy delivered to Consumers with the energy used by the

customer. A failure to maintain that balance causes the customer to incur additional charges.

Order, p. 96. The Commission also determined that, to address concerns raised by the Federal

Energy Regulatory Commission’s (FERC) assertion of jurisdiction in Order No. 8884 over the

transmission of electricity for a direct access program, it would take official notice of Consumers’

open access transmission tariff on file with the FERC and apply the standard charges set forth in

that tariff. Order, p. 94. The tariff that Consumers filed following issuance of the order provides

for a 1.5% deadband, as found in Consumers’ FERC tariff.

Dow asserts that the Commission should require Consumers to file immediately a new tariff

that is consistent with the Commission’s order, particularly with respect to the deadband and

power factor (discussed below). Dow asserts that, in accepting the order, Consumers agreed to

provide Rate DA service pursuant to the terms and conditions set forth in the Commission’s order

at the rates set forth in the FERC tariff. Dow argues that the FERC will permit modifications to

the wholesale transmission tariff to accommodate retail wheeling and asserts that the larger

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deadband provided by the Commission’s order is the type of variation the FERC envisioned might

be necessary.

ABATE argues that requiring a third-party supplier to follow each individual customer’s load

within even a 3% deadband is not workable and must be corrected.

Energy Michigan and Nordic also argue that the 3% deadband, and the inability to aggregate

load served by a third-party supplier for purposes of meeting the deadband requirement, will create

an exceedingly difficult problem for a third-party supplier trying to follow the load of each

customer on an almost instantaneous basis. They say that it is therefore critical that the Commis-

sion carefully detail the terms under which Consumers will provide replacement power for periods

of less than 90 days so that customers can avoid the imposition of any penalty for exceeding the

deadband limits.

In response, Consumers says that Energy Michigan and Nordic are not seeking a clarification

related to the replacement power provision, which was never intended or described as a means to

permit the customer to avoid exceeding the deadband limit, to avoid unauthorized use charges, or

to obtain load following service from Consumers. Rather, it says, replacement power is available

if the third-party supplier completely fails to deliver power as required by its contract.

The Commission agrees that Energy Michigan and Nordic have sought to misapply the

replacement power provision of the tariff, which is not a substitute for the load following that is

required under Rate DA. On the other hand, concerns with the deadband provision are lessened, if

not eliminated, by recognizing that the tariff that Consumers filed must be revised to conform to

the tariff on file with the FERC. That tariff provides for a deadband of 1.5% with a 1 MW

5Upon rehearing, the FERC has approved a deadband minimum of 2 MW for the proforma open access tariff. Order No. 888-A, March 4, 1997.

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minimum. Consumers’ Open Access Transmission Tariff, Original Sheet No. 121.5 The Commis-

sion’s decision to use the FERC tariff for Rate DA requires that the deadband minimum, as well as

the range, be used. As a practical matter, the effect is to create a deadband in excess of 3% for

loads of less than 33 MW and as much as 50% for the minimum Rate DA load of 2 MW.

An effective deadband of as much as 50% may suggest to Consumers a need to modify the

FERC tariff as it applies to a direct access program, just as a deadband of 1.5% or a power factor

of 0.928, 0.951, or 1.000 (discussed below) may suggest to potential customers a need to modify

the FERC tariff. The potential need for such changes, and perhaps others, need not be resolved at

this time. To permit Rate DA to go forward without a challenge to the FERC’s assertion of

jurisdiction, and without the delay associated with seeking to modify the FERC tariff, the

Commission has decided to use, at least for now, the FERC tariff for the transmission component

of Rate DA. Therefore, the Commission denies Dow’s request that Consumers be required to file

a Rate DA tariff that corresponds in all respects to the November 14, 1996 order, but rather will

require Rate DA service to be offered in conformity with the FERC tariff.

Power Factor

The Commission’s order did not discuss power factors, but the order did indicate that the

Commission would take notice of Consumers’ FERC tariff for purposes of establishing transmis-

sion rates. Order, p. 94. Consumers asserts that the tariff it filed uses the power factors found in

its FERC tariff.

6The tariff proposes a power factor of 1.000 for network transmission service.

7The hearing should also examine the question of the point at which the Rate DAcustomer’s power factor should be measured and whether it makes sense to apply the traditionaltransmission power factor measurement in a retail context. The Commission raises thesequestions in part because it seems likely that a traditional network transmission customer’spower factor is not measured at a single end-user’s facility.

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Energy Michigan and Nordic note that Consumers’ filed tariff proposes power factors of 0.928

and 0.951 for point-to-point transmission service rather than the 0.8 found in Consumers’ retail

sales tariff.6 They argue that, to avoid discrimination, the same power factor should be used for

Rate DA as is used for retail and special contract customers. Energy Michigan and Nordic note

that the same issue exists with respect to line losses because Consumers has substituted the FERC

tariff figures for the retail tariff numbers.

As discussed above in the context of the deadband, the Commission decided to adopt the

FERC tariff for the transmission component of Rate DA. With respect to point-to-point transmis-

sion service, the FERC tariff provides:

Unless otherwise agreed, the Transmission Customer is required to maintain a powerfactor within the same range as the Transmission Provider pursuant to Good UtilityPractices. The power factor requirements are specified in the Service Agreement whereapplicable.

Consumers’ Open Access Transmission Tariff, Original Sheet No. 83, paragraph 24.3. With

respect to network transmission service the FERC tariff is less clear. Furthermore, the resolution

of this issue is closely related to the issue of comparability between individual contract service and

Rate DA, and can be addressed in that hearing. The parties can also address whether it is

reasonable and appropriate to conclude that Consumers has “otherwise agreed” that Rate DA

customers may maintain a power factor of 0.8 for point-to-point transmission service.7 In any

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event, and regardless of the outcome of that hearing, the power factor and other issues addressed

by the FERC tariff must be resolved, at least for now, by the terms of that tariff.

Replacement Power

Replacement power is an alternate source of power for use when the primary third-party

supplier fails to deliver power to Consumers’ grid for delivery to the Rate DA customer. The

Commission noted that Rate DA customers were free to seek replacement power from any eligible

third-party supplier, as well as from Consumers. To define the terms under which Consumers

would provide this optional service, the Commission approved the replacement power provision

found in the settlement agreement. Order, p. 99.

ABATE says that the requirement that a customer that wants to take replacement power

service from Consumers sign that contract no later than when it signs the power supply contract

with its third-party supplier is unworkable. ABATE suggests that the Commission could permit

the customer to sign a replacement power contract at any time before the Commission approves the

contract with the third-party supplier or as late as when the power begins to flow. ABATE also

suggests that, because the customer will pay the actual cost of replacement power and Consumers

will not have to plan system capacity for replacement power purposes, the Commission should

permit the customer, with short notice, to terminate its contract with Consumers and obtain

replacement power from another source.

Energy Michigan and Nordic make essentially the same argument.

In response, Consumers says that it would not object to modifying the tariff provision to allow

the customer to sign a contract with Consumers for replacement power on the later of the day the

customer signs its contract with a third-party supplier or 10 days after the customer is selected by

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lottery to participate in Rate DA. Consumers also says that its generally applicable Rule B13.2

prevents customers from changing rates more often that once every 12 months, and argues that

Rate DA customers should be subject to the same limitation.

The Commission accepts Consumers’ offered amendment to the replacement power provision.

The Commission rejects Consumers’ view that Rate DA customers should be required to comply

with the rule that prevents rate changes more often than once every 12 months. Consistent with

the competitive nature of Rate DA, it is appropriate to permit customers to select another replace-

ment power provider at any time if Consumers’ replacement power tariff is not competitive,

especially when Consumers is under no obligation to plan system capacity to provide replacement

power.

Regulatory Charge

Consumers’ tariff rates include the costs associated with Statement of Financial Accounting

Standards (SFAS) No. 106 (accounting for postretirement benefits), nuclear plant decommission-

ing, the Midland nuclear plant amortization, SFAS No. 109 (accounting for deferred income

taxes), and past demand-side management programs. The Commission concluded that Rate DA

customers should continue to pay those costs even if they obtained generation services from a

third-party supplier. Therefore, the November 14, 1996 order approved a regulatory charge to

recover those costs. Order, pp. 99-103

ABATE argues that the regulatory charge overburdens an already costly program.

ABATE has simply reargued its position, which does not satisfy the requirements of Rule 403

for rehearing. On the other hand, since the Commission issued the November 14, 1996 order, it

has become more clear that the FERC will not readily permit the states to implement any direct

8The revenue effect to Consumers of initially not permitting it to collect the regulatorycharge is unknown at this time. Customers will not commence Rate DA service immediately,and the schedule in Case No. U-11283 will permit a Commission order and FERC concurrencesometime in the Fall.

U-10685 et al.

access program, other than one of short duration, using the open access tariff with any modifica-

tions. Therefore, to permit the Rate DA program to go forward at this time, the Commission will

adopt, for now, the FERC tariff without modification. Consequently, the regulatory charge may

not be imposed until the Commission issues its final order in Case No. U-11283 and has obtained

the FERC’s concurrence on the jurisdictional split between Consumers’ transmission and

distribution facilities. At that time, the Commission will have clear authority to impose the

regulatory charge on the state jurisdictional distribution facilities and intends to do so.8

Returning Customers

The settlement proposed that all customers seeking to return to full service do so only under

the terms of the replacement power provision of Rate DA, which would require the customer to

pay the greater of (1) the actual cost of replacement power plus all Rate DA charges or (2) the

applicable firm tariff rate. The Commission approved that proposal with the modification that a

customer returning to full service after fulfilling the requirements of its Rate DA contract would

not be required to pay the Rate DA charges. Order, pp. 104-105.

ABATE argues that there is no basis for requiring Rate DA customers that have fulfilled the

requirements of their contracts to pay actual replacement power costs rather than standard tariff

rates. It acknowledges that the Commission said that Consumers would not have to plan for future

generation services for these customers, but argues that no new customer or returning contract

customer is subjected to this economic punishment. It says that the penalty is further unjustified

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for a new, untested program, especially if Consumers’ conduct is the reason the customer seeks to

return to tariff service. Further, ABATE argues that, for a program that will not exceed 240 MW

at most, it is likely that Consumers can accommodate returning Rate DA customers in the context

of planning for normal load growth.

The Commission considered this issue fully before issuing the November 14, 1996 order.

ABATE has not persuaded that Commission that it should reconsider its decision, except in one

respect. If Consumers’ conduct is the reason that a Rate DA customer decides to terminate its

participation in the program, the customer may return to standard tariff service.

Scheduling

Energy Michigan and Nordic suggest that the Commission must permit a third-party supplier

to provide power on an instantaneous basis in increments less than 100 kilowatt (kW), notwith-

standing other tariff provisions on the deadband and scheduling. They say that the requirement

that scheduling be done in 100 kW increments is unrealistic for customers with small loads, for

whom a 1.5% deadband requires adjustments to nominations that are less than the 100 kW

minimum for changes in the delivery schedule. Energy Michigan and Nordic also propose that the

deadband be balanced daily, rather than hourly, and that the minimum deadband violation be 100

kW. They also request that the Commission permit third-party suppliers to aggregate the

nominations and load following services of their customers. They assert that doing so would not

impede the ability of Consumers to determine whether a particular Rate DA customer was

complying with its contractual obligations and would produce fewer changes in nominations and

less risk of exceeding the deadband limits. Finally, they complain that the prohibition on

scheduling more than the reserved capacity will prevent the Rate DA customer from using its full

U-10685 et al.

reserved capacity after accounting for the line loss factor of 3-4% or the customer will have to

reserve 3-4% more transmission capacity than it actually expects to use.

In response, Consumers agrees to reduce the minimum scheduling requirement to 1 kW and to

permit hourly, rather than daily, changes in the schedule of deliveries if they can be reasonably

accommodated.

The Commission accepts those concessions as consistent with the FERC tariff and reasonably

designed to assist third-party suppliers in performing their contractual responsibilities. Several of

Energy Michigan’s and Nordic’s other concerns should be lessened or eliminated by the 1 MW (or

2 MW) minimum deadband. To the extent those concerns remain, the Commission repeats that the

provisions of the FERC tariff govern.

Transmission Transfer Capability

The Commission concluded that Consumers was in the best position to determine whether its

transmission and distribution system could accommodate a particular interconnection or delivery

schedule requested pursuant to Rate DA. Order, pp. 105-106.

ABATE argues that this authority cannot legally, and should not, be given to a utility with a

strong interest in finding insufficient transfer capability.

Energy Michigan and Nordic propose that the same transfer capability limitations that apply to

Rate DA customers should apply to special contract customers. Energy Michigan and Nordic

suggest that transmission capacity constraints be addressed by prorating the available capacity

among all tariff, special contract, and Rate DA customers. They also propose that customers be

given notice of Consumers’ decision and an opportunity to respond.

U-10685 et al.

The Commission concludes that, at least initially, transfer capability issues must be addressed

pursuant to the FERC tariff, as other similar issues are governed by that tariff.

Energy Michigan and Nordic also say that Rate DA customers will be required to pay for

unauthorized use, spinning reserves, and standby reserves, and Rate DA customers should

therefore be entitled to the same reliability of service as tariff and contract customers. It proposes

that if there is a system or local outage, service to all firm customers should be prorated without

discrimination against Rate DA customers.

In response, Consumers argues that Energy Michigan and Nordic are confusing transmission

and generation services. It says that once power from a third-party supplier is delivered to

Consumers’ system, that power will be delivered to the customer, but it says that the Rate DA

customer is not paying for, and is not entitled to, continuous backup service from Consumers’

generation assets.

The Commission concludes that Energy Michigan and Nordic are mistaken in suggesting that

Rate DA customers will be paying for continuous backup service from Consumers or that they are

entitled to it. Unless they make other arrangements with Consumers, the rates that Rate DA

customers will pay to Consumers are for transmission and distribution, not generation, services and

they are entitled to receive only those services. As noted above, curtailment or interruption of

transmission services will be governed by the FERC tariff.

Direct Assignment Facilities

Energy Michigan and Nordic say that, as a result of Consumers’ application in Case No.

U-11283 requesting approval of an allocation of facilities between transmission and local

distribution, there is a danger that some Rate DA customers will be overcharged. In particular,

U-10685 et al.

Energy Michigan and Nordic fear that the cost of certain radial transmission lines may be directly

assigned to certain customers without an offsetting reduction in the Rate DA charges.

The Commission has set the application in Case No. U-11283 for hearing. The resolution of

Energy Michigan’s and Nordic’s concern must await a Commission order in Case No. U-11283.

Missing Tariff

Energy Michigan and Nordic say that Rule D13.2.C. is missing from the filed tariff (Rule

D14.2.C. in the tariff attached to the order). Consumers responds that it omitted the rule because

its FERC tariff does not have that provision. Consumers says that it will implement the FERC

tariff requirement that excess energy be returned in kind during the same billing cycle.

Because the Commission has adopted the FERC tariff language, it is unnecessary to include

the omitted language in Consumers’ tariff.

Terms of the Tariff

Energy Michigan and Nordic request that the Commission give the parties 15 days to review

and comment on the tariff that Consumers files to implement Rate DA.

The Commission agrees that customers should have an opportunity to review and comment on

the tariff that Consumers files in response to this order.

Enforcement

Energy Michigan and Nordic argue that it is not clear that a customer or third-party supplier

will have standing to participate in a power supply cost recovery (PSCR) case to seek a disallow-

ance of MCV costs as a penalty for Consumers’ failure to comply with the settlement. It asks that

the Commission clarify the standing of these parties.

U-10685 et al.

In response, Consumers argues that the settlement agreement does not provide for the

disallowance of MCV costs, even if Consumers fails to comply with the terms of the settlement,

contrary to the argument of Energy Michigan and Nordic.

Ordering paragraph “M” of the November 14, 1996 order requires Consumers to file evidence

of compliance with the implementation of the Direct Access Service tariff in its PSCR reconcilia-

tion filing for 1996 and subsequent years. It follows from that requirement that Consumers’

compliance will be subject to a meaningful examination in those cases and that parties with a

direct interest in the implementation of Rate DA should be allowed to participate.

Dispute Resolution

ABATE says that the Commission must plainly state its intention to exert primary jurisdiction

over all disputes that arise from Consumers’ implementation of Rate DA. ABATE fears that,

because the Commission decided to use Consumers’ FERC open access tariff for the transmission

portion of the Rate DA charges, Consumers will assert that customers must file complaints with

the FERC, even though service under Rate DA will be primarily distribution service in connection

with retail sales under a state program.

The Commission cannot create jurisdiction in itself. Customers are free to raise issues and file

complaints in the forum of their choice, and other parties are free to challenge that choice of

forum. Therefore, ABATE’s concern must be resolved in the context of contested cases.

Individual Contract Service Discounts

The order says that nonparticipating customers should be protected from any underrecoveries

of PSCR costs and other surcharges that result from individual contract service. Order, pp. 119-

121.

U-10685 et al.

Energy Michigan and Nordic say that it is unclear how this protection will be implemented and

request that the Commission clearly state that Consumers or its shareholders must absorb the

difference between the contract revenues and standard tariff revenues.

The Commission fully addressed this issue in the November 14, 1996 order and stopped short

of holding that Consumers could never shift any portion of the discount to other customers.

Energy Michigan’s and Nordic’s petition, which simply expresses disagreement with that decision,

does not meet the requirements for rehearing.

Customer Retention

The order rejected the proposal of the MPPA/MSCPA that individual contract service be

available only to protect existing load at a location currently served by Consumers. Order,

pp. 122-123.

The MPPA/MSCPA point out that the Commission noted that, in the last five years, none of

the members of the MPPA/MSCPA had added a customer with a maximum demand of 3 MW or

more. They assert that the order does not accurately portray the fact that municipal utilities are in

competition for customers with a demand in excess of 3 MW. They offer an affidavit, with

evidence developed after the close of the record, that municipal utilities have added at least two

customers with demands in excess of 3 MW since the close of the record and had directly

competed with Consumers and an electric cooperative for a third, which chose Consumers. They

also allege that, in March 1995, well before the settlement agreement was filed, a municipal utility

began serving another facility with a demand in excess of 3 MW. Finally, they argue that the

economic development rates of municipalities, to which the order referred, are fundamentally

different from the individual contract service offered by Consumers.

9ABATE prefers the term “joint position,” which the Commission has also used to referto the settlement agreement. The label did not affect the Commission’s decision to consider thejoint position or settlement agreement under the terms of Rule 333 of the Commission’s Rules ofPractice and Procedure, 1992 AACS, R 460.17333.

U-10685 et al.

In response, Consumers says that all of the contracts filed on December 3, 1996 are with

existing customers and the MPPA/MSCPA’s argument is therefore moot if the Commission

accepts Consumers’ view that those contracts fill the 140 MW available for competition between

Rate DA and individual contract service. Consumers says that because the contracts are subject to

various pricing and cost recovery restrictions and because the Commission must approve the

contracts, the MPPA/MSCPA can raise their concerns if they believe that Consumers has misused

the individual contract service. Consumers also questions whether there was any competition for

at least three of the customers mentioned by the MPPA/MSCPA.

The MPPA/MSCPA’s petition for rehearing does not satisfy the requirements of Rule 403 to

the extent it reasserts arguments that the Commission’s order considered and rejected. To the

extent it offers new evidence, the Commission will not reopen the record on this issue. The

contracts that Consumers filed are, as it turns out, with existing customers, but the Commission

does not agree with the MPPA/MSCPA’s view that, in competition for new customers, Consumers

should be placed at a disadvantage as compared to municipal utilities.

Settlement Procedures

ABATE argues that the Commission incorrectly found that the two parties to the settlement

agreement, Consumers and the Staff, adequately represented the public interest.9 ABATE says that

the Commission cannot reach such a conclusion when every other party opposed the settlement.

ABATE also argues that the Commission incorrectly found that the settlement was in the public

10ABATE speculates about whether the Commission will always find that the Staffrepresents the public interest and whether the Commission would ever approve a settlement thatthe Staff did not join. The Commission does not foresee circumstances under which it wouldfind that the Staff did not represent the public interest, but can readily foresee circumstancesunder which the lack of Staff participation would not be an impediment to approval of asettlement.

U-10685 et al.

interest, represented a fair and reasonable resolution of the issues, and was supported by substantial

evidence. Further, ABATE renews its argument that the Commission committed legal error in

approving the recovery of additional MCV costs. It re-asserts that the Commission should have

granted its motion for partial summary disposition and should not have granted rehearing of the

May 9, 1995 order, which placed recovery of the MCV costs back at issue in Case No. U-10685.

ABATE has simply reasserted arguments that the Commission previously considered and

rejected. Its petition for rehearing therefore does not meet the requirements of Rule 403.10

Tenneco Petition

Tenneco alleges in its petition to intervene that its ability to participate in Rate DA will be

affected by the final order in this proceeding and that its rights are not adequately represented by

any other party. As to the substance of the issues, Tenneco argues that the separate metering

requirement is unnecessary and onerous.

In response, Consumers says that Tenneco’s petition is extremely late and merely raises an

issue that others have addressed both at the evidentiary hearings and by petitions for rehearing of

the Commission’s order.

The Commission grants Tenneco’s late petition for leave to intervene. The issue it raises has

been argued extensively by others and permitting it to intervene now will not delay a resolution of

these cases. The Commission denies the petition for rehearing, which asserts a position that the

U-10685 et al.

Commission has previously considered and rejected. As such, the petition for rehearing does not

meet the requirements of Rule 403.

Implementation Schedule

In its March 7, 1997 motion, Dow requests that the Commission order Consumers to conduct

the lottery to determine the priority among customers that have requested Rate DA service and to

file a tariff in compliance with the November 14, 1996 order. Dow notes that Consumers has

asserted in Case No. U-11283 that the FERC requires the classification of transmission and local

distribution facilities as a prerequisite to implementation of a direct access program. Dow denies

that Order No. 888 imposes such a requirement, although it acknowledges that a tariff must be

filed with the FERC. Dow asserts that Consumers has tacitly admitted, in the December 13, 1996

letter that accompanied the proposed Rate DA tariff, that it need not delay the filing of a tariff with

the FERC, but has taken the position that it should delay its filing because it wishes to avoid

having to make two tariff filings with the FERC--one before the classification is completed and the

other after. Dow complains that Consumers’ desire to avoid two filings with the FERC is patently

inadequate to justify further delay in implementing Rate DA.

In a January 10, 1997 letter to the Commission’s Executive Secretary, Consumers proposed an

implementation process that is likely to result in the first customers taking service under Rate DA

sometime next year, which is an unacceptable implementation of the settlement. Therefore, the

Commission will require the following modifications to Consumers’ proposed implementation

schedule:

1. Within 4 days of the date of this order, Consumers shall file with the Commission and

serve on the parties and all Rate DA applicants, a list of customers that have requested Rate DA

U-10685 et al.

service, arranged by the date on which the customers made their requests. Consumers shall

immediately seek to resolve any remaining questions and challenges to an applicant’s eligibility to

take service under Rate DA.

2. Within 7 days of the date of this order, Consumers shall serve on the Staff, all parties to

these cases, and every Rate DA applicant (regardless of whether Consumers agrees that they are

eligible to take service under Rate DA), a notice of the time and place at which the lottery will

occur.

3. Within 14 days of the date of this order, Consumers shall file tariff sheets essentially the

same as those attached to this order as Exhibit A. The parties shall have 14 days to review and file

comments on those tariff sheets. If no party files comments, Consumers shall file with the FERC,

within 28 days of the date of this order, all filings needed to implement Rate DA, and Consumers

shall use its best efforts to obtain prompt approval, if needed. If any party files comments,

Consumers shall file with the FERC, within 14 days of the date of the Commission order address-

ing those comments, all filings needed to implement Rate DA, and Consumers shall use its best

efforts to obtain prompt approval, if needed.

4. Within 21 days of the date of this order, Consumers, acting through an independent third

party, shall conduct the lottery to establish a priority for each customer account covered by a

Rate DA application, regardless of whether Consumers believes that an applicant is eligible to take

service under Rate DA. Any disputes not resolved to the satisfaction of the applicant prior to the

lottery shall be resolved after the lottery is conducted and the applicant has received a priority.

5. Immediately upon completion of the lottery, Consumers shall commence a diligent, good

faith effort to negotiate and resolve for applicants with the highest priority all remaining issues

needed to implement the Rate DA program. Consumers shall continue to negotiate with applicants

U-10685 et al.

with successively lower priorities until the full capacity allocated to Rate DA has been placed in

service, including any part of the 140 MW that may become available after completion of the

hearing required by this order.

6. An applicant that does not obtain a certificate of public convenience and necessity and

Commission approval of its third-party supplier contract within 6 months of signing a Rate DA

contract or does not commence Rate DA service within 30 days of satisfying all requirements

necessary to commence service shall forfeit its priority, unless the Commission determines

otherwise for good cause.

7. Upon issuance of the Commission’s order in Case No. U-11283, Consumers shall file a

revised Rate DA tariff for Commission approval and shall make the appropriate filings with the

FERC.

The Commission FINDS that:

a. Jurisdiction is pursuant to 1909 PA 106, as amended, MCL 460.551 et seq.; MSA 22.151

et seq.; 1919 PA 419, as amended, MCL 460.51 et seq.; MSA 22.1 et seq.; 1939 PA 3, as

amended, MCL 460.1 et seq.; MSA 22.13(1) et seq.; 1969 PA 306, as amended, MCL 24.201

et seq.; MSA 3.560(101) et seq.; and the Commission's Rules of Practice and Procedure, as

amended, 1992 AACS, R 460.17101 et seq.

b. Tenneco’s late petition for leave to intervene should be granted.

c. The petitions for rehearing should be granted in part and denied in part, as discussed in this

order.

d. Consumers’ Rate DA tariff should be amended as shown on Exhibit A attached to this

order.

U-10685 et al.

e. Consumers should implement Rate DA according to the schedule set forth in this order.

f. Consumers’ depreciation rates should be adjusted as shown on Exhibit B attached to this

order.

g. With respect to a hearing on the conformity of the individual contract service contracts with

the rates, terms, and conditions of Rate DA, a prehearing conference shall be held on April 22,

1997 at 9:00 a.m. at the Commission’s offices at 6545 Mercantile Way, Lansing, Michigan.

THEREFORE, IT IS ORDERED that:

A. The petition for leave to intervene filed by Tenneco Packaging, Inc., is granted.

B. The petitions for rehearing are granted in part and denied in part, as discussed in this order.

C. Within 14 days, Consumers Energy Company shall file tariff sheets essentially the same as

those attached to this order as Exhibit A. The parties shall have 14 days to review and file

comments on those tariff sheets.

D. Consumers Energy Company shall implement Rate DA according to the schedule set forth

in this order.

E. A prehearing conference shall be held on April 22, 1997 at 9:00 a.m. at the Commission’s

offices at 6545 Mercantile Way, Lansing, Michigan.

The Commission reserves jurisdiction and may issue further orders as necessary.

U-10685 et al.

Any party desiring to appeal this order must do so in the appropriate court within 30 days after issuance

and notice of this order, pursuant to MCL 462.26; MSA 22.45.

MICHIGAN PUBLIC SERVICE COMMISSION

John G. Strand Chairman

( S E A L )

John C. Shea Commissioner, concurring in part and

dissenting in part in a separate opinion.

David A. Svanda Commissioner, concurring in a separateopinion.

By its action of April 10, 1997.

Dorothy Wideman Executive Secretary

U-10685 et al.

Any party desiring to appeal this order must do so in the appropriate court within 30 days after issuance

and notice of this order, pursuant to MCL 462.26; MSA 22.45.

MICHIGAN PUBLIC SERVICE COMMISSION

Chairman

Commissioner, concurring in part anddissenting in part in a separate opinion.

Commissioner, concurring in a separateopinion.

By its action of April 10, 1997.

Its Executive Secretary


) In the matter of the application of )CONSUMERS POWER COMPANY for )accounting and ratemaking approval of changes ) Case No. U-10754in plant accounting and depreciation practices )for electric and common utility plant. ) )

) In the matter of the application of )CONSUMERS POWER COMPANY for approval )of a special competitive services rate, for certain ) Case No. U-10787accounting and ratemaking approvals in connec- ) tion with that service, and for other relief. ) )

Suggested Minute:

“Adopt and issue order dated April 10, 1997 granting in part and denying in partthe petitions for rehearing with respect to the implementation of Rate DA byConsumers Energy Company and setting a further hearing on the compliance ofthe individual contract service contracts with the rates, terms, and conditions ofRate DA, as set forth in the order.”



* * * * *


) In the matter of the application of )CONSUMERS POWER COMPANY for )accounting and ratemaking approval of changes ) Case No. U-10754in plant accounting and depreciation practices)for electric and common utility plant.) )

) In the matter of the application of )CONSUMERS POWER COMPANY for approval )of a special competitive services rate, for certain) Case No. U-10787accounting and ratemaking approvals in connec-) tion with that service, and for other relief.) )

DISSENTING AND CONCURRING OPINION OF COMMISSIONER JOHN C. SHEA

(Submitted on April 10, 1997 concerning order issued on same date.)

The depreciation rates for Consumers Energy Company (“Consumers”) as set forth on Exhibit

A-4, Appendix 6 of the proposed settlement which were adopted in the November 14, 1996 order

in this docket do not reflect the Commission’s conclusion to reject the one-time $93.6 million

depreciation reserve transfer from transmission plant to nuclear plant. Thus, the November 14,

1996 order is in error, and the Commission is obligated to grant Consumers’ petition for rehearing

to correct its, the Commission’s, mistake. No other petition, in my view, meets the standard of

Rule 403 of the Commission’s Rules of Practice and Procedure, 1992 AACS, R 460.17403, and,

therefore, all such petitions should be denied.

U-10685 et al.

The majority is on far shakier ground as it concocts an excuse not to affirm the November 14,

1996 order, which each of the other Commissioners signed, concerning the Rate DA program. I

believe that the intent of the order is obvious and not in need of any interpretation: The size and

conditions of the Rate DA program and the treatment of Consumers’ contracting with its custom-

ers are clearly set forth in the order. See, e.g., November 14, 1996 Order at 81, n 43.

The majority’s action today should cause the regulatory community to view with skepticism

any settlement agreement that this Commission purports to authorize. Indeed, it will be interesting

to examine what further concessions the majority may attempt to exact under the guise of

examining the filings required by today’s order. The failure to approve the special contracts

submitted by Consumers containing lower rates to those contracting customers holds those

customers hostage to the whim of the majority. If the goal of the majority is to rationalize

regulation, today’s order is a giant step backward; if the majority has another goal, they owe it to

the ratepayers and utilities of Michigan to state it expressly.

I would grant rehearing on Consumers’ request concerning depreciation for the limited

purpose of revising the November 14, 1996 order to reflect the rejection of the depreciation reserve

transfers, and I would deny all other pending petitions.

John C. Shea



* * * * *


) In the matter of the application of )CONSUMERS POWER COMPANY for )accounting and ratemaking approval of changes ) Case No. U-10754in plant accounting and depreciation practices)for electric and common utility plant.) )

) In the matter of the application of )CONSUMERS POWER COMPANY for approval )of a special competitive services rate, for certain) Case No. U-10787accounting and ratemaking approvals in connec-) tion with that service, and for other relief.) )

CONCURRING OPINION OFCOMMISSIONER DAVID A. SVANDA

(Submitted on April 10, 1997 concerning order issued on same date.)

Today I join with Chairman Strand in approving the order granting in part and denying in part

the petitions for rehearing with respect to the implementation of Rate DA by Consumers Energy

(formerly Consumers Power Company) in Cases Nos. U-10685, U-10754, and U-10787. I concur

because, in large part, today’s order reaffirms the intent of our November 14, 1996 order establish-

ing a workable, customer-oriented, competitive direct access program. The November 14, 1996

order was an unmistakable commitment on the part of this Commission to competition in the

electric service territory of Consumers Energy through a direct access program. Those that believe

otherwise should take note.

U-10685 et al.

The Commission’s commitment to competition was clearly expressed on p. 12 of the

November order when it stated “the public interest requires [the Commission] to take measures

that will maximize the benefits of competition.” On the following page of the order, the Commis-

sion reiterated its intent when it opined that the “rates, terms, and conditions of the direct access

program are adjusted, as set forth in detail in this order, to promote greater competition for retail

customers.” p. 13. On p. 37, the Commission explained that it “sought to identify and promote

policies that will minimize the disruptions of making a transition to an increasingly competitive,

market-driven environment and maximize the benefits of that environment for ratepayers and the

Michigan economy.” Further, the Commission suggested that, “a customer-oriented approach will

become all the more important.”

With these sentiments woven throughout the original order, and given the very direct language

of that order with respect to the scope of the Rate DA program, I am troubled by the controversy

which has surrounded the issue of the size of the Rate DA block. In the November order, the

Commission indicated that, “among the stated goals of the proposed settlement are creating true

competition between the utility and other suppliers of electric generation and providing customers

with an opportunity to test the feasibility of Rate DA as a means of satisfying their electric needs.”

Order, p. 79. The Commission concluded that the Rate DA program must be modified “to ensure

that qualifying retail customers have a reasonable opportunity to enjoy the benefits of competition

and to test the viability of Consumers’ direct access service.” Order, p. 80. The clearest indication

of the Commission’s intentions regarding the size of the Rate DA block is expressed on that same

page where it is stated that making this change “will expose 240 MW of Consumers’ load to

competition.”

U-10685 et al.

Construing all of the above to mean that 140 MW of the 240 MW allocated to the Rate DA

program could be locked up by individual contract service contracts before any competition

occurs, without providing any true customer choice, and without consideration of the condition of

the “playing field,” requires a very convoluted interpretation of the November order.

Such an interpretation would be analogous to a basketball championship game, where only the

home team is allowed to suit up and take the floor, and then being declared winner by default. It

does not equate to competition as we know it in any other aspect of our lives and should not be

acceptable here.

It is significant that the interest of customers in arranging Rate DA service (1,100 MW)

overwhelms the interest expressed by customers in individual contract service (158 MW). Since

the Commission’s original order took “several significant steps toward creating a more level

playing field between Rate DA and Consumers’ individual contract service” p. 117, the facts

support a decision favoring customer, not utility, choice. Consumers had the opportunity to

negotiate individual contracts that conformed to the requirements imposed on Rate DA customers,

as specified in the order. Instead Consumers may have attempted to “tilt” the playing field away

from Rate DA service toward individual contract service. One could mount a compelling

argument for moving forward with 240 MW of Rate DA today and allowing Consumers to

negotiate contracts under some other program. However, the hearing which is ordered in response

to this issue will serve a purpose. I have an open mind with regard to the technical questions

raised, but I remain troubled that we are placed in the position where the discussion continues, but

direct access for customers remains stalled.

For the reasons stated above, I concur.

U-10685 et al.

David A. Svanda

consumers power company - michigan · u-10685 et al. that the contracts that consumers filed on...

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