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EXHIBIT 10.4
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 application of )
THE DETROIT EDISON COMPANY ) Case No. U-12478
for a financing order. )
)
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At the January 4, 2001 meeting of the Michigan Public Service Commission in
Lansing, Michigan.
PRESENT: Hon. John G. Strand, Chairman
Hon. David A. Svanda, Commissioner
Hon. Robert B. Nelson, Commissioner
OPINION AND ORDER
On November 2, 2000, the Commission issued its order in this case (referred
to as the financing order) authorizing The Detroit Edison Company (Detroit
Edison) to securitize up to $1,774,202,000 of its after-tax qualified costs,
pursuant to certain terms and conditions. Among other things, that order, issued
pursuant to the Customer Choice and Electricity Reliability Act, 2000 PA 141
(Act 141) and 2000 PA 142 (Act 142), allowed the utility to (1) create one or
more special purpose entities for use in issuing its securitization bonds, (2)
apply appropriate accounting and amortization methodologies, (3) implement and
collect securitization and tax charges, and (4) use the cost savings from
securitization to reduce the rates charged to its bundled sales and retail open
access (ROA) customers, among other purposes. Furthermore, it required Detroit
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Edison to file its "express written acceptance of all conditions and limitations
that the order places on the utility." Financing order, p. 56.
On November 22, 2000, Detroit Edison filed a petition for rehearing seeking
clarification of certain issues. It says that a clarification is needed to
prevent serious unintended consequences resulting from compliance with the
order. On December 12, 2000, Attorney General Jennifer M. Granholm (Attorney
General) filed a response. On December 13, 2000, the Association of Businesses
Advocating Tariff Equity (ABATE), Energy Michigan, the Michigan Chamber of
Commerce, and Unicom Energy, Inc., filed responses to the petition.(1)
Rule 403 of the Commission's Rules of Practice and Procedure, 1992 AACS, R
460.17403, provides that a petition for rehearing may be based on claims of
error, newly discovered evidence, facts or circumstances arising after the
hearing, or unintended consequences resulting from compliance with the order. A
petition for rehearing is not merely another opportunity for a party to argue a
position or to express disagreement with the Commission's decision. Unless a
party can show the decision to be incorrect or improper because of errors, newly
discovered evidence, or unintended consequences of the decision, the Commission
will not grant a rehearing.
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(1) In addition to addressing the requests set forth in Detroit
Edison's petition, some of these responses effectively seek rehearing of other
issues discussed in the financing order. However, MCL 460.10i(7); MSA
22.13(10i)(7), which was adopted as part of Act 142, specifically precludes any
party other than "the applicant for securitization"-Detroit Edison, in this
case-from requesting rehearing of a financing order. The Commission is therefore
prohibited from addressing any issues beyond those raised in Detroit Edison's
petition, and has thus disregarded all discussions set forth in the responses
that concern other issues. The Commission is further prohibited from addressing
the issue of the constitutionality of Section 10i(7) of Act 142, an issue raised
by the Attorney General and ABATE. See, Universal Am-Can Limited v Attorney
General, 197 Mich App 34, 37-38; 494 NW2d 787 (1992).
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"Proceeds" and Savings
Detroit Edison says that it believes that the references in the order to
"proceeds" in the context of the use of securitization savings is intended to
refer to the savings that result from securitization and not to the proceeds
from the issuance of the bonds. Detroit Edison is correct.
Detroit Edison asks the Commission to clarify that all reductions in rates
mandated by the order must come from and be limited to the amount of the savings
produced by securitization of approved qualified costs. Detroit Edison is
correct.
The Mandatory 5% Residential Rate Cut
Section 10d of Act 141 required Detroit Edison and Consumers Energy Company
to reduce by 5% the rates in effect for their residential rate classes as of May
1, 2000. It also provided those utilities an opportunity to use at least a
portion of any savings arising from securitization to offset that 5% residential
rate reduction. However, noting that a significant amount of time would likely
elapse between the implementation of that rate cut (during the summer of 2000)
and the issuance of its securitization bonds (which the utility estimated would
not occur before the start of 2001), Detroit Edison requested authority to treat
the cost of the 5% residential rate cut as a qualified cost that could be
securitized or as a regulatory asset that could be recovered at another time.
Detroit Edison says that it believes that ordering paragraph R of the order
correctly states the intent of the Legislature that securitization savings be
applied first to the recovery of the residential rate reduction beginning with
the date of the order and that any remaining savings be used as the order
specifies. It says that it therefore accepts the limitation on the effective
date for creation of the regulatory asset to the period beginning with the date
of the order until the securitization bonds are issued, provided (1) the cost of
the rate reduction will be recovered from the annual savings
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generated by securitization and (2) if the issuance of securitization bonds is
delayed beyond March 31, 2001, the cost of the rate reduction from November 2,
2000 through the date of securitization will be deemed a qualified cost that may
be securitized.
The Commission finds that Detroit Edison has correctly interpreted the
intent of the financing order. It is the Commission's intention that Detroit
Edison have an opportunity to recover from its securitization savings the full
cost of the residential rate reduction beginning with the date that the
financing order was issued (namely, November 2, 2000). To rule otherwise, and
thus forever preclude recovery for rate reductions provided prior to the actual
issuance of the utility's securitization bonds, would merely give the other
parties to this case an incentive to delay-through unwarranted appeals and other
means-the initiation of Detroit Edison's securitization program. Any such delays
would conflict with the Legislature's intent that securitization be implemented
in whatever reasonable manner provides the maximum cost savings. Furthermore,
delay in the initiation of Detroit Edison's securitization program will result
in a reduction in the amount to be securitized, primarily because Detroit Edison
will continue to amortize the Fermi 2 plant in the meantime. The reduction in
the amount to be securitized will, in turn reduce the amount of the savings to
be achieved. Delay-whether through unwarranted appeals or other means-could
reduce or fully eliminate funding for the low-income and energy efficiency fund
and even reduce or eliminate potential rate reductions for commercial and
industrial customers, contrary to the Legislature's intent.
The Commission therefore confirms Detroit Edison's understanding that the
utility is authorized to recover, through its securitization program, all
reductions in its revenues beginning November 2, 2000. Nevertheless, the
Commission finds no compelling reason at this time to formally declare those
lost revenues a regulatory asset. Moreover, the Commission rejects Detroit
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Edison's request to treat the cost of the reduction after March 31, 2001 as a
qualified cost that may be securitized. It is sufficient to provide recovery
through the securitization savings.
Equalization Adjustment
The Commission's order noted that retail open access would be less
competitive if ROA customers did not receive the same reduction in dollars per
kilowatt-hour (kWh) as bundled sales customers. The order therefore required an
equalization adjustment. Detroit Edison says that it understands the intent to
be that ROA customers are to receive the same benefit from securitization that
they would have received if they had remained bundled sales customers. It says
that this intent can be implemented before the securitization bonds are issued
by reducing residential ROA customers' bid transition charge by 0.46(cent) per
kWh, the average reduction for residential bundled sales customers. After the
bonds are issued and before January 1, 2002, it proposes to split the bid
transition charge for all customer classes into two components, one equal to the
securitization and tax charge and the second equal to the difference between the
bid transition charge and the securitization and tax charge. It would reduce the
second charge by the same 0.46(cent) per kWh for residential ROA customers, by
the average reduction in bundled commercial rates for commercial ROA customers
(which it expects to be 0.48(cent) per kWh), and by the average reduction in
bundled industrial rates for industrial ROA customers (which it expects to be
0.28(cent) per kWh).(2) As of January 1, 2002, Detroit Edison says that ROA
customers will pay a uniform transition charge set by the Commission, that the
amount will be set in Case No. U-12639 or a related case and will
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(2)The Commission understands that these average reductions are
estimates and that actual average reductions will be computed and reflected in
customers' bills after the securitization bonds are issued.
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presumably provide the equal benefit envisioned by the order, and that the
equalization charge will therefore be eliminated or set at zero.
The Commission agrees with Detroit Edison's understanding of the purpose
and implementation of the equalization adjustment. The Commission therefore
approves the implementation of that adjustment as described in Detroit Edison's
petition for rehearing.(3)
Offsets for All Securitization and Tax Charges
Detroit Edison notes that on page 29 of the financing order, the Commission
required the utility to reflect an offset-equal to the sum of each customer's
securitization and tax charges for the billing period in question-on the bills
of its bundled sales and ROA customers alike. It interprets this as acceptance
of its proposal that bundled rates not be increased but as rejection of its
proposed treatment of ROA customers. It nevertheless accepts the Commission's
order, implemented as follows: For bundled customers, the securitization and tax
charge will appear as a separate charge, the base energy charge will be reduced
by an equal amount, and any change in the securitization and tax charge will
result in an additional surcharge or credit factor as necessary to maintain the
rate freeze required by Act 141. For ROA customers, the bid transition charge
will be split into two components, one equal to the securitization and tax
charge and the second equal to the difference between the bid transition charge
and the securitization and tax charge (with customers thus paying, on a net
basis, the bid transition charge) and the Commission-approved transition charge
will be set to achieve the same effect.
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(3)In the event that a uniform transition charge is not established by
January 1, 2002, the reductions then in effect will be continued until such a
charge is approved.
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The Commission agrees that Detroit Edison correctly understands the purpose
and implementation of the securitization and tax charge offset. In issuing the
financing order, the Commission assumed (as it still does) that the offset for
ROA customers would become unnecessary beginning January 1, 2002. This
assumption is based on the Commission's belief that, before that date, an order
will be issued in Case No. U-12639 from which a transition charge can be derived
that recognizes the effect of securitization on Detroit Edison's total stranded
costs. However, in the event that no such transition charge is in place for
Detroit Edison by January 1, 2002, the Commission will impose a temporary
transition charge equal to the sum of the then-effective securitization and tax
charges. The offset would continue to be applied to this charge to ensure
equality between bundled sales and ROA customers until such time as a revised
transition charge is adopted. This will ensure the collection of all revenue
necessary to pay the securitization bond holders and should, in turn, enhance
the marketability of the bonds.
Corrections
Paragraph K of the financing order, at page 53, should have stated that the
annual servicing fee will be based on "the initial principal balance of the
securitization bonds" rather than "the principal amount of all outstanding
securitization bonds."
The order should have also stated that:
Consistent with Section 10m(1) of Act 142, the Commission affirms
that a valid and enforceable lien and security interest in
securitization property may be created only by a financing order and
the execution and delivery of a security agreement with a financing
party in connection with the issuance of securitization bonds. Thus,
following Detroit Edison's submission of an unconditional acceptance
letter, the utility will be deemed to have satisfied all state-imposed
prerequisites to the execution of a security agreement, and, pursuant
to Act 142, a valid and enforceable lien and security interest in the
securitization property will be created following the execution and
delivery of the applicable security agreement.
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The Commission FINDS that:
a. Jurisdiction is pursuant to 1909 PA 106, as amended, MCL 460.551 et
seq.; MSA 22.151 et seq.; 1919 PA 419, as amended, MCL 460.51 et seq.; MSA 22.1
et seq.; 1939 PA 3, as amended, MCL 460.1 et seq.; MSA 22.13(1) et seq.; 1969 PA
306, as amended, MCL 24.201 et seq.; MSA 3.560(101) et seq.; and the
Commission's Rules of Practice and Procedure, as amended, 1992 AACS, R 460.17101
et seq.
b. Detroit Edison's petition for rehearing should be granted in part and
denied in part, as discussed in this order.
c. The order should be corrected as discussed in this order.
THEREFORE, IT IS ORDERED that:
A. The Detroit Edison Company's November 22, 2000 petition for rehearing is
granted in part and denied in part, and the order is corrected, as discussed in
this order.
B. If The Detroit Edison Company desires to undertake securitization, it
shall file, within 7 days following issuance of this order, a document
expressing its unconditional acceptance of all conditions and limitations
imposed on the utility by this order and the November 2, 2000 financing order.
C. All amortization, accounting, and ratemaking approvals, as well as all
other authorizations, provided for in the Commission's November 2, 2000
financing order and clarified in this order shall be tolled pending The Detroit
Edison Company's unconditional acceptance of all conditions and limitations that
those orders place on the utility.
D. Following The Detroit Edison Company's unconditional acceptance of all
conditions and limitations established by the Commission's November 2, 2000
financing order and clarified in
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this order, these orders-and each of their terms-shall be irrevocable. The
Detroit Edison Company's acceptance likewise shall be irrevocable and,
therefore, shall survive bankruptcy or any other changes in the utility's legal
structure.
E. This order and its anticipated unconditional acceptance by The Detroit
Edison Company shall be incorporated by reference into the Commission's November
2, 2000 financing order, shall be deemed to relate back to the date of issuance
of that financing order, and shall be treated as being in full force and effect
as of that date.
Any party desiring to appeal this order must do so in the appropriate court
within 30 days after issuance and notice of this order, pursuant to MCL 462.26;
MSA 22.45.
MICHIGAN PUBLIC SERVICE COMMISSION
/s/ John G. Strand
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Chairman
( S E A L )
/s/ David A. Svanda
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Commissioner
/s/ Robert B. Nelson
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Commissioner, concurring in a separate opinion.
By its action of January 4, 2001.
/s/ Dorothy Wideman
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Its Executive Secretary
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this order, these orders-and each of their terms-shall be irrevocable. The
Detroit Edison Company's acceptance likewise shall be irrevocable and,
therefore, shall survive bankruptcy or any other changes in the utility's legal
structure.
E. This order and its anticipated unconditional acceptance by The Detroit
Edison Company shall be incorporated by reference into the Commission's November
2, 2000 financing order, shall be deemed to relate back to the date of issuance
of that financing order, and shall be treated as being in full force and effect
as of that date.
Any party desiring to appeal this order must do so in the appropriate court
within 30 days after issuance and notice of this order, pursuant to MCL 462.26;
MSA 22.45.
MICHIGAN PUBLIC SERVICE COMMISSION
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Chairman
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Commissioner
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Commissioner, concurring in a separate opinion.
By its action of January 4, 2001.
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Its Executive Secretary
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In the matter of the application of )
THE DETROIT EDISON COMPANY ) Case No. U-12478
for a financing order. )
)
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Suggested Minute:
"Adopt and issue order dated January 4, 2001 granting in part and
denying in part the petition for rehearing filed by The Detroit
Edison Company and clarifying the November 2, 2000 order, as set
forth in the order."
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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 application of )
THE DETROIT EDISON COMPANY ) Case No. U-12478
for a financing order. )
)
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CONCURRING OPINION OF COMMISSIONER ROBERT B. NELSON
(Submitted on January 4, 2001 concerning order issued on same date.)
I issued a separate opinion when the Commission approved Detroit Edison's
financing order on November 2. The rehearing petition does not address the
differences between me and my colleagues outlined in the separate opinion, so I
am able to concur in the Commission's order on rehearing. I believe it is
imperative that the adjustments adopted on November 2 to equalize the rate
reductions between bundled and retail access customers and to offset the
securitization and tax charges on all customer bills continue until a transition
charge is established which maintains the Commission's desire not to "unfairly
disadvantage" retail access customers.
I also concur in the decisions not to approve a regulatory asset for the
residential rate reduction at this time or to treat the rate reduction as a
qualified cost on March 31, 2001. Although I believe it is Detroit Edison's
intent to move expeditiously toward the issuance of securitization bonds, the
granting of these requests would substantially reduce any incentive to do so.
MICHIGAN PUBLIC SERVICE COMMISSION
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Robert B. Nelson, Commissioner