foster, ricc anre skift, h- collins sz david sawv p.c. e
TRANSCRIPT
FOSTER, SKIFT, COLLINS Sz ShflTH, P.C.
! I l P R D t l S I1 IBF
U'alrer 5 k n I57F-1961
&hard B. F m l 19?6 155%
Theujnrc U: Suiir 192-2kV
John L cc!l;m ;926-?COi
Scntr A. S r u w Charkr A l a r u ~ n Charles E. h r b c r i jm a ! e m . JI. Seer L !dandcl Mrhael G. S;lnckn S h A. Strm Rwnc A. TIC^ Pnan A. Sawr Rr$rr;r E- M c h r l m d Strrkn]. L n w r y Farrna A. Gbrr Michael J. Ikmmarito Jean G. Schrobl Glen A. S c h r n e p h a n G. C d r m $ h Maw G. H ~ c k Mzrk H. Canady
Eric E. h r r r St~$lhCIl!. &df% Mclrsa J.)xC.m S t w e n H- Larhrr Sawv L Kahn Dranm hher Mark !. R u w h Alan G Giichrkt %mas R !.fn$hcr [rouglas .4 Miclock S o r t R F o r h h Perer R Alkmnr Chnstophcr A. h l W Scott A Chcmkh DonaM L Mamn Jrnnifrr M. Van Hcm Pau! J. M*(rlknhwh Dixk H. Eechlth
Btucc A. Vandr VUMC Anre M. I c q - r x k Rxhard L Hillman Alan T. b k k i Andrea J. Hml S w a n L OUrn h h n M. % k r h k c a S. D a m Bahn 1. Qw Clam V. Grcrn lcnnifcr K i h h n c
&njamm J. Ricc bnald D. Richards, Jr. Joxph E K m l y Parncb C Dausman Tcmnce G. @inn J4iAi56 E bila Ethan E. Ro- k n a M. %nnen Tina M. S c ! h Radhika P. Drake
ofcamvr L a m n c e B. Lindcmr John W. brcr David VamicrHaapcn Mrhacl G. Ha- A h 0. Maki Frederick B. BrIlamy C4kn M. Frimc~ Dcho~hJ. U'iflrlmuxl
September 28,2004 via Hand Delivery
Clerk of the Court Michigan Supreme Court Hall of Justice 925 W. Ottawa P.O. Box 30048 Lansing, MI 48909
Dear Clerk:
RE: Detroit Edison Company v Michigan Public Service Commission Supreme Court Case No. (Court of Appeals No. 24453 1 -- MPSC Case No. U- 12 134)
Enclosed for filing please find an original and seven copies of The Detroit Edison Company's Application for Leave to Appeal and Appendices. Also enclosed is a Notice of Hearing, Certificate of Service, and a check in the amount of $375.00 for the applicable filing fee. Please date stamp the extra copies of the documents, and return them via our courier.
Thank you for your assistance. If you have any questions, please call.
Very truly yours,
FOSTER, SWIFT, COLLINS 6r SMITH, P.C.
+ylAvL /
Stephen J. Rhodej
Enclosures cc wr'enc: Counsel of Record
MPSC Executive Secretary Court of Appeals Clerk Bruce R. Maters Jon P. Christinidis
STATE OF MICHIGAN ITS THE SUPREME COURT
APPLICATION FOR LEAVE TO APPEAL FROM THE S;? 29 l;z; MICHIGAN COURT OF APPEALS
' ' .' ,s . , ?. . . a. , -" C - - i(T a BEFORE: Murray, P.J., and Markey and O'Comell, JJ SL:, , ,:; c;: . . l a - - . n , ,
! I . , ; L ~ , . + ~
THE DETROIT EDISON COMPAhTY,
Appellant, Supreme Court Case No.
Court of Appeals No. 24453 1
MICHIGAN PUBLIC SERVICE COMMISSION,
Appellee
In the matter of the approval of a ) code of conduct for CONSUMERS ) ENERGY COMPAhT and THE ) MPSC Case No. U-12134 DETROIT EDISON COMPANY )
SOTICE OF HEARIIVG
PLEASE TAKE NOTICE that The Detroit Edison Company's Application for Leave
to Appeal will be heard in the Michigan Supreme Court before the Supreme Court Justices
on Tuesday, October 19,2004.
FOSTER, SWIFT, COLLINS & SMITH, P.C. Co-counsel for The Detroit Edison Company
Dated: September 28,2004
S:!l22'.SJR:EDISOKil2 134~.Supreme:,UoticeHearing092804.doc
William K. Fahey (P27745) Stephen J. Rhodes (P40112)
313 S. Washington Square Lansing, MI 48933 (517) 371-8100
ST.4TE OF i\lICHIG.kV 1N THE SUPREJIE COURT
XPPLICATIOK FOR LE-\YE TO APPEAL FROM THE fl - r C _ _. - - - 1
3IICHIG-4N COURT OF APPEALS
BEFORE: Murray, P.J.: and Markey and O'Connell, JJ. r : , . . . - - , . i ! d L " * I . 4 . ,..-,.,, t
THE DETROIT EDISOS COMPANY,
Appellant, Supreme Court Case No.
Court of Appeals No. 24353 1
JIICHIGAN PUBLIC SERVICE CO~lhlISSION,
Appellee 1
In the matter of the approval of a 1 code of conduct for COKSUMERS 1 ENERGY COMPANY and THE 1 NPSC Case No. U- 12 134 DETROIT EDISOS COMPANY 1
THE DETROIT EDISON CORIPAKY'S APPLICATIOB FOR LEAVE TO APPEAL
Bruce R. Vaters (P28080) Jon P. Christinidis (P47352) The Detroit Edison Company 2000 Second Avenue, 688 WCB Detroit, MI 38226-1 203 (3 13) 235-7706
U X a m K. Fahey (P27745) Stephen J. Rhodes (P40112) Foster, Slvift, Collins & Smith, P C . Co-counsel for The Detroit Edison Company 3 13 S. Washington Square Lansing, MI 38933 (517) 351-8100
Dated: September 28, 2004
TABLE OF CONTESTS
. . ........................................................................................................... IKDES OF AUTHORITIES 11
STATEMENT IDESTIFYISG JUDGMENT APPEALED FROM AND RELIEF . .
SOUGHT ...................................................................................................................................... VII
STATEMEST OF QUESTIONS IMTOLVED .............................................................................. x
.......................................................................................................................... IYTRODUCTIOS 1
............................................................................................................. STATEh4EKT OF FACTS 4
STAXDARD OF REVIEW ............................................................................................................ 6
ARGUMENT .................................................................................................................................. 7
I.
11.
111.
IV.
V.
VI.
VII
.................................................. THE COURT SHOLZD GRANT LEAVE TO APPEAL 7
THE COhIMISSIOS EXCEEDED ITS AUTHORITY BY ENACTING A CODE OF C O N D K T THAT APPLIES TO -4CTIVITIES BEYOKD THE SCOPE OF ACT 141 ASD THE CUSTOMER CHOICE PROGRAM IT .41;'THORIZES ................. 9
.................................... THE CODE OF COSDUCT IS PROCEDUR4LLY 20
THE COl4hlISSION EXCEEDED ITS REGULATORY AUTHORITY BY ATTEllPTISG TO USURP THE 3IANAGElIENT OF A REGULATED UTILITY AKD ITS AFFILIATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
FEDERAL LAW PREEMPTS SOhlE OF THE CODE OF CONDUCT'S .................................................................................................................. PROVISIONS. 39
IF THE CO3lPIISSIOS IITERE DEEbIED TO BE CORRECT IN ITS COXSTRUCTION OF MCL 460.1 Oa(3) (IYHICH IT IS YOT), THE STATUTE IVOULD COSSTITUTE AN IhlPROPER DELEGATION OF LEGISLATIVE
.................................................................................. POiVER TO A STATE AGENCY. 43
THE CODE OF CONDUCT IS VOID FOR VAGUENESS BECAUSE ITS PROVISIOKS ARE TOO VAGUE, BROAD OR mCLEAR TO REASOSABLY PERVIT COMPLIAYCE, AND SUBSTANTIAL XIOYETARY PEKALTIES ARE THREATENED PLRSUAST TO MCL
..................................................................................................................... 460.1 Oc(l)(a) 45
RELIEF ...................................................................................................................................... 48
ISDEX OF AUTHORITIES
Cases
.......................... AFSChlE v Mental Health Dept. 452 Mich 1. 15 n 1 1 ; 550 N W d 190 (1 996) 22
AFSCME v Wavne Coy 152 Mich . 4pp 87. 98; 393 Ii\V2d 889 (1986) ....................................... 35
........................... Allison v Citv of Southfield. 172 Mich App 592. 596; 432 SW2d 369 (1988) 46
Arlan's Deot Store v AtW Gen. 373 Mich 70. 77; 130 N W d 892 (1 964) ................................... 44
Attomev General v Public Service Comrn. 183 Mich App 692. 701. 455 NW2d 724 (1 990) ................................................................................................................................ 10
................... Battiste v Dep't of Social Services. 153 Mich App 486. 492; 398 NW2d 447 (1986) 7
.......................................................... Bendix Corn v my 450 F2d 534. 537. 542 (CA 6. 1971) 34
........................................................ Blazo v Neveau. 382 hlich 415. 417; 170 SW2d 62 (1969) 35
Cardinal Moonev High School v Michigan High School Athletic Ass'n. 437 Mich 75. 80; 367 KW2d 21 (1991) .......................................................................................................... 6
Catalina Marketing Sales Corn v Dept of Trsasun~. 470 hqich 13. 23; 678 KW2d 61 9 (2004) .............................................................................................................................. 24
Coalition for Human Rights v By 33 1 Mich 172. 188; 428 NW2d 355 (1988) .................. 23. 25
............................ Coates v Cincinnati. 402 US 61 1. 614; 91 S Ct 1686; 29 L Ed 2d 214 (1971) 47
...................... Coffman v State Board of Examiners. 33 1 Mich 582. 589; 50 KW2d 322 (1 95 1) 10
Connellv v General Constniction Co. 269 US 385. 391. 36 S Ct 126; 70 L Ed 322 (1926) ........ 47
Consumers Power Co v Public Senice Comm. 189 Mich App 15 1. 179; 472 NW2d 77 (1991) ................................................................................................................................ 40
Consumers Poivsr Co v Public Service Comm. 460 Mich 148. 155-1 59; 596 KW2d 126 (1 999) ...................................................................................................................... 1. 13. 27
................. Danse Corp v Ciw of ).ladison Heights. 366 Mich 175. 181; 644 WW2d 721 (2002) 23
..................... Davjs v River Rouge Bd of Education. 306 Mich 386. 490; 280 NW2d 453 (1979) 6
Delmana Poiver & Light Co \I Public Service Cornrn. 370 h4d 1 J 803 A2d 460.462.47 0. ........................................................................................................................... 82 (2001) 26
................. Dept of Kat'l Resources v Seaman. 396 Mich 299.30 8.309. 240 KW2d 206 (1976) 43
........ Detroit Edison Co v Public Senrice Conlm. 261 Mch App 13 680 K\iT2d 5 12 (2004) vii. 2. 5
Detroit Edison v Public Service Comm. 221 Mich App 370; 562 NW2d 24 (1997). !y ................................................................................................. den. 458 Mich 861 (1998) 37 -
Dominion Resources v FERG. 256 F3d 586 (CA DC. 2002) ..................................................... 26
.......................... Donaikon-ski v Alpena Power Co. 460 3lich 423. 261; 596 NW2d 574 (1999) 11
.......................... DSS v Emmanuel Baptist Preschool. 434 M c h 350. 321; 355 NW2d 1 (1990) 47
.................. Ethvl Corp v Environmental Protection Agencv. 306 F3d 1 144. 1150 (DDC. 2002) 22
Fidelitv Federal Savin~s and Loan Ass'n v de la Cuesta. 458 US 141. 153; 102 S Ct 3014; 73 L Ed 2d 664 (1 982) ........................................................................................ 40
........... G F Redmond & Co v Michigan Securities Comm. 222 Mich 1. 5. 192 NW 688 (1923) 10
................................................ . Goins v Jeep Eade Inc. 449 hlich 1: 10; 533 NW2d 367 (1995) 23
Golernbio~vski v Madison Heights Civil Service Comm. 93 hliich App 137. 153-56; 286 ............................................................................................................... SW2d 69 (1979) 35
Gravned v Citv of Rockford. 408 US 104. 108-109; 92 S Ct 2293; 33 L Ed 2d 222 (1972) ....... 45
In re Complaint of Consumers Enern? Co. 255 Mich 496. 503-504; 660 NW2d 785 (2002) .................................................................................................................................. 6
................................ In re Complaint of MCTA. 231 Rliich App 344. 360; 6 15 NW2d 255 (2000) 6
In re Complaint of Pelland. 253 hlich App 675. 688-89; 658 XW2d 849 (2003). Iv den 469 -Mich 914 (2003) .................................................................................................. 19
............. In re MCI Telscommunications Complaint. 460 Mich 396. 4 1 3 596 KW2d 164 (1999) 6
In re Public Senice Commission Guidelines for Transactions Between Afiliates. 252 hlich App 254; 652 NW2d 1 (2002) ................................................................. vii. 3. 23. 27
.................... International Union . UAW v Facet Enterprises. 601 F Supp 292 (ED Mich. 1984) 30
................ Joy Management Co v Detroit, 176 Rlich App 722, 730-731; 340 NW2d 654 (1989) 10
............................................................. Kar v Hooan 399 M c h 529, 539; 25 1 NW2d 77 (1976) 29 - -9
............................. Lendberg v Brotherton lron Mining Co. 75 Mich 84. 89; 32 NW 675 (1 889) 29
...................................... Lorencz Ford Motor Co. 339 Mich 370. 376; 483 NW2d 844 (1992) 10
Ludineton Service Corp v PIcting Comm'r of Ins. 333 Mich 381. 505; 5 11 KW2d 661 .......................................................................... (1 994): amended 331 Mich 1240 (1994) 13
........................... Manufacturers Kat'l Bank v DWR. 320 hlich 128. 115; 362 NW2d 572 (1984) 6
Mason Co Ci~ril Research Council v Mason Co. 343 Mich 313.32 6.27. 72 NW2d 292 ................................................................................................................................ (1955) 10
Michioan Electric Cooperative Ass'n v Public Senice Comm. unpublished opinion per curiam of the Court of Appeals. decided August 17. 2004 (Docket Nos . 244425.
................................... 233429 and 24453 1; Slip Opinion attached as Appendix 8) viii. 3. 6
Mdland Cogeneration I'enture [Ltd Partnership v Public Service Comm. 199 M c h App 286. 291; 501 NW2d 573 (l993)l ..................................................................................... 24
Mississippi Ponw & Light Co v h.lissiwippi ex re1 hloore. 387 US 354. 377. 101 L Ed 2d 322; 108 S Ct 2428 (1988) ................................................................................................ 40
. ....................................... Sew York v FERC. 535 US 1; 122 S Ct 1012; 152 L Ed 2d 47 (2002) 40
.............................................................................. XLRB v Johnson. 322 F2d 216 (CA 6. 1963) 34
. ......................................... Osius v City of St Clair Shores. 334 Mich 693; 45 KW2d 25 (1 956) 44
................................................... 1 1 People v McIntire. 361 Mich 147. 160; 599 XW2d 102 (1999)
.............................................. 25 People v Young. 212 Mich -4pp 630. 639; 538 N W d 456 (1995)
Pharris v Secretarv of State. 117 Mich App 202. 203-205; 323 KW2d 652 (1982) ..................... 23
Precque Isle TIW Dist v Countv Bd. 364 Mich 605.61 1.12. 1 1 1 NW2d 853 (1961) ................. 15
Ram Broadcasting of Vichicm v Public Service Comm. 1 13 Mich App 79. 9 2 3 17 YW2d 295 (1 982) ............................................................................................................. 10
........................ Ranke v Corp and Securities Comm. 3 17 Mch 304. 309; 27 NW2d 898 (1947) 43
Shelman v Heckler. 821 F2d 3 16. 32 1-22 (CA 6. 1987) ............................................................. 30
............... Sparta Foundrv Co v Public Utilities Comm. 275 Mich 562. 564; 267 NW 736 (1936) 9
Sponick 1; Detroit Police Dep't. 49 Mich App 162. 174-76; 21 1 NW2d 674 (1973) ................... 46
Star Steel v LSF&G. 186 Mich Xpp 475. 181. 465 NW2d 17 (1990) ......................................... 29
State Farm Fire and Casualty Co v Old Republic Ins. 366 M c h 142. 146; 644 KW2d 715 (2002) ................................................................................................................................ 11
Sterling Secret Serv . lnc v Dept of State Police. 20 Mich App 502. 5 17; 174 KW2d 298 (1 969) ................................................................................................................................ 43
Tallv v City of Detroit (On Rehearing) . 58 Mich App 261.264. 227 KW2d 214 (1974) ............ 34 - Transmission Access Policv Group v FERC. 225 F3d 667. 696 (DC Cir. 2000). aff d sub
.................. nom. New York v FERC. 535 US 1; 122 S Ct 101 2; 152 L Ed 2d 47 (2002) 39
................. Traverse Oil Co v NRC Chairman. 153 M c h App 679. 688; 396 NW2d 398 (1986) 36
................... Union Carbide Public Service Comm. 33 1 Mich 135. 146; 428 SW2d 322 (1 988) 9
Westervelt v h-at'] Res Comm. 302 hlich 312; 263 NV2d 564 (1978) ....................................... 44
Yellow Freight Svstem . Inc v Public Service Comm. 73 34ich App 476. 488. 252 NW2d ......................................................................................................................... 195 (1977) 29
Statutes
............................................................................................................................. MCL 24.203(3) 27
MCL 24.207 .................................................................................................................................. 23
MCL 24.207(F) ............................................................................................................................. 27
MCL 24.243 .................................................................................................................................. 23
MCL 24.27 1 .................................................................................................................................. 34
. ......................................................................................................................... MCL 24.2 I 1 (2)(c) 34
MCL 360 . I O(2) .......................................................................................................................... I2
MCL 360.55 .................................................................................................................................. 27
Other Authorities
........................................................................................................................ MAC R 460.17327 33
........................................................................................................................... MCR 7.209(A)(2) 5
............................................................................................................... MCR 7.2 15(C)(2), (J)(1) 24
............................................................................................................................ AgCR 7.302(B)(2) 7
........................................................................................................................... MCR 7.302(B)(3) 7
............................................................................................................................ MCR 7.302(B)(5) 9
Const 1963, art 6. $ 28 ......................................................................................................... 6. 7. 30
Mich Const 1963. art 1. 8 17 ......................................................................................................... 32
US Const. art 1. 3 8 ..................................................................................................................... 40
ST.LZTE;\IEbT JDENTJFYISG JUDGhlEiYT APPEALED FRO31 AND RELIEF SOUGHT
2000 P.4 14 1 ("Act 14 1 ") granted the Michigan Public Service Commission ("MPSC" or
"Commission") authority to establish a program concerning the provision of retail open access
("ROA") electric generation service in Michigan. The program is commonly known as
"Customer Choice," and allows customers of Michigan electric utilities to purchase electricity
from third parties (kno\vn as "alternative electric suppliers") and receive that electricity over the
utilities' \\ires. Act 131 authorized the Commission to establish a code of conduct for all electric
utilities and alternative electric suppliers regulated by the Commission.
On December 4, 2000, the Commission issued an Order (attached as Appendix 1 )
establishing a code of conduct. On October 29, 2001, the Commission issued an Order on
Rehearing (attached as Appendix 3), \vhich granted petitions for rehearing to the limited extent
discussed in that Order, and adopted a modified Code of Conduct (attached as Appendix 4). The
Detroit Edison Company ("Edison"), Michigan Electric Cooperative Association, et a1
("lIECA"), and Consumers Energy Company ("Consumers") appealed to the Court of Appeals
in Docket Nos. 237872, 237873 and 237874, respectively. The Court of Appeals consolidated
the appeals, and affirmed the Commission's decisions. Detroit Edison Companv v Public
Sen-ice Comm, 261 Mich App 1 ; 650 NW2d 512 (2004). On April 13, 2004, Edison applied for
leave to appeal to this Court (KO. 125950) explaining among other things, that the Court of
.4ppealsy decision concerning the Commission's Code of Conduct had also inexplicably ignored
decades of Michigan utility law. That application is pending.
On December 28, 2001, Edison filed its Compliance Plan and Request for Waivers with
the Commission. On July 19, 2002, the Court of Appeals issued In re Public Service
Commission Guidelines for Transactions Bemreen Affiliates, 252 Mich App 254; 652 XW2d 1
vii
(2002), ("In re PSC Guidelines") vacating the Commission's "affiliate transaction guidelines"
because the Commission failed to comply with the rulemaking requirements of the
.Administrative Procedures Act ("APA"). On October 3, 2002, the Commission issued seven (7)
orders (collectively attached as .Appendix 5A-G) addressing compliance plans and requests for
waivers. The Commission's October 3, 2002 Order Regarding Edison's Compliance Plan and
Request for Waivers (the "Detroit Edison Order") is attached as Appendix SB. Instead of
complying with the Court's opinion, the Conlmission re-imposed the same "affiliate transaction
pidelines" as conditions for granting wai\ws. Compare the \racated guidelines (quoted as 252
Mich .4pp 259-60) with the "conditions" that the Commission imposed on Edison and its
afiliates (October 3,2002 Detroit Edison Order, attached as .Appendix 5B, pp 6-7).
b4ECA, Consumers and Edison appealed the October 3, 2002 orders to the Court of
Appeals in Docket 90s. 244425, 244429 and 244531, respectively. The Court of -4ppeals
affirmed based on the Court's Code of Conduct decision, despite the Court's previous In re PSC
Guidelines decision. hlichiean Electric Cooperative Ass'n v Public Service Comm, unpublished
opinion per curiam of the Court of Appeals, decided August 17, 2004 (Docket Kos. 244425,
243429 and 243531; Slip Opinion attached as Appendix 8).
Edison applies for leave to appeal from the Court of Appeals' decision and the
Commission's October 3, 2002 Detroit Edison order.' Edison does not dispute the
Commission's authority to establish a code of conduct in accordance with Act 141. Code of
Although the October 3, 2002 Detroit Edison Order forms a proper basis for this appeal, that Order concerning Edison's Compliance Plan and Request for Waivers can be evaluated properly only \vhen vie~ved in context. Therefore, Edison's arguments address the Code of Conduct and the Commission's orders, in addition to the October 3, 2002 Detroit Edison Order. Similarly, to the extent that the Commission asserts that Edison is bound by the Commission's additional October 3, 2002 orders, Edison has properly appealed those orders, and asserts the following arguments regarding them.
Conduct is unlawfUl and unreasonable, h o ~ ~ e v e r . Edison requests that this Court grant leave to
appeal and reverse the Court of Appeals' judgment, and thereby either vacate the MPSC's
Dccember 4, 2000 Order (Appendix I), its October 29, 2001 Order on Rehearing (Appendix 3),
and those parts of its October 3, 2002 Order Regarding Edison's Compliance Plan (Appendix
5B) inconsistent \vith the law and public policy explained in this application; or, in the
alternative: limit the Code of Conduct (Appendix 4) to apply only to activities and relationship
between an electric utility or alternative electric supplier and an affiliate concerning Customer
Choice in Michigan.
STATEJIEST O F QUESTIONS I W O L Y E D
1. DID THE MPSC EXCEED ITS STATUTORY AUTHORITY ASD hllISmTERPRET MCL 460.10a(4) BY EKACTISG A CODE OF COYDUCT THAT APPLIES TO NON-RETAIL OPES ACCESS SUPPLY ACTIVITIES?
Appellant Edison ansn-ers: Appellee MPSC answered: The Court of Appeals ans~vered:
Yes No s o
2. I W E R E THE CODE OF COIiDLCT PURPORTS TO BE A RULE OF GENERAL APPLICABILITY FOR THE EKTIRE ELECTRIC II\-DUSTRY IX MICHIGAN, DID THE MPSC UNLAWFULLY COMPLY WITH THE RULE14AWG PRO\'ISIOYS OF THE ADMfiISTRATIVE PROCEDURES ACT?
Appellant Edison answers: Appellee MPSC ansuVered: The Court of Appeals answered:
Yes KO No
3. EVEK ASSU31IKG THAT THE CONTESTED CASE EXCEPT103 TO RULEMAKING APPLIES, SHOULD THE MPSC'S CODE OF COXDUCT BE VACATED FOR LACK OF SUPPORT BY CO3IPETENT, -MATERIAL AND SUBSTAWTIAL EVIDENCE?
Appellant Edison ansl~ers: Yes Appellee MPSC did not answer this question. The Court of Appeals anskvered. No
4. DID THE 3IPSC EXCEED ITS AUTHORITY BY .4TTEh.IPTNG TO USURP THE MAXAGEMEI'iT OF A REGULATED UTILITY ;4ND ITS AFFILIATES?
Appellant Edison answers: Appellee MPSC ansu-ered: The Court of Appeals answered:
Yes No Yo
5 . DOES FEDERqL LAIV PREEhlPT SOME OF THE CODE OF CONDUCT'S PROVISIOSS?
Appellant Edison answers: Appellee MPSC answered: The Court of Appeals ansn-ered:
Yes No AT0
6. IF THE MPSC WERE DEEMED TO BE CORRECT IN ITS COKSTRUCTIOS OF MCL 360.1 Oa(4), \\'OULD THE STATUTE CONSTITUTE AN IMPROPER DELEG.4TION OF LEGISLATI\'E POlYER TO A STATE AGEKCY?
Appellant Edison answers: Yes -4ppellee MPSC did not annver this question. The Court of -4ppeals did not ansLver this question.
7. IS THE CODE OF COYDUCT VOID FOR V.4GUENESS BECAUSE ITS PROVISIONS ARE TOO VAGUE, BROAD OR UNCLEAR TO REASONABLY PERMIT COMPLIAXE, AXD PENALTIES OF UP TO S50,000 ARE THREATENED FOR "EACH LX4UTHORIZED ACTION" PURSU.4NT TO MCL 460.1 0c3(a)?
Appellant Edison answers: Yes Appellee MPSC did not answer this question. The Court of Appeals answered: No
ISTRODUCTION
This application seeks review of a Court of Appeals decision that directly conflicts with
this Court's repeated rulings on the limits of the Michigan Public Service Commission's
("h4PSC" or "Commission") statutory authority. The Court of Appeals' decision also violates
this Court's controlling precedent regarding statutory construction, administrative rulemaking,
and the need for e\.idence - not just speculation - to support an agency decision. This
application also discusses constitutional rights and federal preemption, but the Court might not
need to reach these issues.
The Detroit Edison Company ("Edison") is an electric utility that provides electricity
primarily to retail customers in southeastern hlichigan. The 1IPSC regulates Edison as an
electric utility pro\*iding retail electric service in Michigan. Edison is a subsidiary of DTE
Energy, which is a holding company with numerous other subsidiaries, many of which are not
involved in pro\iding retail electricity in Michigan. The MPSC has no jurisdiction over Edison
affiliates (sister companies under the DTE Energy holding company) that do business in other
states, or that proi~ide products or services over which the MPSC has no regulatory authority.
Edison and some of Edison's affiliates are regulated, however, by the Federal E n e r a Regulatory
Commission ("FERC"), lvhich has jurisdiction over n.holesale electric sales and the interstate
transmission of ele~tricity.~
In Consumers P o \ ~ e r Co v Public Sewice Comm, 360 Mich 148; 596 NW2d 126 (1999),
this Court held that the MPSC exceeded its authority in ordering a retail open access ("ROA"
a:Wa "Customer Choice" or "retail wheeling") program, in which customers of electric utilities
could instead buy electricity from third party suppliers, and have that electricity delivered on the
After the MPSC's ruling, DTE Energy sold its electric transmission facilities to an independent third party.
utility's ~vires. The Legislature responded to this Court's opinion by adopting 2000 PA 141
("Act 141"), AICL 360.10 gt seq, which authorizes the Commission to establish a Customer
Choice program. One section of Act 141, 31CL 360.10a(4), also directed the Commission to
establish a code of conduct for all electric utilities and alternative electric suppliers.3
On December 4: 2000, in a "contested case" proceeding, the Commission issued an Order
(attached as Appendix 1) establishing a Code of Conduct. On October 29, 2001, the
Con~nlission issued an Order on Rehearing (attached as Appendix 3): which granted petitions for
rehearing to the limited extent discussed in that Order, and adopted a modified Code of Conduct
(attached as Appendix 4). Edison, the Michigan Electric Cooperative Association ("MECA")
and Consunlers Energy Company ("Consumsrs") filed claims of appeal, \vhich the Court of
-4ppeals consolidated (Docket Xos. 237872, 237873 and 237874, respectively). On March 2,
2004, the Court issued an opinion affirming the Commission. Detroit Edison Co v Public
Senice Comm, 261 Mich App 1; 680 XW2d 512 (2004). On April 13,2004, Edison applied for
leal-e to appeal to this Court (No. 125950). That application remains pending.
' Electric utilities such as Edison provide bundled (generation and distribution) electric service to their full senice retail custon~ers. .4lternative electric suppliers provide electricity (generation service) to their retail customers, who receive that electricity through the electric utility's wires (distribution service). See eenerallv, Consumers Power, supra, 460 Mich at 152.
Electric Utility is defined by MCL 460.562 as:
"a person, partnership, corporation, association, or other legal entity whose transmission or distribution of electricity the commission regulates . . ."
Alternative Electric Supplier is defined by hlCL 360. log as:
L L a person selling electric generation senice to retail custon~ers in this state. Alternative electric supplier does not include a person who physically delivers electricity directly to retail customers in this state. An alternative electric supplier is not a public utility."
On December 28, 2001, Edison filed its Compliance Plan and Request for Waivers
regarding the Code of Conduct \vith the Commission. On July 19, 2002, the Court of ,4ppeals
issued In re Public Senice Commission Guidelines for Transactions Between Affiliates, 252
Mich App 254; 652 KW2d 1 (2002), ("In re PSC Guidelines"), vacating the Cominission's
"affiliate transaction guidelines" because the Commission failed to adopt them through the
rulemaking requirements of the Administrative Procedures Act ("APA"). On October 3, 2002,
the Commission issued sewn (7) orders (collectively attached as -4ppendix 5A-G) addressing
compliance plans and requests for waivers from the Code of Conduct. Instead of complying with
the Court of Appeals' opinion requiring that the "affiliate transaction guidelines" must be
adopted through rulemaking, the Con~mission re-imposed the same "affiliate transaction
guidelines" as conditions for granting u.aivers from the Code of Conduct. Compare the vacated
guidelines (quoted as 252 Mich .4pp 259-60) with the "conditions" that the Commission imposed
on Edison and its affiliates (October 3, 2002 "Detroit Edison Order," attached as Appendix 5B,
PP 6-71.
hlECA, Consumers and Edison appealed to the Court of .4ppeals in Docket Xos. 244425,
233429 and 24153 1, respectively. The Court of Appeals affirmed based on the Court's Code of
Conduct decision, and despite the Court's previous In re PSC Guidelines decision. Michigan
Electric Cooperative -4ss'n \I Public Senice Comm, unpublished opinion per curiam of the Court
of Appeals, decided August 17, 2004 (Docket Kos. 244425, 244329 and 244531; Slip Opinion
attached as Appendix 8).
Edison now applies for leave to appeal to this Court because the Commission
misinterpreted Act 141, exceeded its jurisdiction as limited by Michigan enabling statutes and
the Suprenlacy Clause, and violated Edison's and its affiliates' rights under both the United
States and Michigan Constitutions. The Court of Appeals also erred in not following its
published decision in In re PSC Guidelines.
This case is strikingly similar to Consumers Po~ver Co, supra, where the Commission
exceeded the limits of its statutov authority and the Court of Appeals afflmed, with no
lneaningfd consideration of the limits of the Commission's po\vers. This Court reversed due to
the Comn~ission's limited authority under hlichigan law, Ivithout reaching additional issues.
Edison does not dispute the Commission's authority to establish a code of conduct in accordance
\!pith Act 141; however, the Comn~ission has exceeded its linlited authority by attempting to
dictate management practices and control unregulated acti\.ities. The Commission also failed to
follow the rulemaking prolisions of the Administrative Procedures .4ct, and instead based the
Code on mere speculation in a "contested case." The result is a Code of Conduct that is so
vague, overreaching and threatening that it unnecessarily and unfairly stifles competition by
Edison and its affiliates, ivhile other companies in the same businesses (none of which are lvithin
the Commission's jurisdiction) enjoy competitive advantages.
Therefore, Edison respectfully requests that this Court vacate the Code of Conduct, or, in
the a1te:-nati1.e' limit the Code of Conduct's applicability to only the activities and relationship
bet\\-een an electric utility or alternative electric supplier and an affiliate concerning Customer
Choice in Michigan.
ST.ATE31ENT OF FACTS
On September 14, 1999, the Commission issued an order commencing this Case So. U-
12134, to consider modifications to the existing codes of conduct for Consumers and Edison.
The parties were in the process of briefing the case \\?hen Act 141 took effect on June 5: 2000.
Subsection 1 Oa(4) of Act 14 1, MCL 460.1 Oa(4). directed the Commission to establish a code of
conduct for all electric utilities regulated by the Commission and for all alternative electric
suppliers.
On December 4, 2000, the Comnission issued an order (attached as Appendix 1)
adopting a code of conduct. On January 3, 2001, Edison filed a Petition for Rehearing, and
Edison, Consumers and MECA filed a Joint Statement of Statutory Interpretation, Request for
Immediate Interim Revision to EV1 of Code of Conduct and Presewation of Rights Per MCR
7.209(A)(2).
On January 23,2001, the Commission issued an Order (attached as Appendix 2) granting,
in part, the request for immediate interim relief by providing that each electric utility and
alternative electric supplier's compliance plan would not be due until sixty (60) days following
issuance of the Commission's order on rehearing, reconsideration, and clarification.
On October 29, 2001, the Commission issued an Order on Rehearing (attached as
Appendix 3), which granted petitions for rehearing to the limited extent discussed in that Order,
and adopted a modified Code of Conduct (attached as Appefidix 4). Edison, MECA and
Consumers filed claims of appeal (Court of Appeals Nos. 237872, 237873 and 237874
respectively, ~vhich the Court of Appeals consolidated) challenging the Commission's Orders
and Code of Conduct. On March 2, 2004, the Court afirmed the Commission. Detroit Edison
Co v Public Senice Comm, 26 1 hiich App 1; 680 NM72d 5 12 (2004). -
On December 28: 2001, Edison filed its Compliance Plan and Request for Waivers from
the Code of Conduct nith the Commission in accordance \vith the Commission's January 23,
2001 Order (Appendix 2) and October 29, 2001 Order (Appendix 3). On October 3, 2002, the
Commission issued seven orders (collectively attached as Appendix 5A-G) addressing
compliance plans and requests for waivers. On October 24, 2002, Edison filed a timely claim of
appeal (Docket KO. 243531), ~ ~ h i c h the Court of Appeals consolidated with MECA's and
Consun~ers' appeals (Docket Nos. 233425 and 233329, respecti17ely). The Court of Appeals
affirmed the Cornmission's decisions. Michipan Electric Cooperative -4ss'n v Public Service
Comm, unpublished opinion per curiam of the Court of .4ppeals, decided August 17, 2004
(Docket Nos. 233425, 233329 and 23453 1; Slip Op attached as Appendix 8). On September 7,
2004, Consumsrs filed a motion for reconsideration. Additional information and discussion will
be set forth in the Argument section of this brief where it is best understood in context.
STAI\'DARD OF REI'JEW
To prevail, Edison must prove the Commission's Orders and accon~panying Code of
Conduct are unla\vhl or unreasonable. MCL 462.26(8). The standard of review for legal
questions is \vhether the Commission's orders are authorized by law. Const 1963, art 6, 9 28.
This Court revie\vs legal questions, including statutory interpretation, de novo. In re MCI
Telecommunications Complaint, 360 Mich 396, 413; 596 NV2d 164 (1999); Cardinal Moonev
H i ~ h School v hjichigan High School Athletic .4ss'n, 437 hfich 75, 80; 367 N W d 21 (1991).
Re\ie\ving courts may not abandon nor delegate their responsibility to interpret statutory
language and legislative intent. In re Complaint of RTCTA, 241 Mich App 334, 360; 615 NW2d
255 (2000) (reversing the MPSC). An agency's incorrect interpretation of a statute must be
reversed. Manufacturers Kat'l Bank v DNR, 320 hlich 128, 145; 362 NW2d 572 (1984); Davis
v River Rouge Bd of Education, 406 Mich 486,490; 280 NW2d 453 (1979) (rejecting agency's
interpretation of statute). In re Complaint of Consumers Enernv Co, 255 Mich 496, 503-504;
660 W!2d 785 (2002). To the extent that an administrative order conflicts with a statute, the
order is void. Manufacturers Sat'l Bank, supra, 420 Mich at 146.
On questions of fact, Edison must show that the Commission's findings of fact were not
supported by competent, material and substantial e~idence. Const 1963, art 6, 5 28. Substantial
evidence is evidence that a reasonable mind lvould accept as adequate to support a decision.
Battiste v Dep't of Social Semites, 153 hlich -4pp 456,492 398 SW2d 347 (1986) (holding that
agency's decision nras not supported by e\.idence that a reasonable person would consider
adequate).
ARGUJIEST
I. THE COURT SHOULD GRANT LEA\:E TO APPEAL
There are at least three grounds on which leave may, and should, be granted, as outlined
below and hrther explained in the follow-ing arguments. First, under MCR 7.302(B)(2), the
Commission is a State agency. The issues presented have significant public interest because the
Comnlission has only limited regulatory authority, yet the Commission has unilaterally expanded
its authority to purportedly extend to the control of unregulated activities and unregulated
markets. Edison is a public utility that provides electric service primarily to retail customers in
Southeastern Michigan. The Commission is affecting unregulated activities and markets to the
detriment of Edison and its ratepayers. The Code of Conduct affects millions of people in
Michigan, so the issues have significant public interest.
With respect to h1CR 7.302(B)(3), the Court of Appeals disregarded jvell-established
precedent (e.g. Consumers Po\\-er, supra, on the limits of agency authority), by acquiescing in the
Commission's self-empo\verment over matters having significant effects throughout Michigan.
The Commission and Court of Appeals based their rulings on MCL 360.10a(4), which is just one
small piece of the extensive 2000 PA 14 1 and accompanying 2000 PA 142. The Legislature set
forth these detailed provisions for the restructuring of Michigan's electric utility industry, in
amendments to the public senice con~mission act, h1CL 960.1 et seq. See eenerally, Consumers
Pou.er, supra, 460 l l ich at 159-61. If the Legislature had intended to hrther authorize the
Commission to control unregulated actil~ities and markets, then the Legislature ~vould have
enacted the clear statutory language necessary to do so. Moreover, the language that actually
does appear in MCL 460.10a(4) must be read in the context of 2000 PA 141. The Code of
Conduct that the Commission purportedly established pursuant to MCL 460.10a(4) violates at
least one of 2000 PA 13 1's hndamental purposes, which is to "promote healthy and competitive
utilities in this state" hlCL 360.10(2)(e).
hlichigan jurisprudence would also significantly benefit if this Court enforces and
clarifies the requirements of rulemaking. The Code of Conduct consists of rules of general
applicability to all utilities and alternative electric suppliers in the State, yet the Commission did
not engage in rulemaking. The Court of Appeals affirmed, despite the Court's recent published
opinion in In re PSC Guidelines, supra, (vacating MPSC's "guidelines" regarding transactions
betneen a regulated public utility and its nonregulated holding company, subsidiaries and
affiliates, because the MPSC failed to engage in rulemaking as required by the Administrative
Procedures Act). The Court vacated the Commission's "guidelines" on July 19,2002. Less than
three months later, the Commission reimposed the guidelines as conditions for granting, in part,
Edison's and other utilities' requests for lvaivers from the Code of Conduct (compare 252 Mich
App 259-60 \vith Appendix 5B, pp 6-5). The waiver process did not include a hearing, and the
Commission based its decision on letters that are not in the record. The Court of Appeals'
decision e\ iscerates the rulemaking process; the JIPSC has been allowed to call a proceeding a
"contested case", and, based on a yet unknown set of facts, articulate general behavioral
guidelines and an incomplete (but not limited) set of prohibited activities, against named and
unnamed parties; The Court's decision is contrary to the findamental principle that n.here an
agency's directive has the effect of being a rule, the agency cannot evade the M A ' s rulemaking
requirements by labeling its directive as something other than a rule.
Finally, with respect to MCR 7.302(B)(5), the Court of .Appeals' decision is clearly
erroneous and conflicts n-ith numerous decisions by this Court and the Court of Appeals
regarding the proper interpretation and application of statutes, limitations on the Commission's
zuthority, and rulemaking requirements. The Court of .4ppealsY decision is causing material
injustice to Edison, which is burdened with unlawful regulations that effectively preclude Edison
from engaging in lawfil activities.
Other issues worthy of this Court's review are also presented below, but the Court might
not need to reach them in light of the re\,ersible errors concerning the Commission exceeding its
authority, and failing to follow rulemaking requirements.
11. THE CORI3IISSION EXCEEDED ITS AUTHORITY BY ENACTING .A CODE OF COSDUCT THAT APPLIES TO ACTIVITIES BEYOND THE SCOPE OF ACT 131 AND THE CUSTOMER CHOICE PROGRAM IT AUTHORIZES.
The Commission has no common law powers, but instead possesses only the limited
authority that the Legislature conferred upon it. Consumers Power Co, supra, 360 Mich at 155.
This Court explained:
"The [Commission] is an administrative body created by statute and the warrant for the exercise of all its power and authority must be found in statutory enactments." Union Carbide v Public Sewice Comm, 131 hlich 135, 136; 328 9\I72d 322 (1988) (quoting Sparta Foundn Co v Public Utilities Comm, 275 Mich 562, 564; 267 N W 736 (1936)).
The Commission's authority must be conferred by clear and unmistakable statutory
language. A doubtfil po\ver does not exist. Mason Co Civil Research Council v Mason Co, 343
Illich 313, 326-25; 72 XW2d 292 (1955). The Commission cannot expand its jurisdiction
through its own acts or assumption of authority. Ram Broadcasting of Michigan v Public
Senvice Comm, 113 hlich App 79, 92; 3 17 NW2d 295 (1982). See also Coffman v State Board
of Examiners, 331 h3ich 582, 589; 50 NV2d 322 (1951) ("an administrative agency may not,
under the guise of its rule-making poLver, zbridge or enlarge its authority or exceed the powers
given to it by rhe statute, the source of its pouer'.); G F Redmond & Co v h4ichigan Securities
Comm 222 Mich 1'5; 192 NW 688 (1923). J
Act 141 gave the Commission limited authority for Customer Choice, ~t-hich is the
provision of retail electric generation supply senice. See, for example, the definitions of
"Electric UtilityJ' and ".Mtemative Electric Supplier" (quoted in footnote 3 above) and the
repeated use of those terms throughout Act 141. The legislative terminology is clear, and must
be enforced according to its plain meaning. State Farm Fire and Casualtv Co, supra, 466 Mich at
146; Lorencz v Ford hlotor Co, 439 hlich 370, 376; 183 MV2d 844 (1992); Attorney General v
Public Senice Comm, 183 Mich App 692,701; 455 WW2d 724 (1990).
It is axiomatic that the Legislature's intent is to be implemented. In re MCI
Telecommunications Complaint, suwa, 360 Mich at 411 ("The primary goal of statutory
interpretation is to gi~ve effect to the intent of the Legislature'?). When determining legislative
intent, statutory language should be given a reasonable construction considering the statute's
purpose and the object sought to be accomplished. Jov 34anagement Co v Detroit, 176 Mich
-4pp 722, 730-73 1; 440 MV2d 654 (1989). An act must be read in its entirety so as to produce,
if possible, a harmonious and consistent enactment as a \\.hole. Statutes are to be construed so as
to avoid absurd or unreasonable consequences. Id.
Section 1 Oa(4) of Act 14 1 directed the Commission to establish a code of conduct:
"Within 180 days afier the effective date of the amendatory act that added this section, the commission shall establish a code of conduct that shall apply to all electric utilities. The code of conduct shall include, but is not limited to, measures to prevent cross-subsidization, information sharing, and preferential treatment, betlveen a utility's regulated and unregulated services, uhether those sewices are provided by the utility or the utility's affiliated entities. The code of conduct established under this subsection shall also be applicable to eiectric utilities and alternative electric suppliers consistent with section 10, this section, and sections lob and 10bb." MCL 460.10a(4).
There is no "clear and unn~istakable statutory language" authorizing the Commission to
establish a broad code of conduct extending to matters beyond .4ct 14 1 and Customer Choice.
That Act is a detailed amendment to 1939 PA 3 ("Act 3"), hlCL 360.1, et seq. The Commission
now purports to regulate matters that are not even mentioned anywhere in Act 3 or Act 141. If
the Legislature had intended to hrther empo\ver the Commission, then the Commission would
have included (in the lengthy details of Act 141 or elsewhere) the requisite statutory authority to
do so. People v Mclntire, 361 Mich 147, 160; 599 NW2d 102 (1999). See also, Donajko~vski v
Alpena Po~ver Co, 360 Mich 243, 261; 596 NW2d 574 (1999) ("sound principles of statutov
construction require that Michigan courts determine the Legislature's intent from its words, not
from its silence").
The Legislature's words include the last sentence of MCL 460.10a(4), which limits the
code of conduct to Act 141; and expressly references its purposes. See, State Farm Fire and
Casualtv Co v Old Republic Ins, 466 M c h 142, 136; 634 MV2d 71 5 (2002) ("Courts must give
effec,t to every word: phrase, and clause in a statute and avoid an interpretation that would render
any part of the statute surplusage or nugatory"). Section lO(2) of Act 141 sets forth the
Legislature's purpose concerning retail electric generation supply senice in Michigan:
"(2) The purpose of sections 10a through 1 Obb [i.e. all of Act 1411 is to do all of the following:
To ensure that all retail customers in this state of electric power have a choice of electric suppliers.
To allow and encourage the Michigan public service commission to foster competition in this state in the provision of electric supply and maintain regulation of electric supply for customers who continue to choose supply from incumbent electric utilities.
To encourage the development and construction of merchant plants which will diversify the ownership of electric generation in this state.
To ensure that all persons in this state are afforded safe, reliable electric power at a reasonable rate.
To improve the opportunities for economic development in this state and to promote financially healthy and competitive utilities in this state". (.MCL 360.10(2) Emphasis added)
IVords are given meaning by their context. Consumers Power, supra, 460 Mich at 163, n
10. All of Act 141's provisions, including Section lOa(4) (quoted above), were enacted in the
context of the above-quoted legislative purposes concerning retail electric generation supply
service in Michigan. Thus, the Legislature plainly intended that the code of conduct referenced
in Section lOa(4) is to apply only with respect to retail electric generation supply service in
4 A review of the remaining subsections of Section 1 Oa reflects the same limitation. Subsection lOa(1) directs the Commission to issue orders that will allow retail customers to choose an alternative electric supplier and \vill ensure electric utilities recover stranded costs. Subsection lOa(2) directs the Commission to issue orders establishing a licensing process for alternative electric suppliers, and to take other action nith respect to the regulation of alternative electric suppliers. Subsect ion 1 Oa(3) directs the Commission to issue orders to ensure that customers are
The Court of Appeals summarily disregarded these limits on the Commission and its
Code of Conduct, stating:
The PSC had the statutory authority to require appellants to conduct unregulated activities in compliance \vith the code of conduct, Consumers Po \~er Co v Public Sewice Comm, 360 Mich 148, 155-159; 596 SW2d 126 (1999), and did not exceed its authority by den>.ing appellants' requests for n-aivers for unregulated acthities not directly related to retail open access. (Appendix 8, p 5).
The Court of Appeals' reliance on Consun~ers Power Co was misplaced. In Consumers
Polver Co, supra, this Court correctly identified the 3IPSC's unsupported assertions of authority
and reversed the MPSC's decision as unauthorized. The Court of Appeals should have followed
this Court's ruling, and been guided by the type of precise statutory analysis that this Court
performed in Consumers Power, supra, 160 Mich at 159-68.
The Commission's interpretation of its new enabling statutes is entitled to no deference.
Consumers Power, supra, 360 Mich at 157, n 8. An agency's interpretation of a statute is not
binding on the Court, and cannot be used to overcome the statute's plain meaning. Ludincton
Service Corn v Acting Comm'r of Ins, 344 Mich 1 8 1,505; 5 1 1 NW2d 66 1 (1 999 , amended 444
Mich 1210 (1 991) (reversing declaratory ruling by acting commissioner of insurance regarding
not s\\-itched among alternative electric suppliers n.ithout their consent. Subsection lOa(5) effecti\.ely "grandfathers" prior Comn~ission orders issued concerning retail open access. Subsection 1 Oa(6) discusses "self-sen-ice" power. Subsection 1 Oa(7) discusses "affiliate \\.heeling" of power. Subsection lOa(8) presenes pre-existing power supply contracts between electric utilities and ''quali~.ing facilities." Subsections 10a(9), lOa(10) and lOa(11) give the Commission direction concerning recovery of utility stranded costs caused by the introduction of retail open access. Subsection lOa(12) gives the Commission direction concerning other ratemaking matters resulting from retail open access. The entire focus of Section 10a (and of the remainder of Act 141) is retail open access, and nothing in Section 10a supports the conclusion that the Legislature intended to empower the Con~mission to regulate anything beyond retail open access activities.
the acquisition of an existing insurance agency, where the commissioner improperly based his
ruling on a statute that limited his power to granting or renewing a license).
Act 141 plainly does not address matters beyond basic retail electric generation supply
service. Specifically, i t does not address or govern matters such as how Edison or its affiliates
procure, transport, trade or market he1 to third-party customers, \vholesale power trading, real
estate, energy project construction and operation, or other acti\.ities not regulated by the
Commission. The Commission misinterpreted Act 14 1 to apply to such activities, however, and
unlawfblly enacted a Code of Conduct extending to such activities. The Commission reasoned
that the Legislature could ha\-e used narrower language, and speculated that the Legislature
intended a broad meaning beyond the Legislature's words:
"In addition, the scope of the code \vas before the Legislature. In that context, the use of expansive language about the scope of the code of conduct is further indication that the Legislature did not intend to limit the scope to onll. retail open access." (October 29, 2001 Order on Rehearing, p 13, quoting Dece~nber 4, 2000 Order, pp 9-10).
The Commission's October 3, 2002 Detroit Edison Order continues to assert jurisdiction
that the Commission does not have. For example (and as further explained below in Argument
19, Edison explained that the Michigan Code of Conduct had no applicability with respect to
matters that are regulated by the Federal Energy Regulatory Commission ("FERC"). Instead of
recognizing that it lacked authority or that its assertion of state authority is preempted by federal
law, the Commission stated: "When a senice or product is pro\rided in other states, is subject to
a FERC code of conduct, or is otherwise regulated directly by the FERC or through a regional
transmission organization like MISO, this code of conduct may be duplicative" (Appendix 5B, p
7). The Michigan Co~n~nission has no authority to "duplicate" the regulation that exists in other
jurisdictions, pursuant to enabling statutes that empower other regulatory agencies. The
Commission's October 3, 2002 Detroit Edison Order also maintains the Commission's
o\perreaching interpretation of MCL 360.10a(4), by essentially requiring Edison to ask the
Commission's permission to conduct affiliated businesses of any Qpe and in any location
(Appendix 5B, pp 6-8).
The Commission's interpretation of Section 1 Oa(4) is backwards. The Commission does
not have "unlinlited" authority in the absence of some "limit" in restrictive legislation. Instead,
the Commission's authority comes only from authorizing statutes that are strictly construed. The
absence of a statutory "limit" is irrelevant, because it plainly does not equate to a "clear and
unmistakable" affirmative grant of authority for the Commission's actions. Consumers Power,
supra, 160 Mich at 155-56.
The Commission's speculation regarding \vhat the Legislature might have been thinking
is not reflected in any evidence in this or any other Code of Conduct case, is not reflected in any
knolvn legislative history of -4ct 14 1, and is completely beyond the plain language and purposes
of Act 141. This Court recently rejected a similarly-unlawhl imposition of inferred legislative
intent, explaining: "To infer such a legislative intent Ivhere none is indicated either in the text of
[the statute at issue] or else\vhere in the statutory scheme 'would be an exercise in rather
than judgment."' Jones v Dep't of Corrections, 468 Mich 646, 656; 664 KW2d 717 (2003)
(quoting P e o ~ l e v Stevens (After Remand), 460 Mich 626, 615; 597 i\JWr2d 53 (1999) (emphasis
in original).
Further, in Precque Isle T\\p Dist v Countv Bd, 364 Mich 605, 61 1-12; 11 1 YW2d 853
(1961): this Court explained that one legislator's present recollection of what he intended when a
bill Lvas passed may not be used as evidence in interpreting a statute. Likewise, vague assertions
by an administrative agency that "the scope of the code \vas before the Legislature" cannot be
used to speculatively determine the Legislature's possible intent. -4s the Court in Pressue Isle
noted, "the end we seek is an interpretation of the statute as a I~arrnonious and consistent
enactment as a whole." 364 Mich at 609.
The will of the Legislature - not the Commission - is controlling. On April 1, 2004, the
Court of Appeals issued two published decisions that directly rejected the Commission's attempt
to circumvent Act 141's requirements. Judge Saad, writing for the Court, rejected the
Commission's "indefinite deferral" of any decision on the recovery of Edison's costs to
implement retail open access service:
"RICL 460.10a(l) requires the PSC to issue orders no later than January 1, 2002, and to establish the rates, terms and conditions of sen-ice that allow all retail customers to choose an alternative electric supplier. The Legislature requires that these orders provide for a full recovery of implementation costs. The PSC has instead deferred, indefinitely, any decision regarding recovery of implementation costs. ll'e do not belieye the Legislature intended such an indefinite deferral when it required that orders be issued by January 1, 2002. Moreover, the decision of the PSC does not provide sufficient information to allow this Court to perfonn its task of judicial review." Detroit Edison Co v Public S e n k e Comm, 261 Ilich -4pp 348, 452-53; 683 KW2d 679 (2004). (emphasis added)
On April 1, 2004, the Court of Appeals also issued a published decision in an appeal
concerning Consumers Energy Company's implementation costs for 1999. Consumers Energv
Co v Public Senice Comm, 261 Mich App 455; 680 KW2d 519 (2004). In addition to being -
similar to Edison's appeal regarding its 2000 implementation costs, the Consumers opinion is
also significant because the Court expressly rejected arguments (like those maintained by the
Commission here) that the Commission has the discretion to interpret statutory language contrary
to its plain meaning. Judge Saad, again writing for the Court, expressly rejected the
Commission's assertions rergarding the timing and amount of implementation cost recovery:
"Konetheless, we conclude that in requiring that the PSC 'pro\.ide for full recovery' of implementation costs in an order adopted by January 1, 2002, the Legislature did not intend to allow the PSC to adopt a methodology that would indefinitelj. defer the determination of the amount to be allowed. An approval made contingent on future unknown facts that may indeed eradicate the initial approval is not a provision for full recovery. We note that in Conszrnzers Energy Co v -VPSC, unpublished opinion per curiam of the Court of Appeals, decided No\.ember 18, 2003 (Docket Nos. 23 1990 and 23 199 I), this Court held that deferral of ROA implementation expenses was proper since the e\.idence \\.as insufficient to allow the PSC to accurately determine the proper amount of iniplsmentation costs and whether those costs n-ere prudentljr incurred. Ho\vever, at oral argument in this case, the PSC did not dispute that its intent was to defer making a determination until the rate freezes imposed by MCL 360.10d(2) had expired. L'nder this statute, a freeze is in effect until January 1, 2005 for commercial and manufacturing customers, and until January 1, 2006 for residential customers. Moreover, at oral argument, the PSC took the position that it had the authority to defer the determination of implementation costs ~ i r t u a l l y indefinitely. We conclude that this is inconsistent with legislative intent, and that the Legislature contemplated that the PSC \\-ould make a timely determination regarding Consumers' implementation costs. Accordingly, we find it necessary to remand so that the PSC can make such a determination. (261 Mich App at 459-60, emphasis added; It should be noted that the rate freeze for large commercial and industrial customers expired January I, 2004. .MCL 460.10d(2)).
-4s in these recent published Court of Appeals opinions, this case involves application of
a specific statutory provision in light of srell-established principles limiting the Commission's
authority. The Commission's various vague assertions merely frustrate judicial review through
distraction and the absence of relevant findings or analysis.
The Legislature's lvords and purpose are clear. Act 141 applies to retail electric
customers choosing their electrical suppliers, and to the retail sale of electricity in Michigan.
Nothing more should have been read into Act 141 by the Commission or the Court of Appeals.
Hanson v hlecosta Co Rd Comm'rs, 365 Mich 492, 501-503; 638 NW2d 396 (2002). Moreover,
the \yards and phrases that do appear in the Commission's enabling statutes must be read
narron-ly and in accordance nrith the statutory scheme. Consumers Po\ver, supra, 460 hlich at
159-68. Act 141 \\.as enacted after this Court held, in Consumers Power, supra, that the
Commission lacked authority to mandate retail open access service. One detailed and focused
piece of legislation to authorize retail open access s en ice did not transform Michigan's public
utility regulatory agency into an "economic developn~ent" agency with vastly-expanded
authority to control non-regulated companies, non-regulated and non-utility activities, and non-
regulated markets.
-4s a further matter of context, under traditional utility regulation, there was a "regulatory
compact" under \vhich Edison had the reasonable certainty of obtaining regulated revenues
sufficient to cover the cost of pro\.iding electric service to all who requested it. In adopting .4ct
13 1 to authorize retail open access, the Legislature n.eighed competing interests and maintained
a certain economic balance. Act 141 allows Edison's customers to purchase electricity from
alternative electric suppliers, but also provides corresponding protection to Michigan utilities, as
reflected in one of its fundamental purposes to "promote healthy and competitive utilities in this
state." MCL 360.10(2)(e). Act 141 is not intended to hinder Edison's pursuit of other
businesses at the same time that all of Edison's customers are allowed to purchase electricity
from Edison's competitors.
Despite the statutory limits on the Commission's regulatory authority, the focus of much
of the Comn~ission's efforts in recent years has been on ordering and promoting unregulated
activities at the expense of Michigan utilities. Both this Court and the Court of Appeals have
taken action to reverse such unauthorized, illegal actions. Consumers Power, supra, (holding
that the Commission lacked any authority, prior to Act 141, to order Customer Choice); Detroit
Edison, supra, 261 3lich App at 452-53 (holding that the hlPSC could not indefinitely defer
Edison's reco\?ery of its costs of implementing retail open access, where the Legislature
mandated Edison's full recover\.); Consumers Enerw, supra, 261 Mich App at 459-60 (similarly
enforcing the Legislature's fu l l recovery mandate: and rejecting the Commission positions that i t
had the pourer to determine the timing and amount of recovery). See also, In re Complaint of
Consumers Energv Co, supra, 255 Mich App at 501 ("We agree \vith the dissenting
commissioner that the majority ignored the clear language of the administrative rule to foster
customer choice. We conclude that the PSC's decision is bated on an erroneous interpretation
and application of the administrative rule and is therefore unla\vhl.")
This Court recently obserlVed: "It is not the role of the judiciary to second-guess the
nisdom of a legislative policy choice; our constitutional obligation is to interpret - not to rewrite
- the law" State Farm Fire and Casualhr Co, supra, 366 Mich at 149. The Commission's
statutory authority cannot be expanded by the Commission or the Courts, even \vhere [hey have
\yell-intended beliefs that certain activities should be regulated. Consumers Power, supra, 460
Mich at 168 (reversing Court of Appeals and vacating MPSC's retail wheeling program,
explaining: "The economic wisdom of the program is not our concern"). Accord, In re
Complaint of Pelland, 254 -Mich App 675, 688-89; 658 MV2d 849 (2003), 1v den 469 Mich 914
(2003) (holding that the MPSC lacked authoritjr to order a telecommunications sen-ices provider
to implement procedures to address identity theft). As in Consumers Power, Pelland and
countless other cases, any competing policy reasons for additional or different legislation are for
the Legislature to consider. An agency, such as the MPSC, cannot empower itself. A reviewing
Court has a duty to apply and enforce statutes as \vritten.
In conclusion, the Legislature directed the Commission to establish a code of conduct in
accordance with Act 141. The Commission instead established a Code of Conduct exceeding the
statutory limits of .Act 141, and imposing adverse consequences never intended by the
Legislature. Therefore, the Code of Conduct should be vacated, or, in the alternative, the Code
of Conduct should be limited in accordance with Act 141, to apply only to the activities and
relationship between an electric utility or alternative electric supplier and an affiliate concerning
the provision of retail open access electric generation supply senice in Michigan.
111. THE CODE OF CONDUCT IS PROCEDURALLY INVALID.
A. The Code of Conduct Purports to be a Rule of General .4pplicability for the Entire Electric Industry in Michigan, so the Commission was Required to Comply with the Rulemaking Provisions of the Administrative Procedures Act.
The Commission approved Edison's prior code of conduct, Eshibi t DE- 10 (the "approved
code") in its September 14, 1999 Order in Case No. U-11290. The approved code incorporated
the Federal Energy Regulatory Commission (''FERC") code of conduct ("Standards of Conduct
of Public Utilities," 18 CFR $ 8 37.1-37.4). Edison and other utilities operated under the
Standards of Conduct for approximately three years.
Edison's Compliance Plan and Request for Waivers sought guidance in interpreting the
Code of Conduct. In response, the Commission's October 3, 2002 Detroit Edison Order
concluded (Appendix 5B, p7) that "as long as the FERC or another governmental regulatory
agency requires adherence to a code or the regulatory requirements that are equivalent to the
Michigan code of conduct, it will not be necessary to adhere to this code." Instead of offering
any meaningful guidance, the Commission requires Edison to file a request for a waiver to
deterniine \\;hat this means (Appendix 5B, pp 7-8). ,411 that is clear is that the Commission
purports to broadly and prospectively regulate Edison and its affiliates, despite the absence of the
necessary (and comprehensible) rules to do so.'
The Commission initiated this Case No. L-12134 uith an Order and Notice of Hearing
that "conclude[d] that a contested case proceeding should be initiated for the purpose of
determining what modifications, if any, should be made to the existing codes of conduct" (U-
1 1290; U-12134 Order and Sotice of Hearing dated September 14, 1999, p 3). During this
contested case proceeding, the Legislature enacted Act 141, u-hich directed the Commission to
"establish a code of conduct." MCL 36O.lOa(4).
On June 19, 2000, the Commission issued an Opinion and Order (attached as Appendix
6), directing the presiding Administrative Law Judge to "schedule hrther proceedings" in this
case in accordance nrith MCL -160.10a(4). See. also, 9 TR 658 (~ollowing Act 141's enactment,
the Administrative Law Judge "determined that the best \yay to proceed would be to renotice the
case to all electric utilities in Michigan and all known alternative suppliers and reconvene for
another prehearing conference to establish procedure for the remainder of the case"). The
contested case proceedings continued with respect to a code of conduct applicable to all
h4ichigan electric utilities and alternative electric suppliers for retail electric generation service in
Michigan. In fact, the Commission's Staff testified, subsequent to the enactment of Act 141, that
the Code of Conduct should apply only to retail open access electric s e r ~ i c e . ~
5 - The FERC has, in fact, recently issued orders, comprised of hundreds o f pages, that purport to regulate, among other things, the business relationship among "energy affiliates." FERC Order 2004 et al.
"Staff believes the standards produced by this docket should apply only to the Retail Open Access Program participants, Detroit Edison's 90hlW Experiment Program and Consumers Energy's Direct Access Program." 1 1 T 792.
Following the evidentiary proceedings, however, the Commission revealed its belief that
"-Act 141 changed the nature of this case" (December 4, 2000 Opinion and Order, p 6, n 2). The
Commission ~vanted to explore the edoption of a completely new code of conduct for the electric
utility industry. The Comn~ission reversibly erred by continuing the contested case proceeding
and expanding it. The Commission should have initiated a rulemaking proceeding, with proper
notice and an opportunity for meaningfid participation by all relevant parties, so that rules could
be appropriately considered and enacted. The Commission ignored these legal requirements,
essentially admitting that the Commission did not undertake rulemaking because it might have
been hard. (December 4, 2000 Order, p 20, n 4.) The law's requirements cannot be avoided
simply because an agency considers them to be inconvenient or burdensome. Ethvl Corc, v
Environnlental Protection Aeencv, 306 F3d 1144, 1150 (DDC: 2002) (vacating "compliance
assurance program" and remanding case to the Environmental Protection .4gency with
instructions to establish test methods and procedures by regulation). This Court has specifically
recognized the importance of enforcing rulemaking requirements despite claims that it would be
more efficient to proceed otherwise:
"Michigan's Administrative Procedures Act is unique in its estensive in\.ol\.ement of the Legislature in the rule-making process. Its requirements undoubtedly yield a more burdensome rule-making procedure than under the federal system. I am nlindli~l that in adhering to its stringent requirements, some efficiency of government may be lost. This Court, however, must remain true to the statute's mandates. If the Legislature desires to shift the balance bet\vsen efficiency and the democratic concerns addressed by the .%PA, it can do so. Concern for the efficient operation of our state agencies and departments, ~ ~ h i l e valid, should not force this Court's hand." .4FSC-ME v -Mental Health Dept, 452 Mich 1, 15 n 11 ; 550 N\IT2d 190 (1 996).
Under the -4dministrative Procedures Act (".AP,4"), a "rule" is ( I ) "an agency regulation,
statement, standard, policy, ruling, or instruction of general applicability," (2) "that implements
or applies law enforced or administered by the agency, or that prescribes the organization,
procedure, or practice of the agency. . . ." h4CL 24.207. Where an agency's directive has the
effect of being a rule, the agency cannot evade the XPA's rulemaking requirements by labeling
its directive as something other than a rule. .4FSCh,fE, supra, 452 hlich at 9 (holding that the
Department of Mental Health's proposed revised guidelines and standard form contract
prescribing department policies constituted rulemaking under the APA, so the department was
required to follow the AP,4's procedural requirements for rulemaking).
A rule that does not comply with the 4PA's procedural requirements is invalid. MCL
24.243; Danse Corp v Citv of Madison Heights, 466 Mich 175, 181; 644 NV2d 721 (2002)
(Assessor's manual was not promulgated as a rule: so it did not "have the force of law"); Goins v
Jeep Eagle, Inc, 449 Mich 1, 10; 534 KW2d 467 (1995) (Secretary of State never properly
promulgated the requirements set forth in a manual as a rule, so the requirements did not have
the force of law); Phams v Secretan8 of State, 117 Mich App 202, 204-205; 323 XW2d 652
(1982) (guidelines for hearing examiners were not binding because they were not promulgated
pursuant to the M A ) ; Coalition for Human Rights v m, 43 1 Mich 172, 188; 428 YW2d 355
(1958) (unanimously holding that DSS's telephone hearing policy violated APA's rule-making
provisions, and therefore lacked legal authority or effect); hdallchok v Liquor Control Comm, 52
3lich App 34 1,347; 249 NW2d 4 15 (1 976).
Guidance on this exact issue is provided by In re PSC Guidelines, supra, where the Court
of Appeals vacated the Commission's "affiliate transaction guidelines" because the Con~mission
failed to con~ply with the APA's rulemaking requirements. The Court explained:
"Invoking the public interest and the need for policy that is responsive to a changing industry, the PSC eschewed the procedural mandates of the APA in favor of its own course of action. By choosirig to implement 'guidelines' by order in a
contested case against unnamed parties, yet with the force and effect of law, the PSC culled elements of rulemaldng, adjudication, and general policy formulation, with little regard for the dictates of the .$PA. IYhile we do not doubt the PSC's legitimate concerns of lack of access to the accounts and records of a utility's nonregulated affiliates and subsidiaries, and the potential for 'cross-subsidization of nonutility imrestments through utility rates,' see 3lidland Cogeneration Venture [Ltd Partnership v Public Sen-ice Comm, 199 Mich -4pp 286, 291; 501 h3i72d 573 (1993)], the process utilized by the PSC constituted a rather heavy-handed rebuke of established APA procedures, and, accordingly, we are compelled to invalidate that process." (252 hiich PIpp at 267-68, Emphasis added, footnote omitted).
Instead of complying with this Court's July 19, 2002 Opinion, the Commission re-
imposed the same "affiliate transaction guidelines" as "conditions" to granting waivers to the
Code of Conduct in the Commission's October 3, 2002 Orders (Appendix 5). Compare the
Guidelines for Transactions Between Affiliates that the Court of Appeals vacated (quoted at 252
Alich App 259-60) nith the "conditions" for the grant of waivers that the Commission imposed
on Edison and its affiliates (Appecdix 5B, Detroit Edison Order, pp 6-7). Condition 1 is
essentially identical to Guideline 1. Conditions 2, 3 and 4 are essentially identical to Guidelines
4(a), (c) and (d). Condition 5 is contained within Guideline 6. Condition 6 is identical to
Guideline 8. Thus, the Court of Appeals had essentially already ruled on all of the October 3,
2002 "conditions" by \vacating them due to the Commission's failure to comply with the APA.
The Commission, as a tribunal inferior to the Court of Appeals, did not have authority to reject
the Court's binding, precedental decision. Catalina Marketing Sales Corp v Dept of Treasury:
370 Mich 13, 23; 678 KW2d 619 (2004). The Court of Appeals also did not have authority to
digress from its published decision of this issue, which is binding on the Court of Appeals under
MCR 7.215(C)(2), (J)(l). The Court in this case, however, simply cited the case and reached a
contraF result: ivith only a superficial discussion in a footnote (-4ppendix 8, p 5, n 4, identifying
In re PSC Guidelines as " l l ichi~an Electric v hlPSC," and folloiving Detroit Edison Co).
Detroit Edison Co, supra, is not controlling here because the MPSC's Orders under
appeal in that matter (1) w-ere issued prior to the Court's In re PSC Guidelines decision, and (2)
did not directly involve the same "affiliate transaction guidelines" that the Court reirersed in
PSC Guidelines and that the Commission unlau-fully readopted as "conditions" in this case. In
addition, the Court improperly followed the "rulemaking" portion of Detroit Edison, supra, since
that decision conflicts with the rule of law on "rulemaking" previously established in In re PSC
Guidelines decision. In cases of such conflict, the Court of Appeals "should follow the first
opinion on the issue." People v m, 2 12 31ich -4pp 630,639; 538 XW2d 456 (1 995).
The Court of Appeals also ignored the purposes and protections of rulemaking. In the
.VA4, the Legislature prescribed a careful and deliberate system for rule promulgation, ~vhich is
"'calculated to invite public participation in the rule-making process, prevent precipitous
action by the agency, prevent the adoption of rules that are illegal o r that may be b e ~ o n d
the legislative intent, noti@ the affected and interested persons of the existence of the rules, and
make the rules readily accessible after adoption."' Coalition for Human Rights, supra, 43 1 Mich
at 189-90, quoting Bienenfeld, 3 l ich i~an Administrative Law (1st ed.), $ 4, p 4-1 (emphasis
added).
The Court of Appeals' conclusory statement that, "The contested case proceeding
afforded all participants due process of law" (Appendix 8, pp 5-6) is not only wrong (as further
esplained below), i t also misses critical reasons for rulemaking. The Legislature established
essential checks and balances in the APA to prevent the exact type of unrestricted agency
la\vmaking that has occurred here. This Court explained:
"Since the adoption of a rule by an agency has the force and effect of law and may have serious consequences of law for many people, the Legislature has proscribed a n elaborate procedure for rule promulgation. As set forth in the APA, 1969 PA 306, ch 3: s331-64, MCL 24.231-24.264; MSA 3.560(131)- 3.560(164), that process requires public hearings, public participation, notice, approval by the joint committee on administrative rules, and preparation of statements, with intervals between each process.
This action \vas taken because, in recent years, legislative bodies have delegated to administrative agencies increasing authority to make public policy and, consequently, have recognized a need to 'ensure that none of the essential finctions of the legislative -
process are lost in the course of the performance by agencies of many lawmaking hnctions once performed by our legislatures.' Bonfield, State Administrative Rule Making, § 1 . l . 1, p 4. Thus, the question whether the policy may be adopted without compliance with the APA is more than a question of notice and hearing requirements. It is a question of the allocation of decision-making authority." Coalition for Human Rights, supra, 43 1 Mich at 177-78 (emphasis added).
The Court of Appeals also ignored other courts that have rejected similarly-defective
codes of conduct. The Maqland Court of Appeals overturned the code of conduct enacted by
Maryland's Public Utility Commission ("PUC") due to the PUC's failure to comply with that
state's Administrative Procedures Act. Delmanra Power & Lieht Co v Public Sewice Comm,
370 Md 1; 803 A2d 460,462,470-82 (2001) (attached as .4ppendix 7). In Dominion Resources
v FERC, 286 F3d 586 (CA DC, 2002), the Court vacated a FERC order, where the FERC did not
engage in rulemaking, but instead issued an unexpected order that arbitrarily and capriciously
imposed an overly-restrictive code of conduct on a merged electridgas pipeline company. In
that case, the FERC applied the code to all energy affiliates, destroying integrations and
efficiencies that existed before the merger. Similarly, the Commission's Code of Conduct may
only address the new electric supply market created under Act 141. The Conlmission may not
"use a tank to block a mouse hole" as the Dominion Court described FERCYs overreaching. 286
F3d at 593.
The Court of Appeals reasoned that the Comnlission conducted a contested hearing case
proceeding, and that MCL 24.207(F) pro\*ides an exception to the APA's rulemaking
requirements for contested cases (Appendix 8: p 5). The Court reversibly erred by failing to
recognize that rulemaking was required, and a contested case proceeding \vas not a \.slid
substitute. Rulemaking nras required because "the PSC must promulgate rules 'for the conduct
of its business and the proper discharge of its functions' to the extent it intends to make its
policies binding on 'all persons dealing nith the Commission or interested in any matter or
proceeding before it ... .'" In re PSC Guidelines, supra, 252 nlich App at 264 (quoting MCL
460.55).
In contrast, a "contested case" is defined as "a proceeding, including rate-making, price-
fixing, and licensing: in \vhich a determination of the legal rights, duties, or privileges of a
named party is required by law to be made by an agency after an opportunity for an evidentiary
hearing." LMCL 24.203(3). The Commission conducted the proceedings below as a "contested
case," but the resulting Code of Conduct m-as not within the scope of the Commission's
ratemaking, licensing or other contested-case authority. Consumers Power, a, 460 Mich at
157-59. Therefore, the Commission's justification for using a contested case fails as a matter of
law. In re PSC Guidelines, supra, 252 Mich App at 265-66.
Further, the Qpical contested case proceeding involves an individual named party and a
disputed set of facts, and results in an order that retroactively binds the agency and the named
party. 'In re PSC Guidelines, supra, 252 hllich .4pp at 267. The proceedings below and the
resulting Code of Conduct directly contradict these three indicia of a contested case.
. Instead of applying to a "named party," the Code of Conduct purports to apply to
"all electric utilities as defined in MCL 360.562 and to alternative electric
suppliers, as defined by MCL 460. I Og, \vho, together with their affiliates, provide
regulated services in Michigan and unregulated senices" (Appendix 4, Code of
Conduct, p 1, 3 I ) . ~
Instead of a "disputed set of facts" regarding past events, the Commission
speculated about what might happen in the hture. The Commission's findings
are unsupported and Edison disputes the Commission's speculation, as hrther
explained below; however: for the contested case analysis it is sufficient to
recognize that there is not a specific set of adjudicative facts.
Instead of "retroactively" binding the Commission and named party(ies), the
Code of Conduct purports to operate prospectively.
B. E ~ e n if the Contested Case Exception to Rulemaking Applies (Which It Does Sot), the Commission's Decision Should Still be Vacated Because it is Based on Speculation that is not Supported in the Record.
Even assuming that a contested case could laufi~lly substitute for rulemaking (which it
could not), the Code of Conduct should still be vacated because the contested case record does
not support the Code of Conduct. Edison k l ly briefed this issue before the Court of Appeals,
which addressed the issue by noting that the Detroit Edison Court found that the ,MPSC
conducted a contested case (Appendix 8, p 5, n 4) and making the concJusory assertion that the
contested case proceeding "produced a code of conduct and waiver orders that were supported by
the requisite evidence" (Appendix 8, p 6).
7 The definitions of "electric utility" and alternative electric supplier" are set forth in footnote 3.
The burdens of proof and persuasion were on the parties who desired to change the
September 14, 1999 approved codes of conduct. MAC R 460.175 15. See also U-11290; U-
12134 Order and Kotice of Hearing dated September 14, 1999, p 3. These parties (notably
including Enron's Director of CS/'Canada Government Affairs; Testimony of Roy Boston, 6 Tr,
pp 168-475) sought to enhance their competitive interests at the expense of incumbent Michigan
utilities. These parties failed to present evidence supporting the unduly broad and restrictive
changes found in the Code of Conduct. In re Complaint of Pelland, supra, 254 Mich App at 686
(reversing MPSC decision lvhere the complainant failed to carry her burden of proof. and the
Commission "engaged in unsupported speculation"). In Kar \I Hogan, 399 Mich 529, 539; 251
SW2d 77 (1 976), this Court explained:
"The party alleging a fact to be true should suffer the consequences of a failure to prove the truth of that allegation. -4 plaintiff has the burden of proof (risk of nonpersuasion) for all elements necessary to establish the case. This burden never shifts during trial."
Unproven allegations must fail, since a mere claim cannot stand in the place of evidence.
Things not proven must be taken as not existing, since a decision cannot be based upon
conjecture. Star Steel v USF&G, 186 R4ich ,4pp 475, 481; 465 SW2d 17 (1990). Edison was
not required to disprove, or even respond to, unfounded allegations. Lendberg v Brotherton Iron
Minine Co, 75 Mich 84, 89; 42 NW 675 (1 S89); Yellow Freight Svstem. Inc v Public Service
Comm, 73 Mich 4pp 476, 488; 252 KW2d 395 (1977) ("If all the testimony in this regard was
nebulous, the complainants failed to carry their burden").
The Commission's orders lack e\.en an attempt to support the Code of Conduct \vith
citations to the record. Instead, the Commission essentially ac!u~o\\~ledged the deficiencies of the
record, and attempted to overcome them by 1-aguely asserting: "The Commission is well a\\-are
from past audits and reports of affiliate transactions, in this state and elsewhere, of the
opportunities and incentives for abuses" (December 4, 2000 Opinion and Order, p 6). Const
1963, art 6, $ 28 requires the Commission's findings to be supported by competent, material, and
substantial record evidence - not just the Commission's "speculation". In re Complaint of
Pelland, supra, 254 Mich App at 286.
Edison does not even know \vhat "past audits and reports of affiliate transactions, in this
state and elsewhere" the Commission had in mind, and Edison objects to their accuracy and
materiality. Shelnmn v Heckler, 821 F2d 3 16: 321-22 (CA 6, 1987) (holding that the
Administrative Law Judge in~properly took administrative notice of alleged fact without citation
of any authoritative references or any other e~idence) .~
The Court of Appeals also completely ignored the waiver process, and there is no basis
for the Court's statement that the n.ai~-er orders ''lvere supported by the requisite evidence"
(Appendix 8, p 6). There Ivas no contested case on Edison's naiver request, and no basis for the
Commission to reimpose the "affiliate transactions" guidelines that the Court of Appeals had
\-acated less than three months earlier in Tn re PSC Guidelines. There was no hearing on
Edison's ~vaiver requests. Edison does not even know the basis for the Commission's decision.
& ~ e b u l o u s concerns about potential hture "opportunities and incentives" are not even sufficient to present an adjudicative issue. Guidance is pro~rided by International Union, UAW v Facet Enterprises, 601 F Supp 292 (ED Mich, 1984), where the plaintiff labor union alleged that the defendant employers threatened to breach their obligation under collective bargaining agreements. The Court dismissed the action as unripe, explaining:
"Proper judicial adjudication requires a factual context t o ensure issue resolution. The facts before the Court do not indicate that this case is presently 'ripe' for adjudication. The Court ~vould be rendering a decision based upon speculation which is unlikely to properly resolve this matter. Hence, since no harm \viH be suffered by plaintiffs absent judicial determination, the Court must decline t o adjudicate this case."
The Commission's October 3, 2002 Detroit Edison Order relies on "numerous letters
expressing concern about utilities unfairly subsidizing appliance-related services, especially
heating and air conditioning services that they provide ..." (Appendix SB, pp 4-5). These
numerous letters" were not admitted into evidence in this proceeding and are otherwise
unidentified. The Rules of Evidence are desizned to exclude such hearsay, which also was not
verified as authentic or otherwise provided to the parties below for additional challenges. The
.*A similarly precludes agencies from making decisions based on such non-record materials:
"Evidence is a contested case, including records and documents in the possession of an agency of which it desires to avail itself, shall be offered and made a part of the record. Other factual information or evidence shall not be considered in determination of the case, except as permitted under [MCL 24.277 regarding administrative notice]" MCL 24.276.
The Commission's reliance on extra-record evidence constitutes a fbndamental violation of the
APA and Edison's due process rights.
Guidance is provided by Ludington Service Corn, supra, which concerned an agency
exceeding the limits of its statutory authority (noted above), as well as basing decisions on
speculative concerns instead of the required competent, material and substantial evidence. That
case concerned a bank's business plan to purchase and operate an existing insurance agency.
The acting commissioner of insurance issued a declaratory ruling that the business plan would
violate the Insurance Code. The commissioner based his decision on speculation about possible
business practices that are much like the purported "opportunities and incentives for abuse" on
which the Commission based the Code of Conduct. This Court unanimously reversed, because
the commissioner misapplied the law and based his decision on speculation. More specifically:
The commissioner reasoned that the bank's plan would violate MCL 500.1207(3)
because it would amount to procuring or inducing business or fbrnishing leads or
prospects to the insurance agency, lvith profits benefiting the bank via dividend
pa~~ments. 434 h4ich at 391-92 This Court found that there was no such problem
n ith the business plan, and "the record is devoid of any other competent, material
and substantial evidence necessary to support a violation of 8 1207(3)". Id, at
394-5.
The comniissioner nest ruled that the bank's informational mailings would violate
blCL 500.2077(2) because they \vould be received by some customers who are
required to obtain insurance as a condition of the mortgage, and that if the
insurance agency sold insurance and \vas profitable, then the profits would inure,
directly or indirectly, to the bank Id at 496. This Court again rejected the
cornmissioner's unsupported and attenuated reasoning, and explained "the
conlmissioner lacked the necessary direct evidence to find that there would be an
improper use of information." Id at 497.
The comn~issioner also relied on MCL 500.1207(5) to support his theory that
operations in accordance \vith the business plan would result in threats and
intimidation of bank customers to purchase insurance through the insurance
agency. at 498. The Court again rejected the commissioner's decision as
unsupported by the record, explaining: "This abuse may occur in the future, but at
this point the commissioner's concern is mere speculation, unsupported by
substantial evidence." Jd at 501 (emphasis added).
Siixilarly, the Code of Conduct is based on "mere speculation, unsupported by substantial
evidence," and should therefore be vacated. Moreover, Edison is entitled to fair and just
treatment. Mich Const 1963, art 1, 5 17. Fundamental due process requires notice and an
opportunitv to be heard. This requirement is echoed in the Commission's rule regarding official
notice. MAC R 460.17327. Edison \\.as: and is, entitled to address the allegations against it. Act
141 did not, and could not, change this Constitutional standard.
The Commission's October 3, 2002 Detroit Edison Order indicates that the Commission
either does not know, or \\.ill not disclose: the factual or legal bases for its actions. For instance,
the Commission never actually defines the parameters of the "markets" it is addressing, nor
points to any fact that demonstrates that Edison's businesses harm those markets. Instead, the
Commission relies on generalizations and unknown "letters" to support vague Code provisions
that are apparently designed to address speculative, unknown or non-existent problems.
The Court of Appeals concluded, without analysis, that the "contested case proceeding
afforded all participants due process of law" (Appendix 8, pp 5-6). The Court's conclusion is
unfounded because the original proceedings produced a Code of Conduct that impacts non-
participants u-ho had no notice nor opportuniv to be heard. The waiver process did not involve
any hearing at all. The Court of Appeals' conclusion also ignores that fundamental due process
requires both a meaningful notice of a hearing and a meaningful hearing. Gonzales v United
States, 338 CS 407, 415; 75 S Ct 309; 99 L Ed 467 (1955). The United States Supreme Court
observed:
"The right to a hearing embraces not only the right to present evidence, but also a reasonable opportunity to know the claims of the opposing party and to meet them . . . Those who are brought into contest with the Government in a quasi-judicial proceeding aimed at the control of their activities are entitled to be fairly advised of what the Government proposes and to be heard on its proposals before it issues its final command". Id 338 US at 413, n 5 (emphasis added). -2
These principles are well established in Michigan law. See, Viculin v Dept of Civil
Service, 356 hlich 375,399; 192 WV2d 319 (1971) and cases cited therein.
Due process protections are also codified in the Michigan APA. (See, for example, XlCL
23.271, which requires that Edison be provided an opportunity to be heard, including reasonable
notice of a hearing, ~vhich shall include: "A statement of the legal authority and jurisdiction
under which the hearins is to be held" I \KL 24.271(2)(b), and "A reference to the particular
sections of the statutes and rules involved." MCL 24.271(2)(c)). The Commission's injection of
ne\v theories into this case \violated the AP.4 and the due process protections embodied therein.
Cee Yiculin: supra, 356 Ylich at 399; accord, Tallv v Citv of Detroit (On Rehearing). 58 Mich L 9 -
-4pp 261,264; 227 NW2d 213 (1974) (absent a waiver, a licensee is entitled - at a minimum - to
a reasorably definite statement of the charges levied against the licensee).
With respect to the Code of Conduct, Edison prepared and presented its case in response
to the limited nature of the contested case proceedings. The Commission's own Staff testified,
subsequent to the enactment of Act 141, that the Code of Conduct should apply only to retail
opsn access electric senrice (1 1 T 792). Edison was not accorded notice and an opportunity to
present proof and argument regarding the Commission's new view of this case, which the
Commission first announced in its December 4,2000 Opinion and Order. (Appendix 1, p 6, n 2).
Bendix Cow v m, 150 F2d 534, 537, 542 (CA 6, 1971) (I-acating agency decision where
agency \violated the federal M A by changing its theory of the case, without notice to the affected
pa*, and then findins adversely to that party); NLRB v Johnson, 322 F2d 216 (CA 6, 1963).
With respect to Edison's n-ai~.er requests, there was no hearing. The Commission apparently just
based its decision on unkno\vn and unsubstantial "letters expressing concerns" (.4ppendix 5B, pp
4-5).
Thus, contrary to the Court of Appeals' assertion, there is no "requisite evidence" to
support the Commission's decisions. Edison did not even have a chance to challenge or put on a
responsive case concerning the irsue(s) and allegations that apparently drove the Commission's
decisions. See also, Blazo v Seveau, 382 Mich 4 15,4 17; 1'70 NV2d 62 (1 969) (explaining that
if a trial court directs a verdict of no cause of action at the close of the plaintiFs proofs, and an
appellate court reverses, then "an entire new trial must be ordered").
The waiver process was fatally flawed and did not correct the errors in the Code of
Conduct. Moreover, throughout these proceedings, the Commission has mischaracterized the
lvaiver process as a gratuitous benefit for Edison. The Gonzales Court recognized that such
alleged "remedies" for improper agency action are "too little and too late." 338 CS at 417. Too
little, because the right to present a case is broader than the bare right to correct "errors" in an
agency decision. Too late, because the correction of errors is discretionary within the agency
and a certain reluctance can be expected after an agency has reached a decision, albeit on an
incomplete presentation. Id.
The Commission's attempt to impose a new code of conduct exceeded the Commission's
limited authority in the adjudicative proceeding, and violated Edison's rights. The
Commission's ability to develop policies on a case-by-case basis is founded on the agency's
need to respond to actual cases in controversy. In AFSCME \7 W a w e Co, 152 _Mich App 87, 98;
393 NW2d 889 (1986), the Court of Appeals explained:
"It is impossible to pronlulgate specific administrative rules in anticipation of every conceivable situation prior to the enforcement of a statute. ... h administrative agency may thus announce new principles of law through adjudicative proceedings in addition to doing so through its rule-making powers. . . . The effective administration of a statute by an administrative agency cannot al~vays be accomplished through application of predetermined general rules. Rather, some principles of interpretation must evolve in response to actual cases in controversy presented to the agency. An administrative agency must therefore have the authority to act either by general rule or by individual order." (citations omitted, emphasis added).
Thus, an agency may adopt a new policy through rulernaking or through adjudication of
an actual case. An agency cannot, however, base a new policy on speculation in an adjudicative
proceeding lvhere the new policy is not supported by competent, material and substantial
evidence on the record. hliich Const 1963, art 6: $ 28. This limitation on agency authority is
necessary to ensure full and fair consideration of the issue(s). Othenvise, the issue(s) can be
presented only in speculative terms (if at all), and those affected lack a meaningful opportunity to
be heard. See eenerallv, Traverse Oil Co v XRC Chairman, 153 Mich App 679, 688; 396 KW2d
198 (1956) ("due process and the Administrative Procedures -4ct require that a party in a
contested case be given timely and adequate notice detailing the reasons for the proposed
administrative action").
In summary, the Commission did not engage in rulernaking. The Commission's
contested case decision is not supported by the record. Therefore, the Code of Conduct should
be vacated.
IV. THE CO3IiUSSION EXCEEDED ITS REGULATORY AUTHORITY BY ATTEJIPTING TO USURP THE 3lAi'YAGE3IENT OF A REGULATED UTILITY AKD ITS AFFILIATES.
It is unlauful for the Commission to usurp the management of utilities. As this Court
explained in Consumers Power Co, supra:
"In Union Carbide, we coiicluded that, although the PSC could preclude a utility from passing along increased charges incurred from its noneconomic operation of facilities, it could not order the utility to cease those operations. In other \vords, the PSC can encourage a specific management decision through the exercise of its ratemaking power, but it may not directly order the utility to make the decision. Similarly, in Huron Portland Cement, supra, this Court considered whether the PSC had the authority to order a utility to render semice to an end-user in an area it did not serve and in which it had no power lines. This Court concluded that, absent specific statutory authority, the decision whether to provide
the serlrice rests ~vith the utility's management." 360 Mich at 158- 59.
Nothing in Act 141 altered this prohibition. Despite this well-established limit on
Commission authority, the Commission created a Code of Conduct that stamps the
Commission's management design on utilities and their affiliates, and specifies details that
constitute management decisions. For example, the Commission attempts to assume
management over: (i) the method by \x hich a utility offers semices or products; (ii) the method
by n.hich a utility organizes its business records; (iii) the business relationships behveen a utility
and its affiliates; (iv) the relationship between the employer and its employees; (v) the utility's
and its affiliates' advertising, marketing, and promotional activities; (vi) the relationship bet\x.een
and among the utility, its af'filiates, and its customers; and (vii) whether and how Edison's
affiliates conduct business outside of Michigan. The Commission's October 3, 2002 Detroit
Edison Order does nothing to effectively limit the Commission's overreaching assertion of
jurisdiction and authority. Instead, the Commission imposed additional "conditions" that the
Court of Appeals had just vacated in In re PSC Guidelines, supra.
This case is analogous to Detroit Edison v Public Service Comm, 22 1 .Vich App 370; 562
NW2d 24 (1997), 1v den, 458 -Vich 564 (1998), in which the Court of Appeals held that the
Commission exceeded its statutory authority, and explained that the "Commission's power to fix
and regulate rates does not carry with it, explicitly or implicitly, the po\\er to make managerial
decisions. Id. at 386. The Court hrther explained that the "Commission here exceeded its
ratemaking authority by, in effect, requiring Detroit Edison's management to adopt the [demand
side manasement] program the Commission thought best." Id. at 387-88.
The Code of Conduct goes a step hrther by creating the rebuttable presumption that
Edison cannot engage in unregulated enterprises. Edison must ask the Commission's
permission, for itself or an affiliate, to engage in a business \vhich: in many cases, the
Commission does not have statutoq authority to regulate. Edison must request permission from
the Commission throuzh the n.aiver process (~vhich is undefined). Furthermore, in order to
"rebut" the presumption against engaging in unregulated enterprises, the Commission imposes
the substantial burden of proving a negative (i.e., that a \\ai\rer "\vill not inhibit the development
or functioning of the competitive market." Code of Conduct, Section V I ) . ~ The Code of
Conduct thereby effectively hinders electric utility management from engaging in unregulated
businesses.
The Commission's October 3, 2002 Detroit Edison Order confirms that Edison must
request the Commission's permission to conduct businesses. Instead of providing usable
s!andards by I+-hich Edison could conduct business, the Commission insists on proceeding in an
unpredictable, ad hoc basis. The October 3: 2002 Order declines Edison's invitation to provide
any significant guidance as to how to apply the Code, and instead appears to require Edison to
file additional requests for \vaivers to determine if and how the Commission intends to act
(Appendix 5B, pp 7-8).
Edison has consistently maintained that it has no objection to the Commission exercising
its regulatory authority under Act 141 to prevent cross-subsidization, information sharing,
and preferential treatment, between a utility's regulated and unregulated entities involving
the sale of retail electric supply service; however, the Code of Conduct goes too far by
attempting to impose the Commission's management decisions on Edison and all of its
affiliates.
Among other ambiguities, it is unclear what market(s) the Commission may have intended (or later intend) to address.
V. FEDER4L L.4W PREE3IPTS SObIE OF THE CODE OF COYDUCT'S PROVISIOPS.
To the extent that the Commission has attempted to regulate affiliates not involved in the
provision of retail open access electric generation supply, the Commission has exceeded the
scope of its jurisdiction, \vhich is limited under state la\\ (as explained primarily in Argument II),
and encroached upon matters that are exclusively regulated by the Federal Energy Regulatory
Commission ("FERC"). In FERC Order 888, 61 Fed Reg 21530 (May 10, 1996), the FERC (1)
concluded that it has exclusive jurisdiction over the rates, terms and conditions of unbundled
retail transmission by electric utilities in interstate commerce, and (2) set forth a seven-factor test
to separate an electric utility's transmission facilities from its local distribution facilities.1° The
FERC reaffirmed and clarified its conclusion and test in FERC Order 888-A, 62 Fed Reg 12274
(March 14, 1997). For example, in Order 888-A, the FERC stated:
"[Tlhis Commission has exclusive jurisdiction over the rates, terms and conditions of unbundled retail transmission by public utilities in interstate commerce . . .
* * *
"We find compelling that section 201 of the [Federal Power Act], on its face, gives the Commission jurisdiction over transmission in interstate commerce \vithout qualification . . . ." 62 Fed Reg at 12369."
'' The District of Columbia Circuit affirmed the test. Transmission Access Policy Group v FERC, 225 F3d 667, 696 (DC Cir, 2000), affd sub nom, New York v FERC, 535 US 1; 122 S Ct 1012; 152 L Ed 2d 43 (2002). The MPSC conducted contested case hearings for both Edison and Consumers to implement the FERC seven-factor test in Michigan (MPSC Case Yo. U-11337 Order dated January 14, 1998; hlPSC Case KO. U- 1 1283, Order dated January 14, 1998). The FERC also regulates the sale of electric energy at wholesale in interstate commerce, as further outlined below.
I I Section 20 1 (a) of the Federal Power Act provides:
The 31PSC7s attempted esercise of jurisdiction is pre-empted by the Federal Power Act
because that Act completely occupies these fields and leaves no room for the Commission to
esercise parallel or inconsistent regulation. The FERC's regulations have the same preemptive
effect. Fidelitv Federal Savinqs and Loan .4ssYn v de la Cuesta, 458 US 141, 153; 102 S Ct
3011; 73 L Ed 2d 664 (1 982). See also Yew York v FERC, 535 US 1; 122 S Ct 101 2; 152 L Ed
2d 47 (2002) (upholding FERC Order 888). The Commission's encroachment into the FERC's
exclusive jurisdiction must >-ield under the Supremacy Clause. US Const, art 1, 5 8. The I
FERC's jurisdiction must remain exclusive, since "there can be no divided authority over
-7 interstate commerce. . . . Mississippi Power & Light Co v Mississippi ex re1 Moore, 487 US
354,377; I01 L Ed 2d 322; 108 S Ct 2428 (1988).
In its December 4, 2000 Order (pp 9- 1 O), the Comn~ission read MCL 460.1 Oa(4) broadly,
and reasoned that the Legislature did not intend to limit the Code of Conduct's scope to only
retail open access. On rehearing, the Commission found that the Code of Conduct was not
preempted by federal law, rezsoning that the Code did not conflict n.ith any FERC rulings
(October 29,2001 Order on Rehearing, p 16). The Conlmission failed to recognize the nature of
the federally-regulated entities and activities at issue. DTE Energy's subsidiaries are affiliates of
Edison. The relationship among some of these DTE Energy subsidiaries is regulated by federal
law, \x-hich preempts the Code of Conduct. See, generally, Consumers Power Co v Public
Service Comm, 189 hlich App 151, 179; 472 N W d 77 (1991) (the MPSC could not control
"It is hereby declared that the business of transmitting and selling electric energy for ultimate distribution to the public is affected \vith a public interest, and that Federal regulation of matters relating to generation to the extent provided in this Part and the Part next following and of that part of such business \vhich consists of the transmission of electric energy in interstate commerce and the sale of such energy at wholesale in interstate commerce is necessary in the public interest, such Federal re_gulation, however, to extend only to those matters which are not subject to regulation by the States."
what "qualifying facilities" a utility transacted business with under a federal statute, and the
hliPSC could not require a utility to enter into any particular contract).
By vray of example, but not limitation, one DTE Energy subsidiary (and Edison affiliate)
is DTE Enerzy Trading, Inc. ("DTEET"), which engages in the trading of electricity and natural
gas in nlhoIesale energy commodity markets. In May of 2001, the FERC approved DTEET
tariffs to allow it to engage in inter-affiliate wholesale purchases, sales and brokering
transactions with Edison. As part of receiving this authority, DTEET inlplemented a
comprehensive FERC-approved code of conduct that permits sharing of market information and
coordinated operations related to such transactions. Consistent with the FERC's approval,
Edison authorized DTEET to engage in inter-affiliate purchases, sales and brokering
transactions. These FERC-regulated acti\.ities ( I~hich also generally occur in interstate
commerce) are subject to federal codes of conduct, which preempt the MPSC's Code of Conduct
to the extent that it attempts to regulate these federal matters.
The MPSC's Code of Conduct may apply to all con~panies under the DTE holding
company (including Edison) participating in Michigan's Customer Choice program, but only to
generation supply sales activities in Michigan (not, for example, ~ e n n s ~ l v a n i a ) . ' ~ Beyond these
matters, however, federal law preempts the Commission's assertion of jurisdiction, including
Code of Conduct provisions, over non-participating DTE affiliates. The Code of Conduct should
be limited accordingly.
In response to Edison's waiver request, the Commission apparently recognized that
Edison's position is correct, but the Commission imposed an unworkable solution. The
'' Edison affiliates conduct business in Canada and several states, other than Michigan, including Alabama, Arizona, California, Florida, Illinois, Indiana, Kansas, 34assachusetts, Minnesota, h4issouri: Xebraska, Xew York, North Carolina, Ohio, Oklahoma, Pennsyh7ania, and otherwise throughout the LMid\\.est, Mid-Atlantic, and Southeast regions of the United States.
Commission stated that "as long as the FERC or another governmental regulatory agency
requires adherence to a code or regulatory requirements that are equii.alent to the Michigan code
of conduct, it will not be necessary to adhere to this [Michigan] code. Ho\veuer, the Commission
\vill make a decision on whether an alternate code is applicable after a waiver request has been
made by a utility." (Appendix 5B, Detroit Edison Order. pp 7-8) The Commission's solution is
unnorkable because it effecti~ely precludes Edison from determining, in advance, whether to
pursue business opportunities. Every contemplated interstate business transaction requires
Edison to evaluate whether various federal and state regulatory requirements are "equivalent" to
the Michigan Code of Conduct.
Even apart from the difficulty of evaluating the equivalence of various federal and state
regulatory requirements, just e~raluating the Michigan Code is a difficult process that often
produces inconclusive results due to the Code's vagueness problems (firther explained below).
Any attempt to evaluate \\-hat the Michigan Code of Conduct requires (or might require)
mandates reviewing and cross-referencing the:
( I ) December 4,2000 Order (Appendix 1);
(2) October 29,2001 Order on Rehearing (Appendix 3);
(3) October 29,2001 Code of Conduct (Appendix 4);
(4) October 3,2002 Wai\ er Orders (Appendix 5); plus
( 5 ) Edison's various pleadings, including its compliance plan and waiver requests, to
determine how various terms and conditions 2re (or could be) interpreted, waived,
and/or applied by the Commission.
EL-en if this extensive review results in Edison making an initial determination (1) of
n.hat the Michigan Code of Conduct requires (or might require), and (2) there is an "equivalent"
non-Michigan regulatory requirement, then Edison would have to request a waiver from the
Commission. Edison requested an interpretation on the preemption issue-on December 28,
2001. The Commission took over nine months (until October 3,2002) to respond ivith the vague
and unworkable standard that continues to assert jurisdiction and authority, where the
Commission has none, and which encroaches on the FERC's exclusive jurisdiction.
I . IF THE CO3IBIISSION M'ERE DEE3IED TO BE CORRECT IK ITS CO;\'STRUCTION OF 3ICL 160.10a(4) (If'HICH IT IS NOT), THE STATUTE n'OULD COYSTITUTE ,All IBIPROPER DELEGATION OF LEGISLATIVE POI'C'ER TO A STATE AGESCY.
As this Court recognized in Consumers Power, supra, 160 Mich at 160, n 9, issues
regarding the proper delegation of legislative authority to an agency would arise if the
Commission and the Court of Appeals were correct in their overbroad interpretations of the
Commission's authorizing statutes. Edison briefed this issue before the Court of Appeals, which
did not address it.
The Legislature must not "leave the people unprotected from uncontrolled, arbitrary
power in the hands of administrative officials." Dept of Kat'l Recources v Seaman, 396 Mich
299, 308-309; 230 YW2d 206 (1976). The Commission was required to comply with the
legislative mandate set forth in MCL 160.10a(4), and could not abridge or enlarge its authority,
nor exceed the powers given to it by the statute. Ranke v Corn and Securities Comm, 3 17 Mich
304, 309; 27 NV2d 898 (1947). MCL 360.10a(3) (quoted in Argument 11) sets forth the
boundaries of the Commission's power to establish a code of conduct. Sterling Secret Serv, Inc
v Dept of State Police, 20 filich -4pp 502,177; 174 NW2d 298 (1969). The Commission broadly
interpreted MCL 460.1 Oa(4) as follows:
"Act 141 sets forth three requirements for the code of conduct. First, the code must include, at a minimum, measures to prevent cross-subsidization, information sharing, and preferential
treatment. Second, the relationship that the code must address is that between the utility's regulated and unregulated services, \vhether those sen-ices are provided by the utility or its affiliates. Third, the code must apply to both utilities and alternative electric suppliers, consistent ivith the remainder of Act 141." (October 29, 200 1 Order on Rehearing, p 12).
The Commission enacted a Code of Conduct as if the Legislature had given the
Con~mission a blank check to regulate aq-thing that is e\-en remotely connected with electric
utilities in hlichigan. If the Commission's overly-broad interpretation of MCL 460.10a(4) were
deemed to be correct (ivhich it is not), then the statute u-ould be invalid because it would give the
Commission an "unlimited numbers of choices." Arlan's Dept Store v Attv Gen, 374 Mich 70,
77; 130 NW2d 892 (1961) (concluding that statute was an improper delegation of legislative
power); Osius v Citv of St. Clair Shores, 344 Mich 693; 45 NV2d 25 (1956) (holding that lack
of standards rendered ordinance unconstitutional and void); see generally, Westervelt v Nat'l Res
Comm, 402 Mich 312; 263 NW2d 564 (1978) (discussing the constitutional limits on the
delegation of legislative power to administrative agencies).
Properly interpreted, MCL 460.10a(4) authorizes the Commission to establish a Code of
Conduct that applies only to retail electric generation service in Michigan (as explained in
Argument 11) and does not usurp utility management authority (as explained in Argument IV).
The Code of Conduct should be limited accordingly. This remedy is also likely to cure, or at
least improve, the Code of Conduct's additional vagueness defects (see Argument VII, below,
explaining that the Code of Conduct sets forth incomprehensible prohibitions, including that a
utility "shall not subsidize in any manner, directly or indirectly, the business of its affiliates").
Moreover, the Con~mission's October 3, 2002 Detroit Edison Order suggests that a
significant consideration in the Commission's ad hoc review of waiver requests is the
Commission's interest in or approval of the particular business activities in question. Even then,
the Commission demonstrates a puzzling reluctance to pemlit Edison's affiliates to engage in
businesses, by imposing several conditions, including a highly impractical two-year wai\:er
period (Appendix 58, pp 2-3). An agency cannot be allowed to have unlimited discretion to
impose substantial and unpredictable penalties for unknown future conduct that the agency might
somehow find to be objectionable.
1 1 THE CODE OF COXDUCT IS YOID FOR VAGUEXESS BECAUSE ITS PRO\'ISIONS ARE TOO VAGUE, BROAD OR UNCLEAR TO REASONABLY PERnIIT COBIPLIASCE, AXD SUBSTAfiTI.4L 31OSETARY PESALTIES ARE THREATE;\'ED PURSUANT TO BICL 460.10c(l)(a).
In Grayned v City of Rockford, 408 US 104, 108-109; 92 S Ct 2294; 33 L Ed 2d 222
(1 9'72), the United States Supreme Court explained:
"It is a basic principle of due process that an enactment is void for vagueness if its prohibitions are not clearly defined. Vague laws offend several important values. First, because we assume that man is free to steer between lawful and unlawful conduct, we insist that laws give the person of ordinary intelligence a reasonable opportunity to know what is prohibited, so that he may act accordingly. Vague laws may trap the innocent by not providing fair naming. Second, if arbitrary and discriminatory enforcement is to be prevented: laws must pro\-ide explicit standards for those u h o apply them. A vague law impermissibly delegates basic policy matters . . . for resolution on an ad hoc and subjective basis, \vith the attendant dangers of arbitrary and discriminatory application. Third, but related, where a vague statute 'abut[s] upon sensitive areas of basic First Amendment freedoms,' it 'operates to inhibit the exercise of [those] freedoms.' Uncertain meanings inevitably lead citizens to '"steer far \vider of the unlawful zone" . . . than if the boundaries of the forbidden areas w-ere clearly marked."' (footnotes to extensive citations omitted).
The Code of Conduct is void for vagueness because it does not provide fair notice of
what conduct is prohibited. Similar administrative enactments have been invalidated on
vagueness grounds. See Golembiowski v Madison Heights Civil Service Comm, 93 Mich App
137, 153-56; 286 X W d 69 (1979): 1 x 7 den 408 hilich 893 (1980) (holding that discharge of a
policeman for "conduct unbecoming an officer" was constitutionally infirm \vhere the
department rule under \vhich the officer \\-as discharged did not provide a basis by which the
officer could reasonably understand the conduct being proscribed); Sponick v Detroit Police
Dep't, 49 hlich App 162, 174-76; 21 1 1\;\1'2d 673 (1973). See also Allison v City of Southfield,
172 hlich App 592, 596; 332 WY2d 369 (1958) ("a regulation is violative of due process on the
ground of \.agueness \\.hen it 'either forbids or requires the doing of an act in terms so vague that
men of common intelligence must necessarily guess at its meaning and differ as to its
application.' . . . Essentially, the doctrine of vagueness ensures that a regulation give its readers
fair notice of lvhat tIwpes of conduct are prohibited").
The October 29,2001 Order on Rehearing (Appendix 3) requires the reader to s> nthesize
that Order \\ ith the December 4, 2000 Order (Appendix l), neither of \vhich provides sufficient
clarity as to n.hat types of affiliated businesses or activities are impacted, or what types of
activities are prohibited. Both Orders and the resultant October 29, 2001 Code of Conduct
(Appendix 4) are replete with undefined phrases, words, and terms that cause substantial
c ~ n h s i ~ n as to the applicability and intended meaning of the various provisions. Phrases such as
"shall not subsidize in any manner, directly or indirectly, the business of its affiliates" leaves one
to wonder u-hether an electric utility may be affiliated nith fin): other corporation (Code of
Conduct, 5 11. B).
Likeu ise, the Code of Conduct purports to be intended to promote "fair competition" and
to prevent "discriminatory access to competitively sensitive information" uithout further
explanation or limitation as to the information and competitive markets to which it might apply
(Code of Conduct Introduction and 5 1I.D). Act 141 created only a competitive market for retail
electric sewice in Michigan. There is no basis for the Con~n~ission to assert authority lvith
respect to other unidentified and unregulated markets.
Similarly, the Code of Conduct prohibits an electric utility from providing "any affiliate
or other entity hvithin the existing corporate structure preferential treatment or any other
advantages that are not offered under the same tenns and conditions and contemporaneously to
other suppliers offering sewices or products within the same service territory or to customers of
those suppliers" (Code of Conduct, $ 111. A). This language, broadly construed, ~vould eliminate
any and all possible reasons for being affiliated lvith another legal entity, and goes jvell beyond
MCL 460.1 Oa4, lvhich does not even mention "products."
The Code of Conduct's provisions are expressed in such gsneral and imprecise terms that
"no standard of conduct is specified at all." Coates v Cincinnati, 302 US 61 1,614; 91 S Ct 1686;
29 L Ed 2d 214 (1971). Instead of specifiing u-hat conduct is permissible or prohibited (as
required by the Constitution and Act 141), the Code broadly asserts that the Commission
purportedly has authority to possibly decide, at some time in the future, that anything related to
Edison is an affiliate transaction, and that anything Edison does is some sort of prohibited
information sharing or indirect subsidy. The Code is unconstiizrtionally vague because persons
"of common intelligence must necessarily guess at its meaning and differ as to its application."
Connellv v General Construction Co, 269 US 385, 391; 36 S Ct 126; 70 L Ed 322 (1926). See
also DSS v Emmanuel Baptist Preschool, 334 hiich 380, 421; 455 NW2d 1 (1990). (Opinion of --
Cavanaugh, J.). The dividing line between ~ ~ h a t is la\vhl and what is unlawful cannot be left to
conjecture. The Code must be clear enough so that Edison can choose, in advance, the course(s)
that la\\ fully may be pursued. Connellv, supra, 269 US at 393.
The waiver process is similarly contrary to this requirement for clarity. The Commission
requires Edison to (1) request permission to conduct a lanrfid business, (2) wait (apparently 9
months), and then (3) attempt to apply a similarly vague or unreasonably-conditioned waiver
order each time a business opportunity presents itself (Appendix 5B, pp 6-8).
Edison is placed in the precarious position of having to either (a) risk the investment of
capital, time and resources in affiliate businesses and activities that may, under some broad
interpretations, violate certain Code of Conduct provisions, thereby creating substantial Act 141
penalty liability, or (b) dismantle portions of its existing business structure in an effort to gain
more certain avoidance of Act 141's penalties." Even then, one would not be sure whether
compliance would be achiel-ed, due to the lack of ascertainable standards.
RELIEF
Appellant The Detroit Edison Company respectfidly requests that this Court grant leave
to appeal and reverse the Court of -4ppeals' judgment, and thereby either vacate the h1PSC's
December 4,2000 Order (Appendix l), October 29, 2001 Order on Rehearing (Appendix 3); and
those parts of the October 3, 2002 Order Regarding Edison's Compliance Plan (Appendix 5B)
MCL 460.10~ provides for penalties of up to S50,000 for a Code of Conduct violation:
"Sec. 10c. (1) Except for a violation under section lOa(3) [assuring that Michigan customers are not svitched to another supplier or billed for any sen-ices lvithout the customer's consent] and as othewise provided under this section, upon a complaint or on the com~nission's own motion, if the commission finds, after notice and hearing, that an electric utility or an alternative electric supplier has not complied with a provision or order issued under sections 10 through IObb, the commission shall order such remedies and penalties as necessary to make whole a customer or other person \vho has suffered damages as a result of the violation, including, but not limited to, 1 or more of the follo\ving:
(a) Order the electric utility or alternative electric supplier to pay a fine for the first offense of not less than S1,000.00 or more than S20,000.00. For a second offense, the commission shall order the person to pay a fine of not less than $2,000.00 or more than $40,000.00. For a third party and any subsequent offense, the commission shall order the person to pay a fine of not less than 55,000.00 or more than S50~000.00."
inconsistent nith the law and public policy explained in this application; or, in the alternative,
limit the Code of Conduct (Appendix 4) to apply only to the activities and relationship between
an electric utility or alternative electric supplier and an affiliate concerning the provision of retail
open access electric generation supply service in klichigan.
Respectfully submitted,
THE DETROIT EDISON COMPANY Bruce R. Maters (P28080) Jon P. Christinidis (P47352) 2000 Second Avenue, 688 WCB Detroit, 1\41 38226-1203 (3 13) 235-7706
FOSTER, SWIFT, COLLhTS & SMITH, P.C. Co-counsel for The Detroit Edison Company
Dated: September 28,2004
Stephen J. Rhodes (P30112) 3 13 S. Washington Square Lansing, MI 38933 (517) 371-8100
STATE OF MICHIGAT I& THE SUPREME COURT
APPLICATION FOR LEAVE TO APPEAL FROM THE SE? 29 i;,*a MICHIGPLU COURT OF APPEALS
THE DETROIT EDISON COMPANY,
Appellant, Supreme Court Case No.
Court of Appeals No. 24453 1
MICHIGAK PUBLIC SERVICE COMMISSION,
Appellee
In the matter of the approval of a 1 code of conduct for CONSUMERS 1 ENERGY COMPPL\T and THE 1 DE.TROIT EDISON COMPANY 1
MPSC Case No. U- 12 134
APPENDICES TO THE DETROIT EDISON COMPANY'S APPLICATION FOR LEAVE TO APPEAL
William K. Fahey (P27745) Stephen J. Rhodes (P40 1 12) Foster, Swift, Collins & Smith, P.C. Co-counsel for The Detroit Edison Company 3 13 S. Washington Square Lansing, MI 48933 (517) 371-8100
Bruce R. Maters (P28080) Jon P. Christinidis (P47352) The Detroit Edison Company 2000 Second Avenue, 688 WCB Detroit, MI 48226- 1203 (3 13) 235-7706
Dated: September 28, 2004
INDEX OF APPEABICES
December 4, 2000 Order of the Michigan Public Service Commission.
January 23, 2001 Order of the Michigan Public Service Commission.
October 29,2001 Order on Rehearing of the Michigan Public Service Commission.
October 29,200 1 Code of Conduct.
October 3, 2002 Orders of the Michigan Public Service Commission.
A. Generic Order
B. Detroit Edison
C. Consumers Energy
D. Cooperatives
F. WEPCoiEdison Sault
G. WPS CorpiZTPCo
June 19,2000 Opinion and Order of the Michigan Public Service Commission.
Delaware Power & Light Co v Public Service Comm (April 8,2002 Slip Opinion of the .Maryland Court of Appeals).
Michigan Electric Cooperative Assoc v Public Service Comm, unpublished opinion per curiarn of the Court of .4ppeals, decided August 17, 2004 (Docket rios. 244425, 244429, and 24453 1).
S T A T E O F M I C H I G A N
BEFORE THE MICHIGAK PUBLIC SERVICE COMMISSIOK
* *
In the maner of the approval of a code of conduct ) for CONSUMERS Eh'ERGY COMPANY and 1 Case No. U- 121 34 THE DETROIT EDISON COMPANY. 1
A: :he Decexber 4,2000 rneeti~g nf the Michigan Public Service Commission in Lansing,
Michigan.
PRESENT: Hon. John G . Strand, Chairman Hon. David A. Svanda, Commissioner Hon. Robert B. Nelson, Commissioner
0Pllr;lOX Ah?) ORDER
I.
HISTORY OF PROCEEDTNGS
On September 14, 1999, the Commission issued an order commencing this proceeding "for the
purpose of determining what modifications, if any, should be made to the existing codes of
conduct" for Consumers Energy Company (Consumers) and The Detroit Edison Company (Detroit
Edison). September 14, 1999 order, p. 3. Consumers' code was approved in the March 8, 1999
order in Case No. U-11290. Detroit Edison's code was approved in the September 14, 1999 order
in Case No. U-11290. At the prehearing conference on October 7, 1999, Administrative Law
Judge George Schankler (AU) granted the petitions for leave to intervene filed bj.- the Association
of Businesses Advocating Tariff Equity (ABATE), Anorney General Jennifer M. Granholm
(Anorney General), Energy Michigan, Edison Sault Electric Company, the Michigan Alliance for
EXHIBIT A
CODE OF CONDUCT
This code of conduct is intended to promote fair competition by establishing measures to prevent cross-subsidization, information sharing, and preferential treatment. An elecmc utiliry or ul alternative electric supplier is prohibited fiom taking punitive action against any individual (including an employee) or entity who files a complaint with the utility, the altznative electric supplier, or the Commissioa or otherwise causes an alleged violation of this code of conduct to come to the anention of the Commission.
I. A~~l icabi l i tv : This code applies to all elecmc utilities regulated by the Commission and to alternative electric suppliers, as defined by MCL 460.10g; MSA 22.13(10g).
Seuaration An electric utility or alternative electric supplier that offers both replated and unregulated services shall do so with the structural or functional separation needed to prevent anticompetitive behavior. This includes, but is not limited to, the following: A. h elecmc utility shall not offer unregulated services or products except through one or
more affiliates or through other entities within the existing corporate structure, such as divisions.
B. An elecmc utility's or alternative electric supplier's regulated services shall not subsidize in any manner, directly or indirectly, the business of its affiliates or other separate entities.
C. An elecmc utility or alternative electric supplier shall maintain its books and records separately fiom those of its affiliates or other entities within the existing corporate structure. An electric cooperative offerins unregulated services shall maintain an account- ing system that allocates costs between its regulated and non-regulated ventures on a fully allocated embedded cost basis, and any transfers of services, products, or propem must be in compliance with the provisions of Section LLI, paragraph C.
D. An electric utility or alternative electric supplier and its affiliates or other entities within the existing corporate structure shall not share facilities, equipment, or operating employees, but may share computer hardware and sofiware with documented protection to prevent discriminatoxy access to competitively sensitive information.
E. An electric utility's or alternative electric supplier's operating employees and the operating employees of its affiliates or other entities within the existing corporate structure shall function independently of each other and maintain separate offices.
F. An electric utility or alternative electric supplier shall not finance or co-sign loans for affiliates.
G. An electric utility may transfer employees between the utility and any of its affiliates or other entities within the existing corporate structure as long as the electric utility docu- ments those nansfers and files semi-annually with the Commission a report of each occasion on which an enployee of the electric utility became an employee of an affiliate or other entity within the existing corporate structure and/or an employee of an affiliate or other entity within the existing corporate structure became an employee of the utility.
H. An electric utility and its affiliates or other entities within the existing corporate structure offering unregulated services or products shall not engage in joint advertising, marketing, or other promotional activities related to the provision of unregulated services, nor shall
S T A T E O F M I C H I G A N
BEFORE THE MICHIGAN PUBLIC SERVICE COMVISSION
In the matter of the approval of a code of conduct ) for COSSUMERS E3ERGY COMPAFY and 1 Case No. L-12134 THE DETROIT EDISON COMPANY. 1
\
At the January 23,2001 meeting of the Michigan Public Service Commission in Lansing,
Michigan.
PRESENT: Hon. Laura Chappelle, Chairman Hon. David A. Svanda, Commissioner Hon. Robert B. Nelson, Commissioner
ORDER
On June 5,2000, Public Act 141 of 2000, the Customer Choice and Elecmcity Reliabiliry Act
(Act 141), MCL 460.10 et seq.; MSA 22.13.(10) et seq., took effect. Subsection lOa(4) of Act 141
directed the Commission to issue, within 180 days, an order establishing a code of conduct for all
electric utilities regulated by the Commission and for all alternative electric suppliers. On
December 4,2000, the Commission issued an order in this case adopting a code of conduct
designed to promote fair competition in Michigan by establishing measures to prevent cross-
subsidization, information sharing, and preferential treatment between a utility's regulated and
unregulated services, whether those services are provided by the utility or its affiliated entities.
Pursuant to the December 4,2000 order, each utility or alternative electric supplier was given 90
days from that dal? to file its respective code of conduct compliance plan.
STATE O F MICHIGAN
BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION
In the matter of the approval of a code of conduct ) for CONSUMERS ENERGY COhWANY and 1 Case No. U-12134 THE DETROIT EDISON COMPANY. 1
- At the October 29,2001 meeting of the Michigan . - Public Service Commission in Lansing.
Michigan.
PRESENT: Hon. Laura Chappelle, Chairman Hon. David A. Svanda, Commissioner Hon. Roben B. Nelson, Commissioner
ORDER ON REHEARING
HISTORY OF PROCEEDINGS
On June 5,2000, Public Act 141 of 2000, the Customer Choice and Electricity Reliability Act
(Act 141), MCL 460.10 et seq., took effect. Subsection lOa(4) of Act 141 directed the
Commission to issue, within 180 days, zn order establishing a code of conduct for all electric
utilities regulated by the Commission and for all alternative electric suppliers. On December 4,
2000, the Commission issued an order in this czse adopting a code of conduct'
ereaf after, when refening in general to the code of conduct required by Act 141. the terms "code" or "code of conduct" will be used. The term 'December 4 code" will be used when refemng to the specific code of conduct adopted by the order dated December 4,2000.
EXHIBIT A
CODE OF COhTDUCT
This code of conduct is intended to promote fair competition by establishing measures to prevent cross-subsidization. information sharing, and preferenti4 treatment between the regulated and unregulated operations of electric utilities, alternative elecmc suppliers, md their afi1ia1e-s. An elecmc utility or alternative e1ecn-j~ s~pplier is prohibited from taking pcnpive action against my individual (including an enployce) or entity who files a complaint with the electric utility, the altemative elecuic supplier, or the Commission, or orherwise causes an alleged violation of this code of conduct to come to the aucntion of the Commission.
This code epplies to all electric utilities as defined by MCL 460.562 and to alternative electric suppliers, as defined by MCL 460.10g. who, together with their affiliates, provide regulated services in Michigan and unregulated services. As used in this code of conduct, a service is "regulated" if the commission has authority to set the price for the service as of h e effective date of this code.
II. Separation
An electric utility or alternztive electrjc supplier that offers, itself or through its affiliates, both regulated and unregulated services shall do so with the structural or functional separation needed to prevent cross-subsidization, infomation sharing, and preferential treatment between the regulated and unregulated services. This includes, but is not lirnited to, the following:
A. An electric utility shall not offer unregulated services or products except through one or more affiliates or through other entities within the corporate structure, such as divisions.
B. An electric utility's or altemative electric supplier's regulated services shall not subsidize in any manner, directly or indirectly, the unregulated business of its affiliates or other separate entities.
C. An electric utility or alternative electric scpplier shall maintain its books and records separately from those of its affiliates or other entities within its corporate structure. An electric cooperative offering unregulated services shall maintain an accounting system that allocates costs between its regulated and unregulated ventures on a fully allocated embedded cost basis, and any transfers of services, products, or property must be in compliance with the provisions of Section El, paragraph C.
D. An electric utility or altemative e:ectric supplier and its affiliates or other entities within its corporate structure shall not share facilities, equipment, or operating employees, but may share computer hardware and software with documented protection to prevent discriminatory access to competitively sensitive information.
S T A T E O F M I C H I G A N
BEFORE THE MICHIGAN PL'BLIC SERVICE COMMISSION
In the matter of the approval of a code of conduct ) for CONSUMERS ENERGY COMPANY and 1 Case No. U-12134 THE DETROIT EDISON COMPANY. 1
\
At the October 3,2002 meeting of the Michigan Public Service Commission in Lansing,
Michigan.
PRESEhT: Hon. Laura Chappelle, Chairman ~n > 3 Hon. David A. Svanda, Commissioner S r, ru
On December
Hon. Robert B. Nelson, Commissioner 2~ c5 CI->C =P-=, s m s - l <s=..
OPINION AND ORDER
0- v, 4,2000, the Commission issued an order adopting a code of conQact, as
4 5
required by Section lOa(4) of the Customer Choice and Electricity Reliability Act:
Within 180 days afier the effective date of the amendatory act that added this section, the commission shall establish a code of conduct that shall apply to all electric utilities. The code of conduct shall include, but is not limited to, measures to prevent cross-subsidization, information sharing, and preferential treatment, between a utility's regulated and unregulated services, whether those services are provided by the utility or the utility's affiliated entities. The code of conduct established under this subsection shall also be applicable to electric utilities and alternative elecnic suppliers consistent with section 10, this section, and sections lob through IObb.
MCL 460.1 Oa(4). Among other things, the order required the filing of compliance plans and
permitted the filing of requests for waivers.
On January 23,2001, the Commission issued an order amending the code of conduct to
require the filing of compliance plans within 60 days afier the issuance of an order on rehearing of
S T A T E O F M I C H I G A N
BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION
* * * * *
In tbe matter of the approval of a code of conduct ) for CONSUMERS Eh'ERGY COMPANY and 1 Case No. U-12 134 THE DETROIT EDISON COMPANY. 1 (Detroit Edison)
At tbe October 3,2002 meeting of the Michigan Public Service Commission in Lansing,
Michigan.
PRESENT: Hon. Laura Chappelle, Chairman Hon. David A. Svanda, Commissioner Hon. Robert B. Nelson, Commissioner m h TU
0 . - - n 7 0 m n2cs -7 i 7
OPINIOY AND ORDER --a=- r'\o-n I==-,,
i ) '-;CS3 C n I-TO-.- - I-,;=--; - <
On December 4,2000, the Commission issued an order adopting a code of c o w % -- n r - Pl E C" h) .J
required by Section lOa(4) of the Customer Choice and Electricity Reliability Act: r w c
Within 180 days after the effective date of the amendatory act that added this section, the commission shall establish a code of conduct that shall apply to all electric utilities. The code of conduct shall include, but is not limited to, measures to prevent cross-subsidization, information sharing, and preferential treatment, between a utility's regulated and unregulated services, whether those services are provided by the utility or the utility's affiliated entities. The code of conduct established under this subsection shall also be applicable to electric utilities and alternative electric suppliers consistent with section 10, this section, and sections 10b through 1 Obb.
MCL 460.10a(4). Among other things, the order required the filing of compliance plans and
permined the filing of requests for waivers.
On January 23,2001, the Commission issued an order amending the code of conduct to
require the filing of compliance plans within 60 days after the issuance of an order on rehearing of
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 approval of a code of conduct ) for COSSUMERS ENERGY COMPANY and 1 Case No. U-12134 THE DETROIT EDISON COMPANY. 1 (Consumers Energy)
\
At the October 3,2002 meeting of the Michigan Public Service Commission in Lansing,
Michigan.
PRESENT: Hon. Laura Chappelle, Chairman Hon. David A. Svanda, Commissioner Hon. Robert B. Nelson, Commissioner
D !?PC!
"335 ,% - 23 ' --.I rn
On December 4,2000, the Commission issued an order adopting a code of c o m ~ I, C..ZLi rr 2- *- r?+O-.:
required by Section lOa(4) of the Customer Choice and Electricity Reliability act^^-',',^ _.. _ -2 mC:> - -r?-
Within 180 days after the effective date of the amendatory act that add@ V: ru ry this section, the commission shall establish a code of conduct that shall appFto r
all electric utilities. The code of conduct shall include, but is not limited to, measures to prevent cross-subsidization, information sharing, and preferential treatment, between a utility's regulated and unregulated services, whether those services are provided by the utility or the utility's affiliated entities. The code of conduct established under this subsection shall also be applicable to electric utilities and alternative electric suppliers consistent with section 10, this section, and sections lob through 1 Obb.
MCL 460.10a(4). Among other things, the order required the filing of compliance plans and
permitted the filing of requests for waivers.
On January 23. 2001, the Commission issued an order amending the code of conduct to
require the filing of compliance plans within 60 days afier the issuance of an order on rehearing of I I
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 approval of a code of conduct ) for CONSUMERS ENERGY C0MPA.W and 1 Case No. U-12134 THE DETROIT EDISON COMPANY. 1 (Cooperatives)
At the October 3,2002 meeting of the Michigan Public Service Commission in Lansing,
Michigan.
PRESENT: Hon. Laura Chappelle, Chairman Hon. David A. Svanda, Commissioner Hon. Robert B. Nelson, Commissioner
OPlWON AND ORDER
On December 4,2000, the Commission issued an order adopting a code of conduct, as
required by Section I Oa(4) of the Customer Choice and Electricity Reliability Act:
Within 180 days after the effective date of the amendatoq act that added this section, the commission shall establish a code of conduct that shall apply to all elecmc utilities. The code of conduct shall include, but is not limited to, measures to prevent cross-subsidization, information sharing, and preferential treatment, between a utility's regulated and unregulated services, whether those services are provided by the utility or the utility's afiliated entities. The code of conduct established under this subsection shall also be applicable to electric utilities and alternative elecmc suppliers consistent with section 10, this section, and sections 1 Ob through 1 Obb.
MCL 460.1 Oa(4). Among other thinss, the order required the filing of compliance plans and
permitted the filing of requests for waivers.
On January 23,2001, the Commission issued an order amending the code of conduct to
require the filing of compliance plans within 60 days after the issuance of an order on rehearing of
S T A T E O F M I C H I G A N
BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION
* * * * *
Ln the matter of the approval of a code of conduct ) for CONSUMERS ENERGY C0MPA.W and 1 Case No. U-12134 THE DETROIT EDISON COMPANY 1 (Nsp-W)
At the October 3,2002 meeting of the Michigan Public Service Commission in Lansing,
Michigan.
PRESENT: Hon. Laura Chappelle, Chairman Hon. David A. Svanda, Commissioner C? z Hon. Robert B. Nelson, Commissioner i5-E
7 .
~ $ 3 5 ==s;+ ' - c - c > -r-.---1
OPINION AND ORDER nEZy .- r <-d.%-; - . . \!A-2
On December 4,2000, the Commission issued an order adopting a code of condue% rl r
required by Section lOa(4) of the Customer Choice and Electricity Reliability Act:
Within 180 days afier the effective date of the amendatory act that added this section, the commission shall establish a code of conduct that shall apply to all elecnic utilities. The code of conduct shall include, but is not limited to, measures to prevent cross-subsidization, information sharing, and preferential treatment, between a utility's replated and unregulated services, whether those services are provided by the utility or the utility's affiliated entities. The code of conduct established under this subsection shall also be applicable to electric utilities and alternative electric suppliers consistent with section 10, this section, and sections lob through 1Obb.
MCL 460.10a(4). Among other things, the order required the filing of compliance plans and
permitted the filing of requests for waivers.
On January 23,2001, the Commission issued an order amending the code of conduct to
require the filing of compliance plans within 60 days afier the issuance of an order on rehearing of
S T A T E O F M I C H I G A N
BEFORE THE MICHIGAN PUBLIC SERVICE COMMlSSlON
In the matter of the approval of a code of conduct ) for CONSUMERS ENERGY COMPANY and 1 Case No. U-12134 THE DETROIT EDISON COMPANY. 1 (WEPCoEdison Sault)
At the October 3,2002 meeting of the Michigan Public Service Commission in Lansing,
Michigan.
PRESEhT: Hon. Laura Chappelle, Chairman Hon. David A. Svm&, Commissioner Hon. Robert B. Nelson, Commissioner
OPINION AND ORDER
On December 4,2000, the Commission issued an order adopting a code of conduct, as
required by Section lOa(4) of the Customer Choice and Electricity Reliability Act:
Within 180 days after the effective date of the amendatory act that added this section, the commission shall establish a code of conduct that shall apply to all electric utilities. The code of conduct shall include, but is not limited to, measures to prevent cross-subsidization, information sharing, and preferential treatment, between a utility's regulated and unregulated services, whether those services are provided by the utility or the utility's affiliated entities. The code of conduct established under this subsection shall also be applicable to electric utilities and alternative electric suppliers consistent with section 10, this section, and sections 10b through I Obb.
MCL 460.10a(4). Among other things, the order required the filing of compliance plans and
permitted the filing of requests for waivers.
On January 23,2001, the Commission issued an order amending the code of conduct to
require the filing of compliance plans within 60 days after the issuance of an order on rehearing of
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 approval of a code of conduct ) for CONSUMERS ENERGY COMPANY and 1 Case No. U- 12 134 THE DETROIT EDISON COMPANY. 1 (W'S Corp/UPPCo)
At the October 3,2002 meeting of the Michigan Public Service Commission in Lansing,
Michigan.
PRESENT: Hon. Laura Chappelle, Chairman Hon. David A. Svanda, Commissioner Hon. Robert B. Nelson, Commissioner
OPINION AND ORDER
On December 4,2000, the Commission issued an order adopting a code of conduct, as
required by Section 1 Oa(4) of the Customer Choice and Electricity Reliability Act:
Within 180 days after the effective date of the amendatory act that added this section, the commission shall establish a code of conduct that shall apply to all electric utilities. The code of conduct shall include, but is not limited to, measures to prevent cross-subsidization, information sharing, and preferential treatment, between a utility's replated and unregulated services, whether those services are provided by the utility or the utility's affiliated entities. The code of conduct established under this subsection shall also be applicable to electric utilities and alternative elecmc suppliers consistent with section 10, this section, and sections lob through 1Obb.
MCL 46O.lOa(4). Among other things, the order required the filing of compliance plans and
permitted the filing of requests for waivers.
On January 23,2001, the Commission issued an order amending the code of conduct to
require the filing of compliance plans within 60 days after the issuance of an order on rehearing
S T A T E O F M I C H I G A N
BEFORE THE MICHIGAK PUBLIC SERVICE COMMISSION
* * * * *
In the matter of the approval of a code of conduct ) for CONSL-MERS EhZRGY COhll'AA?' and THE DETROIT EDISON COMPA3Y.
1 1
Czse No. C-12133
At the June 19,2000 meeting of the Michigan Public Service Commission in Lansing,
Michigan.
PRESENT: Hon. John G. Strand, Chairman Hon. David A. Svanda, Commissioner Hon. Roben B. Nelson, Commissioner
OPISION AND ORDER
On September 14, 1999, the Commission initiated this proceeding to consider modifications to
the provisional codes of conduct approved for Consumers Energy Company and The Detroit
Edison Company in the context of the resrrucruring of the electric utility industry. There have been
hearings, and the parties are briefing the case.
On June 5, 2000, Public Act 141 of 2000 took effect. Subsection lOa(4) provides:
Within 180 days after the effective date of the amendatorq. act that added this section, the commission shall establish a code of conduct that shall apply to all electric utilities. The code of conduct shall include, but is not limited to, measures to prevent cross-subsidization, information sharing, and preferential treatment, beween a utility's regulated and unregulated services, whether those services are provided by the utility or the utility's affiliated entities. The code of conduct established under this subsection shall also be applicable to electric utilities and
803 A.2d 460 Ctil. L. Rep. P 26,8 17 (Cite as: 370 M ~ I 1, 803 A.2d 460)
Page I
P Court of Appeals of Maryland.
DELMARVA P O M R & LIGHT COMPANY dWa Connectiv Power Delivery, et al.
V.
PUBLIC SERVICE COMMISSIOX OF MARYLAKD, et al.
No. 75, Sept. Term 2001.
April 8, 7002
Utilities brou@t action against Public Service Commission (PSC), seeking a declaratory jud,gnent that PSC failed to comply with the Administrative Procedure Act (APA) when issuing order that implemented the restructuring and partial deregulation of electric and natural gas utilities. The Circuit Court, Wicomico Count).. Donald C. Davis, J.. declared that the order was generally valid. Utilities appealed. Certiorari was granted prior to proceedings in the Court of Special .Appeals, and the Court of -4ppeals. Wilner, J., held that directives in PSC's order were regulations that had to be promulgated pursuant to the APA to be valid.
Reversed.
West Headnotes
Electricity -1 I-lskl Most Cited Cases
JIJ as @I 190k l Most Cited Cases
Directives in Public Service Commission's (PSC) order that implemented restructuring and partial deregulation of electric and natural gas utilities were "regulations" that had to be promulgated pursuant to the Administrative Procedure Act (PIPA) to be valid; with limited exception, directives had general application to all electric and gas utilities and their various affiliates. they had future effect, they were adopted by a "unit," the PSC, to carry out laws that the PSC administered, they were in the form of statements of policy? and none fell within AP.4's exceptions. West's Ann.Md.Code. Srate Go\wnment. $ 10- lC) l (~ j .
145kl Most Cited Cases
121 as @I 190k l Most Cited cases
Administrative Procedure Act's (.%PA) exception for statement that concerns only internal management of agency and does not directly affect rights of the public did not apply to directives in Public Service Commission's (PSC) order that implemented restructuring and partial deregulation of electric and natural gas utilities. and thus directives were "regulations" that had to be promulgated pursuant to the APA to be valid; even if the directives did not concern PSC's internal management, stated purpose of order was to protect public's rights. West's Ann.Md.Code. State Government. S 10-1 0 1 (el(?).
J3J ~ l e c t r i c i t ~ @I 14% 1 Most Cited Cases
as lEj31 190k I Most Cited Cases
Directives in Public Service Commission's (PSC) order that implemented restructuring and panial deregulation of electric and natural gas utilities were not immune from Administrative Procedure Act's (APA) requirements for regulation promulgation simply because they emanated from a "generic proceeding," which a regulatory agency like the PSC used either to investigate some general matter subject to its jurisdiction or to gather facts and opinion in hrtherance of its policy-setting hnction. West's Ann.>ld.Code. State Government, d 10- I0 I a.
J-lJ Electricity a1 I4Skl Most Cited Cases
c a r m~ 190kI Most Cited Cases
Ctilities did not waive right to raise in a judicial review action their contention that directives in Public Service Commission's (PSC) order that implemented restructuring and partial deregulation of electric and natural gas utilities were invalid on ground that PSC did not follow requirements of the Administrative Procedure Act (APA), as that waiver principle did not apply to actions seeking a declaratory judgment on the validity of regulations. West's Ann.Md.Code. Public L'tilitv Com~anies, 6 3- 201iaif1, 2): West's Ann.Md.Code. State Government. d 10-1 0 ](el.
Copr. C West 2004 KO Claim to Orig. U.S. Govt. Works
.-
1-W. L. Rep. P 26,817 (Cite as: 370 Md. 1, 803 A.2d 460)
fi Administrative Law and ~ r o c e d u r e ~ 6 9 . 1 l5Ak669.1 Most Cited Cases
Coun of Appeals does not allow issues to be raised for the first time in actions for judicial review of administrative agency orders entered in contested cases because to do so would allow the court to resolve matters ab initio that have been committed to the jurisdiction and expertise of the asency. **461 *3 Deborah E. Jennings (Brett Ingennan of
Piper Marbury Rudnick & Wolfe LLP of Baltimore), for Baltimore Gas and Elec. Co., on brief.
Christopher R. Mellon (Thomas P. Perkins, 111 of Venable, Baet-ier and Howard, LLP of Baltimore; Randall V. Griffin, Christie Day Cannon of Conectiv of Wilmington, DE), for Delmarva Power & Light Co. dWa Conectiv Power Delivery? on brief.
Paul S. Buckely of Washington, D.C. (Lee A. Satterfield, Har? S. Johnosn, Dwight W. Stone, 11 of Whiteford, Taylor & Preston of Baltimore), for Washington Gas Light Company, on brief.
Susan Stevens .Miller, General Counsel (Brock C. Hutton, Assistant Gemal Counsel. on brief), Baltimore, Richard T. Miller, Asst. People's Counsel (Michael J. Travieso, People's Counsel, Baltimore). on brief, Gar?: R. Alexander (Chantel R. Ornstein of Alexander & Cleaver. P.A., Annapolis. on brief), for Mid-Atlantic Petroleum Ditributors Association. Air Conditioning Contractors of America - National Capital Chapter. Maryland Alliance for Fair Competition. and Air Pro Inc.
hlarta D. Hanino (Piper Marbury Rudnick & Wolfe. LLP), Baltimore, for Chesapeake Utilities Corporation.
Kenneth W. Christmas, General Counsel, Francis X. Wright (Eastwick, Rose & Wright, P.A.), Slargaret Lee Konon (Norton & Jonson, LLC). Baltimore, for Columbia Gas of Maryland, Inc.
Kirk J . Enire, Paul H. Harrincton, William D. Shapiro (Pepco Holdings. Inc.j, Washington, D.C.. Richard D. Gary *4 (Hunton & Williamsj, Richmond, \'A, Ted J. Murphy. Edwin G. Kichline, Kara D. Little (Hunton & Williams), Washington, D.C., for Potomac Elec. Power Co.
Andrew H. Marks, Jennifer N. Waters (Crowel d hloring. LLP), Washington, D.C.. for BGE Home Products and Services, Inc.
Page 2
William J. Murphy, Robert T. Shaffer, 111 (Murphy 82 Shaffer), Baltimore, Kathy L. Mitchell (Allegheny Energy Building), Hagerstowm, for the Potomac Edison Co. dbia Allegheny Power.
Gary R. Alexander, Chantel R. Ornstein (Alexander & Cleaver, P.A.), Annapolis, for Amicus Curiae, Mirant Mid-Atlantic, LLC.
BELL, C.J.. ELDRIDGE, RAKER, WILNER. CATHELL, HARRELL, and BATTAGLIA. JJ.
**462 WLSER, Judge.
We have before us a broad range of issues arising from an order of the Public Service Commission (PSC) that implements. in part, the restructuring and partial deregulation of electric and natural gas utilities in Mar\.land. Most of the issues presented by the utilities are substantive in nature, testing whether the Commission has the authority to do some of what it did. The only issue that we need address on the merits, however, is whether the PSC order constitutes a regulation, as defined in the Administrative Procedure Act (APA), and is ineffective for failure to comply with the requirements of that Act. We shall answer that question in the affimarive. and, for that reason, reverse the judgment of the Circuit Coun.
The early operation of what we now refer to as public utilities, including electric and gas companies, was, for the most part, under Franchises conferred by the local municipalities in which they did business, franchises that they needed in *5 order to lay pipes or string wires under, along, or above public streets and highways. in conformance with the prevailing economic philosophy that competition produced the greatest efficiency and thus the greatest public good, many municipalities were content to grant multiple Franchises, which led to several companies competing in the same service area. It eventually became apparent, however, that the resulting competition was not in the public interest-some of the companies disappeared and the remaining competition became chaotic and inefficient. See, in general, Gregg A. Jarrell, The Demand for State Regulation o j the Electric LWiy Industty, 21 J.L. & ECON. 269, 273- 74 (1978); see also OSCAR L. POND, A
C o ~ r . , West 2004 No Claim to Orig. U.S. Govt. Works
Page 3 Util. L. Rep. P 26,8 17 (Cite as: 370 Md. 1, 803 A.2d 460)
TREATISE ON THE L.4W OF PL'BLIC UTILITIES chs. 29-5 I (5d ed.1925). As noted by one commentator:
"Competition \vhich was relied upon to insure for the public reasonable rates and satisfactory service proved to be elusive and non-enduring .... It continually was disappearing as the result of bankruptcies. consolidations, and formal or informal agreements, leaving in its wake tom-up streets, 'dead' wires and useless poles and pipes, enormous overcapitalization, and paralyzed service."
BURTON BEHLMG, COMPETITION AND MOKOPOLY IN PUBLIC UTILITY IYDUSTRIES 5-1 (1938), quoted in Jarrell. supra, at 274.
The failure of competition to provide efficient service led public policy planners and governments to recognize these kinds of utilities as "natural" monopolies. The actual experience seemed to confirm the economic theory that, "freedom of entry is wasteful if firms have extensive scale economies relative to the size of the market. If the average cost curve of the ~ p i c a l fm falls over the entire extent of market demand, resources are necessarily wasted if more than one firm produces. since a single firm could produce the market output more cheaply." Jarrell, supra. at 272. See also HAROLD KOOWTZ AND RICHARD W. GABLE. PUBLIC COXTROL OF ECONOMIC EKTERPRISE 208-09 (1956). The economic imperative that each firm would have to expand output up to what the market would bear in order to lower unit costs and thereby compete would eventually drive all but one firm out of business; hence, =6 the notion of a "natural" monopoly. The problem. of course. was that. once a monopolistic state was achieved, the remaining firm was free to inflate its prices beyond those which unit costs would justie. thereby producing at best the very inefficienc), from the consumer's point of view, that would have prevailed under the compe:itive model.
**463 This left governments the choice of either acquiring the enterprise and operating it as a public entity or allowing the private monopoly to continue but under extensive public regulation, as a "guarded" monopoly. The initial choice was the former, but increasingly in the early Twentieth Century, it became the latter. Borrowing from notions articulated in Manhew Hale's Seventeenth Century treatise on the regulation of seaports, De Portibtrs Mar~s, both the State and Federal = wvernments eventually came to accept the principle. as a matter of political economy, that the public good was best served by not only permitting, but assuring, a
monopolistic structure, coupled with extensive government control over the rates, service, and operations of such a structure. See Herben Hovenkamp. Tcchnoio.m.. Paliiic:. and Re.euiuted Monopolr: .4tl rlmeric~n HIsroric.ai Pcmp~crive. 67 TES. L.REV. 1263. 1282-83 r 1984): ,211u1t2 :. ///it~ois. 94 U.S. 1 13. 24 L.Ed. 57 f 1876). Pond observes that, "[ulnder this method the state through its [public utility] commission takes the place of competition and furnishes the regulation which competition cannot give? and at the same time avoids the expense of duplication in the investment and operation of competing municipal public utilities." POKD, supra, 90 1.
Both the Federal and the State governments employed a commission approach to the regulation of energ) production and distribution. After 1920, the interstate aspects became subject to regulation by the Federal Power Commksion, later by the Federal Energy Regulatory Commission. Intrastate aspects were subjected to the authority of State public utility commissions that began forming in the first decade of the Twentieth C e n w .
*7 Mapland adopted this approach in 1910, when the Legislature created the Public Service Commission and authorized it to regulate the activities of public service companies, including gas and electric companies. The regulation was pervasive. Over time, the PSC was given the authority, among other things, (I) to restrict actual entry into the regulated industry, IFNI] (2) to prescribe standards for safe, adequate, reasonable, and proper service for any class of utility, PUC $ 5- IOlfa), (3) ro require a utility to continue any service that it renders to the public under a franchise, id. $ 5 - 103(a), (4) to preclude the transfer or abandonment of a franchise, id. $ 5- 202, (5) to regulate the rates charged by utilities by setting a '7ust and reasonable rate" for them. as a maximum rate, a minimum rate, or both, id. 5 3- 102, (6) to prohibit a utility from acquiring the capital stock of another utiliv incorporated in Maryland. id. 5 5-203, (7 ) to require a variety of reports and information from utilities, id. $ $ 5-302, 6-201 to -210, and (8) to regulate the issuance of stock and evidence of indebtedness by utilities, id. 6 6-102.
FNI. See Mapland Code, Public Ltilities Article (PUCI. & 5-20! (prohibiting a utility from exercising any franchise except to the extent authorized by the PSC); also ;\fuyor of Beriit~ r. DJman~rr Power. 95 Md.Avp.
Copr. C West 2003 KO Claim to Orig. U.S. Govt. Works
803 A.2d 460 L'til. L. Rep. P 26.817 (Cite as: 370 Md. 1, 803 A.2d 460)
Page 1
585. 621 A.9d 763, cerr. denied 33 1 Md. 280. 628 A.2d 1067 1 1993,. The actual term used to describe the regulzted entities is "public sewice company." For convenience. we shall use the shorter term, "u t i l i~ . "
Under this regime. gas companies and electric companies were assigned geographical areas of the State and allowed to operate, in those regions, as regulated monopolies. See, for example. Case S o . 6017, Order No. 56203, In rhe !\farrer of rhe Esrablirhntenr OT Senice .4reas of Elecrric Utilities wirhin rke Srare of . l l a~ land , 57 Md. PSC 59 (1 966) (assigning geographic territories to electric companies). If the gas and electric services in a prescribed *"161 area were provided by different companies, there was some degree of competition between them, but there was no effective competition between like companies operating in different areas. Most of those companies--the larger ones, at least-- were, and remain, investor-owned, *8 rather than municipal entities or cooperatives that are owned by their members.
The gas and the electric industries both embrace three basic phases-- production, transmission. and distribution--although, because of differences in the commodities themselves, the marketing structure of the two ifidustries has been quite different. Gas. of course. is a natural fuel that must be harvested from \\here it exlsts and transponed, sometimes over fairly long distances, to its ultimate consumer markets, but it can be stored for future use; it does not need to be produced for immediate consumption in any given market. Elecrricic. on the other hand, is a manufactured form of energy that traditionally has been generated closer to its consumer market. It cannot be effectively stored for distant future use and so must be generated to meet more immediate anticipated demand
\.lost electric companies. throughout the country and in Maryland, have traditionally been vertically integrated and have undertaken, as pan of a unitary business, all three operational phases. The electricity that they have sold to ultimate consumers has, for the most pan, been electricity that they have generated. transmitted to substations. and then distributed to their customers. See Paul L. Joskow and Richard Schmalensee, Inc-e~riir~ R1?ezilarion tot. Elrcrric L'liiities. 4 YALE J . ON REG. 1, 3 (19861. The gas industry has developed differently. The companies have not been venicaip integated. One
company--the producer--extracts the gas and sells it to a pipeline company, which, in turn, transports the gas from the wellhead to local markets and sells it there to larse industrial customers for their own use, more recently to brokers or wholesalers, or to a local distribution company which, through its own local distribution net~vork, sells and delivers the gas to the smaller retail consumers in its market area. See GdlC v. Puhiic Semicc Comnr'u. 87 Md.Avv. 32 1 . 372-24.589 .4.2d 982. 983-84 ('1 99 I).
As noted in G:%K. efforts at price deregulation in the gas i n d u s p began in earnest at the Federal level in 1978. with "9 the enactment of the Natural Gas Policy Act, 15 U.S.C. h 3301 er seq.. in which Congress. with the intent to foster increased exploration and production by allowing market forces to have a greater influence on price, partially deregulated the wellhead price of gas. Although some economists and electric utility executives had, by then. begun to question whether the guarded monopoly approach was in need of rethinking in the electric industry as well, TFN21 legislatures remained, for a time. largely resistant to any major resmcturing or deregulation. It was not until 1992 that Congress, through the Energy Policy Act of 1992, Pub.L. No. 103-486. 106 Stat. **465 2776, authorized some restructuring at the wholesale level.
FN1. See, for esample, Joskow and - Schmalensee, supra, at 12- 14, raising, in 1986. three concerns over the effectiveness of regulation in the electric utility industry: (I) because regulators often did not have complete information regarding flawed decisions made by the utilities, they were not very good at distinguishing efficient from inefficient behavior; (2) because of that imperfect monitoring, regulation came to approximate pure cost-plus contracts, thereby providing diminished incentives for the utilities to supply electricity efficiently; and (3) average cost pricing led to prices that were sometimes too high and sometimes too low and that. in turn, led to consumption decisions that were socially inefficient. Using historical data. Jarrell came to the conclusion thzt guarded monopoly regulation had led to higher prices for consumers and greater profits for electric utilities.
The PSC began working with some of the utilities in
Copr. 8 West 2003 No Claim to Orig. US. Govt. Works
803 A.2d 460 Util. L. Rep. P 26.8 17 (Cite as: 370 Md. 1, 803 A.2d 460)
Page 5
Maryland in the early and mid-1990's toward both an anticipated shifi from the guarded monopoly rezime to a reintroduction of competition and a diversification and expansion of their business activities. In 1995, it authorized natural gas companies to file revised tariffs that would provide customers with access to third-party suppliers and transportation services, thereby allowing some measure of competition into the retail distribution of natural Sas. In Case No. 8678. Order No. 72136. 111
[he nzarrer o f Commissiotz's ltzyzrin~ Reearriittg Elccrric Sen-ices. Mnrker Cl~moeririon. am' Reg~ilaron~ Policies. 86 Md. PSC 27 1. 1995 WL 512483 t 1995). the Commission noted that the nation's electricity industry was changing as well, that the current system of regulated monopolies was being challenged by competition, and that many issues surrounding that transformation *I0 remained unresolved. See also Case No. 8738. Order No. Z834. In [he ,2furrer of' Comn~isuion k lnctum. ; n r ~ Proris~ot: and Re.ydcrion ot Eic.crric Set-vicc. 88 Md. PSC 549. 1997 \VL 808679 11 9971.
Some utilities, including Baltimore Gas 8: Electric Co. (BGE), which supplied both gas and electric service in the central Maryland area, had alread). begun to diversib! their business operations and, through subsidiaries formed for the purpose, move into areas and endeavors that were not intimately related to their core utility services. That diversification raised immediate issues of (I) the extent to which PSC could regulate those activities and subsidiaries, either directly or ancillan to its regulation of the utilip operations, and (2) the kind of regulation that was appropriate. The Commission was aware that those issues needed to be addressed in the light of this Coun's decision in C & P r. ;bi~~~~.iotid:'Del(nt.urr Ccbic, ; lo Md. 5 3 . 530 A.3d 734 (19873, in which we concluded that the Commission's jurisdiction over rates charged by public service companies was limited to charges for "public utilip services," and that rates charged by telephone companies for the use of their utility poles by cable television companies did not fall within the scope of that term.
Some of the issues raised by diversification activities were first addressed in company-specific proceedings involving BGE. In Case No. 8487, a rate case, questions had been raised about the relationship between BGE's regulated utility operations and its merchandise and appliance service activities, as a result of which, in April, 3993, PSC ordered the company to conduct an independent review of its allocation of costs between regulated u t i l i ~
operations and those other activities. See Case KO. 8187. Order SO. 70476. In [he Jfarrer o f rile .-!pnficarion of Bolriniore Gas onci Eimric Con;nani. for Rmi5ions in irs GO.? and Eleclric Rarrs. 81 Md. PSC 145, 175-77. 1993 M'L 667 163 ( 1993). The specific concern was whether the company was using revenue earned from its monopolistic. but regulated. utility operations to subsidize the new diversified enterprises, thus leading to the ratepayers for gas or electric service in effect funding other unregulated * I I profit-making ventures. Indeed, three months later, PSC received a complaint that BGE was using ratepayer subsidization to support its entry into the kitchen remodeling business. Upon that complaint, PSC instituted an investigation into the cost allocations between regulated and unregulated business activities of BGE. **466Case KO. 8577. Order No. 73 1 O f . fn r h ~ Xfurrer o f [he lmvsrieorioa bl. / / 1 ~ 9 Conmissio)l 0 1 1 irs own d4orion imo .Ili'ocarion of Cosrs B m w n Rceuiorrd and Ci7reertlared Br~si)wss ..iah?rie.s ofrhe Bc;!rimore Gus arid Eiecrric Com~am: 86 Md. PSC 225. 1995 WL 571419 (1995).
In that case, the Commission, noting our decision in C R- P v. il~fan~land'Del~nwre Cchle. strora. 3 I0 Md. - - - 2 . 530 A.ld 7 3 , concluded that, while not all services engaged in by a utility were public utility services subject to PSC regulation, the Commission did have the authority to assure that rates charged for regulated services were not adversely affected by unregulated services and thus to exen authority over unregulated operations "to the extent necessary to assure just and reasonable rates for and the adequate provision of regulated utility services." Case No. 8577, supra.
The Commission rejected a proposal that it order a complete structural separation between BGE's utility and non-utility operations. as not being in the public inrerest, but concluded that certain cost allocation principles were required to prevent unfair cross- subsidization. In that regard, the Commission adopted four standards to be applied with respect to any transactions between BGE's regulated and unregulated operations: ( I ) a fully- distributed cost allocation methodology be used; (3) both direct and indirect costs be ascertained and included; (3) a fair market value be used for those senices provided to the affiliate which could also be marketed to the public: and (4) transfers of assets from the utilip to the affiliate be recorded at the grearer of book cost or market value, while transfers from the non- regulated operations to the utility operations be recorded at the lesser of book cost or market value. That last
Copr. C West 3004 Xo Claim to Orig. C.S. Govt. Works
803 A.Zd 460 Util. L. Rep. P 26,8 17 (Cite as: 370 Md. 1, 803 A.2d 360)
Page 6
standard is known as asymmetrical pricing.
"12 Two other issues relevant here were taken up in Case KO. 8577. The Commission staff, the Office of People's Counsel, and one interest group advocated imputation of a royalty to BGE, in the amount of 2% of the gross revenues of its subsidiary, for the "intangible and unquantifiable benefits which the subsidiary receives from the parent company." & The Commission considered at length the various viewpoints offered on that proposal and, in the end, determined not to adopt a royalty imputation but, instead. to "more completely examine BGE's current cost allocations on an issue by issue basis." Finally, it rejected BGE's proposal to transfer iu Gas and Appliance Service Department from the company's regulated operations to an unregulated subsidiap, subject to further re\iew.
Issues relating to BGE affiliate re!ations arose in 2 subsequent proceeding involving the company's gas operations. In September, 1994. BGE informed PSC of its plan to offer a natural gas brokering service, as an unregulated activip, through a wholly-owned subsidiary, B X , Inc. The Commission allowed that venture on an interim basis. but in September. 1995, after receiving an interim report and comments thereon from its staff, the Commission opened an inquiry into the matter. Case KO. 8509, Order S o . 7252; . lri rhr ,\.lorret- o f [he Inouin. info h'arnrcrl Gm Brokering cif BXG. Itlc.. a Sz~hsidiot~ o f Balrlrnore C;m and Eiecrric Compmr 87 Vd. PSC 45 ( 1 996 1. The inquiry was conducted not as a contested case proceeding but "under a legislative format whereby interested persons would submit written comments, with a legislative-style hearing."
In that proceeding, the Commission again sifted through the various viewpoints, ranging from requiring a complete structural and operational separation of the activity-tio shared employees or resources-to allowing the activity with minimal interference. Ultimately. it adopted the four cost allocation standards promulgated in Case KO. 8577 and t~velve additional standards of conduct, to be followed "*467 by BGE in its dealings with BNG. Tnose standards of conduct, among other things: prohibited joint customer calls and joint promotions by BGE "13 and BSG, required BGE and BXG to operate from separate locations. and prohibited BGE ii-om providing sales leads to its marketing affiliates, from discrininating in its tariffs or service between affiliates and non-affiliates, from sharing operational and managerial employees with its affiliates: and from giving cenain preferences to its affiliates. The
net result was a directive to separate BNG's activities from BGE's regulated operations, and to account for all costs and revenues of BNG "below the linen--to place the risk of loss on the company's shareholders and not on the ratepayers for utility services.
These various standards of cost allocation and behavior applied only to BGE, as they were adopted in cases that involved only that company. In November. 1996, People's Counsel requested the Commission to undertake a generic investigation into affiliate transactions of all Maryland gas and electric utilities which, by opening Case KO. 8747, the Commission proceeded to do. In this "generic proceeding." the nature of which we shall discuss later, the Commission considered fifteen substantive issues, headed by whether the cost allocation and conduct standards applied to BGE in Case Nos. 8577 and s:09 should be applied to all gas and electric utilities. Case No. 8747. Order No. 73038. In rhp Mtirrer o f rile Ifire~riparion by rhe Cornrnissio~l inro ..lffiiiared Sratidards o/ Cot7duc1 o f Compunies Proviu'in~ Gas or Eiecrric Semic~., 89 Md. PSC 54 f 1998).
In discussing the extent of its jurisdiction over unregulated activities carried on through affiliates of a utility. the Commission drew a distinction between affiliates that duplicated or replaced the essential services formerly provided only by a utility, which the Commission denoted as "core-service affiliates,'' and those that engaged in activities that were unrelated to the utility's primary function, which were referred to as "non-core-service affiliates." It also noted that two types of protections were at issue-- principles governing the allocation of costs between utilities and their affiliates and standards of conduct applicable to utility-affiliate activities. The Commission observed that its traditional role had been to regulate the operations of utilities that provided monopoly services within "14 defined service territories. that in more recent times, it had worked with utilities to foster consumer choice of service providers within those territories, that the movement from monopoly to provider choice introduced complexities not in existence at the time of this Court's C & P decision in 1987. and that the Commission retained a duty to ensure that customers of regulated utilities were protected from price increases or service degradation arising from non- regulated activities of the utilities' affiliates.
In the end, the Commission adopted fourteen standards of conduct that would apply to all electric and gas utilities in transactions with their core-service
Copr. $3 West 2003 No Claim to Orig. V.S. G o v ~ Works
803 A.2d 460 Util. L. Rep. P 26.817
a (Cite as: 370 Md. I, 803 A.2d 460)
Page 7
afiliates and four standards of conduct that would apply in transactions with non core-service affiliates. For the most pan, these were the standards that had been applied to BGE in Case Nos. 8577 and 8709. In addition, the Commission extended to all the utilities the directive in Case No. 8i09 that:
"[U]nless otherwise directed by the Commission, a utility must place the revenues and expenses of its affiliates both core and non-core below-the-line so that the affiliates' activities will have no impact on utility operations. Further. a utility must identifi and separate its affiliates' operational and managerial **468 employees 6om those of the utility in order ro avoid cross- subsidization and to assure fairness in the competitive marketplace. Finally, for those employees and services which can be shared, a utility must ideniib them and seek Commission approval for such sharing."
Finally. the Commission considered a number of other proposals dealing with utiliv-affiliate relations. Among other things, it opted, (I) to apply the requirement of timely notification of all new non- regulated activities. (2) to permit utilities to guarantee the indebtedness of their affiliates without charging a fee for [hat benefir, (3) not to require utilities to file and conrinually update a cosr allocation manual but to require instead a quarterly certification that their cosr allocations and transfer pricing of assets comply with the applicable standards of conduct. (4) to preclude utility customers from bearing any of the costs of the utility's non-regulated business activities, =IS and (5) to place some other restrictions on joint activities between utilities and their zffiliates.
These various decisions, including the standards of conduct, became applicable to the gas and electric utilities solely by virtue of their inclusion in the Commission's F e b r u a ~ , 1998 Order No. 74038. Case No. 8747, supra. S o attempt was made to embody them in regulations. Indeed, the Commission noted that some of the parties had suggested that any standards adopted by the Commission be in the form of regulations included in [he Code of Maryland Regularions (COMAR), but, "because of the time and effort necessary ro revise these documents," it rejected that suggestion. observing that "[all1 utilities subject to this Order are required by [he PSC Law to conform with the Commission's directives herein we do not believe [hat placing the adopted standards in COMAR or in utility tariffs is necessary to provide additional protection." No formal objection was made by any of the utilities to the adoption of those stzndards through the device of the order. None of the panies
sought judicial review of the order
While Case S o . 8747 was pending, the Geceral Assembly gave recognition to the impending restructuring of the electric utility industry and to the fact that legislation may be needed to implement proceedings of the PSC, and, by 1995 Md. Laws, ch. 106. created a task force to study retail electric competition and restructuring of the industry and report to the General Assembly by December. 1997.
In 1999 and 2000, the Legislature acted on recommendations made by that task force, and, through the enactment of the Electric Customer Choice and Competition Act of 1999. PUC 8 $ 7-501 to -517 (2001 Supp.), 1999 Md. Laws, chs. 3-4 (the Electric Act), and the Natural Gas Supplier Licensing and Consumer Protection Act of 2000. PUC S S 7 - 601 to -607 (2001 Supp.), 2000 Md. Laws, ch. 669 - (the Gas Act), provided a legislative basis for shifiing a\vay from the 90-year-old guarded monopoly regime back to a competirive approach.
* I6 The goals of the Electric Act were stated in legislative findings in PUC $ 7-504-10 establish customer choice of electricity supply and electricin. supply services. to create competitive retail electricity supply and supply service markets. to deregulate the generation, supply, and pricing of electricity, to provide economic benefits for all customer classes, and to ensure compliance with Federal and State environmental standards. The thrust of the Act was to provide some basic legislative standards for the conversion and to give the PSC extensive oversight authority over that process.
Among other things, the PSC was directed to order electric companies to adopt **469 policies and practices designed to prevent discrimination against persons, localities, and classes of service, undue or unreasonable preferences in favor of an electric company's own supply, other services, or affiliates. or any other form of self-dealing or practices that could result in noncompetitive electricity prices to customers (PUC h 7-505(5)(3)). It was also directed ( I ) to "issue orders or adopt regulations" reasonably designed to ensure [he crearion of competitive electricity supply and supply service markers. wirh appropriate customer safeguards (id. $ 7 - 505tbir I@#ij), (2) to require "an appropriate code of conduct between the electric company and an affiliate providing electricity supply and electricity supply services in the State" (id. 6 7-505fbM IOh'iiil.), (3) to require "any other safeguards deemed necessary by the Commission to ensure the creation and
Copr. C West 2004 S o Claim to Orig. L.S. GoH. Works
SO3 A.2d 460 Util. L. Rep. P 26,817 (Cite as: $0 Md. 1, 803 A.2d 460)
Page 8
maintenance of a compe:itive electricin. supply and electricip supply services market" (id. $ 7- O.F(b'l(lO)iii) 4.), and (4) to require, "among other factors, functional, operational, structural, or legal separation between the electric company's regulated businesses and its nonregulated businesses or nonregulated affiliates" (id. $ T-5051b)f 10Miii)).
The Gas Act is somewhat shorter. Under it, the PSC was authorized to license gas suppliers and to adopt consumer protection orders or regulations to protect consumers from discriminatory, unfair, deceptive. and anticompetitive acts and practices in the marketing, selling. or distributing of natural "17 gas and to provide for contracting, enrollment: and billing practices and procedures.
In July, 1999, following enactment of the Electric Act, the Commission inaugurated Case No. 8820. Order So. 76393. 111 rhe Murrm of the Imesriparion 1 , 7 1 0 ,-ffiiiared .ilcrn+ries. Prmnotiouai PI-ocriccs, and C o d a of Condztcr o f Reeltiarea' Gus arid Eiecrric Cum~onies, 91 Md. PSC 3 12. 2000 WL 1173721 iZ000)--the proceeding that generated this appeal. As with Case No. 8747, this was commenced as a "generic proceeding," in order to address changes taking place in the electric and gas industries and how those changes affected utility-affiliate interactions. In its final order (Order No. 76292), entered a year later (after enactment of the Gas Act), the Commission reviewed some of its prior proceedings, in particular Case No. 8747, and concluded that the standards and limitations adopted ir. that case, though providing a "good staning point," were in need of some modification. The Commission ultimately adopted seven standards of conduct to govern transactions between utilities and any of their affiliates and seven additional standards of conduct to govern transactions with core-service affiliates. It also extended or imposed certain other prohibitions and limitations.
Believing themselves aggrieved by nearly a11 departures from the directives adopted in Case No. 8717, the utilities sought judicial review in the Circuit Court for Wicomico County. In addition to raising jurisdictional. Constitutional, and statutory objections to the substance of the Commission's directives, they also urged that the agency order constituted a regulation under the APA and was invalid because the PSC had not complied with some of the statutory requirements for the adoption of a regulation. The court rejected that procedural argument on two grounds, ( I ) it was not necessary for the PSC to comply with the APA requirements,
and (2) the utilities, by knowingly acquiescing in the procedure set by the Commission, were estopped from challenging it in a judicial review proceeding. In a 59-page memorandum and order, the court reversed two aspects of the Commission order, remanded two other aspects to the Commission, but otherwise declared i18 that +*470 the order was valid. Not satisfied with that result. the utilities appealed. and because of the importance of the issues presented. we granted certiorari prior to proceedings in the Court of Special Appeals.
DISCG'SSIOAr ;%'amre Of The Order
As noted, the only issue that we need to address on the merits is the first one raised by the utilities-- whether Order KO. 76292 constitutes a regulation under the APA and is ineffective by reason of the failure of the PSC to comply with some of the statutory requirements for the adoption of a valid regulation. That issue cannot be considered in a vacuum, however. Whether the Commission's directives constitute a regulation in the first instance, which the PSC denies. depends on what they do, and that needs to be explained, at least in summary fashion. The order does the following things:
(1) It imposes the following seven standards of conduct on transactions beween utilities and their affiliates, whether core-service or non-core- service:
(a) Neither a utility nor its affiliate may represent (i) that any advantage accrues to a customer or others in the use of utility services as a result of the customer or other dealing with the affiliate or (ii) that their affiliation allows the affiliate to provide a service superior to that of other suppliers. (b) If an affiliate's advertising material identifies the affiliate's association with the utility, it must state that the affiliate is "not the same company as the utility" and that its prices are not set by the PSC. (c) Joint promotions, marketing, and advertising between a utility and an affiliate are prohibited. (d) .L\ utility may not condition or tie the provision of regulated utility services to any other product or service. -19 (e) A utility may not give any preference to its affiliate or customers of its affiliate in providing regulated utility services. (0 With certain exceptions, a utility may not disclose customer-specific information obtained in connection with the provision of regdated utility services absent the informed consent of the customer.
Copr. Q West 2004 S o Claim to Orig. U.S. Govt. Works
Page 9 Ctil. L. Rep. P 26,8 17 (Cite as: 370 Md. 1, 803 A.Zd 460)
(g) A utility that offers discounts, rebates, fee waivers, penalty waivers: or other special provisions to its affiliate or customers of its affiliate must offer the same benefit to all similarly situated non-affiliated suppliers or their customers.
(2) It imposes the following additional seven standards of conduct in transactions with core-service aftiliates (CSA):
(a) Joint sales calls rnay not be initiated by the utility or a CSA; if a customer requests a joint sales call. i t is permitted. (b) .4 utility and its CSA must operate from separate locations. (c) A utility rnay not provide sales leads to a CSA or appear to speak on behalf of a CSA. (d) If a utilip responds to a customer request for information about competitive core services: the utility must provide a list of all providers of that senice and may not highlight or promote its CS.4. (e) A utility must process all requests for service by any provider in the same manner and in the same period of time that it processes requests for service by its CSA. (f) A utility must apply all terms and conditions of its tariff related to the "*471 delivery of energy services without regard to uhether the supplier is a CSA. (g) Any information provided by a utility to an energy marketing affiliate must be disclosed to all non-affiliated suppliers with respect to its system. the marketing or sale of e n e r 3 to customers or potential customers, or the delivery of energy to or on its system.
*20 (3) It declares, with respect to the transfer of assets between a utility and an affiliate. that (i) the definition of "utility asset" includes intangible and intellectual p ropeq , and (ii) aqmmetric pricing will govern in such transactions.
(4) I t prohibits utilities and their affiliates. both core- service and non- core-service. from sharing operational. managerial, market research. public relations, advertising. customer service, and accounts receivable employees. It also. for the first time. puts limits on the sharing of legal and accounring employees. Accounting personnel may be shared for the purpose of establishing corporate accounting policies and standards. producing consolidated financial and tax sratements, and preparing consolidated records or reports. Legal personnel may share responsibilities for OSHA and ERISA compliance or preparation of IRS or SEC filings, but not for contract negotiations or regulatop affairs.
Joint costs for shared employees must be allocated on the basis of a fully-distributed cost methodology.
( 5 ) It precludes a utility from lending to, or guaranteeing the debt of. an affiliate if that would create a reasonable likelihood that the utiliy's cost of capiral, credit-worthiness, or ability to provide regulated services will be adversely affected. Loans must be from the utility's retained earnings and must be arranged on an arm's lengh basis. be at market rates. and contain standard penalties for default. Stockholders, rather than ratepayers. must bear the loss of a default.
(6) It expands the reporting requirements by requiring "most energy utilities" in the State to file periodic Cost Allocation ~Manuals. Those manuals must embody the four cost allocation procedures adopted in Case No. 8747 and must contain or identifv the corporate organization, the location and officers of each corporate entity, an index of operational and managerial employee units of the utility and each affiliate: an index of shared services, methodologies and procedures for cost allocations of service and asset transfers. complete descriptions of all affiliate transactions, of utility services shares with each affiliate: and of all cash management transactions *21 between a utility and any affiliate involving loans, securities, debt guarantees, or changes in capital structure, and descriptions of employee transfers between a utility and an affiliate.
(7) It exempts affiliates of gas and electric utilities from promotional practice regulations that the Commission had earlier adopted in the form of regulations (COMAR 70.40.0 1.0 1-06). Those regulations. on their face. apply to utility affiliates.
(8) It rejects an outright ban on the use of a utility's brand name or logo by affiliates but, in contrast to its decision in Case S o . 8747, declares that the use of brand names or logos constitutes the transfer of a valuable asset, requiring that some compensation be paid to the utility (and, indirectly, the ratepayers). In order to implement that provision, the Commission stated that it would docket two separate proceedings- one to determine the appropriate value to be imputed to the utility for the use of the utility's name and logo, and the other to determine the appropriate value for unquantified or other intangible benefits transferred.
**472 (9) With certain exceptions, it adopts for all electric utilities the "GENCO" (Generating Company) Code of Conduct that, in a company- specific case, it had adopted for BGE. GENCO
Copr. G West 2001 No Claim to Orig. E.S. Govt. Works
803 .4.2d 460 Util. L. Rep. P 26,8 I7 (Cite as: 370 Md. 1, 803 A.2d 160)
Page 10
Codes deal with the relationship between a utiliy and its electric-generating operations. Some electric utilities, such as Potomac Electric Power Company, had decided to divest all or most of their generating assets; others, scch as BGE, had decided to keep the generating operations within the corporate family but Gove them to an affiliate. In the latter case, the Commission was concerned that there be a "level playing field" for electric generation, to assure that customers actually receive the benefits of competition.
In Case Nos. 8794 and 8804, the Commission, as part of an overall settlement agreement, adopted a GEKCO Code for BGE that required that. (I) until June, 2006. the BGE GENCO must be operated as a separate subsidiary From BGE and BGE's retail marketing affiliate and it sell all of the generation output of the assets transferred by BGE into the wholesale '22 market, (2) until June. 2003: the BGE GENCO may not offer power or ancillap services at prices or terms more favorable to an affiliate for resale to retail electric customers in the BGE distribution service territorv, and (3) so long as BGE serves as the provider of Standard Offer Service,
it may no1 market or promote its Standard Offer Service. With limited exceptions, the order in this case adopts those principles for all electric utilities having a GESCO affiliate. It requires that a GENCO be a separate subsidiary from the retail marketing affiliate and from the utiliy until June, 2006, that it may therefore not market the electriciy produced from its generation assets, that, except for S!andard Offer Service, it must sell all generation output into the \vholesale market, and that the u t i l i ~ may not market Standard Offer Service.
Standard Offer Service is a default senice, at capped rates, for customers in a utiliy's service area who are unable or unwilling to choose a new supplier. PUC P 7-5 IO(c!. which is part of the section dealing with the phased implementation of customer choice in electric service, states. in relevant part. that "[ellectricity supply purchased from a customer's electric company is known as standard offer senice," that electric companies must offer that senlice until July, 2003, and that a customer is considered to have chosen that senice if the customer, (1) is not allowed to choose an electricip supplier during the phase-in period, ( 2 ) contracts for electricip with an electricit? supplier but the electricity is not
delivered, (3) cannot arrange for electricity from an electricity supplier, (4) does not choose an electricity supplier, or (5) has been denied service or referred to standard offer service by a supplier.
Requirements ofthe Administrative Procedure Act
Although. as noted. some question was raised in Case So. 8747 as to whether the provisions in the Commission's order should be in the form of regulations. it does not appear that anyone formally raised that issue in this case, at least while the matter was pending before the Commission. It was formally raised for the first time in the judicial review action.
The utilities urge that the PSC has but two ways of declaring policy-through regulations adopted in conformance with the requirements of the APA or th~ough contested case adjudication--and they complain that the policy declared in Order '23 No. 76292 followed neither of those procedures. It emanated from a "generic proceeding," which, they now assert for the first time ever, is a "third" method that is not authorized by any statute and is therefore unlawful. The PSC seems to take the position that policy directives that emanate from generic proceedings need not comply *i473 with APA requirements for the adoption of regulations. In so arguing, the PSC misconstrues the reach of a generic proceeding.
l t l e n the PSC was first created in 19 10, there was no APA. The AP.4 was first enacted in Maryland in 1955. See 1957 Md. Laws, ch. 94, codified at 1Ma~land Code (1957), Art- 4 1, 9 $ 244-256. It required each "agency" to adopt regulations F N 4 1 governing the formal and informal procedures prescribed in the Act but contained relatively minimal requirements regarding the adoption process. Prior to the adoption or amendment of a regulation, the agency was required to (1) publish or otherwise circulate notice of its intended action and afford interested persons an opportunity for input (id. $ 245(c)). (2) submit the proposed regulation to the Attorney General for approval as to legaliv, and (3) file copies of adopted regulations with the Clerk of the Court of Appeals, the Secretary of State, and the Department of Legislative Reference (id. 5 9 and 246). The Secretary of State was required to compile. index, and publish all regulations adopted by the various agencies. The only other provision
Copr. O West 2004 No Claim to Orig. U.S. Govt. Works
80; A.2d 460 Util. L. Rep. P 26,s 17 (Cite as: 370 Md. 1, 803 A.2d 460)
Page 1 1
dealing with the adoption process was an authorization for any interested person to file a petition with an agency for the adoption of regulations and a requirement that the agency adopt regulations governing that process. Aside from the requirement in $ 9 regarding the *24 submission of proposed regulations to the Attorney General, none of these requirements applied to the PSC. which was expressly excluded from the definition of "agency" (id. 3 244).
Fh'3. The initial APA used the terms "rules" and "regulations" almost interchangeably. In more modem parlance, "rules" have come to mean standards or directives governing practice and procedure before the agency, whereas "regulations" deal more with substance-interpretations and regulatory implementations of the statutes administered by the agency. The procedural requirements in the statute do not depend on nomenclature, however. As uill be noted, if the agency directive falls within the APA definition of "regulation," it does not matter that it is termed a "rule." Because the current statute uses "regulation" as the defined term. we shall use it as well.
In 1974, the General Assembly enacted the State Documents Law, the principal purpose of which was to create the Mayland Register (Register) as a mechanism for giving public notice of cenain agency actions, including the proposed and final adoption of regulations. and COSIAR. to serve as a permanent repository of agency regulations. 1974 Md. Laws, ch. 600. In conformance with those purposes, the law required each agency, at least 60 days prior to the adoption of an): regulation, to submit three copies of it to the Administrator of the Division of State Documentst who was responsible for publishing the Register and COMAR. One copy was for publication in the Register, and one copy was sent to the Legislative Committee on Administrative, Executive and Legislative Review (AELR Committeej. Linless authorized by the AELR Comminee. the regulation could not take effect until the expiration of the 60 day period, and it was of no effect unless submitted in accordance with the law. Because the State Documents Law used the APA definition of "agency," that filing and publication requirement did not apply to the PSC.
Until 1978, the only provisions dealing with
regulations adopted by the PSC were the requirement in Article 41, !j 9, requiring submission of a proposed regulation to the Attorney General. the broad authorization in former Maqland Code (1957, 1975 Supp.), Article 78A, 8 64 for the PSC to "make reasonable rules and regulations as it deems necessary to carry out **474 the provisions of this anicle and any other law relating to the Commission," and 89 of Anicle 78.4. authorizing an action for declaratory judgment to determine the validity of any regulation adopted by the Commission. In 1978, the Legislature expanded the definition of "agency" for purposes of the State Documents Law in a way that brought the PSC within its ambit. 1978 Md. Laws, ch. 858. In 1984, as pan of the enactment of the State Government Article (SG). the State Documents Law provisions were consolidated *25 with the provisions of the APA dealing with regulations. thereby producing a comprehensive subtitle under the APA dealing with regulations, to which, with some limited exceptions, the PSC was made subject. 1984 Md. Laws. ch. 284. Subsequent amendments, in particular 1985 Md. Laws. ch. 783, greatly expanded those requirements.
The State Government Article. title 10, subtitle 1 ( 5 $ 10- 101 through 10-339) is the part of the APA dealing with agency regulations. Section 10-10 I(g) defines a "regulation," for purposes of the Act, as folloms:
"(1) Regulation means a statement or an amendment or repeal o i a statement that: (i) has general application; (ii) has future effect; (iii) is adopted by a unit to: 1. detail or carry out a law that the unit administers: 2. govern organization of the unit; or 3. govern the procedure of the unit; and (iv) is in any form, including: 1. a guideline; 2. a rule; 3. a standard: 4. a statement or interpretation; or 5 . a statement of policy. (2) 'Regulation' does not include: (i) a statement that: I. concerns only internal management of the unit; and 2 . does not affect directly the rights of the public or the procedures available to the public: (ii) a response of the unit to a petition for adoption of a regulation. under 5 10-323 of this subtitle; or (iii) a declaratory ruling of the unit as to a regulation, order. or statute. under Subtitle 3 of this title.
Copr. CJ West 2004 KO Claim to Orig. U.S. Govt. Works
803 A.2d 460 Util. L. Rep. P 26,s 17
Page 12
(Cite as: 370 IMd. 1, 803 A.2d 460)
*26 (3) 'Regulation,' as used in $ 5 10- 1 10 and 10- 1 1 1.1, means all or any portion of a regulation."
There can be little doubt that many, if not all, of the directives in Order No. 76393 fall within the ambit of that definition. With limited exception. they have general application to all electric and gas utilities and their various affiliates; they have future effect; they were adopted by a "unitM-- the PSC-to can). out laws that the PSC administers; they fiere in the form of statements of policy; and they fall within none of the exceptions stated in SG $ 10-10 l ( g K j . Indeed. as noted. one provision effectively amends an existing COMAR regulation by exempting affiliates from its scope, thereby. on its face, belying the PSC's assenion that its order "did not change existing law."
a We reject the PSC's unsupponed assenion that those directives do not constitute regulations because they address but "one narrow subject matter, utility- affiliate transactions" and are applicable only to non- municipal gas and electric utilities, or because they do not "affect directly the rights of the public." With the exception of the few and relatively small municipal **475 operations, the directives apply to the entire gas and electric industry that the Commission regulates. They have general applicability and are not narrow in scope. Our response to the PSC's suggestion that the directives do not directly affect the rights of the public is two- fold. First, that is not a basis, on its own, for concluding that the directives do not constitute regulations. The exception in E 10- I0 l (o)(21 is for a statement that concerns only internal management of the agency and does not affect directly the rights of the public. These directives do not concern only the internal management of the PSC. Even if that were not the case, it is disingenuous even to suggest that the directives do not affect directly the rights of the public. The stated purpose of the order was to protect the rights of the public--to assure both effective competition in the new diversified ventures and that the rate-paying public does not end up subsidizing *27 those profit-making ventures; every limitation placed on the utilities or their affiliates was for that purpose.
.As noted, the current law imposes some significant requirements and conditions on the adoption of regulations by Executive Branch units. [FNSl See Dm:. ofHralrh r. Chimes. 343 Md. 336. 339-40, 68 1 A.ld 484. -185-86 r 1996). Section 10-107 requires that the PSC, in panicular, submit proposed regulations to its general counsel for approval as to legalit4 and makes clear that any regulation adopted
without such submission "is not effective." Although general counsel to the Commission may well have been consulted before and during the generic proceeding that led to Order No. 76292, the record does not indicate whether that order was ever submitted to counsel for an opinion as to legality or that such an opinion was ever rendered.
FNS. "Unit" is the defined term for Executive Branch agencies and officials that are subject to the statutory requirements. For purposes of the regulation-making provisions, the PSC is a unit.
Section 10-1 1 1 (a) provides that, except for emergency regulations adopted under 6 10-1 1 I (b), a unit may not adopt a proposed regulation until ( I ) after it submits the proposed regulation to the AELR Committee for preliminary review. and (2) at least 45 days after the regulation is first published in the Register. The unit must submit the proposed regulation to the AELR Committee at least 15 days prior to submission to the Re=' 01ster.
The Committee may not veto the proposed regulation but may oppose its adoption. In that event, the unit has three options: it may withdraw the proposed regulation. amend it in accordance with 5 10- 1 13 (which essentially requires starting the process anew), or submit the regulation to the Governor with an explanatory statement. In considering whether to oppose a regulation, the AELR Committee must consider whether the regulation ( I ) is in conformity with the statutory authorip of the unit. and (2) reasonably complies with the leg~slative intent of the statute under which the regulation was promulgated. SG $ 10-1 I l .l(bl. Section 10-1 l I . l (c) provides *28 that. upon notice of opposition by the AELR Committee. the Governor may instruct the unit to withdraw the regulation, instruct the unit to modify the regulation, or may approve the regulation. Section 10- l l l . l (d ) specifies that a proposed regulation opposed by the AELR Committee may not be adopted and is not effective unless approved by the Governor.
I t is undisputed that the PSC did not submit Order No. 76292, or any pan of it, to either the Register for publication or the AELR Committee for its consideration. With an exception not applicable **476 here, % 10-1 17 provides that the effective date of a regulation is the 10th calendar day after notice of adoption is published in the Register or in COMAR.
Copr. 0 West 2004 KO Claim to Orig. L.S. Govt. Works
803 A.2d 460 Util. L. Rep. P 26.8 17 (Cite as: 350 Md. 1, 803 A.2d 160)
Page 13
Neither has yet occurred.
The main arguments of the PSC. aside from its contention that Order S o . 76292 does not constitute a regulation, are that ( I ) by not raising this issue before the Commission, the utilities have waived their right to raise it in a judicial review action. and (2) even if the directives at issue rechnrcal!~ constitute regulations under SG 6 10- 10 1 (el, our jurisprudence is to the effect that the Commission is not necessaril) obliged to proceed by way of formal regulation- making-that we have approved of the adoption of such policy statements through other means, and that a generic proceeding is a proper alternative method. Both of these responses either focus on or emanate from the device of the generic proceeding.
The Court of Special Appeals commented on this kind of proceeding in GAK 1.. Puhlic Smjice Cornm'n. sir,vru. 87 h 1 d . A ~ ~ . 321. 589 A.2d 982. in which validih of a policy directive adopted in an order terminating a generic proceeding was challenged. The court noted that the jurisdiction of the PSC over public utilities was very broad-that the PSC was authorized to "scpervise and regulate" the utilities "to assure their operation in the interest of the public," and that, in implementing that responsibility, it could institute and conduct "any proceedings reasonably necessary and proper to the exercise of any of its powers" and could "initiate and conduct any investigation necessary to the execution of its powers or *29 the performance if its duties ...." 336. 589 A.3d at 989. See PUC 5 e 2-1 12, 2-113, and 2-115.
U C involved the rate-setting authority of the Commission, and the court observed that, like its counterparts in the Federal system and in other States, the PSC exercised that authority in several ways--through company-specific proceedings. through the adoption of reguiations dealing with such things as accounting systems and billing practices, and through what the PSC has ofien referred to as a generic proceeding. The court characterized such a - proceeding as "[s]omewhat midway" between promulgating regulations and entering orders in case- specific proceedings and noted that it "was o f en used to institute and conduct an investigation into general areas of concern that may affect more than one public service company." SS ~ 1 d . A ~ o . at 336. 589 A 2 d at 990. The court observed: -
"These proceedings are inaugurated by an Order of the Commission which describes the purpose of the proceeding and the procedure to be followed and are terminated by another Order which sets forth
the decisions or conclusions reached by the Commission. These may be in the form of recommended legislation ... regulations ... or policy statements or determinations that will be routinely applied thenceforth in all specific proceeding to which they are applicable."
Id at 337. 589 A.2d at 990 (citations omitted).
The court noted that the authority of the PSC to conduct generic proceedings had not been challenged in that case and was, in any event, fairly clear. The nature and effect of the order emanating from them, however, was not always so clear. In a subsequent passage, the court observed that the kinds of decisions enunciated in those orders may "have a greater kinship to rules or regulations than to orders entered in companyspecific proceedings," and. in that regard, noted, with a touch of warning, that the order at issue arguably constituted a regulation under =*4'77 the APA. in that i t had general application and future effect and was adopted by a unit to *30 c q out a law that the unit administered. The court declined in that case to hold that the order was a regulation "because ( I ) no one has claimed that it is and (2) the record does not establish compliance with a number of the procedural requirements in the Act for the adoption of a valid regulation." Id. at 340 n. 3, 589.4.3d at 991 n. 3.
accurately identifies the nature of a generic proceeding, which is, and long has been, commonly used by regulatory agencies like the PSC either to investigate some general matter subject to its jurisdiction or to gather facts and opinion in furtherance of its policy-setting hnction. That hnction could, in some instances, be carried out through adjudicatory proceedings involving a single utility, but when the matter involves the rights or interests of several utilities, the generic proceeding can be more efficient, in that it allows all interested groups to participate in the policy development at the same time. The generic proceeding is predominantly quasi- legislative, rather than quasi-judicial, in nature. Interested persons, ofien including persons who may not be directly subject to the jurisdiction of the Commission or to any policy directive that emanates from the proceeding. are invited to participate and to offer data, opinion, and argument. The information is usually provided in the form of either documents or written or oral statements rather than sworn testimony subject to cross-examination. The parties do not ordinarily have the right of "discovery." Such a proceeding would most likely run afoul of some of the procedural requirements applicable to a contested-case proceeding under the APA (which do
Copr. $3 West 2004 No Claim to Orig. U S . GOVI. Works
803 A.2d 160 Util. L. Rep. P 26,817 (Cite as: 370 Md. 1, 803.4.2d 460)
Page 14
not apply to the PSC in any event), but it does not, of itself. contradict any of the requirements for the adoption of regulations or for the adoption of policy directives that, for whatever reason, need not be in the form of regulations.
The issue, therefore. is not the validity of a generic proceeding to gather information for the purpose of developing polic) but what, if any. conditions are imposed on the adoption and implementation of that policy. Until 3978, when the PSC first became sub-iect to the requirements of the State Documents Law, it did not need to be concerned about any sucn conditions, *31 other than submitting proposed regulations to the Attorney General for review as to legalit). because it was exempt from the APA requirements. IVith minimal limitations, it could implement policq directives emanating from generic proceedings as it saw fit.
That is no longer the case. Because the PSC is now subject to the enlarged and extended regulation- adoption requirements of the APA. it does need to be concerned about whether its directives fall within the APA definition of "regulation." As we have indicated. most of the directives included in Order No. 76293 were immediately effective and self- esecuting. did not depend on hnher case-specific proceedings, and fall squarely within the APA definition of "regulation." They are not immune from the APA requirements simply because they emanated from a generic proceeding.
We turn, then, to the last two defenses raised by the PSC.
Waiver
IF1 The PSC, joined by People's Counsel, notes that, at no time during the proceeding before i t did the utilities ever aver that the directives contained in Order No. 76292 constituted regulations or complain that the agency did not follow the APA requirements with respect to them. Citing **478Cicaiu v. Disabilin. Review Bd., 3-88 Md. 253. 418 A.2d 205 i 1980) and Blr!;~rck v. Peii7anl Wbod . - l~is. . 28; Md. - 505, 390 A.7-d 1 1 19 119BJ. for the proposition that panies seeking judicial review from administrative agency orders may not raise issues in the judicial review action that were not raised before the agency, the PSC essens that this complaint is therefore untimely and has, in effect, been waived. Quoting from Cicnin, it urges that a party "who knows or should have known that an administrative agenc). has committed an error and who, despite an opportunity
to do so, fails to object in any way or at any time during the course of the administrative proceeding, ma?-- not raise an objection for the first time in a judicial review proceeding." The utilities respond that they "had no reason to assume that the Commission would fail to comply with the *32 APA ajer the hearings concluded and, absent a dury to speak, no waiver or estoppel exists."
The principle relied upon by the PSC is well-settled (see, in addition to Bu!lircEt and C r d : ~ . D m . o i Healrh 17. Cc;nloDel/. 364 Md. 108. 77 1 ,\.2d 105 1 ( 200 1 ), h7surr;nce Con~.wiss!one~- 11. Ecruirahk Life. 239 Rld. 596. 663 A.2d 867 ( 1999, and Roch.ili~ 1..
lVuoLin10171 C C . . 348 M c . 572, 705 A.2d 30 l ( 1998)): and, on this record, the utilities' response at ieast strains, if it does not entirely rupture, credulity. Most of them had participated in Case No. 8747, where the issue apparently was raised and the PSC specifically declined to follow the APA requirements. The suggestion that sophisticated parties with sophisticated counsel had no reason to assume that the Commission would take the same approach in this case is simply not credible. Nonetheless, there is no waiver, because the principle relied upon by the PSC has no application to actions under PLC h 3- 20 1 seeking a declaratory judsment on the validity of - regulations.
a The cases in which a waiver has been found based on non-preservation have been in the nature of contested cases, as to which judicial review. either under statutory authority or by way of mandamus, is limited. As we noted in Bulil~ck. 283 Md. at 5 18-19, 390 A.7d at 1127. quoting from k~lrn~pio~mmr Cornpensarion Corn111 'tl r. ;lracon, 329 U S . 143. 155. 67 S.Ct. 245. 91 L.Ed. 136 (1946). "[a] reviewing coun usurps the agency's function when i t sets aside the administrative determination upon a gound not theretofore presented and deprives the [agency] of an opportunity to consider the matter, make its ruling, and state the reasons for its action." We do not allow issues to be raised for the first time in actions for judicial review of administrative agency orders entered in contested cases because to do so would allow the coun to resolve matters ab initio that have been committed to the jurisdiction and expertise of the agency.
A different rule applies with respect to actions for declaratory judgment on the validity of agency regulations. however. PUC G 3-20 l (a)( I ) provides that the validity of a PSC regulation *33 may be determined on a petition for declaratory judgment whenever it appears that the regulation or its
Copr. Q West 2004 KO Claim to Orig. U.S. Go\?. Works
803 .4.2d 460 Util. L. Rep. P 26.8 17 (Cite as: 370 Md. 1, 803 A.Zd 460)
Page 15
application actuzlly or potentially interferes with or impairs the legal rights or privileges of the petitioner. Section 3-201(a)(2! states that a court may render a declaratory judgment in accordance with \' 3- 20 1 (a)(l) "whether or nor the petitioner has jirsr asked the comnzission to determine the validip ofthe regulation in question." (Emphasis added).
Secrion 3-201 is the PUC counterpart to SG P 10- 115, which is one of the few provisions of the APA governing the adoption of regulations that does not apply to the PSC. The consistency, however, is noteworthy. As with PLC S ;-?@I, **J79SG $ 10- 125 allows a person to file a petition for a declaratory - iudgment on the validity of any regulation, whether or nor the person has asked the unit to consider rhe validiy of the regulation." (Emphasis added). Section 10-125(c) obliges a court to declare a provision in a regulation invalid if the court finds that, " ( I ) the provision violates any provision of the United States or hlaryland Constitution; (2) the provision exceeds the statutory authority of the unit; or ( 3 ) rhe mir h i l ed to cotnply with starutoy reqrrirements /or adoption of the provision " (emphasis added), and, although that language is not espressly stated in PLiC 6 3-301, it is certainly implicit. One of the utilities that was a party to the PSC proceeding (Delmarva Power & Light Company) filed a petition for declaratory judgment under PLC 8 3-20 1 , so the issue was properly before the Circuit Court and is properly before us. There was no waiver. IFN61
In noting the italicized statutory provisions, we do not mean to suggest that, in the absence of such a provision, the failure to contest the validity of a regulation before the agency that adopted it would preclude a person aggrieved by the regulation from challenging its validity in court.
.A lrernarive ,'Clerhods of Adopting Policy Directives
Citing C'omrtnwr Protrs/ion 1.. C'otistinret. Plrh.. 304 M a . 7 3 1 . 50 1 A.2d 48 ! 1985); Balto. Cm & Elec. I .
Pddii. Srn:. Coniw'tl. 305 \;Id. 115. 501 A.Zd 1307 i 1986); *34Dent. oiHealrh v. Chinws, 343 Md. 336. 68 l A.3d 481 (19961; and Ma. HAfO's v. Cost Review, 356 Yld. 581. 74 1 A.Zd 383 ( 19991, and seeking to distinguish CBS r. Con~prrolr'cv-, 3 1 9 Md. 687. 575 A.2d 32: ( 1990'): the PSC contends that this
Court has generally no! required agencies to proceed by regulation when adopting policy and that we ought to follow that approach here as well. The cases relied upon do not support the position advanced by the PSC. They stand merely for the proposition that agencies have some measure of. though not unlimited, freedom to develop and apply standards that interpret or implement statutes that they administer through contested-case ad-iudications rather than through the adoption of regulations. They do not hold that an agency, through a mechanism other than contested-case adjudication, may adopt standards that constitute regulations under the APA without complying with the APA requirements.
In Conswner Prorecrion. the Consumer Protection Division of the Attorney General's Office charged a company that advertised and sold diet pill plans with false and misleading advertising and produced evidence in the contested- case proceeding that the pills had no significant effect in causing weight reduction. The final agency order enjoined the company from making certain representations in its advertising, required certain other statements to be included in that advertising, and directed refunds to Maryland customers who had purchased the product during a certain period. In an action for judicial review of that order, the company argued, among other things, that the advertising practices found misleading by the Division were industry-wide and that, if they were to be prohibited, the Division was required to effect that prohibition by means of a regulation, rather than in a case-specific proceeding.
We rejected that argument on two grounds: first, that the company had not established that the advertising practices were, in fact, industry-wide, and second, that, in any event, agencies are not precluded from announcing new principles in adjudicative proceedings-that the choice between rule-making and adjudication lies, **180 in the first instance, with the agency. *35 Consutner. Protection, srrwa. 304 Md. at 753-54. SO1 A.3d at 60. In reaching that second conclusion, we adopted the principle stated in SEC I.. Chenen* Cot-p.. 333 U.S. 194, 202-03. 67 S.Ct. 1575. 1580. 9 1 L.Ed. 1995. 1001 i1937), that, although "[tlhe function of filling in the interstices of the [statute] should be performed, as much as possible, through the quasi-legislative promulgation of rules to be applied in the future," there was no " rigid requirement to that effect:" and the agency "must retain power to deal with the problems on a case-to-case basis if the administrative process is to be effective." Conmmer Prorec/ion. 303 Md. at 754.
Copr. Q West 2004 Xo Claim to Orig. U.S. GOW. Works
803 A.2d 460 Util. L. Rep. P 26.817 (Cite as: 370 ,Md. 1, 803 A.2d 460)
Page 16
501 A2d at 60. It was appropriate, we held, for the Consumer Protection Division to proceed by adjudication. because its directives "did not change existing law or even formulate rules of widespread application" but merely "applied the statuton. standards to the facts in the record." Id at 756. 501 A.2d at 6 1.
.4 similar argument was made, and rejected, in && Go3 K. Elec.. suDt-a. 305 Md. 135, 501 A.ld 1307. Acting under its statutory authority to review fuel rate adjustments proposed by utilities, the PSC, in four case- specific proceedings, adopted certain standards for evaluating applications for such adjustments. One of those standards dealt with assuring the utility's compliance with the statutory mandate that it maintain the productive capacity of its generating plants at a reasonable level. Applying that standard in contested-case proceedings, the PSC disallowed part of the cost sustained by BGE to replace power that was lost when one of its generating plants sustained an outage that the - Commission found was preventable. BGE sought judicial review, contending, in pan, that the standard was in the nature of a regulation that should have been adopted in conformance with the State Documents Law. As in Comwmer Ptwrecriori, we held that the standard was properly applied in an adjudicatory proceeding and did not need to be adopted as a regulation--that the Commission "did not abstractly formulate new rules of binding and universal future effect, but simply articulated the standards through which it interpreted and implemented [the statute] during the *36 course of specific contested proceedings, as it was required to do by [statute]." Id at 168, 501 A.2d at 13 18.
A contrary conclusion, but based on the same reasoning, was reached in CBS I?. Comorrolier. 3 19 Md. 687. 575 A.2d 33-1 (1990). The issue there was the implementation of the statutory three-factor formula for apportioning to Mayland the income of a unitary corporation that does business outside the State. One of the factors compared the corporation's total sales with its sales in Maryland. A COMAR regulation adopted by the Comptroller provided that sales, other than sales of tangible personal propew, were to be regarded as attributable to Maryland if either the income-producing personal p r o p e q was in the State or the income-producing activity was performed both in and outside Maryland but more of the activity was performed here than in any other State. CBSI a corporation headquartered in h e w York. had traditionally apportioned all of its advertising revenue to other States, and the
Comptroller had always acceded to that apportionment. In 1980. however, the Comptroller decided to apportion advertising revenue in a new wa~c--based on the percentage of total network audience that was in Mayland-and that changed the sales factor ratio significantly. CBS challenged the new approach, claiming that it should have been accomplished through rule-making rather than through adjudication.
**481 Distinguishing Cotisutner Pt-orecrion and Balro. Gos ti! Eirc.. we agreed that "when a policy of general application, embodied in or represented by a rule, is changed to a different policy of general application, the change must be accomplished by rulemaking." CBS, w p m . 319 Md. at 696. 575 A.2d at 32s. With respect to the policy change at issue. we concluded that the effect of the Comptroller's audit was "to announce 2 substantially new generally applicable policy with respect to apportionment of network advertising income of national broadcasting corporations" and that the change. "for practical purposes. amounted to a change in a generally applicable rule." Id. at 699. 575 A.2d at 330.
*37 These cases, which all deal with when the application of new standards through the adjudicatory process is permissible, do not assist the PSC here. The PSC may well have been able to formulate and apply the directives embodied in Order No. 76192 in case-specific adjudicatory proceedings, as, in pan, it had previously done with respect to BGE. although ihat issue is not before us. When it chose instead to adopt them through a generic, rather than an adjudicatorq., proceeding and then apply them across- the-board to all non-municipal utilities, it made a conscious choice not to use the Corislrmer Profecliotl approach.
In Chitni.~, sl~pra. 343 Md. 336. 681 A.2d 484 and ,\.Id. HMO's. suDro, 356 Md. 58 I . 74 1 A.2d 483. we found that certain standards adopted by the respective agencies to implement existing regulations did not, themselves, constitute regulations subject to the APA requirements. In Chimes. the Developmental Disabilities Administration had adopted regulations governing the reimbursement of private service - providers, one provision of which made clear that the reimbursement formula was subject to the agency's budget appropriations and that the agency could take cost containment measures to control total expenditures. The case arose when, in order to control costs for budgetary reasons, the agency adopted a "growth cap" that had the effect of limiting the reimbursement. A provider sought judicial
Copr. Cf West 2004 S o Claim to Orig. W.S. Gobt. Works
Ltil. L. Rep. P 26.8 17 (Cite as: 370 Md. 1, 803 A.2d 460)
review, complaining that the growth cap constituted a regulation under the APA. We held otherwise. pointing out that the growth cap applied to a limited number of providers in their capacity as contractors. that it applied "only in a particular program. in a particular >ear, and in response to a particular budget crisis," and that, as a result, it "was not a rule of widespread application" and did not change existing law. Chimes, supra. 343 Md. at 346. 681 A.3d at 489. Md HMO's involved an inflation adjustment - system used by the Health Services Cost Review Commission in the implementation of its hospital rate-setting function. which we held did not represent any change in the policies or standards applied by the Commission.
i38 As we have already observed, the PSC directives at issue here do constitute significant changes in policy that affect most of the electric and pas utilities regulated by the Commission. They are precisely the kinds of policy directives that, if not applied in case-specific adjudicatory proceedings, the Legislature intended to be in the form of regulations subject to the APA requirements. Because there was no compliance with those requirements, the directives set forth in Order No. 56292 are simply not effective. Absent some further proceeding by the PSC, there is no need for us or the Circuit Court to address the other issues raised in this appeal.
JUDGMENT OF THE CIRCUIT COURT FOR WCOMICO COUh'TY REVERSED; CASE REMANDED TO T E 4 T COURT WITH ISSTRUCTIOXS TO ENTER DECLARATORY JUDG-MENT **482 UNDER PUBLIC UTILITIES ARTICLE, S ;-20 1 THAT DIRECTIVES COXTAMED IN ORDER KO. 76292 ARE ISEFFECTIVE FOR THE REASOSS STATED IN THIS OPKIOS; COSTS IN THIS COURT .4ND IN CIRCUIT COURT TO BE PAID BY PUBLIC SERVICE COMMISSION.
803 A.2d 160, 370 Md. 1, Util. L. Rep. P 26,817
END OF DOCLMEXT
Copr. CJ West 2004 No Claim to Orig. U.S. Govt. Works
Page 17
S T A T E O F M I C H I G A N
C O U R T O F A P P E A L S
iMICHIGAN ELECTRIC COOPERATIVE ASSOCIATION, ALGER DELTA COOPERATIVE ELECTRIC ASSOCIATION, CHERRYLAND ELECTRIC COOPERATIVE, CLOVERLAND ELECTRIC COOPERATIVE, GREAT LAKES ENERGY COOPERATIVE, HOMEWORKS TRI-CObmTY ELECTRIC COOPERATIVE, LMIDWEST ENERGY COOPERATIVE, ONTONAGON COUNTY RURAL ELECTFWICATION ASSOCIATION, PRESQUE ISLE ELECTRIC & GAS COOPERATIVE, and THUMB ELECTRIC COOPERATIVE,
Appellants,
MICHIGAN PUBLIC SERVICE COMMISSION, MICHIGAN ALLIANCE FOR FAIR COAMPETITION, DETROIT EDISON COMPANY, ASSOCIATION OF BUSINESSES ADVOCATING TARIFF EQUITY, ENERGY MICHIGAN, INC., CONSUMERS ENERGY COMPANY, WISCONSIN PUBLIC SERVICE CORPORATION, UPPER PENINSULA POWER COMPANY, WISCONSIN ELECTRIC POWER COMPANY, d,%h WE ENERGIES, and NORTHERN STATES POMER COMPANY WISCONSIN, d/b/a XCEL ENERGY,
No. 244425 -MPSC LC NO. 00-01 21 34
Appellees.
UNPUBLISHED August 17,2004
CONSUMERS EXERGY COMPANY,
Appellant-Cross-AppeIlee,
and
MICHIGAN STATE UTILITY WORKERS COUNCIL,
Intervenor-Cross-Appellant,
MICHIGAN PUBLIC SERVICE COMiMISSION and MICHIGAN ALLIANCE FOR FAIR COMPETITION,
Appellees-Cross-Appellees,
and
DETROIT EDISON COMPANY, ASSOCIATION OF BUSINESSES ADVOCATING TARIFF EQUITY, ENERGY MICHIGAY, INC., WISCONSIN PUBLIC SERVICE CORPORATION, UPPER PENINSULA POWER COMPLVY, WISCONSIN ELECTRIC POWER CO-MPANY, d/b/a WE ENERGLES, NORTHEEGY STATES POWER COlWANY, d/b/a XCEL ENERGY, and MICHIGAN ELECTRIC COOPERATIVE ASSOCIATION,
Appellees.
DETROIT EDISOY COMPANY,
Appellant,
MICHIGAV PUBLIC SERVICE COMMISSION, -MICHIGAN ALLIAVCE FOR FAIR COMPETITION, MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP, ASSOCIATION OF BUSINESSES ADVOCATING TARIFF EQUITY, ENERGY iMICHIGAN, INC., CONSUMERS ENERGY COMPANY, WISCONSIN PUBLIC SERVICE CORPORATION, UPPER PENINSULA POWER COMPANY, WISCONSIN ELECTRIC POWER COMPLYY, di'bla WE ENERGIES, NORTHERN STATES POWER COMPANY WISCONSIN,
No. 244429 lMPSC LC NO. 00-0 12 134
No. 244531 MPSC LCNO. 00-012134
&%!a XCEL ENERGY, and MICHIGAN ELECTRIC COOPERATIVE ASSOCIATION,
Appellees.
Before: Murray, P.J., and Markey and OYConnell, JJ.
PER CURIAM.
In these consolidated cases appellants Michigan Electric Cooperative Association (MECA), Consumers Energy Company (CEC), Michigan State Utility Workers Council, and Detroit Edison Company (DEC) appeal as of right orders entered by appellee Michigan Public Service Commission (PSC) approving compliance plans and granting in part and denying in part the utilities' requests for waivers. We affirm in each case.
I. Underlying Facts and Proceedings
DEC and CEC agreed to adhere to provisional codes of conduct designed to govern their relationships with their affiliates in connection with their retail open access programs.' Subsequently, the PSC initiated a contested case proceeding pursuant to the Administrative Procedures Act (MA), IMCL 24.201 ef seq., to determine what modifications, if any, should be made to the codes of conduct. Prior to the issuance of a final order in the case, 2000 PA 141, the Customer Choice and Electricity Reliability Act (Act 141), MCL 460.10 er seq., became effective. Act 141 required the PSC to establish a code of conduct applicable to all electric utilities. MCL 460.10a(4) provided:
Within 180 days after the effective date of the amendatory act that added this section, the commission shall establish a code of conduct that shall apply to all electric utilities. The code of conduct shall include, but is not limited to, measures to prevent cross-subsidization, information sharing, and preferential treatment, between a utilities regulated and unregulated services, whether those services are provided by the utility or the utility's afiliated entities. The code of conduct established under this subsection shall also be applicable to electric utilities and alternative electric suppliers consistent with section 10, this section, and sections lob through I Obb.
After conducting further hearings, the PSC adopted a new code of conduct applicable to all electric utilities and alternative electric suppliers. The PSC concluded that the language of
' Retail open access refers to the ability of a utility's customers to purchase electric power from either a competitive affiliate of the utility or an alternative electric power supplier, and to have the utility deliver the power to the point of use.
lMCL 460.10a(4) indicated that the Legislature intended the code of conduct to apply beyond those services directly related to retail open access2
Appellants filed compliance plans and requests for waivers from various sections of the code of conduct. The PSC approved the compliance plans, and granted in part and denied in part the waiver requests. The waiver orders contained guidelines to which appellants were required to adhere to maintain full functional separation between regulated and unregulated activities.
11. Analysis
A party aggrieved by an order of the PSC must prove by clear and convincing evidence that the order is unlawful or unreasonable. MCL 462.26(8). To establish that a PSC order is unlawful, the appellant must show that the PSC failed to follow a mandatory statute or abused its discretion in the exercise of its judgment. In re MCI Telecommunications Complaint, 460 Mich 396,427; 596 NW2d 164 (1999). An order is unreasonable if it is not supported by the evidence. Associated Truck Lines, Inc v Public Service Comm, 377 Mich 259,279; 140 NW2d 515 (1966).
We give due deference to the PSC's administrative expertise, and will not substitute our judgment for that of the PSC. Attorney General v Public Service Comm iVo 2,237 Mich App 82, 88; 602 NW2d 225 (1999). A reviewing court must give great weight to any reasonable construction of a regulatory scheme that the PSC is empowered to administer. Champion's Auto Ferry, Inc v Public Service Comm, 23 1 Mich App 699,708; 588 NW2d 153 (1 998).
The law of the case doctrine provides that an appellate ruling on a particular issue binds the appellate court and all lower tribunals with regard to that issue. A question of law decided by an appellate court will not be decided differently on remand or in a subsequent appeal in the same case. Reeves v Cincinnati, Inc (Afrer Remand), 208 Mich App 556, 559; 528 NW2d 787 (1995). The doctrine applies to questions specifically decided in an earlier decision and to questions necessarily determined to arrive at that decision. Webb v Smith (Ajier Second Remand), 224 ,Vich App 203,209; 568 NW2d 378 (1997).
In these appeals of the compliance and waiver orders entered pursuant to the code of conduct, appellants raise the following arguments: the PSC exceeded its statutory authority by requiring compliance with a code of conduct for nonregulated activities not directly related to retail open access and by denying waiver requests for such activities; the PSC acted unlawfully by denying waiver requests and requiring adherence to guidelines pursuant to a code of conduct
DEC, MECA, kVD CEC appealed the PSC's orders, arguing that: the PSC exceeded its authority by imposing a code of conduct on unregulated activities not related to retail open access; the PSC violated the APA by failing to promulgate the code of conduct as a rule; the code of conduct improperly usurps management activities; the code of conduct is unconstitutionally vague; the code of conduct is invalid at least in part because it is preempted by federal law; and the code of conduct violates various provisions of the United States Constitution. In Detroit Edison Co v Public Service Comm, 261 Mich App 1; 680 NW2d 5 12 (2004), another panel of this Court rejected appellants' arguments and affirmed the PSC's orders.
that was not promulgated under the rulemaking provisions of the APA; the code of conduct and the waiver orders unlawfully usurp management decisions; the code of conduct is unconstitutionally vague in that it fails to give adequate notice of what conduct is prohibited, and the waiver orders are unlawful because they do not exempt utilities from complying with the code of conduct; the code of conduct, at least in part, is preempted by federal law; and the code of conduct violates various constitutional provisions.
Each of these arguments was raised and rejected in appellants' appeals of the PSC's orders adopting the code of conduct. Detroit Edison Co, supra.3 In that case we held as follows: the Legislature's use of expansive language in MCL 460.1 Oa(4) to describe the code of conduct provided the PSC a legislative mandate to adopt a code of conduct that applied to utilities' unregulated activities not directly related to retail open access, id. at 9-10; the code of conduct is not a rule that must be promulgated pursuant to the APA because it comes within the parameters of the exception to the definition of a rule in lMCL 24.207(f), id. at 11-12; the PSC's implementation of the code of conduct does not intrude on management decisions of regulated utilities, id. at 12-13; the code of conduct is not unconstitutionally vague, and uses terms that are as reasonably precise as possible under the circumstances, id. at 15-16; the code of conduct is not preempted by federal law, id. at 13-14; and the claim that the code of conduct violated various constitutional provisions is speculative and not ripe for review, id. at 1 6 . ~
The law of the case doctrine requires that we adhere to the holdings in that decision in these appeals, Reeves, supra; Webb, supra, and to conclude that the PSC's compliance and waiver orders are not unlawfbl or unreasonable. MCL 462.26(8). The PSC had the statutory authority to require appellants to conduct unregulated activities in compliance with the code of conduct, Conszrmers Power Co v Public Service Cornrn, 460 Mich 148, 155-159; 596 NW2d 126 (1995), and did not exceed its authority by denying appellants' requests for waivers for unregulated activities not directly related to retail open access. The contested case proceeding
That decision sets out the substantive law for each argument raised by appellants in these appeals. 4 At oral argument, appellants argued that there exists a conflict between Michigan Electric v MPSC, 252 ~Mich App 254; 652 NW2d 1 (2002), and Detroit Edison, supra. We disagree. The primary distinction between the two cases is statutory nomenclature. In the earlier Michigan Electric case, we found that the MPSC intentionally avoided prescribed rulemaking procedures by instituting a "contested case" against nobody in particular and invited concerned companies to intervene. Michigan Electric, supra, at 267-268. We said that the action was not a bona fide "contested case," so the resulting order was improperly adopted absent the MPSC's adherence to ordinary rulemaking strictures. Id. In Detroit Edison we did not even approach this issue because the MPSC clearly named a party, and it was truly a "contested case." Defroit Edison, supra, at 1 1. Therefore, the order produced was not a "rule," MCL 24.207(f), that would require the MPSC to follow rulemaking procedure. Rather, it was an order from a contested case that acts as binding precedent. Id. Because the latter denomination applies to the instant "contested case" just as it did in Detroit Edison, Michigan Electric is distinguishable.
afforded all participants due process of law, see Westland Convalescent Center v BCBSM, 414 Mich 247, 269; 324 NW2d 851 (1982), and produced a code of conduct and waiver orders that were supported by the requisite evidence. Const 1963, art 6, 9 28. Furthermore, because the code of conduct does not usurp management prerogatives and is neither unconstitutionally vague nor preempted by federal law, the waiver orders, which determine whether and in what manner the code of conduct applies to specific activities undertaken by the utilities but do not require utilities to either cease any activities or commence engaging in particular activities, are similarly valid. Finally, the constitutional claims have been afforded no further development, and continue to be without factual context and to lack ripeness.
111. Conclusion
For the reasons stated above, we affirm the decision of the PSC in each case.
/s/ Christopher M. Murray IS! Jane E. Markey IS/ Peter D. O'Connell