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Michigan Supreme Court Lansing, Michigan

Opinion
GREAT WOLF LODGE OF TRAVERSE CITY, LLC, Plaintiff-Appellee, v

Chief Justice:

Justices:

Robert P. Young, Jr. Michael F. Cavanagh Marilyn Kelly Stephen J. Markman Diane M. Hathaway Mary Beth Kelly Brian K. Zahra

FILED MAY 9, 2011 STATE OF MICHIGAN SUPREME COURT

Nos. 139541 and 139542

PUBLIC SERVICE COMMISSION, Defendant-Appellant, and CHERRYLAND ELECTRIC COOPERATIVE, Defendant-Appellee.

GREAT WOLF LODGE OF TRAVERSE CITY, LLC, Plaintiff-Appellee, v Nos. 139544 and 139545

PUBLIC SERVICE COMMISSION, Defendant-Appellee, and CHERRYLAND ELECTRIC COOPERATIVE, Defendant-Appellant. BEFORE THE ENTIRE BENCH MARILYN KELLY, J. This case requires us to resolve three issues. First, whether a utility's right of first entitlement to provide electrical service to "the entire electric load on the premises" of a "customer" ceases when the "customer" on the property changes.1 Second, whether the Public Service Commission (PSC) is required to impose interest on a refund it awards when it determines that a utility has overcharged a consumer. Third, whether the PSC is required to impose a fine whenever a utility "neglects" to comply with one of its orders.2 We conclude that a utility's right of first entitlement set forth in Rule 460.3411 (Rule 411) of the Michigan Administrative Code extends to the entire premises initially served. And the right is not extinguished when a customer is no longer present on the premises. We also conclude that the PSC is not required to impose interest on a refund it awards to an overcharged utility consumer. Finally, we hold that the PSC is required to impose a fine pursuant to MCL 460.558 only when a utility "wilfully or knowingly"

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Mich Admin Code, R 460.3411(11). MCL 460.558.

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neglects to comply with a PSC order. Therefore, we reverse the judgment of the Court of Appeals and reinstate the decision of the PSC. FACTS AND PROCEDURAL HISTORY Plaintiff, Great Wolf Lodge of Traverse City, LLC, owns a water-park resort on 48 acres near Traverse City. The resort sits on part of a 120-acre parcel once farmed by the Oleson family. On July 14, 2000, plaintiff entered into an option agreement to buy a portion of the property from GDO Investments (GDO), which acquired it after Mr. Oleson's death. Defendant Cherryland Electric Cooperative claims that it provided electricity to the Oleson property beginning in the 1940s. Cherryland ran an electric line, known as a "service drop," to the property. At one time or another over the years, Cherryland, Consumers Energy Company, and Traverse City Light & Power (TCLP) serviced farm buildings on the property. After the last farming tenant vacated the premises in September 2001, the electricity was turned off. However, according to a GDO employee, GDO continued to pay a minimum monthly bill from Cherryland so that it had the option to have the electricity turned back on. Later, when plaintiff was planning new construction on the property, it solicited bids for electric service from Cherryland, Consumers Energy, and TCLP. At that time, Cherryland did not claim that it had the sole right to provide electric service to the property. TCLP was the winning bidder, and in December 2001, plaintiff contracted with TCLP to provide electricity to its planned resort.

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By January 2002, the farm buildings were scheduled to be demolished. GDO asked Cherryland to remove its service line so that the building it was attached to could be taken down. But Cherryland made it a condition for removing the service drop that it would be the electricity provider. Plaintiff claims that it agreed in order to keep the project on schedule. Thus, plaintiff asserts, Cherryland coerced it to rescind its contract with TCLP and contract with Cherryland to avoid construction delays, loss of revenue, or litigation.3 In May 2002, plaintiff entered into a three-year contract for electrical service with Cherryland. Under the contract's terms, Cherryland charged plaintiff $0.0496 a kilowatthour. This was the large resort service (LRS) rate set by the PSC. In February 2003, Cherryland applied to the PSC for formal approval to charge plaintiff the LRS rate. This rate is available to consumers with a load factor greater than 50 percent and at least a 1500-kilowatt load. The application Cherryland signed recited these conditions. It also stated that, if plaintiff did not meet them, a different rate would apply. Shortly thereafter, in March 2003, plaintiff and Cherryland replaced their May 2002 contract with another that expressly provided for service at the LRS rate. In July 2004, the PSC rejected Cherryland's application. It expressed concern that plaintiff was the only customer that Cherryland charged the LRS rate and questioned whether plaintiff's electrical needs were typical for a large resort. The PSC directed Cherryland to apply instead for a "special contract" to serve plaintiff. It also concluded

TCLP later sued Cherryland for tortious interference with a contract and recovered $275,000. Plaintiff was not a party to that litigation.

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that Cherryland had violated MCL 600.552 by implementing the LRS rate without PSC approval and fined Cherryland $10,000 pursuant to MCL 460.558. However, the PSC approved the LRS rate "for up to one year or until a special contract is approved."4 Plaintiff and Cherryland attempted to negotiate a special contract but were unable to reach an agreement. In August 2004, Cherryland filed an application with the PSC for approval of a special contract with plaintiff. The contract had not yet been agreed to, but Cherryland indicated that plaintiff was reviewing it. However, plaintiff intervened before the PSC and expressed concerns about the proposed special contract. According to plaintiff, it imposed unconscionable late charges and required plaintiff to forever bind itself to Cherryland. The PSC dismissed Cherryland's application in October 2004, indicating that it could be refiled once the parties reached an agreement. It also indicated that the parties could petition the PSC to resolve any disputes to the extent that the PSC had jurisdiction to hear those disputes. In November 2004, Cherryland began unilaterally charging plaintiff for electricity at the large commercial and industrial (LCI) rate. Cherryland claimed that it made the change because plaintiff almost never used enough electricity to satisfy the minimum requirements of the LRS rate. Therefore, Cherryland feared that the PSC would again fine it for charging an improper rate. In July 2005, plaintiff filed a two-count complaint against Cherryland in the PSC. Count I alleged that Cherryland had violated MCL 460.552 and the PSC's 2004 order by

In re Application of Cherryland Electric Coop, order of the Public Service Commission, entered July 22, 2004 (Case No. U-13716), p 8.

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charging plaintiff the LCI rate rather than the LRS rate. Plaintiff sought a refund of the amounts that it had paid in excess of the LRS rate. Finally, plaintiff asked that the PSC fine Cherryland for violating its order and require Cherryland to stop charging plaintiff the LCI rate and return to the LRS rate. In count II, plaintiff asked the PSC to declare that plaintiff could receive all components of its electrical service from any provider of its choosing. Plaintiff also asked the PSC to order Cherryland to transfer its distribution facilities to any new provider chosen by plaintiff and to remove any unnecessary facilities on its property. Cherryland moved for summary disposition. A hearing referee ruled for plaintiff on count I and for Cherryland on count II. The referee concluded that Cherryland's conduct was a "purposeful and flagrant violation" of the PSC's 2004 order. He

determined that plaintiff was entitled to a refund of $72,550.16 plus interest and recommended that Cherryland be fined $44,250. Regarding count II, he agreed that plaintiff could choose its electric supplier, but added that no authority permitted plaintiff a full choice of providers for all components of its electric service. The PSC agreed that plaintiff was entitled to summary disposition on count I and with the amount of the refund to which it was entitled. However, the PSC declined to impose a fine or interest on Cherryland. Although the PSC concluded that Cherryland "should have sought clarification" of its 2004 order, it stated that "Cherryland's interpretation of the July 22 order was not so clearly unreasonable as to justify the

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imposition of a fine or interest on the refund to [plaintiff]."5 Finally, the PSC agreed with the hearing referee that count II should be dismissed. The circuit court affirmed the PSC's order in large part. It concluded that plaintiff was an existing customer of Cherryland under Rule 411 because the property (the Oleson farm) was the customer, not the entity that owned the property. Therefore, Cherryland had the right to continue providing electric service to the property. However, the circuit court reversed the decision not to impose a fine and interest on Cherryland. It ruled that the language of the PSC's 2004 order was clear and unambiguous and concluded, contrary to the PSC, that Cherryland's misinterpretation of the order was clearly unreasonable. Plaintiff and the PSC both appealed. The Court of Appeals consolidated the appeals and, in a published opinion, affirmed in part, reversed in part, and remanded to the PSC for further proceedings.6 The Court of Appeals affirmed the circuit court's ruling that the PSC was required to impose a fine and interest on Cherryland. However, the Court of Appeals concluded that plaintiff was free to choose its electric distributor if there was no customer governed by the restrictions of Rule 411. It held that the plain language of Rule 411(1)(a) defined "customer" as the "buildings and facilities served" by an electricity provider. The panel reasoned as follows:

In re Complaint of Great Wolf Lodge of Traverse City, LLC, Against Cherryland Electric Coop, order of the Public Service Commission, entered May 25, 2006 (Case No. U-14593), p 15. Great Wolf Lodge of Traverse City, LLC v Pub Serv Comm, 285 Mich App 26; 775 NW2d 597 (2009).
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If the changes in buildings and facilities and interruption of service came about in reasonable proximity to and for the purpose of a change in ownership and plan for the site, . . . those changes and that interruption did not create a new customer. If, however, the previous owner held on to the site for a significant period after all land uses requiring electricity had been abandoned, requested that electric service be terminated, and demolished buildings or removed facilities, or at least allowed them to stand without electricity, for reasons other than anticipation of an immediate change of ownership or land use, then those actions should be deemed to have extinguished the previously existing customer or customers on the site, thus severing the utility-customer relationship.[7] The panel concluded that the record was insufficient to determine whether there was an existing customer and remanded the case to the PSC for further factual development, findings, and conclusions. It also directed the PSC to consider whether a "customer[]" was "already receiving service" pursuant to MCL 124.3 when plaintiff acquired the property. If so, MCL 124.3(2) would prohibit TCLP, a municipal electricity provider not regulated by the PSC and not subject to Rule 411, from contracting with plaintiff to provide electric service.8 Cherryland and the PSC appealed in this Court. applications for leave to appeal.9 We granted the parties'

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Id. at 40.

MCL 124.3(2) provides that "[a] municipal corporation shall not render electric delivery service for heat, power, or light to customers outside its corporate limits already receiving the service from another utility unless the serving utility consents in writing."
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Great Wolf Lodge of Traverse City, LLC v Pub Serv Comm, 486 Mich 869 (2010).

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STANDARD OF REVIEW A court reviewing an administrative agency's interpretation of a statute should give the agency's interpretation "respectful consideration" and, if it is persuasive, should not overrule it without "cogent reasons."10 We have held that "[i]n construing

administrative rules, courts apply principles of statutory construction."11 All rates, fares, charges, classification and joint rates, regulations, practices, and services prescribed by the PSC are presumed, prima facie, to be lawful and reasonable.12 A final order of the PSC must be authorized by law and, if a hearing is required, supported by competent, material, and substantial evidence on the whole record.13 A party aggrieved by a PSC order must show by clear and satisfactory evidence that the PSC's order is unlawful or unreasonable.14 CHERRYLAND'S RIGHT OF FIRST ENTITLEMENT UNDER RULE 411(11) The PSC adopted Rule 411 in 1982 as part of a comprehensive regulatory scheme for electric utilities. At that time, it stated that the purpose of Rule 411 was "to avoid

In re Complaint of Rovas Against SBC Mich, 482 Mich 90, 108; 754 NW2d 259 (2008). Detroit Base Coalition for Human Rights of the Handicapped v Dep't of Social Servs, 431 Mich 172, 185; 428 NW2d 335 (1988), citing Gen Motors Corp v Bureau of Safety & Regulation, 133 Mich App 284; 349 NW2d 157 (1984). MCL 462.25; see also Mich Consol Gas Co v Pub Serv Comm, 389 Mich 624, 635636; 209 NW2d 210 (1973).
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Const 1963, art 6,

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