MIDWEST II, INC., MICHIGAN GAS UTILITIES CORPORATION · 2017. 5. 16. · Midwest’s initial brief,...

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 complaint of )

MIDWEST II, INC., against )

MICHIGAN GAS UTILITIES CORPORATION ) Case No. U-17860

concerning charged penalty for non-supply of gas. )

)

At the April 14, 2016 meeting of the Michigan Public Service Commission in Lansing,

Michigan.

PRESENT: Hon. Sally A. Talberg, Chairman

Hon. Norman J. Saari, Commissioner

OPINION AND ORDER

History of Proceedings

On March 16, 2015, Midwest II, Inc. (Midwest) filed a complaint against Michigan Gas

Utilities Corporation (MGUC) alleging that MGUC unlawfully assessed a $103,875.18 penalty

against Midwest for alleged “unauthorized use of gas” pursuant to the parties’ natural gas

transportation agreement. On May 11, 2015, MGUC filed an answer to the complaint, denying

Midwest’s allegations.

A prehearing conference was held on May 12, 2015, before Administrative Law Judge Martin

D. Snider (ALJ). Midwest, MGUC, and the Commission Staff (Staff) participated in the

proceedings, and the parties agreed upon a schedule for future proceedings. Pursuant to that

schedule, on May 15, 2015, Midwest filed an amended complaint, and on May 29, 2015, MGUC

filed an answer to the amended complaint and a motion for summary disposition. At a hearing on

June 18, 2015, the ALJ denied MGUC’s motion for summary disposition.

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The ALJ conducted a contested hearing on October 28, 2015. On November 30 and

December 14, 2015, respectively, Midwest and MGUC filed initial and reply briefs, and the Staff

filed letters indicating that it would not be filing initial or reply briefs. On January 8, 2016, the

ALJ issued a Proposal for Decision (PFD) recommending that the Commission deny Midwest’s

complaint and requests for relief. On January 29, 2016, exceptions were filed by Midwest.

MGUC filed replies to exceptions on February 12, 2016. On January 29 and February 12, 2016,

the Staff filed letters indicating that it would not be filing exceptions or replies to exceptions. The

record consists of 139 pages of transcript and 32 exhibits admitted into evidence.

Positions of the Parties

Midwest

Olin “Skip” White, CEO of Midwest, testified that Midwest is a small plant that employs

about 200 people. 3 Tr 38. According to Mr. White, the plant uses about 4,000 thousand cubic

feet (Mcf) of natural gas per month to fire furnaces to adhere coatings to metal parts. Id.,

pp. 38-39.

In 2008 or 2009, Midwest became a MGUC TR-1 schedule transportation customer that,

pursuant to contract, was obligated to contract with a natural gas supplier and make arrangements

for the delivery of gas from the supplier to MGUC. Exhibits MGUC-1, MGUC-5. MGUC then

transported the natural gas to Midwest. According to its contract, Midwest agreed that the

company or its agent would schedule and nominate gas deliveries to MGUC through MGUC’s

transportation web access (TWA) bulletin board or nomination system. Exhibit MGUC-5.

On November 12, 2013, Midwest decided to terminate the agreement with its then supplier,

Lake Shore Marketing Group LLC (Lake Shore) and signed an agreement with CIMA Energy,

L.L.C. (CIMA), to supply Midwest with natural gas through MGUC transportation. Mr. White

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testified that he received a copy of the fully-executed supplier agreement with CIMA on

November 20, 2013. Exhibit C-1. On that same day, Midwest sent Lake Shore a cancellation

notification, stating that beginning January 1, 2014, CIMA would supply natural gas to Midwest.

Exhibit C-3. Mr. White testified that after signing the November 12, 2013 agreement with CIMA,

he believed that “CIMA became our agent as of the contract date, and took care of all the

paperwork and system changes to accomplish it.” 3 Tr 40.

Casey J. Foley of CIMA sent an e-mail to MGUC on December 18, 2013, stating that CIMA

planned to deliver natural gas to Midwest beginning January 2014. Exhibit C-7, Attachment 1.

That same day, Nicholas J. Krzeminski, manager of MGUC’s external affairs, responded to

Mr. Foley’s e-mail, providing the necessary paperwork to facilitate the supplier change. Id.

Mr. White testified that he later learned that CIMA had attempted by telephone on December 2,

2013, to schedule flow for January 1, 2014. However, CIMA stated to Mr. White that after two

additional telephone calls, CIMA was able to connect with an MGUC customer service

representative on December 16, 2013, who indicated that due to a 30-day waiting period,1 the flow

date would have to be delayed to February 1, 2014. 3 Tr 40.

Mr. White signed the MGUC Agent/Pooling Verification Agreement (pooling agreement) on

December 19, 2013, which indicated that CIMA would begin providing natural gas to MGUC for

transportation to Midwest on February 1, 2014. Exhibit C-2. Mr. Foley returned the fully-

1 The 30-day waiting period is further discussed in Mr. Krzeminski’s testimony infra, p. 7.

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executed pooling agreement to Mr. Krzeminski on December 20, 2013, requesting that

Mr. Krzeminski notify him of any other requirements prior to the February flow date. Exhibit C-7,

Attachment 2.

Mr. White stated that although he received a copy of the pooling agreement stating the

February 1, 2014 flow date, he was puzzled that the agreement contained a date change. 3 Tr 40.

Because Midwest was already a MGUC transportation customer, all of the accounts were already

in place, and the pooling agreement was effectively a name change, Mr. White did not believe that

the flow date would be delayed to February 2014. He denied that he was notified by MGUC that

the January 1, 2014 flow date had been rejected. Id.

Then, on January 3, 2014, Midwest received an e-mail and telephone call from Mike Michalek

of Seminole Gas, supplier to Lake Shore, indicating that Seminole Gas had not ordered any natural

gas for Midwest and that MGUC had designated January 4, 2014, a “critical day,”2 meaning

demand for natural gas could exceed supply. 3 Tr 41. Mr. White stated that he did not act upon

Mr. Michalek’s e-mail or telephone call because he believed that Lake Shore was no longer

Midwest’s natural gas supplier. Mr. White contended that after January 3, 2014, he received no

further communications regarding the January 2014 supply of natural gas to Midwest. Id.

Near the end of February 2014, Mr. Krzeminski provided Midwest a copy of its February

billing statement and Mr. White discovered that there had been another period of critical days from

January 21-31, 2014, resulting in a total penalty of $103,875.18 for unauthorized use of gas. 3 Tr

41-42. Mr. White claimed that Midwest was not informed of the critical days in January, and he

believed the penalty was excessive. Id. He offered MGUC $36,000, in addition to the $21,000

2 “Critical day” is further defined and discussed in Mr. Krzeminski’s testimony infra, p. 8.

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already paid by Midwest, in order to settle the dispute. Id., p. 43. Mr. White received a rejection

letter from MGUC, requesting full payment within 30 days or risk shut-off of its natural gas

service. Still believing the penalty to be incorrect and excessive, Mr. White chose to file the

immediate complaint. Id.

Stephen R. Etsler, an independent consultant testifying on behalf of Midwest, discussed his

concerns with MGUC’s criteria for calling a critical day and the calculation of the penalty assessed

to Midwest. Mr. Etsler noted that MGUC called 38 critical days in 2014-2015, significantly more

than any other natural gas utility with which he works. 3 Tr 54. Unlike other gas utilities,

Mr. Etsler stated that MGUC does not have a penalty-free program that allows customers to use

less gas to help balance the system when under pressure. Additionally, in Mr. Etsler’s opinion,

MGUC tended to notify customers of a critical day after the point at which a customer could take

action to prevent a penalty. Id., p. 55.

Using the information contained in Exhibits C-8 through C-11, and assuming arguendo that

Midwest should have been assessed a penalty, Mr. Etsler argued that the penalty should only

amount to $44,397.68. 3 Tr 57-58. According to Mr. Etsler, “If Midwest could have gotten the

gas from their supplier delivered into Michigan in this time frame, [the company] would have paid

$9.01 [per Mcf] in all likelihood. So the [Commission-] approved $10 penalty makes the final cost

of gas $19.01 [per Mcf].” Id., p. 58. Instead, he noted, MGUC billed Midwest for the highest

price of natural gas recorded during January 2014, which was $34.48/Mcf, plus the $10/Mcf

Commission-approved penalty, for a total of $103,875.18. Id. Mr. Etsler questioned whether

MGUC actually purchased any natural gas at the $34.48/Mcf price during the January critical

days, and speculated that the company may have been able to get a cheaper price as a purchaser of

large volumes. Nonetheless, he asserted, the $21,780.70 for the January imbalance paid by

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Midwest in March 2014 should set off any penalty assessed to the company and that it would be

advisable that the Commission review MGUC’s Emergency Procedure Program.

Midwest argued that, pursuant to the Commission’s Billing Practices Applicable to Non-

residential Electric and Gas Customers, R 460.1618 (Rule 18), MGUC was required to “maintain

information necessary to advise the customer…about the facilities available to serve prospective

customers…” and “furnish any reasonable additional information.” Midwest contended that

pursuant to Rule 18, MGUC had a duty to directly inform Midwest that the January 1, 2014 flow

date had been rejected. Midwest asserted that there is no proof that anyone at Midwest received

the faxes sent by Mr. Krzeminski; MGUC should have called Midwest informing the company of

the flow date change.

Midwest also asserted that MGUC’s 30-day waiting period for a supplier change interfered

with the contract between Midwest and CIMA. According to Midwest, the 30-day waiting period

restricts “the existing Transportation Customer’s ability to manage timely market changes.”

Midwest’s initial brief, p. 8. In addition, Midwest argued, “Respondent’s testimony and exhibits

all refer to [Midwest’s] failure” to secure natural gas for re-delivery, but they did not address the

issue of MGUC refusing to allow CIMA to deliver natural gas in January 2014, thus forcing

Midwest to incur a penalty. Id.

Midwest noted that in 2009, MGUC granted TWA-system access to only one Midwest

representative, and by 2014, that person was no longer involved with Midwest’s account with

MGUC. Therefore, Midwest argued, even if it had been properly notified of the flow date change,

it did not have access to the TWA system to make changes in nominations during the critical

periods in January 2014. In any case, Midwest contended:

The TWA system does not schedule gas on the interstate pipeline system for the

supplier. It only brings it from the MGU interconnections to the distribution

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system. A supplier still has to nominate their gas into the Panhandle, Rockies,

ANR, or whatever other pipe required. These pipes all close their nominations at

noon the day before flow. Weekends are covered with a nomination on Friday by

12 for Saturday, Sunday, and Monday.

Midwest’s initial brief, p. 9.

In conclusion, Midwest requested that the Commission find that MGUC had a responsibility

to notify Midwest that CIMA’s request to supply natural gas beginning January 1, 2014 was

denied, that MGUC’s failure to notify Midwest was the proximate cause of the penalty assessed

against Midwest, that the penalty assessed against Midwest is unreasonable and should be reduced,

and that a quid pro quo penalty should be assessed against MGUC “for the price of gas in question

at Utility’s system costs plus attorney fees.” Id., p. 10.

Michigan Gas Utilities Company

Regarding the contractual agreement between a supplier and a customer, David J. Tyler,

Manager in MGUC’s Regulatory Service, stated that MGUC “has no responsibility or involvement

in securing or ensuring those supply arrangements.” 3 Tr 92. Because MGUC is not a party to the

contract between the customer and the supplier, MGUC’s Commission-approved tariff states that

“the Company does not guarantee against, and assumes no liability for, interruption caused by

third parties, including suppliers….” Exhibit MGUC-1. As a result, MGUC asserted, the

company is not legally responsible for a customer’s failure to secure natural gas supply because

that arrangement is exclusively between the customer and its supplier. MGUC’s initial brief,

pp. 9-10.

Mr. Krzeminski explained that if an existing TR-1 schedule transportation customer elects to

change natural gas suppliers, the customer and supplier must sign a pooling agreement and submit

the completed agreement to MGUC. Mr. Krzeminski stated that MGUC must have 30 days after

the first day of the month MGUC receives the signed pooling agreement

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in order to issue a final bill to the previous supplier and to begin billing the current supplier, which

provides a clean division between suppliers. 3 Tr 106. He asserted that apart from the pooling

agreement,

MGUC has no role in the daily arrangement and assurance of delivery of supply

from a broker to MGUC for the benefit of a Transportation customer. MGUC’s

only role is to assure that the initial paperwork, designating a broker, gets signed by

the customer and the broker and sent to our third-party billing partner to assure that

the new Broker has access to the Transportation Web Access (“TWA”) system to

make the nominations for the customer. MGUC is not responsible for making sure

that the broker fulfills its contract with the customer.

Id. The pooling agreement states that the customer has no right to utilize MGUC’s gas cost

recovery (GCR) gas supply, that MGUC is not responsible for interruptions in service caused by

third parties, and that MGUC has no obligation to notify or inform the customer that its supplier

has failed to deliver natural gas for re-delivery. Exhibit MGUC-5.

Mr. Krzeminski testified that because of the 30-day waiting period, “MGUC communicated to

CIMA, Midwest’s agent, that they wouldn’t be able to commence flow to Midwest until

February 1, 2014. That date was also clearly indicated on the Agreement that was submitted to

MGUC by CIMA on behalf of Midwest which also bore the signature of Mr. White.” Id., p. 112.

Despite the fact that Mr. Etsler and Mr. Foley were aware of the February 1, 2014 flow date,

Mr. Krzeminski contended, no supplier delivered natural gas to MGUC for re-delivery to Midwest

in January 2014. Id., pp. 110-112.

On January 7 and 8, 2014, and January 21 through 31, 2014, MGUC issued an operational

flow order (OFO), predicting that weather conditions associated with the Polar Vortex may

prevent MGUC from serving all of its customers’ requirements. Mr. Krzeminski stated that during

an OFO, “a Transportation customer must make arrangements to have enough gas delivered to

MGUC for redelivery to the customer to cover the full daily consumption for any given day that

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the restriction is in place.” 3 Tr 113. According to Mr. Krzeminski, for the January 7-8, 2014

critical period, he provided notification by e-mail, fax, and telephone to Mark Pawlaczyk,

Midwest’s Quality Manager; by e-mail and text message to Brian Winzeler, Midwest’s

Maintenance Manager; and by e-mail to CIMA and Lake Shore. 3 Tr 114; Exhibits MGUC-10

and MGUC-11. Mr. Krzeminski testified that he performed the exact same notification procedure

during the second critical period of January 21-31, 2014. Id. He also pointed out that in the

January 3, 2014 e-mail from Mr. Michalek of Seminole Gas to Mr. White, Mr. Michalek warned

Midwest of the possible critical period and the large penalties Midwest could incur, and offered to

assist Midwest in procuring gas delivery. Id., pp. 116-117; Exhibit MGUC-4. However, as noted

above, neither Lake Shore nor any other supplier delivered natural gas to MGUC for re-delivery to

Midwest in January 2014. Id., pp. 110-112.

Mr. Tyler stated that when a customer fails to abide by an OFO for a critical period, it may

constitute an unauthorized use of gas. 3 Tr 75. According to the parties’ TR-1 transportation

agreement, “unauthorized use of gas” occurs when Midwest consumes more natural gas than

scheduled for delivery. Id., pp. 75-76. Mr. Tyler explained that replacement gas is often drawn

from MGUC’s scheduled purchases or withdrawn from storage, but is gas that was intended for

MGUC’s gas cost recovery (GCR) customers. He stated that, “Since that gas is no longer

available to the Company’s General Sales (GCR) customers, replacement gas must be purchased

on the open market at current prices. The intent is to reimburse the GCR customers for the cost of

the gas supply that was intended for their use.” Id., p. 77. Mr. Tyler noted that “The specific

details concerning the pricing of replacement supplies are detailed on Tariff Sheet No. C-12.02,

Exhibit MGUC-3, which has been approved and authorized by the Commission.” Id., p. 76.

Mr. Tyler asserted that SEMCO Energy Gas Company’s Commission-approved penalty provision

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for unauthorized use of gas is identical to MGUC’s, and DTE Gas Company’s and Consumers

Energy Company’s penalty provisions are substantially similar.

Because Midwest had not scheduled gas supply for delivery during the January 2014 critical

days, Mr. Tyler stated that Midwest used gas that was purchased and stored for MGUC’s GCR

customers, committing an unauthorized use of gas. As a result, Mr. Tyler contended, Midwest was

subject to the penalties set forth in the tariff, which “shall be the highest price reported during the

period of curtailment for MichCon, Consumers Energy or Chicago’s LDCs as reported by Gas

Daily plus $10 per Mcf.” 3 Tr 80; Exhibit MGUC-3. According to Mr. Tyler, the highest price

reported by Gas Daily during the January 7 and 8, 2014 period was $7.435/Mcf, and the highest

price reported during the January 21-31, 2014 period was $42.195/Mcf. 3 Tr 81. Therefore,

Mr. Tyler noted, the total penalty assessed to Midwest should have been $106,743.06. He stated,

however, MGUC made a calculation error and only charged Midwest $103,875.18. Id.

In Mr. Tyler’s opinion, if Midwest is not assessed a penalty, GCR customers will have to

subsidize Midwest for the cost of replacement gas. In addition, Mr. Tyler noted that, “MGUC will

not retain any of the amounts that Midwest is required to pay for either the replacement gas or the

penalty charges. In accordance with its MPSC authorized tariff, all penalties collected by the

Company must be credited to the Company’s booked cost of gas sold in order to compensate the

GCR customers for serving as a back-up supply provider.” 3 Tr 83.

In response to Mr. Etsler’s allegations that, compared to other natural gas utilities, MGUC

calls an unusual amount of critical days, Mr. Tyler stated that it is unclear to which other gas

utilities Mr. Etsler is referring. Mr. Tyler cited a discovery response by Mr. Etsler that referred to

another utility, located in Ohio, which is served by a different interstate pipeline, and which may

have different supply sources, different on-system resources, and different constraint conditions.

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In Mr. Tyler’s opinion, a comparison between this Ohio utility’s gas system and MGUC’s gas

system is meaningless and misleading.

Responding to Mr. Etsler’s criticism that MGUC calls critical days in a span of time too short

for the transportation customer to avoid penalties, Mr. Tyler argued that gas supplier operations

and interstate pipelines are staffed 24 hours a day, seven days a week, and gas supplier operations

can accommodate changes around the clock. 3 Tr 85. He added that “MGUC’s Gas Supply

department is staffed 24/7 and its nomination system[] allows for nomination changes daily, even

over a weekend.” Id.

MGUC claimed that pursuant to Michigan law, CIMA acted as Midwest’s agent, and

therefore, Midwest was bound by CIMA’s knowledge and actions. MGUC stated that according

to the pooling agreement:

CIMA was identified as Midwest’s agent for purposes of managing its natural gas

supply. (See Exhibit MGUC-9). This document was executed by Midwest’s

President, Olin N. White. Id. Thus, not only did CIMA have apparent authority to

act on behalf of Midwest, it also had actual authority to act on behalf of Midwest as

expressly set forth in the Agent/Pooling Agreement. This is further confirmed in

the Natural Gas Sales Agreement between Midwest (as “Buyer”) and CIMA (as

“Seller”) which, again, expressly states, “Buyer appoints Seller as agent.” (See

Exhibit C-1) (emphasis added).

MGUC’s initial brief, pp. 11-12. MGUC argued that “Because CIMA stood in Midwest’s shoes as

its agent, Midwest is charged with the knowledge that CIMA would not be able to deliver supply

to MGUC for re-delivery to Midwest until February 1, 2014, the date articulated in the

Agent/Pooling Agreement, and the date set forth in the e-mails exchanged between MGUC and

CIMA.” Id., p. 12. MGUC asserted that not only was CIMA aware of the flow date change, but

Midwest was directly warned more than once by Lake Shore that it should purchase natural gas for

January 2014. In MGUC’s opinion, Midwest’s failure to question the February 1, 2014 flow date

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and its decision to ignore Lake Shore’s attempts to assist in securing natural gas supply for January

2014 were the proximate causes of the penalty incurred by Midwest for unauthorized use of gas.

MGUC disagreed with Midwest that Rule 18 “creates an obligation or other duty on the part

of MGUC to recognize a failure of a Transportation customer to properly arrange for delivery of

supply.” MGUC’s initial brief, p. 13. According to MGUC, the provisions of Rule 18 are

inapplicable to this case because they are generic in nature and apply only to newly contracted

transportation customers. Nevertheless, MGUC noted, the language in Section 2 of the

transportation agreement states in pertinent part:

The Customer acknowledges and agrees that the Company has no obligation to

notify or otherwise inform the Customer of the failure of the Customer’s gas

supplier to deliver gas to the Company on behalf of, or for transportation to, the

Customer. (See Exhibit MGUC-5).

Id. MGUC argued that by signing the transportation agreement, Midwest agreed that the specific

language of Section 2 relieved MGUC of any obligation to notify Midwest that its supplier had

failed to deliver natural gas.

MGUC asserted that there is no support in fact or law to grant Midwest’s request to reduce the

penalty for unauthorized use of gas. MGUC stated that “It is undisputed [fact] that during January

2014 no gas was delivered on behalf of Midwest to MGUC,” that Midwest “‘consumed more than

its daily delivered supply of gas’ and, therefore, incurred Unauthorized Usage and was subject to

OFO penalty charges.” MGUC’s initial brief, p. 15. Additionally, MGUC contended, the

transportation agreement states that Midwest shall be bound by the company’s tariff and “shall be

responsible for and shall pay to the Company…Unauthorized Gas Usage Charge[s].” Exhibit

MGUC-5. MGUC argued that pursuant to its Commission-approved tariff, Midwest must pay

OFO penalty charges as set forth in Exhibits MGUC-2 and MGUC-3.

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According to MGUC, if the Commission relieves Midwest of its obligation to pay the penalty

charges, MGUC would be placed in a position of treating Midwest differently than other similarly

situated customers, thus committing discrimination in violation of MGUC’s Tariff Sheet

No. E-9.00. In addition, MGUC stated, a reduction in the penalty would be inequitable because

“MGUC’s GCR customers have already been credited with the amount owed by Midwest. To

grant Midwest’s request would result in MGUC having to absorb costs when MGUC is not at fault

for Midwest’s negligence in securing gas supply.” MGUC’s initial brief, p. 16.

MGUC stated that Midwest cited no legal support for its claim for attorney fees. MGUC

argued that no statute, court rules, or recognized exception provide for attorney fees in this case.

Therefore, MGUC requested that the Commission deny Midwest’s request for attorney fees.

In conclusion, MGUC asserted that Midwest failed to present evidence to support its claims

against MGUC and requested that the Commission dismiss Midwest’s complaint with prejudice

and order Midwest to immediately pay the $103,875.18 penalty for unauthorized use of gas.

However, in the event the Commission finds that Midwest is “responsible for the full penalty of

$106,743.06 so as to ensure the Company is acting without discrimination to all similarly situated

persons, the Company accordingly amends its request for relief in the amount of $106,743.06.”

MGUC’s initial brief, p. 17.

Proposal for Decision

When a TR-1 schedule transportation customer decides to change natural gas suppliers, the

ALJ found that MGUC’s usual and customary business practice was to request a signed pooling

agreement from the customer and new supplier, and it required 30 days from the first day of the

month after receiving the signed agreement to complete the change. According to the ALJ, the

evidence showed that MGUC received the fully-executed pooling agreement from Midwest and

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CIMA on December 20, 2013, which contained a flow date of February 1, 2014. In addition, the

ALJ found that MGUC received an e-mail from Mr. Foley confirming the February 1, 2014 flow

date. The ALJ noted that the record contained no objections from Midwest or CIMA regarding the

February flow date at the time the pooling agreement was executed. Therefore, the ALJ stated,

there was insufficient evidence to establish that the agreed-upon flow date was anything other than

February 1, 2014.

Additionally, the ALJ found no evidence that MGUC interfered with the contractual

relationship between Midwest and CIMA. The ALJ determined that Midwest failed to prove that

MGUC changed, or influenced CIMA to change, the flow date from January 1, 2014, to

February 1, 2014.

The ALJ noted that “MGUC argues that Michigan agency law supports MGUC’s position that

the information provided by CIMA in the fully executed Pooling Agreement, including the

February 1, 2014 gas flow date, must be imputed to Midwest. MGUC argues that Midwest, the

principal in the Midwest-CIMA relationship, is bound by CIMA Midwest’s agent’s actual or

apparent authority.” PFD, p. 29. The ALJ agreed, finding that by executing the sales agreement

and the pooling agreement, Midwest created an agency relationship with CIMA. In the ALJ’s

opinion, the two agreements provided “CIMA, Midwest’s agent, the apparent authority, among

other things, to set a February 1, 2014 gas flow date,” and allowed MGUC to rely on CIMA’s

authority to do so. Id., p. 30.

In addition, pursuant to the transportation agreement between MGUC and Midwest, the ALJ

found that MGUC was not required to inform Midwest that no natural gas had been supplied for

re-delivery in January 2014. The ALJ cited Section 2 of the transportation agreement, which

states, “The Customer acknowledges and agrees that the Company has no obligations to notify or

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otherwise inform the Customer of the failure of the Customer’s gas supplier to deliver gas to the

Company on behalf of, or for transportation to, the Customer.” PFD, p. 31, citing Exhibit

MGUC-5. Similarly, the ALJ found, MGUC’s Commission-approved tariff did not require

MGUC to notify Midwest that no natural gas had been supplied for re-delivery in January 2014.

Id., p. 32.

Midwest argued that MGUC was obligated to provide notice of CIMA’s inability to deliver

natural gas under Rule 18, and MGUC responded that Rule 18 was generic in principle and

inapplicable to this case. The ALJ agreed that parts (a) through (e) of Rule 18 are generic, but

disagreed with MGUC “that the language provided in Rule 18(f), ‘Furnish any reasonable

additional information,’ is limited to MGUC’s obligation to provide initial and periodic generic

customer information.” PFD, p. 34. Instead, the ALJ opined, the contractual relationship between

Midwest and MGUC must be examined to determine what Rule 18(f) “reasonable information”

should have been provided to Midwest.

The ALJ stated that pursuant to MGUC’s Commission-approved tariff, MGUC was required

to send an OFO notice by facsimile or e-mail to the last facsimile or e-mail address provided by

the customer. PFD, p. 35, citing Exhibit MGUC-2. Relying on the evidence provided by

Mr. Krzeminski, the ALJ noted that at least two Midwest contact persons were notified by e-mail,

fax, telephone or text prior to the January 7-8 critical days, and that notice was also sent to CIMA

and Lake Shore. The ALJ found that the same process was followed for the second period of

critical days in January 2014. According to MGUC’s records, the ALJ stated, all of these

communications were received.

The ALJ asserted that Midwest, as the complainant, has the burden of proving that it did not

receive the notices sent by MGUC and that the tariff language set forth in Exhibit MGUC-2 is not

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applicable. In the ALJ’s opinion, Midwest failed to meet either burden of proof. The ALJ found

that MGUC provided detailed information about the communications between MGUC and

Midwest prior to, and during, the January 2014 critical days, and that Midwest failed to rebut with

evidence showing that it did not receive the notices. He stated, “A mere denial that some or all of

the MGUC notices were not received is not sufficient evidence to find that Midwest did not

receive the notices.” PFD, p. 35.

The ALJ determined that no gas was supplied to MGUC for re-delivery to Midwest in January

2014, that an OFO was declared for January 7-8, 2014, and January 21-31, 2014, and that the OFO

notifications were sent to and received by Midwest. As a result, the ALJ stated, all of the natural

gas consumed by Midwest in January 2014 was subject to the penalty set forth in MGUC’s Tariff

Sheet No. C-12.02, Exhibit MGUC-3. The ALJ found that MGUC’s calculation of Midwest’s

January 2014 bill, including the penalty, set forth in Exhibit MGUC-12 is consistent with the tariff.

In response to Midwest’s argument that the penalty will unjustly enrich MGUC, the ALJ asserted

that “the gas provided by MGUC to Midwest during the OFO January 2014 periods was intended

for and paid for by MGUC GCR customers. If Midwest does not pay for the cost of the gas,

MGUC’s GCR customers would subsidize the cost of Midwest’s unauthorized use of gas.” PFD,

p. 38. Any penalty amount paid by Midwest, the ALJ noted, must be booked as a credit to the cost

of gas for MGUC’s GCR customers. Id., citing 3 Tr 83.

In conclusion, the ALJ recommended that the Commission find that Midwest failed to show

by a preponderance of the evidence that MGUC violated any terms of the Commission-approved

tariff, the notice provisions of Rule 18, or the pooling agreement that set a February 1, 2014 flow

date. Additionally, the ALJ contended, the Commission should find that Midwest did not establish

by a preponderance of the evidence that MGUC failed to properly notify Midwest of the OFO

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before and during the January 2014 critical days. As a result, the ALJ stated, the Commission

should find that Midwest committed an unauthorized use of gas in violation of the transportation

agreement and adopt MGUC’s penalty calculation of $106,743.06.

Exceptions and Replies

In their entirety, Midwest’s exceptions state:

I. INTRODUCTION

Midwest II (Midwest or Complainant) makes two requests:

1. That the Commission reduce the applicable penalty by the $21,000 imbalance penalty billed at the end of February and already paid on the March, 2014 bill,

and

2. Provide for an 18 to 24 month payment period for the balance, so as to avoid a cash flow problems [sic] in operations.

Midwest’s exceptions, p. 3.

In its replies to exceptions, MGUC asserts that Midwest’s exceptions are not proper pursuant

to the Michigan Administrative Hearing System’s Administrative Hearing Rules. MGUC states

that Midwest’s exceptions violate R 792.10435(3) and (4) because they “do not have a discussion

of the evidence and law. There is no reference to the record or findings of fact and conclusions of

law to which exceptions are taken.” MGUC’s replies to exceptions, p. 2. Therefore, MGUC

requests that the Commission reject Midwest’s exceptions.

However, in the event the Commission considers Midwest’s exceptions, MGUC argues that

there is no evidentiary support for Midwest’s first request, and that Midwest failed to make an

equitable argument that payment of its debt, incurred more than two years ago, should be further

delayed.

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Discussion

MGUC argues that Midwest’s exceptions are not proper pursuant to the Michigan

Administrative Hearing System’s Administrative Hearing Rules, R 792.10435 (Rule 435). Rule

435 states in pertinent part:

(2) If a party does not object to a part of a proposal for decision, any objection by

the party to that part of the proposal for decision is waived.

(3) Exceptions and replies to exceptions shall be supported by reasoned discussion

of the evidence and the law.

(4) Exceptions shall clearly and concisely recite the specific findings of fact and

conclusions of law to which exception is taken or the omission of, or imprecision

in, specific findings of fact and conclusions of law to which the party accepts.

MGUC asserts that Midwest’s exceptions do not contain a discussion of the evidence and law,

they fail to refer to any specific findings of fact and conclusions of law by the ALJ, and therefore

should be rejected.

The Commission agrees. It is well established that a litigant may not merely claim error and

leave the decision-making body to search for authority to sustain or to reject the claim. As was so

eloquently put by Justice John D. Voelker in Mitcham v City of Detroit, 355 Mich 182; 94 NW2d

388 (1959):

It is not enough for an appellant … simply to announce a position or assert an error

and then leave it up to this Court to discover and rationalize the basis for his claims,

or unravel and elaborate for him his arguments, and then search for authority either

to sustain or reject his position. The appellant himself must first adequately prime

the pump; only then does the appellate well begin to flow.

355 Mich at 203.

The Commission finds that Midwest’s exceptions fail to provide a discussion of evidence or

law contradicting the ALJ’s findings, or for that matter, any discussion at all. As a result,

Midwest’s exceptions do not properly preserve any objection and do not obligate the Commission

to comb the record in order to respond to every objection raised through the course of the hearing.

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In fact, the Commission notes, Midwest’s exceptions are merely brief requests for a penalty

reduction and a delayed payment period, which intrinsically appear to accept the ALJ’s penalty

determination and waive all other objections to the PFD. For these reasons, there is a valid legal

basis to reject Midwest’s exceptions and, accordingly, dismiss its complaint. Notwithstanding, the

Commission elects to review the merits of the complaint. The Commission remains committed to

the customer complaint process and attempts to give complainants a meaningful opportunity to

raise issues with a utility’s application of tariff provisions.

After a review of the record, the PFD, the exceptions, and replies, the Commission finds that

the ALJ’s findings and recommendation should be substantially adopted. The ALJ first

determined that an agency relationship existed between CIMA and Midwest. The Commission

agrees. It is undisputed that Mr. White signed a supplier agreement with CIMA on November 12,

2013, and a pooling agreement with CIMA and MGUC, containing a February 1, 2014 flow date,

on December 19, 2013. Pursuant to Michigan law, the supplier and pooling agreements between

CIMA and Midwest created an agency relationship, and Midwest, as the principal, is bound by

CIMA’s actual or apparent authority. In re Newpower, 233 F3d 922 (CA 6, 2000); see also Burton

v Burton, 332 Mich 326; 51 NW2d 297 (1952), and James v Alberts, 464 Mich 12; 626 NW2d 158

(2001). As a result of the agency relationship, MGUC could rely on CIMA’s apparent authority to

negotiate and schedule a February 1, 2014 flow date on behalf of Midwest. See Faber v. Eastman,

Dillon & Co, 271 Mich 142; 259 NW 880 (1935). In addition, CIMA’s actions may be charged to

Midwest because the scheduling of the flow date was within the scope of CIMA’s authority

pursuant to the supplier and pooling agreements. See, Hart v Comerica Bank, 957 F Supp 958

(ED Mich, 1997). And, because of CIMA’s apparent authority, MGUC lawfully relied on CIMA’s

U-17860

authority to set a flow date for Midwest. See Liberty Heating & Cooling Inc v Builders Square

Inc, 788 F Supp 1438 (ED Mich, 1992), appeal dismissed 968 F2d 1215 (1992).

The ALJ found that MGUC did not interfere with the contract between Midwest and CIMA or

the parties’ ability to set a flow date. The Commission agrees and finds that it was MGUC’s usual

and customary business practice to require a 30-day waiting period beginning with the first day of

the month after MGUC received a signed pooling agreement. It is uncontroverted that MGUC

received the fully-executed pooling agreement from Midwest and CIMA on December 20, 2013,

containing a February 1, 2014 flow date. The Commission finds that Midwest failed to produce

any evidence demonstrating that MGUC directly changed, or influenced CIMA to change, the

flow date. In addition, Midwest failed to cite any evidence that at the time the pooling agreement

was executed, CIMA or Midwest objected to the February 1, 2014 flow date.

Midwest does not contest the validity of its transportation agreement with MGUC. The ALJ

noted that according to Section 2 of the TR-1 schedule transportation agreement between the

parties, Midwest agreed that MGUC “has no obligations to notify or otherwise inform the

Customer of the failure of the Customer’s gas supplier to deliver gas to the Company on behalf of

or for transportation to, the Customer.” MGUC Exhibit-5. MGUC’s tariff contains almost

identical language. As a result, the ALJ determined, MGUC had no contractual obligation to

notify Midwest that CIMA had failed to deliver natural gas in January 2014 for re-delivery to

Midwest. The Commission agrees.

Regarding the notice provisions of Rule 18, the ALJ found that MGUC provided detailed and

proper communications to Midwest prior to the critical days in January 2014, and that Midwest

failed to provide evidence that these notices were not received. The Commission agrees and finds

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that MGUC provided proper OFO notices pursuant to its Commission-approved tariff, and that

Midwest failed to meet its burden of proving that it did not receive these communications.

The ALJ determined that no natural gas was delivered in January 2014 to MGUC for

redelivery to Midwest, that there were two critical periods in January 2014 for which MGUC

issued OFOs, and that all of the gas consumed by Midwest during January 2014 was subject to

penalty. In addition, he found that MGUC’s penalty calculation for unauthorized use of gas was

consistent with its Commission-approved tariff, and therefore, Midwest was responsible for

$106,743.06 in penalty fees. The Commission finds that if Midwest does not pay for the cost of

replacement gas, GCR customers will be forced to subsidize the cost of Midwest’s unauthorized

use of gas, or MGUC will be required to absorb the costs.

As noted above, MGUC argued that Midwest is responsible for $106,743.06 in penalty fees.

However, MGUC made an error in calculating the penalty amount, and charged Midwest a total

OFO penalty of only $103,875.18. Although Midwest has not yet paid the penalty charge, MGUC

has credited its GCR customers $103,875.18 pursuant to the 2013-2014 GCR reconciliation

process and as required by tariff. Therefore, the Commission finds it reasonable to require

Midwest to pay to MGUC a penalty of $103,875.18.

Midwest’s request that “the $21,000 imbalance penalty…paid on the March, 2014 bill” reduce

the applicable penalty is somewhat unclear. MGUC speculates that the request refers to the cash-

out amount charged to Midwest for imbalances in January 2014. According to MGUC,

Mr. Krzeminski testified that this amount was for gas used by Midwest in January 2014 and that it

is unrelated to the penalty for unauthorized use of gas. 3 Tr 120. The Commission agrees and

rejects Midwest’s request.

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Midwest also requested an 18 to 24 month period for payment of the penalty. The

Commission declines to set a specific payment period, but encourages the parties to work together

to set a reasonable time period for Midwest’s payment of the penalty.

The Commission finds that Midwest’s request for attorney fees must be rejected. The

Commission agrees with MGUC that Midwest cited no legal support for its claim for attorney fees,

and that no statute, court rules or recognized exception provide for attorney fees in this case.

THEREFORE, IT IS ORDERED that:

A. Midwest II, Inc.’s, complaint against Michigan Gas Utilities Corporation is dismissed with

prejudice.

B. Midwest II, Inc., shall make arrangements with Michigan Gas Utilities Corporation to set a

reasonable time period for the payment of penalty fees in the amount of $103,875.18.

The Commission reserves jurisdiction and may issue further orders as necessary.

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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. To comply with the Michigan Rules of

Court’s requirement to notify the Commission of an appeal, appellants shall send required notices

to both the Commission’s Executive Secretary and to the Commission’s Legal Counsel.

Electronic notifications should be sent to the Executive Secretary at [email protected]

and to the Michigan Department of the Attorney General - Public Service Division at

[email protected]. In lieu of electronic submissions, paper copies of such notifications may

be sent to the Executive Secretary and the Attorney General - Public Service Division at 7109

W. Saginaw Hwy., Lansing, MI 48917.

MICHIGAN PUBLIC SERVICE COMMISSION

________________________________________

Sally A. Talberg, Chairman

________________________________________

Norman J. Saari, Commissioner

By its action of April 14, 2016.

________________________________

Mary Jo Kunkle, Executive Secretary
mailto:[email protected]:[email protected]

MIDWEST II, INC., MICHIGAN GAS UTILITIES CORPORATION · 2017. 5. 16. · Midwest’s initial brief,...

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