EXHIBIT 10.3
APPLICATION OF CONSUMERS TO
THE MICHIGAN PUBLIC SERVICE COMMISSION,
DATED JULY 5, 2000.
EXHIBIT 10.3
STATE OF MICHIGAN
BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION
In the matter of the application of )
Consumers Energy Company for a Financing )
Order Approving the Securitization of its ) Case No. U-12505
Regulatory Assets and other Qualified Costs )
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APPLICATION FOR FINANCING ORDER
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NOW COMES Consumers Energy Company and, pursuant to 2000 PA
141, 2000 PA 142 the Michigan Administrative Procedures Act, MCL 24. 201 et
seq: MSA _________, and other applicable law, hereby applies to the
Michigan Public Service Commission (the "Commission") for a financing order
approving the issuance of securitization bonds for the qualified costs set
forth in this Application and the accompanying testimony and exhibits,
stating as follows:
IDENTITY OF APPLICANT
1. Consumers Energy Company ("Consumers") is an electric
utility company subject to the regulatory authority of the Michigan Public
Service Commission (the "Commission").
STATEMENT OF STATUTORY AUTHORITY
2. Recently, Governor Engler signed into law 2000 PA 141 ("Act
141") and 2000 PA 142 ("Act 142"). These new statutes provide for the
introduction of competition into Michigan's electricity marketplace.
3. Act 141 provides for a rate decrease of 5% for retail
customers of an electric utility. See, ss.10d(1). In order to provide for
the rate reduction, Act 141 provides that securitization may be used. See,
Act 141, ss.10d(4).
4. Act 142 provides that electric utilities may recover
"qualified costs" if the Commission issues a "financing order" approving
the issuance of securitization bonds. See, Act 142, ss.10i(1). These
securities are designed to lower the cost of capital of the electric
company, to fund the rate decrease mandated by Act 141, supra, and to
otherwise reduce stranded costs by authorizing the recovery of other costs
that an electric utility would not be likely to recover in a competitive
market.
5. Act 142 defines "qualified costs" as follows:
(g) "Qualified costs" means an electric utility's
regulatory assets as determined by the commission, adjusted by
the applicable portion of related investment tax credits, plus
any costs that the commission determines that the electric
utility would be unlikely to collect in a competitive market,
including but not limited to, retail open access implementation
costs and the costs of a commission approved restructuring,
buyout or buy-down of a power purchase contract, together with
the costs of issuing, supporting, and servicing securitization
bonds and any costs of retiring and refunding the electric
utility's existing debt and equity securities in connection
with the issuance of securitization bonds. Qualified costs
include taxes related to the recovery of securitization
charges.
Act 142,ss.10h(g).
6. Act 142 requires that the Commission conduct an "expedited
contested case proceeding" to consider the application of an electric
utility for a financing order, id. at ss.10i(6), and that a determination be
made no later than 90 days after the filing of the application. Id.
REQUEST FOR FINANCING ORDER
Eligibility for Financing Order.
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7. Consumers is an "electric utility" as that term is defined
and used in Act 141 and Act 142.
8. Consumers has incurred "qualified costs" as that term is
defined and used in Act 141 and Act 142 that are eligible for
securitization under those acts.
9. Act 142,ss.10i provides in part:
(2) In a financing order, the commission shall ensure
all of the following:
(a) That the proceeds of the securitization bonds are
used solely for the purposes of the refinancing or retirement
of debt or equity.
(b) That securitization provides tangible and quantifiable
benefits to customers of the electric utility.
(c) That the expected structuring and expected pricing of
the securitization bonds will result in the lowest
securitization charges consistent with market conditions and
the terms of the financing order.
(d) That the amount securitized does not exceed the net
present value of the revenue requirement over the life of the
proposed securitization bonds associated with the qualified
costs sought to be securitized.
Id.
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10. Act 141,ss.10d also governs the issuance of a financing
order by the Commission. That section provides in part:
(4) If the commission authorizes an electric utility to
use securitization financing under section 10i [of Act 142],
any savings resulting from securitization shall be used to
reduce retail electric rates from those authorized or in effect
as of May 1, 2000 as required under subsection (1). A rate
reduction under this subsection shall not be less than the 5%
required under subsection (1). The financing order may provide
that a utility shall only issue securitization bonds in an
amount equal to or less than requested by the utility, but the
commission shall not preclude the issuance of an amount of
securitization bonds sufficient to fund the rate reduction
required under section 10d(1).
Act 141, ss. 10d(4).
11. As more fully explained in the accompanying testimony and
exhibits which are incorporated herein and made a part hereof by reference,
the securitization proposal set forth in this Application meets all of the
statutory requirements set forth in Act 141 and Act 142.
Amount to Be Securitized.
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12. As more fully explained in the accompanying testimony and
exhibits, Consumers seeks a financing order that will authorize the
securitization of $472,549,237.
13. Act 142 authorizes an electric utility to assign its rights
in securitization property to another entity and provides certain benefits
and protections. See, Act 142, ss.10h(a), ss.10j-0. As more fully explained
in the accompanying testimony, Consumers will create a Special Purpose
Entity and transfer to it certain securitization property for the purpose
of minimizing bankruptcy risk as much as possible, and thus, maximize the
ratings on the securitization bond.
14. Within the context of approving the securitization
transaction in the financing order, Consumers specifically requests the
Commission to approve the transactions between Consumers and a Special
Purpose Entity, as described in the accompanying testimony, and make any
financing order issued in this proceeding applicable to any successor or
assignee of Consumers in accordance with Act 142.
Initial Implementation and True-up.
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15. Consumers also requests the Commission to approve the terms
and conditions of the initial implementation of the securitization charges
and tax charges to be collected from Consumers' customers as well as the
true-up mechanism, all as described more fully in the accompanying
testimony and exhibits, all of which are designed to result in a AAA rating
for any bonds issued as the result of the financing order requested herein.
Use of Proceeds.
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16. Consumers will use proceeds from securitization for the
purposes set forth in Act 142 and Act 141, including the 5% rate reduction
mandated in Act 141, ss.10d(4) and the refinancing or retirement of debt or
equity as provided in Act 142, ss.10i(2)(a).
17. After the 5% rate reduction mandated by Act 141, ss.10d(4),
Consumers will have no further savings to allocate to further rate
reductions or stranded cost reduction pursuant to Act 141, ss.10d(5) or to
the low-income or energy efficiency fund established by Act 141, ss.10d(6).
18. Upon the issuance of a financing order by the Commission,
Consumers will take all other actions necessary to implement the financing
order.
TESTIMONY AND EXHIBITS
19. The testimony and exhibits accompanying this Application,
which are incorporated herein and made a part hereof by reference, describe
more fully the qualified costs sought to be securitized and demonstrate the
eligibility of these costs for securitization pursuant to Act 141 and Act
142.
WHEREFORE, Consumers respectfully respects this honorable Commission
to take the following actions:
A. Issue a financing order pursuant to Act 142 and Act 141 and other
applicable law authorizing Consumers to issue securitization bonds for its
qualified costs on terms and conditions substantially similar to the terms
and conditions set forth in the testimony accompanying this Application.
Such order shall reserve to Consumers the sole discretion as to whether and
when to issue securitization bonds.
B. Authorize Consumers in the financing order to impose a
nonbypassable charge pursuant to Act 142,ss.ss.10h(h) and 10j(2) on
customer bills rendered on and after the issuance of securitization bonds
sufficient to pay the financing charges, principal and interest and other
costs associated with the issuance, service and/or support of the
securitization bonds as described in the accompanying testimony.
C. Authorize Consumers to include necessary language in its tariffs
to accomplish the impositions of the above-referenced nonbypassable charge
and implement the initial implementation and true-up of the charges
described above, all as proposed and more fully explained in the
accompanying testimony and exhibits.
D. Authorize Consumers to employ appropriate methodology to account
for the transactions contemplated by the financing order as proposed and
more fully explained in the accompanying testimony and exhibits.
E. Grant to Consumers, pursuant to Act 142, ss.10i(9), the authority
to refund and/or retire any or all of the securitization bonds that are
issued in this proceeding upon the statutory finding that securitization
charges to service new securitization bonds, including transaction costs,
will be less than the future securitization charges required to service the
securitization bonds being refunded.
F. Apply the Financing Order issued in this proceeding to any
successor or assignee of Consumers in accordance with Act 142.
G. Take all other actions that are necessary to permit Consumers to
recover the qualified costs described herein.
Respectfully submitted,
CONSUMERS ENERGY COMPANY
By:
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Dennis DaPra
Dated: June 30, 2000
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David A. Mikelonis
John C. Shea
212 West Michigan Avenue
Jackson, Michigan 49201
Attorneys for Consumers Energy Company
Tel: (517) 788-2112
Email address: jcshea@cmsenergy.com