Consumers Energy Co. v. Mich. Pub. Serv. Comm'n (In re Consumers Energy Co.)

In re APPLICATION OF CONSUMERS ENERGY COMPANY FOR GAS COST RECOVERY.

CONSUMERS ENERGY COMPANY, Petitioner-Appellant, v. MICHIGAN PUBLIC SERVICE COMMISSION and RESIDENTIAL CUSTOMER GROUP, Appellees.

No. 356330

Court of Appeals of Michigan

December 29, 2022

Public Service Commission LC No. 00-020209

Before: HOOD, P.J., and JANSEN and K. F. KELLY, JJ.

K. F KELLY, J.

Petitioner Consumers Energy Company ("Consumers Energy" or "the Company"), appeals as of right a September 24 2020 order of the Michigan Public Service Commission ("the PSC") approving with modifications Consumers Energy's application for gas supply cost recovery reconciliation for the 12-month period ending March 31, 2019. On appeal, Consumers Energy presents arguments challenging the PSC's refusal to allow Consumers Energy to recover from its customers certain costs to replace gas that was stranded because of a fire that occurred at a Consumers Energy facility. Consumers Energy's arguments are unavailing. We affirm.

I. BACKGROUND

On June 28, 2019, Consumers Energy filed in the PSC an application for gas cost recovery reconciliation for the 12-month period ending on March 31, 2019. The gas cost recovery reconciliation process is governed by MCL 460.6h, added by 1982 PA 304 ("Act 304"). Consumers Energy stated that, for the period at issue, it had a total underrecovery of $17,520,929, which included an underrecovery of $17,473,154 and accrued interest of $47,775. Consumers Energy requested that a hearing be held on the application.

The PSC Staff ("the Staff") participated in the proceedings. In addition, intervenor status was granted to, inter alia, the Michigan Department of Attorney General ("the Attorney General") and a nonprofit organization called Residential Customer Group ("RCG"), whose members included residential gas customers of Consumers Energy.

On May 5, 2020, an evidentiary hearing was held before an administrative law judge ("ALJ"). The testimony of all witnesses had been prepared in writing and was bound into the record, and cross-examination was waived.

Consumers Energy presented the testimony of James P. Pnacek, Jr., who is a senior engineer for Consumers Energy. He testified that Consumers Energy stores natural gas in a storage field near the Ray Natural Gas Compressor Station (sometimes referred to as "the Ray facility") in Macomb County. A fire erupted at the Ray facility at about 10:30 a.m. on January 30, 2019. Pnacek explained that "[t]he fire, which did not cause injuries, reduced the amount of natural gas Consumers Energy could deliver to all customers from underground storage located in the Ray field near the compressor station." As a result, Consumers Energy purchased additional gas to meet customer demand in January 2019, February 2019, and March 2019. Although the Ray facility was returned to service late in the evening on January 30, 2019, the fire had reduced the ability to deliver gas from the facility for the remainder of the 2018-2019 winter, which was colder than normal. Pnacek opined that Consumers Energy's decisions and actions "resulted in a safe and reliable supply for all customers and were appropriate and reasonable for the actual weather conditions experienced."

Pnacek provided further testimony in rebuttal to the testimony of Nora B. Quilico, a Staff witness whose testimony will be summarized later. Quilico had recommended a disallowance of costs related to the Ray fire, which Quilico attributed to a design flaw at the Ray facility, but Pnacek opined that there were weather-related concerns that Quilico had failed to mention. Pnacek noted that, at the time of the Ray fire,

Michigan was experiencing extreme cold conditions arising from a polar vortex. In fact, on January 28, 2019, Governor Gretchen Whitmer declared a state of emergency in response to the extreme cold temperatures. This was also acknowledged by the Commission in its February 7, 2019 Order in Case No. U-20463 wherein the Commission cites to "unprecedented demand in natural gas due to extremely cold weather conditions on January 30 and 31, 2019." See February 7, 2019 Order, MPSC Case No. U-20463, page 1.

Also, the extremely cold weather from January 29, 2019 through February 1, 2019, was mentioned in the Staff's January 31, 2020 investigative report in PSC Case No. U-20463. Pnacek testified that "[t]he cold weather significantly increased actual and projected customer demand. The purchases [of additional gas] were operationally necessary to reduce the supply deficiency due to the Ray Fire incident, to stabilize the system, to reestablish system pressures, and to meet customer demand."

Next, Consumers Energy presented the testimony of Michael H. Ross, the director of gas supply for Consumers Energy. He testified that Consumers Energy's "actions have resulted in securing reliable supplies at just and reasonable costs for its customers and should be approved in this proceeding." In rebuttal to Quilico's testimony that costs related to the Ray fire should be disallowed, Ross opined that Consumers Energy's gas supply purchases "were reasonable and prudent given the facts and circumstances in existence at the time." Ross disputed the propriety of tying the proposed disallowance to the perceived cause of the Ray fire. He noted that there had been no formal determination that Consumers Energy was liable or legally responsible for the Ray fire. He opined that a determination of the root cause of the fire was beyond the scope of this reconciliation proceeding. He viewed the events leading up to the Ray fire as irrelevant to the facts and circumstances that existed when Consumers Energy decided to purchase the additional gas supply.

The Staff presented the testimony of Quilico, a public-utilities engineer for the PSC who had recently been "promoted to manage the Act 304 and Sales Forecasting Section within the Energy Operations Division." Quilico described the Ray fire as follows:

During the near design cold conditions experienced from January 30th-31st, 2019[,] a blowdown stack at one of the compressors at the Ray storage facility caught fire and ultimately made a major source of supply unavailable during the extreme weather event and beyond. The Ray facility was returned to service late in evening on January 30th, but derated, or at a much-reduced deliverability for the remainder of the winter.

Quilico noted that, in February 2019, in docket number U-20463, the PSC directed Consumers Energy to file a report addressing, inter alia, the origin of the fire, how Consumers Energy responded to the fire, whether Consumers Energy had failed to properly maintain its equipment or to comply with PSC rules, and the cost of the incident. In that proceeding, the Staff filed a May 8, 2019 response to Consumers Energy's report. In that response, the Staff noted that Consumers Energy's report indicated that, on the date of the fire, "Plant 3" at the Ray facility detected an "abnormal operating condition in the Det-Tronics control system." According to the Staff response, it did not appear that Consumers Energy had "included an investigation into the abnormal operating condition in the Det-Tronics control system report," and the Staff planned to further analyze that matter. The Staff response further stated:

At this point in Staff's investigation, it appears that the blowdown silencer for Ray Plant 3 that was designed and placed into service in 2013 was located where gas could be discharged at a location where it could create a hazard due to its proximity to the thermal oxidizer. The decreased discharge velocity of the silencer design, in conjunction with the close proximity to a competent ignition source, allowed a gas plume to ignite.

Quilico noted that, in a July 2, 2019 order in docket number U-20463, the PSC stated:

In its initial report, Consumers determined that the origin of the fire was a failure in the Det-Tronics control system, which initiated the emergency safety fire-gate process and caused the release of natural gas into the atmosphere through Plant 3 blowdown silencers, which was then ignited by the Plant 2 thermal oxidizer exhaust system. Through subsequent investigation, the company states that it identified a grounding fault as the underlying cause of the initial firegate event. Consumers asserts that it has relocated the well pump pressure switch and pressure transmitter to eliminate future grounding fault issues. In addition, the company avers that it has contracted with an engineering firm to evaluate the origin of the fire and improve facility design.

Quilico then quoted from the Staff's January 31, 2020 final report on the Ray fire:

This fire initiated from the ignition of gas that was venting from a localized shutdown of Plant 3. The gas from Plant 3 vented out of the blowdown silencers and then ignited when the wind blew the gas towards Plant 2's thermal oxidizer. Upon recognizing the fire, Consumers initiated an emergency shutdown (ESD) of the entire station, increasing the amount of gas venting from the blowdown silencers for Plants 2 and 3, which ultimately added additional fuel to the existing fire. Staff determines that the root cause of the Consumers' Ray Compressor Station Fire that occurred on January 30, 2019, was interference from the domestic water well pump at the station, which caused a voltage spike in the grounding system of the communications system of the Plant 3 controls. This caused the system to lose communication and go into "fault mode," resulting in a Plant 3 ESD.

Quilico testified that, in light of this information, the Staff had reached the following conclusion regarding who should be responsible for gas costs resulting from the Ray fire:

Seeing as the "abnormal operating conditions" which the Company

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