and mcr 2.116(c)(10), - michigan.gov€¦ · the alj issued a proposal for decision on february 27,...

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 complaint of )

MICHIGAN PUBLIC POWER AGENCY against )

MICHIGAN CONSOLIDATED GAS COMPANY ) Case No. U-17151

for overcharging for gas transportation services. )

)

At the February 27, 2015 meeting of the Michigan Public Service Commission in Lansing,

Michigan.

PRESENT: Hon. John D. Quackenbush, Chairman

Hon. Greg R. White, Commissioner

Hon. Sally A. Talberg, Commissioner

ORDER

History of Proceedings

On October 26, 2012, the Michigan Public Power Agency (MPPA) filed a complaint against

Michigan Consolidated Gas Company (Mich Con)1 alleging, that pursuant to their LT-2 Gas

Transportation Agreement, Mich Con overcharged MPPA. In its complaint, MPPA requested that

the Commission order Mich Con to refund $1,591,875, along with interest of $630,313, to MPPA

under MCL 460.1 et seq.

A prehearing conference was held on December 13, 2012, before Administrative Law Judge

Dennis W. Mack (ALJ). MPPA, Mich Con, and the Commission Staff (Staff) participated in the

proceedings. On January 7, 2013, Mich Con filed a motion for summary disposition pursuant to

1 On January 1, 2013, Mich Con changed its name to DTE Gas Company.

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Rule 460.17323 of the Commission’s Rules of Practice and Procedure2 and MCR 2.116(C)(10),

arguing that there was no genuine issue of material fact that the LT-2 Gas Transportation

Agreement permissibly included liquidated damages, the applicable tariffs permitted the minimum

annual volume commitment (MAVC), and, because Mich Con did not overcharge for gas

transportation services, MPPA was not entitled to interest. MPPA filed a response on January 28,

2013. The ALJ issued a Proposal for Decision on February 27, 2013, recommending that the

Commission grant Mich Con’s motion for summary disposition. On April 16, 2013, the

Commission issued an order denying the motion for summary disposition, finding there were

genuine issues of material fact on a number of points in the complaint, and it directed the ALJ to

provide a more developed record to resolve the issues (April 2013 order).

Following the second prehearing conference on April 29, 2013, MPPA filed a motion to

amend its complaint to add counts alleging that the LT-2 Gas Transportation Agreement contained

an improper alternate fuel charge (AFC), Mich Con committed rate discrimination, and the

company was required to submit the agreement as a special contract pursuant to 1999 AC,

R 460.2031 (Rule 31) of the Commission’s Filing Procedures for Electric, Wastewater, Steam, and

Gas Utilities. Mich Con and the Staff filed responses. The ALJ granted MPPA’s motion on

May 29, 2013. Thereafter, MPPA filed an amended complaint with the additional counts and

requested a refund of $1,618,861 in overcharges and $569,444 in interest. Mich Con answered

and filed affirmative defenses.

Subsequent to oral argument on July 26, 2013, the ALJ denied MPPA’s motion to strike Mich

Con’s affirmative defenses, but granted, in part, its motion to compel discovery of Mich Con’s

2 New Rules of Practice and Procedure became effective on January 15, 2015, and

Rule 460.17323 is now R 792.10426.

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LT-2 Gas Transportation contracts with other customers. Mich Con filed requests for admissions

under MCR 2.312 on August 13, 2013, which were answered by MPPA on August 27, 2013.

The ALJ issued his second Proposal for Decision on June 17, 2014 (PFD), recommending that

the Commission dismiss MPPA’s complaint. MPPA filed exceptions on July 9, 2014, and Mich

Con filed exceptions on July 11, 2014. Replies to exceptions were filed on August 1, 2014, by

Mich Con. The record in this proceeding consists of 562 pages of testimony and 52 exhibits.

Positions of the Parties

Michigan Public Power Agency

MPPA is comprised of 17 municipal electric utilities that own and operate electric generating

and transmission facilities. In 2001, several of MPPA’s members decided to replace a generation

unit with a gas fired plant, which resulted in the Kalkaska combustion turbine plant (Kalkaska

CT). On October 17, 2002, MPPA and Mich Con entered into a 10-year LT-2 Gas Transportation

Agreement (Agreement) governing the purchase of natural gas from third parties and

transportation through Mich Con’s system to Kalkaska CT. The parties executed an amendment

on October 28, 2002, modifying the commencement of the Agreement from November 1, 2002, to

October 1, 2002, with the exception of the AFC and the guaranteed annual contract quantity

(ACQ), which retained their original commencement dates of November 1, 2002. Mich Con’s

initial brief, p. 8. All other terms and conditions of the Agreement remained the same. For

purposes of this order, the Agreement and the amended Agreement will be identified collectively

as the Contract.

MPPA did not dispute that the Contract, Attachment A to the Contract, and the company’s

tariffs governed the natural gas transportation services provided by Mich Con to MPPA.

According to the Contract, the ACQ was a minimum of 600,000 thousand cubic feet (Mcf).

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Exhibit MPP-1, p. 1. Pursuant to Paragraph 5 of the Contract, MPPA was to pay a monthly

customer charge of $2,100, plus a transportation charge of $0.3843 per Mcf for the first 600,000

Mcf delivered per contract year, and $0.23 per Mcf for volumes greater than 600,000 Mcf

delivered per contract year. Id., p. 2. In addition, MPPA was to pay a monthly AFC that was

equal to the ACQ multiplied by the transportation charge and divided by 12, less a credit equal to

the transportation charge multiplied by each Mcf of gas actually delivered by Mich Con each

month. Section A-3 of the Contract contained a refund provision, allowing MPPA to request a

refund of the AFC in the event it used no alternate fuels. Finally, the Contract stated, in relevant

part, that if MPPA failed to transport a minimum of 600,000 Mcf per contract year,

then Customer shall pay Mich Con, as liquidated damages, and not a penalty, a settlement

payment calculated as follows:

(a) an amount equal to the volumetric rate set forth in Paragraph 5 of this Agreement,

multiplied by the volumetric difference, if any between the Guaranteed Annual

Minimum Quantity, and the actual volume transported in a Contract Year.

Exhibit MPP-1, p. 2.

All of MPPA’s invoices included a monthly charge of $19,215, which was identified by

various names over the term of the Contract, including “transportation charge.” Exhibit MPP-4.

At some point, MPPA believed that its transportation charges were “above its estimates and

approached the Company about modifying the Contract to no avail.” PFD, p. 8, citing 6 Tr 204.

Then, in 2009, MPPA concluded that it had been overcharged. MPPA stated that it again

approached Mich Con between 2010 and 2012 about modifying the terms of the Contract without

success. 6 Tr 204.

According to MPPA, Kalkaska CT was designed and constructed to run only on natural gas,

and therefore, did not use any alternate fuels during the term of the Contract. 6 Tr 200, 203.

However, MPPA acknowledged that over the 10-year life of the Contract, it never exercised its

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right pursuant to Section A-3(c) to request a refund of the AFC, nor did it request a refund of an

overcharge within one year of its billing pursuant to Section A-11(e) of the Contract. Id., 203.

MPPA alleged that as opposed to a contract interpretation dispute, its complaint arises from

Mich Con’s violation of its End User Transportation Service (EUTS) Tariff. MPPA’s initial brief,

pp. 3, 7. The Contract incorporated by reference the EUTS Tariff, which in turn adopted 1999

AC, R 460.1617(1) (Rule 17(1)) of the Commission’s Billing Practices Applicable to Non-

residential Electric and Gas Customers. Section B4 of the EUTS Tariff states in relevant part:

If a customer has been overcharged, then the utility shall refund or credit the

amount of the paid overcharge to the customer. Overcharges shall be credited to

customers with 7% interest, commencing on the 60th

day following payment. A

utility is not required to adjust, refund, or credit an overcharge beyond the 3-year

period immediately preceding discovery of the billing error, unless the customer is

able to present a record establishing an earlier date of occurrence or commencement

of the error.

In MPPA’s opinion, the monthly invoices constitute a “record” under Section B4, and therefore,

the company is able to present a 10-year record of overcharging and is entitled to a refund of the

overcharge, plus the 7% interest permitted under Rule 17(1). MPPA’s initial brief, p. 7.

Through its witness testimony and exhibits, MPPA provided its explanation of the alleged

overcharge that appeared on the monthly invoices. According to MPPA’s witness, Carl J.

Croskey, “[t]he Amended Contract was initially served under the Transportation Schedule LT-2.

Schedule LT-2 had an Optional Rate. That is, the rate could be any amount the parties negotiated

between an MPSC authorized maximum and minimum price. In MPPA’s case, the maximum rate

was $0.8187 per Mcf, the minimum was $0.2300 per Mcf.” 6 Tr 235. Mr. Croskey asserted that

Mich Con charged a transportation rate of $0.3843 per Mcf, multiplied by the actual volume, and

then credited the amount back to MPPA. Id., 242-243. Mich Con then assessed a fixed charge of

$19,215 per month, which Mr. Croskey asserted was a “proxy transportation rate” that “is simply a

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replacement for the volumetric transportation rate consistently charged on each and every

invoice.” 6 Tr 243, 271.

MPPA argued that the monthly $19,215 charge could not be liquidated damages under the

MAVC because the MAVC is an annual charge. 6 Tr 244. MPPA conceded that the actual nature

of the monthly charge could not be conclusively determined, but decided that it must be for

alternate fuels. Id., 237-239. However, MPPA asserted that a charge for alternative fuels was

unnecessary because Kalkaska CT could only burn natural gas, and Mich Con’s tariffs did not

authorize such a charge. Id., 238.

According to MPPA, the $19,215 monthly AFC was comprised of the 600,000 Mcf ACQ,

multiplied by the $0.3843 transportation charge, and divided by 12. 6 Tr 237. MPPA alleged that

Mich Con assessed the AFC in order to avoid “fluctuations in revenues resulting from the varying

amounts of actual transportation volume.” PFD, p. 12, citing 6 Tr 239-240. In MPPA’s opinion,

“when the $19,215 monthly charge is applied to the actual amount of gas transported during the

term of the Contract, it paid an average effective rate of $1.264 per Mcf,” far exceeding the

$0.3843 per Mcf set forth in the Contract. Id., citing 6 Tr 256-257. MPPA asserted that the rate

also exceeded the maximum $0.8187 per Mcf transportation rate authorized under Mich Con’s

tariffs. In his testimony, Mr. Croskey noted that MPPA did not request a refund of the AFC

because the Contract contained the MAVC and it made “no sense to ask for these ‘alternate fuel

charges’ back only to then be billed and pay MichCon the exact same amount for the minimum

annual volume commitment.” 6 Tr 203.

MPPA asserted that if the actual volume of gas transported during the 10-year term of the

Contract was multiplied by the $1.264 per Mcf rate, Mich Con overcharged MPPA by $1,618,861.

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After applying the 7% interest rate allowed by Rule 17(1), MPPA requested that the Commission

order Mich Con to refund MPPA a total of $2,188,305. MPPA’s amended complaint, p. 11.

Commission Staff

In the Staff’s opinion, the Contract must conform to Michigan law, the Commission’s orders,

and Mich Con’s tariff and rate book. The Staff’s witness, Bonnie Janssen, stated that Mich Con’s

LT-2 Gas Transportation rates were revised to cost-based rates and set in the April 28, 2005 order

in Case No. U-13898 (April 2005 order) at “a low of $0.23 per Mcf and a high of currently

$0.09702 per Mcf (excluding surcharges)….” 6 Tr 327. In the event Mich Con and a customer

chose rates other than cost-based rates, the company was obligated to file the agreement as a

special contract pursuant to Rule 31. The Staff asserted that the Contract contained special

provisions and confidential terms, and therefore, should have been filed as a special contract under

Rule 31. Neither Mich Con nor MPPA pursued this condition. Consequently, the Staff argued,

the Contract must adhere to Mich Con’s rate book. 6 Tr 325.

After examining the contractual terms, Ms. Janssen determined that the “terms were, on their

face, compliant with the Tariff, and the MPPA was charged in accordance with those terms.”

PFD, p. 16, citing 6 Tr 329. However, the Staff agreed with MPPA that the AFC and/or the

MAVC constituted a “proxy transportation rate” that was not permitted by Mich Con’s tariff. 6

Tr 330. As a result, the AFC and/or the MAVC became a part of the negotiated transportation rate

and were permitted as long as the average rate per Mcf did not exceed the maximum transportation

rate set by the April 2005 order, the rate set by the June 3, 2010 order in Case No. U-15985 (June

3 order), and the rate set by the tariff. Id.

The Staff argued that beginning in May 2005, Mich Con charged MPPA in excess of the

approved maximum transportation rate set by the aforementioned orders and the company’s tariff.

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By the Staff’s calculation, between 2005 and 2012, the “difference between the actual volume of

natural gas multiplied by the maximum Tariff rate and the $19,215 monthly charge” was

$361,307, excluding interest. PFD, p. 17, citing 6 Tr 331. The Staff recommended that the

Commission order Mich Con to refund MPPA that amount.

Michigan Consolidated Gas Company

In response to MPPA and the Staff, Mich Con’s witness, Wayne E. Fox, explained the purpose

of the 10-year Contract. Mr. Fox asserted that MPPA benefitted from the 10-year term of the

Contract because power generation facilities are very expensive to construct, natural gas supply

commodity is one of the most costly variable costs in operating a power plant, and lenders require

transportation certainty of the gas supply. 6 Tr 387. Therefore, MPPA needed a long-term

contract in order to secure financing. In addition, Mr. Fox testified that the company “provided

the best alternative for the delivery of natural gas to the Kalkaska C/T Facility.” 6 Tr 397.

Mr. Fox also described how the company provided natural gas transportation service to MPPA

pursuant to the rate book and the Contract. Although the rate book and the Contract are two

separate documents, Mr. Fox stated that the company provided transportation services to MPPA

under both. 6 Tr 392-394. The Contract “is an ‘extension’ of the Rate Book incorporating special

operating conditions and other matters that define the often unique relationship between MichCon

and each end use transportation customer.” Mich Con’s reply brief, p. 8.

Mich Con contended that if the Staff is arguing that the company’s “Tariff rates, terms, and

conditions prohibit additional but not inconsistent terms and conditions in an LT-2 contract, then

there would be no reason for the Company and any EUT customer to enter into any contract

because the Rate Book would govern the entire contractual relationship between the Company and

the EUT Customer.” Mich Con’s reply brief, p. 9, citing 6 Tr 424. Therefore, according to Mich

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Con, the distinct purpose of the Contract was to provide for additional terms of service so long as

they were consistent with the company’s tariffs.

Mich Con noted that one of the special operating conditions set forth in the Contract is the

MAVC. According to Mich Con, the MAVC is often negotiated in lieu of standby service.

Standby service “was approved by the Commission in 1988 with a rate of $65 per MMBtu/cubic

foot of nameplate rating when the Contract was executed in 2002.” PFD, p. 20, citing 6 Tr 403.

In this case, standby service would have cost MPPA $38,035 per month, or $456,300 per year.

Mich Con asserted that instead, MPPA and the company negotiated the MAVC, which cost MPPA

$19,215 per month, or $230,580 per year. Mich Con stated that pursuant to terms of the Contract,

the MAVC could have been eliminated if MPPA transported 600,000 Mcf per year. 6 Tr 407.

Mich Con asserted that its tariff does not prohibit the AFC and it was utilized to reduce the

risk of a potential gas load loss to a competing company. In his testimony, Mr. Fox explained that

an alternative fuel charge has been used by the company in contracts since the 1980s and “was

used as a negotiating tool to secure a customer’s full requirements for natural gas during a contract

term in return for negotiated contract rates and service terms.” 6 Tr 408. Mr. Fox went on to

explain that an alternate fuel charge traditionally has been a monthly charge that was administered

in the same way the AFC was charged to MPPA. Id. The AFC “also provided the MPPA with the

benefit of a monthly fixed charge to use in calculating its bids into the Midwest Independent

System Operator (MISO) market.” PFD, p. 22, citing 6 Tr 410.3

Mich Con alleged that over the 10-year term of the Contract, MPPA never requested any

modifications to the charges associated with the AFC or MAVC. Mich Con’s witness, Bentley C.

Whitman, stated that no “MPPA employee ever inquired of MichCon about the charges under the

3 MISO is now Midcontinent Independent System Operator, Inc.

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Amended Contract [or] any alternatives available to MPPA.” 6 Tr 518. Mr. Whitman stated that

he first learned of MPPA’s concerns regarding the transportation charges in April 2011. Id., 519.

In addition, Mich Con asserted that MPPA never invoked the Section A refund procedure of the

Contract. Rather, Mich Con and MPPA had a “course of conduct throughout the 10-year term of

the Amended Contract [that] not only resulted in offsetting the liquidated damages with the

unrefunded Alternate Fuel Charge, but was a part of the agreement between MichCon and

MPPA.” Mich Con’s reply brief, pp. 43-44.

In response to MPPA’s claim that the $19,215 monthly charge was, in fact, a volumetric

transportation rate, Mich Con argued that MPPA failed to correctly interpret the tariff, the

Contract, and the nature of the monthly charge. Regarding the tariff, Mich Con contended that “by

its express terms, the transportation rate only applies to gas delivered to a Customer.” PFD, p. 24,

citing 6 Tr 429. Similarly, Mich Con asserted, the Contract contains a rate for gas delivered to

MPPA, subject to the terms of the tariff. Mich Con asserted that MPPA is instead disputing the

AFC, a charge for gas not delivered, and the calculation of the AFC. Mich Con’s initial brief,

pp. 23-26. Because the tariff, by its definition, applies to gas delivered to a customer, Mich Con

argued that the tariff cannot also apply to charges for gas not delivered, such as the AFC.

Furthermore, Mr. Fox argued in his testimony, “Simply utilizing an amount per unit of gas that

corresponds to the tariff rate to perform [the AFC and MAVC] calculations does not, as Ms.

Janssen suggests, transform [the AFC or MAVC] into a transportation rate.” 6 Tr 429. Therefore,

according to Mich Con, the AFC and MAVC cannot be considered “proxy transportation rates.”

In conclusion, Mich Con asserted that MPPA’s complaint should be dismissed with prejudice

because the AFC and MAVC “have not resulted in any unauthorized charges under the Amended

Contract, and are not a violation of any Tariff, Commission Rule, or Commission Order.” Mich

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Con’s initial brief, p. 48. Mich Con argued that MPPA failed to meet its burden of proof that the

company overcharged MPPA for LT-2 gas transportation services. However, in the event the

Commission finds a cause of action in favor of MPPA, Mich Con asserted that recovery is barred

by its affirmative defenses.

Proposal for Decision

In his PFD, the ALJ found that MPPA’s and the Staff’s contention that the $19,215 monthly

charge was a “proxy transportation rate” is not supported by the record. According to the ALJ, the

tariff “defines the transportation rate as follows: ‘The transportation rate is charged for each Ccf

of gas delivered to Customer in a given month.’ (MPSC No. 1, Sec E14) (Emphasis added).”

PFD, p. 27, citing 6 Tr 429. The ALJ noted that over the course of the 10-year Contract, Mich

Con charged MPPA the $0.3843 per Mcf transportation rate for all delivered natural gas as set

forth in the Contract. The ALJ asserted that the $0.3843 per Mcf “rate was within the scope of the

Company’s Tariff, which went into effect on April 29, 2005, through the Commission’s Order in

Case No. U-13898….” PFD, p. 27. The ALJ agreed with Mich Con that the AFC and MAVC are

charges for gas not delivered and, therefore, could not be “proxy transportation rates.”

The ALJ found MPPA’s assertion to be dubious that it was confused by the nature of the AFC.

The ALJ noted that “it is doubtful that the MPPA found the provision confusing given it was

aware that had it requested a refund, it would have been obligated for the Minimum Annual

Volume Commitment.” PFD, p. 28.

Although the calculation of the AFC and MAVC included the $0.3843 per Mcf transportation

rate, the ALJ agreed with Mich Con that the inclusion did not transform the AFC and MAVC into

transportation charges. As explained by the ALJ, the tariff “allows for additional terms and

conditions of service beyond the transportation rate.” PFD, p. 28. These terms and conditions

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were negotiated by the company and the customer, and were specific to the facility’s

characteristics and function. Id. The MAVC is an example of an additional term and condition of

service, and it permitted the customer to spread infrastructure payments over the term of the

Contract. The ALJ stated, “Such payments are not a component of the transportation rate.” Id.,

p. 29.

The ALJ disagreed with MPPA and the Staff “that the Company’s Tariff does not expressly

allow for either an Alternate Fuel Charge or Minimum Annual Volume Commitment,” and that the

charges must be a part of the negotiated transportation rate. PFD, p. 29. The ALJ stated that

“neither the MPPA nor the Staff provides any legal basis for their respective contentions that a

charge not expressly provided for in a Tariff is, in effect, a component of the transportation

charge.” Id., p. 30. Then, agreeing with Mich Con, the ALJ opined that if the tariff were the only

document controlling the agreement between the parties, “a contract would be rendered nugatory

because the Rate Book would govern all aspects of the relationship between the Company and its

EUT customer.” Id., citing 6 Tr 425. The ALJ concluded that the tariff does not prohibit the AFC

and MAVC, and therefore, the charges constitute permissible additional terms and conditions of

service negotiated by the parties.

The ALJ next addressed the nature of the $19,215 monthly charge and determined that it was

the AFC. The ALJ noted that the Contract, by its express terms, identifies the AFC as a monthly

charge. PFD, p. 30. By contrast, the MAVC was an annual charge assessed at the end of a

contract year.

Regarding MPPA’s contention that the $19,215 monthly charge was inappropriate due to the

fact Kalkaska CT is unable to burn alternate fuel, the ALJ responded that such an argument is

irrelevant given the fact that MPPA negotiated and agreed to the terms of the Contract in 2002.

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The ALJ stated, “It was during the negotiations over the terms of the Contract, and not after its

10-year term ended, that the capability of the facility to burn fuel other than natural gas delivered

by the Company should have been considered.” PFD, p. 31. Similarly, the ALJ found that any

concerns MPPA had about the MAVC should have been raised during the negotiation of the

Agreement and/or the Amended Agreement.

In addition, the ALJ noted that MPPA has been active in the acquisition, ownership, financing,

and operation of electric generation and transmission facilities since 1978. PFD, p. 32, citing 6

Tr 194. The ALJ found MPPA to be “well-versed in all aspects of the construction and operation

of the Kalkaska CT,” and are “sophisticated energy buyers dealing in natural gas….” Id., citing 6

Tr 396. According to the ALJ, at no point did MPPA request a refund of the $19,215 monthly

charge, or an amendment to the Contract; “[r]ather, the MPPA proceeded in a manner that

indicates its obligations were what it expected under the Contract.” Id., p. 33.

MPPA asserted that it was charged a transportation rate higher than allowed by the tariff, its

service was inferior to that provided to similarly situated customers, and that the three receipt

points, only one of which was available year-round, reduced the number of suppliers from which

MPPA could purchase natural gas. PFD, p. 34. In response to the last argument, the ALJ noted

that MPPA failed to produce any evidence demonstrating that the number of receipt points was of

concern when the parties negotiated the Contract or that the provision was dictated by Mich Con.

Therefore, the ALJ found that MPPA’s “contention that the Receipt Point provision in the

Contract constitutes Rate Discrimination cannot be sustained.” Id., p. 35.

The ALJ next addressed MPPA’s claim that its service was inferior to that provided to

similarly situated customers. After a review of Mich Con’s LT-2 Gas Transportation Agreements

with other customers, MPPA’s witness, Mr. Croskey, argued that the AFC and MAVC provisions

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were unique and constituted rate discrimination. The ALJ disagreed. The ALJ noted that two gas

transportation agreements containing an alternate fuel charge and minimum annual volume

commitment were executed while Mr. Croskey was employed by MPPA, and as a result, the ALJ

found that the AFC and MAVC in the Contract were not unique. In addition, the ALJ asserted that

MPPA presented no evidence showing that the “parties to the 21 contracts are similarly situated to

MPPA, a point Mr. Croskey conceded.” Id., p. 36.

The ALJ acknowledged that the Contract was not submitted to the Commission for approval

as a special contract. However, the ALJ asserted that, as discussed above, the $19,215 monthly

charge was not a “proxy transportation rate” that exceeded the allowable rate in the company’s

tariff. Therefore, the ALJ determined that the Contract did not meet the requirements of a “special

contract” under the Commission’s rules. In addition, the ALJ found that the rates set forth in the

Contract do not result in “other rate classes subsidizing a discounted rate provided to the MPPA”

in violation of the Commission’s orders and rules. PFD, p. 39. The ALJ referred to the testimony

of Mich Con’s witness who argued that “MPPA is not claiming that it received discounted pricing,

but is instead complaining that it was overcharged.” 6 Tr 444.

The ALJ asserted that although the AFC and MAVC provisions were not included in Mich

Con’s Standard Form Contract that was provided as a courtesy to the Commission in October

2000, MPPA is incorrect in assuming that the company had an “obligation to file the document

with the Commission, or to have the document approved by the Commission.” Id., p. 38. The

ALJ opined, “MPPA has not provided any basis for its claim that the Contract must be deemed a

Special Contract solely by virtue of the inclusion of the Alternate Fuel Charge and Minimum

Annual Volume Commitment provisions.” Id.

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Regarding Mich Con’s affirmative defenses of unclean hands and laches, the ALJ noted that

these are equitable defenses, and an administrative agency such as the Commission has no

common law or equitable powers. Therefore, the ALJ stated, these defenses are not available in

this proceeding. In addition, the ALJ found that the statute of limitations in MCL 600.5807(8)

does not apply. However, the ALJ asserted that the record supports several of Mich Con’s

defenses such as consent, acquiescence, ratification, accord and satisfaction, and failure to mitigate

damages.

In conclusion, the ALJ found that MPPA was not overcharged, the AFC and MAVC did not

result in rate discrimination, and Mich Con was not required to submit the Contract for

Commission review and approval as a special contract under 1999 AC, R 460.2012(h) (Rule

12(h)). The ALJ recommended that the Commission dismiss MPPA’s complaint.

Exceptions and Replies

MPPA filed nine exceptions to the PFD. In its first exception, MPPA claims that the ALJ

erred in finding that the AFC and MAVC were not transportation rates. MPPA asserts that the

ALJ misconstrued Mich Con’s tariff as defining “‘transportation rate’ as a charge only for gas

delivered.” MPPA’s exceptions, pp. 3-4. MPPA argues that the plain language of the tariff is “not

that non-delivered gas costs cannot be part of the transportation rate.” Id., p. 4. Instead, MPPA

contends, the tariff states that the transportation rate shall be applied to each Ccf of gas delivered

to a customer. Id.

MPPA explains that if the tariff is read as the PFD suggests, it would render the Commission’s

ratemaking nugatory. MPPA argues that “a utility could simply charge a customer the

‘transportation rate’ for what it identifies as ‘delivered gas transportation costs’ and then include

additional unsupported charges as ‘non-delivered gas transportation costs’ as MichCon did in this

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case.” MPPA’s exceptions, p. 4. Or, put another way, MPPA asserts that if a customer is forced

to pay the non-delivery costs in order to have their gas moved, the non-delivery costs effectively

become transportation costs. In addition, MPPA claims that “a potential customer reading a

utility’s tariff would have no idea what additional charges they might be liable for and without

Commission oversight of these non-delivery rate and/or charges the PFD is basically stating the

transportation markets are essentially unregulated with respect to rates and/or charges.” Id. As a

result, MPPA encourages the Commission to find the AFC and MAVC to be part of the volumetric

transportation rate.

MPPA next excepts to the ALJ’s finding that Mich Con may include additional terms and

conditions of service in the Contract so long as the charges do not conflict with the tariff. MPPA

asserts that the ALJ provides no legal basis for this conclusion. Although the ALJ found that the

tariff already permits terms and conditions of service beyond the transportation rate, MPPA

contends that these additional terms and conditions of service are terms the Commission has

already approved. MPPA states that the AFC and MAVC have not been approved by the

Commission and are not permissible additional terms and conditions of service.

In addition, the ALJ stated that the MAVC is an additional term and condition of service that,

for example, allowed the infrastructure payments to be spread out over the term of the Contract.

MPPA disagreed, asserting that “[s]uch a term was not needed in MPPA’s case because as the

record shows MPPA paid its infrastructure costs in full shortly after gas began to flow in 2003.”

MPPA’s exceptions, p. 7, citing 6 Tr 263-264.

MPPA also disputes the ALJ’s finding that Mich Con and MPPA negotiated the MAVC in

lieu of standby service. According to MPPA, no witness in this case participated in the negotiation

of the Contract, and therefore, “no witness in this case can testify with any personal knowledge to

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what terms might have been offered in lieu of others.” MPPA exceptions, p. 6. MPPA asserts

that, at the time the parties negotiated the Contract, MPPA’s transportation service did not meet

the definition of standby service under the tariff. Id. As a result, MPPA states, the parties were

not able to negotiate the MAVC in lieu of standby service in 2002.

In its third exception, MPPA excepts to the ALJ’s determination that the AFC and MAVC are

not “proxy transportation rates.” MPPA begins by reiterating and incorporating the arguments

from its first exception. Then, MPPA asserts that the ALJ misunderstood the nature of its “proxy

transportation rate” argument. MPPA states that it described the $19,215 monthly payment “a

proxy charge because in place of a straight volumetric rate it had to pay the $19,215 charge in

order to transport its gas. The mechanics of the transaction completely removed any nexus to the

actual volume of gas transported and replaced or substituted it with a fixed charge.” MPPA’s

exceptions, p. 9. MPPA acknowledges that the monthly customer charge was a fixed charge that

MPPA had to pay in order to transport gas, but argues that the Commission expressly carved out

the customer charge as a separate non-volumetric fee, whereas the same was not done for the AFC

and MAVC. Id., p. 10. MPPA requests that the Commission find the AFC and MAVC to be

“proxy transportation rates.”

In its fourth exception, MPPA disputes the ALJ’s conclusion that the $19,215 monthly charge

is the AFC. According to MPPA, the ALJ found that the $19,215 monthly charge could only be

the AFC because it was a monthly charge and the AFC was the only charge that was billed on a

monthly basis. However, MPPA notes that the ALJ found that the MAVC also called for a

$19,215 monthly payment because it “required MPPA to transport a minimum of 600,000

annually or pay $230,580 ($19,215 x 12).” MPPA’s exceptions, p. 11.

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Furthermore, MPPA asserts that the AFC and MAVC were independent terms and nowhere in

the Contract was there language connecting these two terms. MPPA states that the ALJ also found

that the two terms were separate and distinct. As a result, Mich Con, in theory, was “entitled to

collect a monthly amount of $19,215 for the Alternate Fuel Charge (annually $230,580) and an

annual amount of $230,580 for the minimum volume to be transported – a total of $461,160

annually even if MPPA transported no gas.” MPPA’s exceptions, p. 11. Yet, MPPA argues, Mich

Con administered the terms together and treated them as interchangeable.

MPPA notes that each year during the term of the Contract, it was billed a total of $230,580,

or in other words, a monthly transportation charge of $19,215. If the AFC and MAVC were

treated independently, as the Contract states, MPPA asserts that Mich Con would have had to have

“waived its right to the Minimum Annual Volume Commitment” or “effectively refunded the

Alternate Fuel Charge to MPPA and simultaneously applied the refund to the Minimum Annual

Volume Commitment.” MPPA’s exceptions, p. 12. However, MPPA states that Mich Con never

admitted to waiving the MAVC, and the company “was adamant in its testimony that MPPA never

requested a refund of the Alternative Fuel Charge.” Id. MPPA argues that the ALJ’s conclusion

that the $19,215 monthly charge was, in fact, the AFC is not supported by the record evidence, and

therefore, the “exact nature of the $19,215 remains unknown.” Id., p. 13.

MPPA disputed several of the ALJ’s findings in its fifth exception. In summary, MPPA

reiterated its arguments that it was not a sophisticated energy buyer, that several of Mich Con’s

witnesses were not present for the Contract negotiations, and that, as a result, MPPA’s witnesses

are more credible.

In its sixth exception, MPPA claims that the ALJ erred in finding that the record does not

support a rate discrimination claim. The ALJ concluded that there was no rate discrimination

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because “there was no evidence that the nature and number of Receipt Points were a concern of

MPPA when it negotiated the Contract.” MPPA’s exceptions, p. 15, citing the PFD, p. 35. MPPA

notes that the ALJ relied on a single document, Exhibit R-4, to determine that there was no

evidence that the nature and number of receipt points were a concern during the negotiation of the

Contract. Id. However, MPPA states that none of the witnesses in this case participated in the

Contract negotiations. Therefore, MPPA asserts, “there is no way for the record to reflect what

concerns MPPA might have had during negotiations.” Id. Without such evidence, MPPA requests

that the Commission give no weight to the ALJ’s conclusion on this issue.

MPPA also disputes the ALJ’s finding that the AFC and MAVC were not unique to the

Contract because the contracts with Mich Con’s other transportation customers contained similar

terms. According to MPPA, there is no evidence on the record that its witness, Mr. Croskey, ever

reviewed or signed any contracts that contained an AFC or MAVC. MPPA asserts that Exhibits

R-17 and R-18 show someone other than Mr. Croskey as the signor, that Mr. Croskey testified that

he had never seen the exhibits before, and that his area of responsibility did not include gas

transportation for end-users. As a result, MPPA contends that the Commission should reject the

ALJ’s finding on this issue.

Furthermore, MPPA excepts to the ALJ’s determination that none of the other “non-Company

parties to the 21 contracts are similarly situated to MPPA, a point the PFD states, Mr. Croskey

conceded.” MPPA’s exceptions, p. 17. MPPA asserts that Mr. Croskey testified that he reviewed

the other contracts, found that no other contract had the AFC or MAVC, and no other contract had

its receipt points as limited as MPPA. Id. In addition, MPPA disputes that Mr. Croskey conceded

that none of the other contracts were similarly situated to MPPA. MPPA contends that Mr.

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Croskey actually stated that it was difficult identifying exactly who was similarly situated, but then

shared his “method he used in his analysis to avoid the problem.” Id.

MPPA contests, in its seventh exception, the ALJ’s finding that the Contract did not have to

be filed as a special contract under Rule 31. MPPA contends that the Contract should have been

filed as a special contract because “it provided transportation services on terms…not specifically

covered by its [MichCon’s] filed rules and regulations…[a]nd…because billing a fixed $19,215 a

month resulted in transportation rates not covered by its filed rate schedules.” MPPA’s

exceptions, p. 18. MPPA asserts that “Exception No. 1 fully rebuts the PFD’s theory that the

$19,215 monthly charge is not a transportation rate” and, in support, fully incorporates the

discussion from its first exception. MPPA’s exceptions, p. 19. MPPA also argues that the plain

language of the administrative rules cited by the ALJ shows that the $19,215 monthly charge is

covered by the special contract requirement.

MPPA also excepts to the ALJ’s finding that the Contract did not need to be filed as a special

contract because other rate classes did not subsidize discounts to MPPA. MPPA alleges that the

prior Commission orders cited by the ALJ in support of his conclusion are not applicable to this

case. MPPA states, “No case cited in the PFD finds that only contracts that raise rate cross

subsidization issues need to be reviewed by the Commission as Special Contracts.” MPPA’s

exceptions, p. 20. Rather, MPPA asserts, Rule 31 states, “Commission review is required for any

Special Contract.” Id. MPPA argues that the definition of a special contract includes a contract

that provides service to a customer at a rate not covered by the rate book. Id., p. 21. MPPA

contends that because the Contract included the AFC and MAVC, terms that were not specifically

covered by Mich Con’s rate schedules, the Contract should have been filed as a special contract

pursuant to Rule 31.

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In its eighth exception, MPPA disputes the ALJ’s finding that some of Mich Con’s affirmative

defenses have merit. MPPA notes that the ALJ places much emphasis on Mich Con’s affirmative

defense of failure to mitigate damages. However, MPPA contends that the ALJ “acknowledges

that requesting a refund would have done nothing to reduce MPPA’s damages because given the

structure of the Contract it would have been liable for the same amount under the Minimum

Annual Volume Commitment.” MPPA’s exceptions, p. 22. Even if the ALJ was insisting that a

symbolic gesture to mitigate damages would have sufficed, MPPA asserts that there is no case law

supporting such a gesture. MPPA reiterates its arguments that it did, in fact, attempt to mitigate its

damages and that the burden of proof is on Mich Con to show that MPPA failed to use every effort

to do so.

In addition, MPPA asserts that, “While the PFD faults MPPA for not taking what it considers

necessary steps to mitigate its damages, it is completely silent on MichCon’s related failures.”

MPPA’s exceptions, p. 24. MPPA argues that pursuant to the Contract and the April 2005 order,

Mich Con had a duty to reduce the ACQ after it was discovered that MPPA was using less gas

than the ACQ. However, MPPA alleges, the evidence shows that Mich Con never made an effort

to reduce the ACQ, even though the company adjusted it for all of its other transportation

customers. Id., p. 25.

Finally, MPPA notes that the ALJ found that the record supported Mich Con’s affirmative

defenses of consent, acquiescence, ratification, and accord and satisfaction, but offered no

specifics as to why the record supports these defenses. MPPA’s exceptions, p. 25. MPPA

disagrees that the record supports Mich Con’s affirmative defenses, and requested that the

Commission reject them.

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In its ninth and final exception, MPPA disagrees with the ALJ’s finding that MPPA was not

overcharged. After reiterating its arguments that the record evidence shows that MPPA “paid an

effective transportation rate that was many times greater than the maximum rate allowed by

MichCon’s Tariff,” MPPA asserts that all of its exceptions have proven that the ALJ erred in

finding that Mich Con did not overcharge MPPA. MPPA’s exceptions, p. 26. Therefore, in

conclusion, MPPA requests that the Commission adopt its exceptions and issue an order consistent

with the arguments set forth therein.

Mich Con filed one exception to the PFD. Mich Con notes that the PFD concludes with a

recommendation that the Commission dismiss the complaint. However, Mich Con states that the

PFD does not specifically indicate whether or not the complaint should be dismissed with

prejudice. Mich Con asserts that “the record shows that MPPA availed itself of every opportunity

to bring all possible claims pursuant to MCR 2.302(A) against DTE Gas in regard to the 10-year

LT-2 Gas Transportation Agreement….” Mich Con’s exceptions, p. 2. Therefore, Mich Con

requests that the Commission’s final order explicitly state that the dismissal is with prejudice.

Mich Con replied to each of MPPA’s nine exceptions. In response to MPPA’s assertion that

the ALJ erred in finding that the AFC and MAVC were not transportation rates, Mich Con states

that “the basis for MPPA’s exception is its disagreement with the PFD’s interpretation of

MichCon’s Tariff, MPSC 1, Sec E14.” Mich Con’s replies to exceptions, p. 3. Mich Con

contends that the ALJ did not rely solely on his interpretation of the tariff, but instead relied on

“the contractual terms and the purpose of the provisions, along with the Tariff….” Id., citing the

PFD, p. 27. Mich Con reiterates its arguments that the AFC and MAVC are not transportation

rates, and argues that MPPA misrepresented the evidentiary record in its exceptions and engaged

in irrelevant and prohibited speculations. Mich Con asserts that MPPA failed to meet its burden of

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proof by a preponderance of the evidence and requests that the Commission reject MPPA’s first

exception as a matter of both law and fact.

The ALJ found that the AFC and MAVC do not conflict with the company’s tariff and are, in

fact, additional terms and conditions of service negotiated by the parties. MPPA excepted to this

finding, asserting that the ALJ failed to address what is meant by no “conflict” with the tariff.

Mich Con argues that MPPA is “manufactur[ing] ambiguity where there is none.” Mich Con’s

replies to exceptions, p. 9. Mich Con contends that MPPA, to support its argument, “makes

several misrepresentations that are contradicted by the evidentiary record.” Id., p. 10. First, in

response to MPPA’s claim that the ALJ failed to consider that the AFC and MAVC result in

MPPA paying an average rate 1.5 times higher than the maximum rate approved by the

Commission, which in turn, conflicts with the tariff, Mich Con states that MPPA does not

“provide any explanation as to how a customer pays an effective rate 1.5 times the maximum

Commission approved rate” when Mich Con and the ALJ have provided sufficient proof that the

AFC and MAVC do not factor into the transportation rate. Id.

Second, Mich Con disputes MPPA’s claim that the ALJ provided no legal basis for the

conclusion that a utility can “levy” any additional charges as long as they do not conflict with the

tariff. Id., p. 11. Mich Con asserts that it did not unilaterally impose any charges on MPPA for

non-delivered gas costs because the company and MPPA agreed to these costs after extensive

contract negotiations.

Third, Mich Con avers that MPPA offered no legal explanation for its claim that the AFC and

MAVC were not approved by the Commission. Mich Con states, “In fact, MPPA’s assertion…is

contradicted by the [April 2005 order] for reasons discussed in MichCon’s Reply Brief.” Mich

Con’s replies to exceptions, p. 12.

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Fourth, in response to MPPA’s argument that the MAVC could not have been negotiated in

lieu of standby service, Mich Con notes that MPPA voluntarily executed an amendment to the

Contract in 2002, which demonstrates MPPA’s intent for both the AFC and MAVC to be included

in the Contract. Mich Con asserts that, according to its witness, not only was the MAVC

negotiated in lieu of standby service, but it also saved MPPA $225,720 per contract year.

In response to MPPA’s assertion that “[n]o witness in this case can testify with any personal

knowledge to what terms might have been offered in lieu of others,” Mich Con argues that if this

is to be the standard in this case, “MPPA’s entire case should be dismissed with prejudice because

MPPA has the evidentiary burden of proof for proving its claims and MPPA has admitted that it

presented no witness with any first-hand knowledge about any of its claims and allegations against

MichCon.” Mich Con’s replies to exceptions, p. 15, citing MPPA’s exceptions, p. 6. In other

words, Mich Con contends that MPPA’s argument in this exception is self-defeating. Id.

Regarding MPPA’s third exception, Mich Con responds that the ALJ correctly found that the

AFC and MAVC do not constitute “proxy transportation rates.” According to Mich Con, MPPA

argued that “there is a material distinction between purported terms and conditions the Tariff

allows beyond the transportation rate versus terms and condition [sic] that are not included in the

Tariff.” Mich Con’s replies to exceptions, p. 17. Mich Con asserts that MPPA did not identify

which terms and conditions the tariff actually permits beyond the transportation rate. Mich Con

requests that the Commission reject MPPA’s argument because, pursuant to established law, the

Commission is not expected to provide rationalization for MPPA’s assertion, elaborate on

MPPA’s arguments, or locate legal authority on which to sustain or reject this exception. Id.

In addition, responding to MPPA’s claim that the ALJ did not provide any legal basis for

finding that the Contract may contain terms, conditions, and charges that are not included in the

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tariff, Mich Con asserts that MPPA failed to understand that the burden is on MPPA to prove its

claims, not Mich Con or the ALJ. Nevertheless, Mich Con asserts that there is, in fact, a legal

basis in the April 2005 order for the ALJ’s conclusion, which Mich Con discussed above in its

reply to MPPA’s second exception.

Next, Mich Con recounts MPPA’s discussion “about how only a Tariff can inform a potential

EUT customer of the likely charges to expect” and how its argument “concludes with histrionic

hand-wringing that ‘[t]he utility [could] simply make-up the terms, conditions and charges unique

to each customer in a completely non-uniform manner as it did with MPPA.’” Mich Con’s replies

to exceptions, p. 19, citing MPPA’s exceptions, p. 9. Mich Con disagrees, stating the evidentiary

record shows that the parties extensively negotiated the Contract and MPPA voluntarily agreed

that Mich Con would charge such costs. For MPPA to state that Mich Con made up the AFC and

MAVC and unilaterally imposed them on MPPA, is a fiction, according to Mich Con, and

unsupported and contradicted by the evidentiary record. Id., pp. 19-20.

Replying to MPPA’s fourth exception, Mich Con reiterates its argument that the $19,215

monthly payment constitutes the AFC. Mich Con states that throughout the 10-year term of the

Contract, MPPA never questioned the use of the line item descriptors for the $19,215 monthly

charge, it reviewed all of the monthly invoices, and “never objected to tendering payment in full

for all these invoices.” Mich Con’s replies to exceptions, p. 24. Also, Mich Con asserts that

MPPA’s claim that the company held some of the AFC payments for over a year without paying

MPPA interest is barred by 1999 AC, R 460.175054 and the Michigan Court Rules, which requires

a complainant to set forth all claims and requests for relief in the complaint. Because MPPA’s

4 New Rules of Practice and Procedure became effective on January 15, 2015, and Rule

460.17505 is now 1999 AC, R 792.10441.

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complaint did not contain a request for interest due on the AFC payments, Mich Con contends that

this claim is barred.

In reply to MPPA’s fifth exception, Mich Con states that it is responding to several unrelated

claims. First, Mich Con disputes MPPA’s assertion that MPPA is an unsophisticated energy

buyer. Indeed, Mich Con cites Exhibit R-7 for the proposition that MPPA was an experienced

energy customer. Second, in response to MPPA’s argument that no witnesses to this case were

parties to the negotiations leading up to the Contract, Mich Con reiterates its argument set forth in

its response to MPPA’s second exception and asserts that, if such a standard is to be applied to this

case, MPPA’s entire case should therefore be dismissed with prejudice. Mich Con avers that the

ALJ’s determination was based on relevant substantive documents and that it was reasonable for

the ALJ “to determine that there were various offers and a counter-offer by MPPA during the

negotiations….” Mich Con’s replies to exceptions, p. 30. Third, in reply to MPPA’s claim that

the MAVC was not negotiated in lieu of standby service, Mich Con refers to its response to

MPPA’s second exception above.

The ALJ found that the record did not support a rate discrimination claim. MPPA excepted,

stating that its service was inferior to other similarly situated customers, it was charged a

transportation rate higher than allowed by Mich Con’s tariff, and the AFC and MAVC, along with

the limits on the number of its receipt points, were unique to the Contract. Mich Con’s replies to

exceptions, pp. 31-32. Referencing its replies to exceptions 1-5, Mich Con states that the ALJ’s

conclusion that the $19,215 monthly charge was not a component of the transportation rate

“correctly refutes” the allegation that MPPA was charged a higher transportation rate. Id., p. 31.

Mich Con disputes MPPA’s claim that the evidentiary record shows another customer

similarly situated to MPPA. Mich Con states that “[a] review of the 21 LT-2 gas transportation

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agreements that MPPA relies upon for its Rate Discrimination claim does not indicate that any of

these customers are similarly situated to MPPA with respect to various factors such as their plants,

use of energy, yearly amount of energy consumed, or any other similar circumstance or

condition.” Mich Con’s replies to exceptions, p. 37.

Then, in regard to MPPA’s assertion that the AFC, MAVC, and the number of receipt points

were unique to the Contract, Mich Con notes that MPPA’s claim is based on the testimony of

Mr. Croskey. Mich Con contends that Mr. Croskey’s testimony should be given no weight

because it is contradicted by the evidentiary record, specifically, Exhibits R-17 and R-18. In

response to MPPA’s claims that the company purposefully included Exhibits R-17 and R-18 as

unsigned, stand-alone, and potentially fraudulent documents, Mich Con requests that the

Commission find MPPA’s statements baseless and admonish MPPA for making frivolous and

meritless allegations.

In addition, regarding MPPA’s assertion that Mich Con was “unable to offer any foundation

from a company witness for the authenticity of Exhibits R-17 and R-18,” Mich Con states that

MPPA made this objection for the first time in its exceptions. Mich Con’s replies to exceptions,

p. 34. Because MPPA’s concern about the authenticity of the exhibits came after the evidentiary

record was closed, Mich Con asserts that MPPA has forever waived any objection as a matter of

law. Id., pp. 34-35. Nevertheless, Mich Con contends that the evidentiary record does in fact

show that Mr. Croskey sufficiently authenticated the exhibits.

Contrary to MPPA’s allegation that Mr. Croskey had never before seen Exhibits R-17 and

R-18, Mich Con responds that the evidentiary record shows differently. Mich Con claims that

Mr. Croskey contradicted himself during his testimony regarding his responsibility for reviewing

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gas transportation contracts. Mich Con requests that MPPA’s exception on this point be

dismissed.

In addition, Mich Con contends that “the evidentiary record shows that MPPA’s counter-offer

to MichCon during the negotiations leading up [to] the Amended Contract made no mention of

any concern about any limitation of Receipt Points.” Id. Mich Con asserts that MPPA failed to

meet their burden of proof on this issue and states that the Commission cannot issue a final order

based on mere speculation about the lack of reference to receipt points in the counter-offer.

In its seventh exception, MPPA alleged that the ALJ erred in finding that the Contract did not

need to be filed as a special contract. Mich Con notes that MPPA concluded its exception by

asking the Commission to find that the AFC and MAVC were a part of the transportation rate,

which transformed the Contract into a special contract. In reply, Mich Con reiterates the argument

set forth in its response to MPPA’s first exception, and states that “the presence of either the

Alternative Fuel Charge or Minimum Annual Volume Commitment provisions in the Amended

Contract does not trigger a Rule 31 review by the Commission.” Mich Con’s replies to

exceptions, p. 40. Alternatively, if the Contract did qualify as a special contract under the

Commission’s rules, Mich Con asserts that the only remedy available to MPPA would be contract

reformation, which would be barred by the equitable defense of the doctrine of laches.

In reply to MPPA’s eighth exception, Mich Con contends that MPPA “displays a fundamental

misunderstanding of the mitigation-of-damages doctrine.” Mich Con’s replies to exceptions,

p. 43. According to Mich Con, the affirmative defense of mitigation of damages assumes that

Mich Con breached the Contract or applicable tariffs, proximately causing MPPA to suffer

damages. Id. Mich Con asserts that, as discussed previously, the company fully performed their

duties and obligations and never breached any provision of the Contract. In the event the

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Commission were to find there was any merit to MPPA’s claims, Mich Con argues that the

evidentiary record shows that MPPA would still not be entitled to any damages because, as set

forth by the ALJ, MPPA failed to take any action to mitigate their damages.

Also, Mich Con disputes MPPA’s allegation that the company did not appropriately adjust the

ACQ pursuant to Section A-1(a) and the April 2005 order. Mich Con asserts that MPPA failed to

mention that Section A-1(a) of the Contract “specifically states that ‘Mich Con will not adjust

the ACQ for alternate fuel usage.’” Mich Con’s replies to exceptions, p. 46. Regarding the

April 2005 order, Mich Con states that MPPA relied upon Tariff E14 in support of its argument.

Mich Con argues that “the clear and unambiguous language of Tariff E14, which is subject to the

general principles of contract construction, indicates that any adjustments to the ACQ or MDQ are

at the Company’s ‘sole discretion.’” Id., p. 47 (footnote omitted). As a result, Mich Con avers

that there is no basis for MPPA’s claim that Mich Con should have reduced the ACQ.

In response to MPPA’s ninth and final exception, Mich Con states that MPPA restates the

same arguments made in its exceptions 1-8, and asserts that there is no merit to the exception and

that it should be rejected as a matter of both law and fact.

In conclusion, Mich Con requests that the Commission reject MPPA’s exceptions and enter an

order consistent with the PFD that dismisses MPPA’s complaint and amended complaint with

prejudice.

On July 11, 2014, the Staff filed a letter in the docket indicating that they would not be filing

exceptions. Then, on August 1, 2014, MPPA and the Staff filed letters stating that they would not

be filing replies to exceptions.

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Discussion

On p. 10 of the April 2013 order, the Commission stated there was “a genuine issue of

material fact [that] exists regarding the true nature of the monthly charges Mich Con billed to

MPPA” and “whether the charges violate Mich Con’s tariff.” The Commission requested that the

ALJ provide a more developed record to resolve these issues. The ALJ obliged and correctly

determined that MPPA’s complaint and amended complaint raised two considerations: (1) the

parties’ obligations pursuant to the Contract and the legal standards governing these obligations;

and (2) the extent of the Commission’s regulatory authority over Mich Con and its setting of

transportation tariffs, and the Commission’s review and approval of special contracts. The ALJ

made several determinations in the PFD, finding: (1) that the $19,215 monthly charge was the

AFC; (2) the AFC and MAVC were considered other terms and conditions of service and

complied in all respects with the tariffs, rules, and Commission orders; (3) the AFC and MAVC

did not result in rate discrimination; (4) the Contract does not meet the definition of a special

contract under Rule 12(h); and (5) MPPA was not overcharged pursuant to the Contract. The

Commission agrees, and adopts the PFD’s findings and conclusions.

In its amended complaint, MPPA claimed that Mich Con’s monthly charges “breached the

Amended Contract and are a violation of its Tariffs, Rules and the MPSC orders approving them.”

MPPA’s amended complaint, p. 11. After reviewing the complaint, the amended complaint, and

the Contract, the Commission finds that the parties’ obligations are governed by contract law. In

his PFD, the ALJ stated that Mich Con “accurately sets forth the law governing the effect of a

contract along with the proper manner to interpret and/or apply its provisions:

[W]hen the parties to a validly formed contract make an agreement that does not

contravene a principle of public policy, and which contains no element of

ambiguity, where there is no evidence of fraud or coercion, the court has no right,

by a process of interpretation, to relieve one of them from any disadvantageous

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terms that they have agreed to. Gary Boat Club, Inc v Oselka, 31 Mich App 465,

188 NW2d 127 (1971). In other words, the Commission must ‘reject the

temptation to rewrite the plain and unambiguous meaning’ of a contract ‘under the

guise’ of contract interpretation. Allstate Ins Co v Freeman, 432 Mich 656, 666;

443 NW2d 734 (1989). In short, the Commission must enforce the contract terms

as they are written. Stine v Continental Gas Co, 419 Mich 89, 114; 349 NW2d 127

(1984). Moreover, the best indication of the parties’ intent is the language of the

contract itself. See, e.g., Smith v Physicians Health Plan, 444 Mich 743, 514

NW2d 150 (1994).”

PFD, pp. 25-26, citing Mich Con’s reply brief, pp. 20-21. The Commission finds the law set forth

by Mich Con to be directly on point.

The Commission observes that MPPA did not dispute the validity of the Contract, did not

assert that it is a contract of adhesion, and did not claim any fraud, duress, or misrepresentations.

Although not specifically stated by MPPA, the Commission notes that after examining the

pleadings and supporting documents, it appears that MPPA is arguing that there is ambiguity

regarding the nature of the $19,215 monthly charge and that the method by which the company

assessed the monthly charge contravenes public policy. It is clear from the pleadings, however,

that MPPA believed it was overcharged for LT-2 Gas Transportation services pursuant to the

Contract. In addition, MPPA alleged rate discrimination and asserted that the Contract should

have been filed as a special contract under Rules 12(h) and 31.

A. Monthly Charge

Regarding the nature of the $19,215 monthly charge, the ALJ found that it was the AFC. The

ALJ stated that, “under its express terms the Contract identifies the Alternate Fuel Charge as a

monthly charge. Conversely, the Minimum Annual Volume Commitment charge could only be

assessed at the end of a Contract Year because the amount was dependent on the difference

between the 600,000 Mcf Annual Contract Quantity and the actual volume transported.” PFD,

p. 30. “[L]imiting review to the agreement’s four corners as the Commission is required to do,”

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the Commission agrees with the ALJ’s findings on this issue and adopts his conclusion.

April 2013 order, p. 10.

The ALJ found that Mich Con’s EUTS Tariff permits additional terms and conditions of

service beyond the transportation rate. Examining the Tariff, the ALJ stated that it “defines the

transportation rate as follows: ‘The transportation rate is charged for each Ccf of gas delivered to

Customer in a given month’ (MPSC No. 1, Sec E14).” PFD, p. 27, citing 6 Tr 429. The ALJ

noted that the AFC and MAVC are charges for which MPPA is liable if it failed to meet the

600,000 Mcf ACQ. Therefore, the ALJ explained, the AFC and MAVC are charges for natural

gas not delivered and are not a part of the transportation rate. The Commission agrees.

The ALJ rejected MPPA’s and the Staff’s contention that the $19,215 monthly charge was a

“proxy transportation rate.” Although the calculations for the AFC and MAVC include the

$0.3843 per Mcf transportation rate, the ALJ found that the inclusion did not transform the AFC

and MAVC into transportation charges. Rather, as explained above, the charges were for natural

gas not delivered to MPPA. The Commission finds the ALJ’s determination to be correct and that

the $19,215 monthly charge does not constitute a “proxy transportation rate.”

Furthermore, the ALJ asserted that MPPA and the Staff did not provide any legal basis for

their argument that a charge not specifically provided for in the Tariff must, therefore, be a part of

the transportation charge. The ALJ found that, if that were true, “a contract would be rendered

nugatory because the Rate Book would govern all aspects of the relationship between the

Company and its EUT customer.” PFD, p. 30. The ALJ determined that the AFC and MAVC did

not conflict with the company’s Tariff, were additional terms and conditions of service, and were,

therefore, permissible charges. The Commission agrees.

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The Commission also agrees with the ALJ that it is immaterial that Kalkaska CT was

incapable of burning alternate fuel during the term of the Contract. When it negotiated the

Contract, MPPA agreed that it was obligated to pay $19,215 per month if it did not meet the

600,000 Mcf ACQ. “It was during the negotiations over the terms of the Contract, and not after its

10-year term ended,” that the issue of whether or not it was appropriate to assess an AFC to a

facility that could not burn alternate fuels should have been considered. PFD, p. 31.

If Kalkaska CT, in fact, did not burn alternate fuels, the ALJ determined that MPPA was

aware that it could have requested a refund under Section A-3 of the Contract. However, MPPA

never requested a refund. According to the ALJ, MPPA claimed that it never requested a refund

because “the identifier of the charge on the invoices did not match the contractual provision, and

thus ‘the application of [the monthly charge was] confusing.’” PFD, p. 28, citing 6 Tr 238.

In response to MPPA’s arguments that it was confused by the monthly charge, the ALJ found

that since 1978, MPPA “has acted on its members’ behalf in the acquisition, ownership, financing,

and operation of electric generation and transmission facilities” and are “sophisticated energy

buyers dealing in natural gas.” PFD, p. 32, citing 6 Tr 194, 396. The ALJ noted that at the time

the parties negotiated the Contract, MPPA had various options for natural gas transportation to

Kalkaska CT, but opted to contract with Mich Con. Then, after examining the record, the ALJ

determined that MPPA and Mich Con engaged in extensive negotiations, including various offers

and counter offers, which culminated in the Contract. Id., pp. 32-33. The ALJ also found the AFC

and MAVC provisions of the Contract to be unambiguous. Finally, the ALJ noted that MPPA

admitted on the record that it knew it was obligated to pay the MAVC had it requested a refund of

the AFC.

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The Commission concurs with the ALJ’s findings on this issue. As asserted by the ALJ,

confusion about a provision “cannot serve to defeat an express contractual provision.” PFD, p. 28.

According to the evidentiary record, MPPA had ample knowledge of the natural gas transportation

industry, had options other than Mich Con for transportation services, and had multiple

opportunities to negotiate, understand, and amend the AFC and MAVC provisions. Therefore, the

Commission rejects MPPA’s arguments that it did not understand the nature of the $19,215

monthly charge and that it was confused by the application of the AFC.

The ALJ noted that MPPA and Mich Con negotiated the MAVC in lieu of standby service,

saving MPPA almost 50% each year. The ALJ found that MPPA would have paid nothing each

year had it met the ACQ. In addition, the ALJ stated, “during the term of the Contract the MPPA

did not request relief from the $19,215 monthly charge, or an amendment to the Contract to reduce

this obligation.” PFD, p. 33. The ALJ asserted that there is no explanation as to why MPPA never

requested clarification of the monthly charge or the AFC and MAVC provisions. Instead, the ALJ

found, “MPPA proceeded in a manner that indicates its obligations were what it expected under

the Contract.” Id. The Commission agrees.

In conclusion, the Commission finds that there was no ambiguity regarding the nature of the

$19,215 monthly charge. It is clear from the record evidence that it was the AFC. The

Commission rejects MPPA’s and the Staff’s argument that the AFC and MAVC were a part of the

transportation rate or “proxy transportation rates,” and instead finds that they are charges for gas

not delivered. In addition, as discussed above, Mich Con’s EUTS Tariff permits additional terms

and conditions of service. The AFC and MAVC constitute additional terms and conditions of

service, and the Commission finds that they complied in all respects with all applicable tariffs,

rules, and Commission orders. MPPA was entitled to seek a refund of the AFC in the event it used

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no alternate fuels. However, because MPPA failed to exercise its rights under the contractual

provision, MPPA is deemed to have waived any right to a refund of the AFC. Finally, it is clear to

the Commission that MPPA knowingly waived its right to a refund of the AFC because it

understood that, pursuant to the terms of the Contract, it would be obligated to pay the same

amount in liquidated damages under the MAVC. Therefore, barring any valid defenses and

pursuant to the principles of contract law, the Commission must enforce the contract terms as they

are written. As a result, the Commission finds that MPPA was not overcharged and is not entitled

to a refund.

B. Rate Discrimination

Regarding MPPA’s rate discrimination claim, the ALJ made two findings. First, the ALJ

determined that MPPA failed to produce any evidence demonstrating that it was concerned with

the limitation on the number of receipt points when the parties negotiated the Contract or that the

provision was dictated by Mich Con. Second, the ALJ found that the inclusion of the AFC and

MAVC in the Contract was not a unique occurrence, and that none of the other parties to the 21

contracts reviewed by MPPA were similarly situated. Therefore, the ALJ asserted that MPPA’s

contention that Mich Con committed rate discrimination is not supported by the record. The

Commission agrees and adopts the ALJ’s conclusions on this issue.

C. Special Contract

Although there is no dispute that the Contract was not submitted for approval as a special

contract under Rules 12(h) and 31, MPPA and the Staff argued that it should have been. Because

the Contract was not submitted for Commission approval, the Staff contended that the Contract

must then comply with Mich Con’s rate book. As discussed above, the ALJ determined that the

$19,215 monthly charge was not a part of the transportation rate and did not constitute a “proxy

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transportation rate” that exceeded the rate in Mich Con’s EUTS Tariff. Therefore, the ALJ found

that the Contract did not meet the definition of a special contract under Rule 12(h) and did not

need to be filed for Commission review. In addition, the ALJ noted that “MPAA [sic] has not

provided any basis for its claim that the Contract must be deemed a Special Contract solely by

virtue of the inclusion of the Alternate Fuel Charge and Minimum Annual Volume Commitment

provisions.” PFD, p. 38. Finally, the ALJ found that the Contract did not “result in other rate

classes subsidizing a discounted rate provided to MPPA.” Id., p. 39. The Commission finds the

ALJ’s determinations on this issue persuasive and adopts his conclusions.

D. Michigan Consolidated Gas Company’s Affirmative Defenses

The ALJ stated that some of Mich Con’s affirmative defenses are sustained by the record,

however others lacked merit. The ALJ found that Mich Con’s affirmative defenses of unclean

hands and laches are based in equity and are not available in this proceeding. In addition, the ALJ

found that the six-year statute of limitations cited by Mich Con did not apply in this case. The

Commission agrees.

According to the ALJ, Mich Con’s affirmative defenses of failure to mitigate damages,

consent, acquiescence, ratification, and accord and satisfaction do, in fact, have merit. In response

to Mich Con’s claim that it failed to mitigate damages, MPPA asserted that requesting a refund of

the AFC would have done nothing to mitigate its damages because it would have been liable for

the same amount under the MAVC. And, if the ALJ was insisting that MPPA perform some type

of symbolic gesture to mitigate damages, MPPA argued that there is no case law supporting such a

measure. MPPA contended that it did attempt to mitigate its damages and that the burden of proof

was on Mich Con to show that MPPA failed to use every effort to do so. The ALJ disagreed, and

found that “MPPA did not raise any concerns with the charges under the Contract, seek a

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modification of its terms, or otherwise attempt to reduce their obligations,” and, “most

importantly…did not exercise its right to obtain a refund for the monthly charge at any point

during the 10-year term of the Contract.” PFD, p. 40.

In its complaint and amended complaint, MPPA alleged that Mich Con had breached the terms

of the Contract by overcharging for natural gas transportation services. MPPA asserted that it first

discovered the overcharge in 2009. However, the Commission finds that MPPA did not behave in

a way that demonstrated a belief that Mich Con had breached the Contract or that MPPA had been

overcharged. Rather, as the ALJ noted, for the 10-year term of the Contract, “MPPA proceeded in

a manner that indicates its obligations were what it expected under the Contract.” PFD, p. 33.

As discussed above, the Commission finds that Mich Con did not breach the terms of the

Contract or overcharge for natural gas transportation services. However, the Commission agrees

with the ALJ, that requesting a refund “would have provided some indication that the MPPA

found the monthly charge excessive.” PFD, p. 40. The Commission also notes that on pages 44-

46 of its initial brief, Mich Con provided a multitude of examples from the record showing that by

a preponderance of evidence, MPPA failed to make any effort to mitigate its alleged damages

during the 10-year term of the Contract.

MPPA asserted in its exceptions that the ALJ provided no specifics as to how the record

supports Mich Con’s affirmative defenses of consent, acquiescence, ratification, and accord and

satisfaction. The Commission agrees. Neither Mich Con nor the ALJ provided specific evidence

or argument to support these affirmative defenses. As stated by Mich Con, “[i]t is well-settled law

in Michigan that a party’s statement without authority is insufficient to bring an issue before a

court.” Mich Con’s initial brief, p. 34, citing Wilson v Taylor, 457 Mich 232, 243; 577 NW2d 100

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(1998). Accordingly, the Commission dismisses Mich Con’s affirmative defenses of consent,

acquiescence, ratification, and accord and satisfaction.

THEREFORE, IT IS ORDERED that Michigan Public Power Agency’s complaint is

dismissed with prejudice.

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

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

issuance and notice of this order, under MCL 462.26. To comply with the Michigan Rules of

Court’s requirement to notify the Commission of an appeal, appellants shall send required notices

to both the Commission’s Executive Secretary and to the Commission’s Legal Counsel.

Electronic notifications should be sent to the Executive Secretary at [email protected]

and to the Michigan Department of the Attorney General - Public Service Division at

[email protected] . In lieu of electronic submissions, paper copies of such notifications may

be sent to the Executive Secretary and the Attorney General - Public Service Division at 7109

West Saginaw Hwy, Lansing, MI 48917.

MICHIGAN PUBLIC SERVICE COMMISSION

________________________________________

John D. Quackenbush, Chairman

________________________________________

By its action of February 27, 2015. Greg R. White, Commissioner

________________________________ ________________________________________

Mary Jo Kunkle, Executive Secretary Sally A. Talberg, Commissioner

mailto:[email protected]

mailto:[email protected]

and mcr 2.116(c)(10), - michigan.gov€¦ · the alj issued a proposal for decision on february 27,...

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