HB-5798, As Passed House, March 4, 2008

SUBSTITUTE FOR

HOUSE BILL NO. 5798

A bill to amend 1939 PA 3, entitled

"An act to provide for the regulation and control of public and

certain private utilities and other services affected with a public

interest within this state; to provide for alternative energy

suppliers; to provide for licensing; to include municipally owned

utilities and other providers of energy under certain provisions of

this act; to create a public service commission and to prescribe

and define its powers and duties; to abolish the Michigan public

utilities commission and to confer the powers and duties vested by

law on the public service commission; to provide for the

continuance, transfer, and completion of certain matters and

proceedings; to abolish automatic adjustment clauses; to prohibit

certain rate increases without notice and hearing; to qualify

residential energy conservation programs permitted under state law

for certain federal exemption; to create a fund; to provide for a

restructuring of the manner in which energy is provided in this

state; to encourage the utilization of resource recovery

facilities; to prohibit certain acts and practices of providers of

energy; to allow for the securitization of stranded costs; to

reduce rates; to provide for appeals; to provide appropriations; to

declare the effect and purpose of this act; to prescribe remedies

and penalties; and to repeal acts and parts of acts,"

(MCL 460.1 to 460.10cc) by adding section 6r.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

Sec. 6r. (1) As used in this section:

(a) "Booked cost of steam" includes all of the following:

(i) Retail gas purchases consisting of all costs for gas

service including customer charges, distribution charges, and any

gas cost recovery factor.

(ii) Wholesale gas purchases, consisting of the contract cost

of gas, transportation fuel, pipeline transportation fees, and any

local transportation or distribution fees.

(iii) Storage gas charges, including the cost of gas, fuel, gas

injection fees, withdrawal fees, and associated transportation

fees.

(iv) The cost of financial hedging instruments approved by the

commission such as futures and options, including premiums,

settlement gains and losses, and commodity exchange and

administration fees.

(v) Steam purchases, consisting of all costs for steam

purchased including customer charges, distribution charges, and

associated transportation fees.

(vi) Costs for other fuel purchases including, but not limited

to, any coal, wood, garbage, tires, waste oil, fuel oil or other

materials used as a fuel for the production of steam, and all

customer charges, distribution charges, and associated

transportation and storage fees.

(b) "Steam supply cost recovery clause" means a clause in the

rates or rate schedule of a utility which permits the monthly

adjustment of rates for steam supply to allow the utility to

recover the booked costs of fuel burned by the utility for steam

generation and the booked costs of purchased steam transactions by

the utility incurred under reasonable and prudent policies and

practices.

the rates to be charged for steam service to reflect steam supply

costs incurred by a utility and made pursuant to a steam supply

cost recovery clause incorporated in the rates or rate schedule of

a utility.

(d) "Utility" means a steam distribution company regulated by

the commission.

(2) Pursuant to its authority under this act, the commission

may incorporate a steam supply cost recovery clause in the steam

rates or rate schedule of a utility. An order incorporating a steam

supply cost recovery clause shall be the result of a hearing solely

on the question of the inclusion of the clause in the rates or rate

schedule. The hearing shall be conducted as a contested case

pursuant to chapter 4 of the administrative procedures act of 1969,

1969 PA 306, MCL 24.271 to 24.287.

(3) In order to implement the steam supply cost recovery

clause established pursuant to subsection (2), a utility annually

shall file a complete steam supply cost recovery plan describing

the expected sources of steam supply and changes in the cost of

steam supply anticipated over a future 12-month period specified by

the commission and requesting for each of those 12 months a

specific steam supply cost recovery factor. The utility shall file

the steam supply cost recovery plan at least 3 months before the

beginning of the 12-month period covered by the plan. The plan

shall describe all major contracts and steam supply arrangements

entered into by the utility for providing steam supply during the

specified 12-month period including the price of fuel, the duration

of the contract or arrangement, and an explanation or description

of any other term or provision of the contract or arrangement as

required by the commission. The plan shall also include the

utility's evaluation of the reasonableness and prudence of its

decisions to provide steam supply in the manner described in the

plan, in light of its existing sources of steam generation, and an

explanation of the actions taken by the utility to minimize the

cost of fuel to the utility.

(4) In order to implement the steam supply cost recovery

clause established pursuant to subsection (2), a utility shall

file, contemporaneously with the steam supply cost recovery plan

required by subsection (3), a 3-year forecast of the steam supply

requirements of its customers, its anticipated sources of supply,

and projections of steam supply costs, in light of its existing

sources of steam generation and sources of steam generation under

construction. The forecast shall include a description of all

relevant major contracts and steam supply arrangements entered into

or contemplated by the utility, and any other information the

commission may require.

(5) If a utility files a steam supply cost recovery plan and a

3-year forecast as provided in subsections (3) and (4), the

commission shall conduct a proceeding, to be known as a steam

supply and cost review, to evaluate the reasonableness and prudence

of the steam supply cost recovery plan filed by a utility pursuant

to subsection (3), and establish the steam supply cost recovery

factors to implement a steam supply cost recovery clause

incorporated in the rates or rate schedule of the utility. The

steam supply and cost review shall be conducted as a contested case

pursuant to chapter 4 of the administrative procedures act of 1969,

1969 PA 306, MCL 24.271 to 24.287.

(6) In its final order in a steam supply and cost review, the

commission shall evaluate the reasonableness and prudence of the

decisions underlying the steam supply cost recovery plan filed by

the utility pursuant to subsection (3), and shall approve,

disapprove, or amend the steam supply cost recovery plan

accordingly. In evaluating the decisions underlying the steam

supply cost recovery plan, the commission shall consider the cost

and availability of the steam generation available to the utility,

the cost of short-term firm purchases available to the utility,

whether the utility has taken all appropriate actions to minimize

the cost of fuel, and other relevant factors. The commission shall

approve, reject, or amend the 12 monthly steam supply cost

recovery factors requested by the utility in its steam supply cost

recovery plan. The factors ordered shall be described in fixed

dollar amounts per unit of steam, but may include specific amounts

contingent on future events.

(7) In its final order in a steam supply and cost review, the

commission shall evaluate the decisions underlying the 3-year

forecast filed by a utility pursuant to subsection (4). The

commission may also indicate any cost items in the 3-year forecast

that, on the basis of present evidence, the commission would be

unlikely to permit the utility to recover from its customers in

rates, rate schedules, or steam supply cost recovery factors

established in the future.

(8) The commission, on its own motion or the motion of any

party, may make a finding and enter a temporary order granting

approval or partial approval of a steam supply cost

recovery plan in a steam supply and cost recovery review after

first having given notice to the parties to the review and giving

those parties a reasonable opportunity for a full and complete

hearing. A temporary order made pursuant to this subsection is

considered a final order for purposes of judicial review.

(9) If the commission has made a final or temporary order in a

steam supply and cost review, the utility may each month

incorporate in its rates for the period covered by the order any

amount up to the steam supply cost recovery factors permitted in

that order. If the commission has not made a final or temporary

order within 3 months of the submission of a complete steam supply

cost recovery plan, or by the beginning of the period covered in

the plan, whichever comes later, or if a temporary order has

expired without being extended or replaced, then, pending an order

which determines the steam supply cost recovery factors, a utility

may each month adjust its rates to incorporate all or a part of the

steam supply cost recovery factors requested in its plan. Any

amount collected under the steam supply cost recovery factors

before the commission makes its final order shall be subject to

prompt refund with interest to the extent that the total amount

collected exceeds the total amount determined in the commission's

final order to be reasonable and prudent for the same period of

time.

(10) Not less than 3 months before the beginning of the third

quarter of the 12-month period, a utility may file a revised steam

supply cost recovery plan which shall cover the remainder of the

12-month period. Upon receipt of a revised steam supply cost

recovery plan, the commission shall reopen the steam supply and

cost review. In addition, the commission may reopen the steam

supply and cost review on its own motion or on the showing of good

cause by any party if at least 6 months have elapsed since the

utility submitted its complete filing and if there are at least 60

days remaining in the 12-month period under consideration. A

reopened steam supply and cost review shall be conducted as a

contested case pursuant to chapter 4 of the administrative

procedures act of 1969, 1969 PA 306, MCL 24.271 to 24.287, and in

accordance with subsections (3), (6), (8), and (9).

(11) Not more than 45 days following the last day of each

billing month in which a steam supply cost recovery factor has been

applied to customers' bills, a utility shall file with the

commission a detailed statement for that month of the revenues

recorded pursuant to the steam supply cost recovery factor and the

allowance for cost of steam supply included in the base rates

established in the latest commission order for the utility, and the

cost of steam supply. The detailed statement shall be in the manner

and form prescribed by the commission. The commission shall

establish procedures for insuring that the detailed statement is

promptly verified and corrected if necessary.

(12) Not less than once a year, and not later than 3 months

after the end of the 12-month period covered by a utility's steam

supply cost recovery plan, the commission shall commence a

proceeding, to be known as a steam supply cost reconciliation, as a

contested case pursuant to chapter 4 of the administrative

procedures act of 1969, 1969 PA 306, MCL 24.271 to 24.287.

Reasonable discovery shall be permitted before and during the

reconciliation proceeding in order to assist parties and interested

persons in obtaining evidence concerning reconciliation issues,

including, but not limited to, the reasonableness and prudence of

expenditures and the amounts collected pursuant to the clause. At

the steam supply cost reconciliation, the commission shall

reconcile the revenues recorded pursuant to the steam supply cost

recovery factors and the allowance for cost of steam supply

included in the base rates established in the latest commission

order for the utility with the amounts actually expensed and

included in the cost of steam supply by the utility. The commission

shall consider any issue regarding the reasonableness and prudence

of expenses for which customers were charged if the issue was not

considered adequately at a previously conducted steam supply and

cost review.

(13) In its order in a steam supply cost reconciliation, the

commission shall require a utility to refund to customers or credit

to customers' bills any net amount determined to have been

recovered over the period covered in excess of the amounts

determined to have been actually expensed by the utility for steam

supply, and to have been incurred through reasonable and prudent

actions not precluded by the commission order in the steam supply

and cost review. The refunds or credits shall be apportioned among

the customers of the utility utilizing procedures that the

commission determines are reasonable. The commission may adopt

different procedures with respect to customers served under the

various rate schedules of the utility and may, in appropriate

circumstances, order refunds or credits in proportion to the excess

amounts actually collected from each customer during the period

covered.

(14) In its order in a steam supply cost reconciliation, the

commission shall authorize a utility to recover from customers any

net amount by which the amount determined to have been recovered

over the period covered was less than the amount determined to have

been actually expensed by the utility for steam supply, and to have

been incurred through reasonable and prudent actions not precluded

by the commission order in the steam supply and cost review. For

excess costs incurred through management actions contrary to the

commission's steam supply and cost review order, the commission

shall authorize a utility to recover costs incurred for steam

supply in the reconciliation period in excess of the

amount recovered over the period only if the utility demonstrates

by clear and convincing evidence that the excess expenses were

beyond the ability of the utility to control through reasonable and

prudent actions. For excess costs incurred through management

actions consistent with the commission's steam supply and cost

review order, the commission shall authorize a utility to recover

costs incurred for steam supply in the reconciliation period in

excess of the amount recovered over the period only if the utility

demonstrates that the level of the expenses resulted from

reasonable and prudent management actions. The amounts in excess of

the amounts actually recovered by the utility for steam supply

shall be apportioned among and charged to the customers of the

utility utilizing procedures that the commission determines are

reasonable. The commission may adopt different procedures with

respect to customers served under the various rate schedules of the

utility and may, in appropriate circumstances, order charges to be

made in proportion to the amounts which would have been paid by

those customers if the amounts in excess of the amounts actually

recovered by the utility for cost of steam supply had been included

in the steam supply cost recovery factors with respect to those

customers during the period covered. Charges for the excess amounts

shall be spread over a period that the commission determines is

appropriate.

(15) If the commission orders refunds or credits pursuant to

subsection (13), or additional charges to customers pursuant to

subsection (14), in its final order in a steam supply cost

reconciliation, the refunds, credits, or additional charges shall

include interest. In determining the interest included in a refund,

credit, or additional charge pursuant to this subsection, the

commission shall consider, to the extent material and practicable,

the time at which the excess recoveries or insufficient recoveries,

or both, occurred. The commission shall determine a rate of

interest for excess recoveries, refunds, and credits equal to the

greater of the average short-term borrowing rate available to the

utility during the appropriate period, or the authorized rate of

return on the common stock of the utility during that same period.

Costs incurred by the utility for refunds and interest on refunds

shall not be charged to customers. The commission shall determine a

rate of interest for insufficient recoveries and additional charges

equal to the average short-term borrowing rate available to the

utility during the appropriate period.

(16) Five years after the effective date of the amendatory act

that added this subsection, and every 5 years thereafter, the

standing committees of the house and senate that deal with public

utilities shall review the amendatory act that added this

subsection.