STATE OF MICHIGAN
BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION
*****
In the matter of the complaint of
NORDIC MARKETING, L.L.C., against
THE DETROIT EDISON COMPANY for failure
to comply with enrollment processing requirements.
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Case No. U-14208
At the October 18, 2005 meeting of the Michigan Public Service Commission in Lansing,
Michigan.
PRESENT: Hon. J. Peter Lark, Chairman
Hon. Laura Chappelle, Commissioner
Hon. Monica Martinez, Commissioner
OPINION AND ORDER
I.
HISTORY OF PROCEEDINGS
On July 23, 2004, Nordic Marketing, L.L.C. (Nordic), filed a complaint against The Detroit
Edison Company (Detroit Edison), alleging that Detroit Edison failed to complete open access
enrollment activities within 45 days for Nordic’s customers as required by Detroit Edison’s retail
access service tariff (RAST), its alternative electric supplier (AES) agreement with Nordic, and the
Customer Choice and Electricity Reliability Act, 2000 PA 141 (Act 141),1 MCL 460.10 et seq.
Nordic requested that the Commission (1) find that Detroit Edison violated its RAST and AES
agreement with Nordic, (2) order Detroit Edison to cease and desist from further noncompliance,
1
Act 141 took effect on June 5, 2000, and authorizes the Commission to establish the rates,
terms, and conditions under which all retail customers of an electric utility would be permitted to
choose an AES.
(3) fine Detroit Edison for each Nordic customer whose enrollment was delayed, (4) order Detroit
Edison to refund to Nordic customers the additional monies they expended on bundled rates
because of Detroit Edison’s untimely enrollments, and (5) award costs, attorney fees, and
damages.
On January 20, 2005, Administrative Law Judge James N. Rigas (ALJ) conducted an
evidentiary hearing at which testimony was bound into the record and witnesses were crossexamined. The Commission Staff (Staff) also participated in the proceedings. The evidentiary
record consists of 85 pages of transcript and 18 exhibits.
On April 7, 2005, the ALJ issued a Proposal for Decision (PFD). Nordic, Detroit Edison, and
the Staff filed exceptions on April 21, 2005, and replies to exceptions on May 2, 2005.
II.
PROPOSAL FOR DECISION
The ALJ found that from October 2003 through April 2004, Detroit Edison failed to meet the
45-day enrollment requirement for at least 175 Nordic customers, thereby violating Act 141, the
RAST, and the AES agreement. The ALJ concluded that the Commission mandated in its
December 20, 2001 order in Case No. U-12489 (December 20 order) that the 45-day enrollment
requirement was absolute and, therefore, rejected Detroit Edison’s argument that a rule of reason
should be applied because of mitigating circumstances or because it acted in good faith. The ALJ
agreed with the Staff and Nordic that Detroit Edison should pay a fine2 and Nordic’s attorney fees,
and further recommended that the Commission issue a cease and desist order because of Detroit
Edison’s history of problems with untimely customer enrollments.
2
The ALJ recommended a fine of $1,000 for the first offense, $2,000 for the second offense,
and $5,000 for the third and 172 subsequent offenses.
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However, the ALJ found that the record did not support a reliable computation of damages
with respect to lost gross margin or losses attributed to the cost of excess power pre-purchases.
The ALJ concluded that the AES agreement precludes recovery of consequential, incidental, and
indirect damages, which he determined included costs for personnel and benefits, depreciation,
leases, cost of capital, supplies, utilities, taxes, and profit. Further, the ALJ found that Detroit
Edison’s testimony and exhibits critically undermined and raised serious doubt as to the validity of
Nordic’s claimed loss attributable to excess power pre-purchases. Finally, the ALJ noted that
because Nordic requested that its damage claim be heard in this proceeding, he does not agree with
the Staff that this case should be reopened for further consideration of damages.
III.
POSITIONS OF THE PARTIES
Nordic
Nordic complains that from October 2003 through April 2004, Detroit Edison failed to enroll at
least 175 Nordic customers3 within 45 days as required by Detroit Edison’s RAST, which provides
for no excuses for failure to comply with the standard. Therefore, Nordic says, it is undisputed
that Detroit Edison violated the RAST.
Nordic argues that regardless of the enormity of the challenges in implementing choice, the
complexity of installation of interval demand meters, or the enrollment spikes, none of these
reasons justify the enrollment delays. Nordic proposes that the problems were foreseeable. See,
Exhibit C-14, p. 4, where Detroit Edison’s witness, William J. Newbold, Jr., its Manager of
3
Nordic specifically claims that between October 2003 and July 2004, Detroit Edison failed to
comply with the 45-day enrollment requirement for 187 of its customers (2 Tr., pp. 13, 22),
although Detroit Edison’s witness testified that it failed to meet the standard in only 175 instances
(2 Tr., p. 72).
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Electric Choice Strategy, admitted in Case No. U-14025 that Detroit Edison foresaw problems in
installing interval demand meters as far back as 2000.
Nordic further maintains that until February 2004, Detroit Edison actually reduced resources
devoted to completing enrollment activities rather than increasing resources, as logic would dictate
with the increased enrollment requests. Nordic maintains that site visits to install meters dropped
significantly in November and December 2003 from the September and October level because
overtime at Detroit Edison stopped (Exhibit C-14, p. 6), and the facility that tested and
programmed meters was shorthanded. Nordic complains that the Allen Road Facility normally
had six employees, yet during this time period, Detroit Edison’s personnel at this facility was
reduced from three employees to one, and were not replaced until the new budget year. Exhibit
C-14, pp. 7-8, 10-11. Despite the fact that meter testing was a critical bottleneck in processing
applications, the number of meter testers went down to one and overtime was abolished.
Therefore, Nordic concludes, Detroit Edison not only violated the RAST, but took no reasonable
steps to correct the problem. Indeed, Nordic says, Detroit Edison’s compliance with the 45-day
standard only occurred after the February 20, 2004 interim order in Case No. U-13808, that
increased fees for choice customers thereby drastically reducing enrollments and Detroit Edison’s
workload.
Because of Detroit Edison’s persistent violations and refusal to take effective measures to
correct the violations, Nordic urges the Commission to (1) issue a cease and desist order
prohibiting Detroit Edison from future violations, (2) assess fines, and (3) order Detroit Edison to
compensate Nordic for attorney fees, lost gross margin due to delays in commencing service, and
losses on delivery of power that could not be used by its customers due to Detroit Edison’s delay.
Nordic says it incurred (1) $88,262 in losses due to the cost of excess power it purchased that was
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not used by the customers because they were not site ready within 45 days, (2) $43,800 in losses of
gross margin,4 and (3) $21,600 in costs for legal expenses.
Nordic disputes Detroit Edison’s calculations because the utility’s witness, Kenneth D.
Johnston, Principal Project Manager in Regulatory Affairs, did not include any accounts in his
calculations with margins less than zero. Even if the AES agreement precludes recovery of lost
profits, Nordic says it incurred the remainder of the costs, despite its customers not receiving
service as anticipated. Further, using Detroit Edison’s methodology, it calculates its imbalance
payments at $88,262. Nordic further explains that while Detroit Edison said Nordic was in an
imbalance situation, Detroit Edison offered no proof of the alleged imbalances, therefore,
Mr. Johnston’s testimony consists of mere speculation and challenges Detroit Edison’s position on
this point. Finally, Nordic points out that its witness testified that Nordic’s estimated cost of
power was $48 per megawatt-hour (MWh), based on actual forward curves used by Nordic’s
power supplier during the times of delayed enrollment, whereas Detroit Edison merely opined that
Nordic could have purchased power at a lower cost.
Nordic construes that its AES agreement does not preclude recovery of direct out-of-pocket
damages such as attorney fees, costs of undeliverable power, or lost gross margin (other than
profit). Nordic says it had already incurred $21,600 in attorney fees up until the time of the
hearing, and requests that this amount be amended to include additional expenses incurred since
that time. Nordic refutes Detroit Edison’s contention that it was in an imbalance situation,
maintains that it was never assessed penalties for imbalances or purchased power at a penalty rate,
and challenges Detroit Edison to produce evidence to the contrary.
4
Nordic says gross margin is costs incurred to deliver power and consists of personnel and
benefits, depreciation, leases, cost of capital, supplies, utilities, taxes, and profit (which makes up
40% of gross margin calculations). Nordic calculated lost gross margin at $73,004, of which
$29,200 was profit.
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Detroit Edison
Detroit Edison suggests that the Commission should find that Detroit Edison’s actions were
reasonable and, because the backlog has been resolved, reject the ALJ’s recommendations
regarding the proposed penalty, cease and desist order, and payment of attorney fees. It does,
however, agree with the ALJ that the record fails to support a reliable computation of damages.
Nordic failed to carry its burden of proof, Detroit Edison concludes, with respect to the cost of
excess power purchases and agrees that lost gross margin is barred by the AES agreement.
Detroit Edison says that beginning in September 2003, it received an extraordinary number of
enrollments, in excess of any previously received in the history of customer choice. Detroit
Edison opines that this was caused by supplier hoarding of enrollments, but readily admits the
enrollment spike was a result of the Commission’s July 31, 2003 order in Case No. U-13350 (July
31 order) “which denied Detroit Edison transition costs and also reaffirmed the credits being
provided to customers who take Electric Choice service.” 2 Tr., p. 47. The flood of new
enrollments, it says, placed a unique burden on Detroit Edison, and overwhelmed its resources.
However, despite this volume, Detroit Edison argues, it allocated reasonable resources to the
problem and managed to resolve the backlog. Therefore, it concludes, the proposed penalty is
unwarranted and unjustified.
Detroit Edison complains that the ALJ erred in recommending fines and payment of attorney
fees. Act 141 requires proof of damages, it says, to justify fines, penalties, and other monetary
remedies. Relying on the language of the statute that provides that “the commission shall order
such remedies and penalties as necessary to make whole a customer or other person who has
suffered damages as a result of the violation” (emphasis added), Detroit Edison construes the
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statute to require proof of actual damage as a prerequisite to the imposition of fines or the award of
costs and attorney fees.
Because Nordic has not proven damages, Detroit Edison concludes, there is no basis to fine it.
Even if there were a basis for the fine, this case involves mitigating circumstances that justify the
Commission not imposing a fine. Further, Detroit Edison asserts, the ALJ’s recommended fine of
$868,000 for 175 violations is not justified because this case involves a one-time deviation that has
been corrected, not 175 independent violations. A fine is unjustified, Detroit Edison claims,
because it has taken action to fully comply with the 45-day requirement. A warning, it proposes,
would be more reasonable and sufficient to address any remaining concerns about future conduct.
This is not an enforcement action because the problem has been resolved; rather, Detroit Edison
says, this is a case of first impression that poses the policy question of what level of resources
Detroit Edison should dedicate to account for extreme volatility in choice enrollments.
Finally, Detroit Edison argues that the Commission should not impose additional fines because
it has already paid fines for the same time period as a result of the April 28, 2005 order in Case
Nos. U-14025, U-14054, and U-14070 (Consolidated Order). See, Consolidated Order, p. 21.
The Staff
The Staff agrees with the ALJ that Detroit Edison failed to enroll Nordic’s customers in a
timely manner, but takes exception with the ALJ’s finding that Detroit Edison committed only 175
violations of the RAST during the time period that is the subject of this complaint. The Staff
points out that the Commission found in the Consolidated Order that Detroit Edison violated its
RAST in over three thousand other instances for three additional AESs, which is an egregious
violation, and Detroit Edison has, in the past, had problems with timeliness. The Staff agrees with
the Commission’s computation of damages in the Consolidated Order, that each day Detroit
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Edison was out of compliance with its RAST should constitute a separate violation. The Staff
further agrees with the ALJ that there is no good faith exception for failure to comply with its
tariff. However, because the Commission has already imposed a fine in the Consolidated Order
that covers the same facts and time period as this case, the Staff does not recommend that Detroit
Edison be assessed an additional fine.
However, the Staff does urge the Commission to issue a cease and desist order and reject
Detroit Edison’s argument that a cease and desist order is not necessary. Detroit Edison has a
history of failing to enroll choice customers in a timely manner, and there is no guarantee, the
Staff says, that Detroit Edison will keep staffing at an appropriate level in the future.
Finally, the Staff encourages the Commission to open a docket addendum in this case so that
Nordic may prove damages consistent with the Consolidated Order.
IV.
DISCUSSION
Detroit Edison does not deny that it failed to enroll Nordic’s customers within 45 days as
required by its tariff. Therefore, the Commission finds that the evidence is undisputed that Detroit
Edison failed to complete enrollment activities within 45 days for at least 175 of Nordic’s
customers as required by Section 2.5 of the RAST. Detroit Edison’s unlawful conduct and
flagrant disregard for Commission orders is inexcusable in light of the Commission’s December
20 order that established the 45-day enrollment requirement. Further, the Commission has
previously determined in the Consolidated Order that Detroit Edison had knowledge that its
enrollments were likely to increase following the July 31 order, yet chose to allow its choice
meter-installing personnel to dwindle throughout 2003 from six to two persons and made a
management decision not to hire replacements until well into 2004.
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Because the Commission adopted the RAST under Section 10a of Act 141, a violation of the
tariff is a violation of Act 141 and subjects the utility to the remedies provided in the statute.
Moreover, Act 141 specifically allows the Commission to order remedies and penalties if a utility
has not complied with a Commission order. Section 10c(1) of Act 141 provides that the
Commission, after finding that an electric utility has not complied with a provision or order issued
under Sections 10 through 10bb:
….shall order such remedies and penalties as necessary to make whole a customer
or other person who has suffered damages as a result of the violation, including, but
not limited to, 1 or more of the following:
(a)
(b)
(c)
(d)
(e)
Order the electric utility or alternative electric supplier to pay a fine for the
first offense of not less than $1,000.00 or more than $20,000.00. For a
second offense, the commission shall order the person to pay a fine of not
less than $2,000.00 or more than $40,000.00. For a third and any
subsequent offense, the commission shall order the person to pay a fine of
not less than $5,000.00 or more than $50,000.000.
Order a refund to the customer of any excess charges.
Order any other remedies that would make whole a person harmed,
including, but not limited to, payment of reasonable attorney fees.
Revoke the license of the alternative electric supplier if the commission
finds a pattern of violations.
Issue cease and desist orders.
MCL 460.10c(1).
Based upon the statute, Nordic and the Staff request that the Commission (1) issue cease and
desist orders, (2) impose fines, (3) award attorney fees, and (4) order Detroit Edison to pay
damages for gross margin (minus profit) and losses incurred on excess deliveries of power that
were never used.
Cease and Desist Order
Nordic requested that the Commission issue a cease and desist order requiring Detroit Edison
to cease and desist from all delays in processing enrollments within 45 days. The ALJ agreed,
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citing Detroit Edison’s history of problems with timely customer enrollments and failure to meet
the deadline in such a significant number of instances. The Commission agrees with the ALJ and
Nordic that Detroit Edison should be ordered to cease and desist from violating the 45-day
enrollment requirement of the RAST. The Commission is not persuaded by Detroit Edison’s
argument that a cease and desist order is not needed because of its efforts to resolve the backlog,
its performance over the duration of the electric choice program, and the ongoing collaborative
process.
Costs and Attorney Fees
Section 10c(1)(c) of Act 141 allows the Commission to “[o]rder any other remedies that
would make whole a person harmed, including, but not limited to, payment of reasonable attorney
fees.” Nordic has requested that Detroit Edison be ordered to pay its reasonable attorney fees
spent in prosecuting this matter and the ALJ agreed. The Commission agrees that Nordic should
be fully compensated for bringing these violations to the Commission’s attention and orders
Detroit Edison to pay Nordic, within 30 days, $21,600 for attorney fees and expenses. 2 Tr., p. 26.
Following issuance of this order, Nordic shall present to Detroit Edison, within 10 days, a fully
itemized, final bill for its reasonable attorney fees and costs in this case, that must be paid within
30 days of issuance of this order unless contested by Detroit Edison.
Damages
Consistent with Section 10c(1)(c) of Act 141 that allows the Commission to order “any other
remedies that would make whole the person harmed,” Nordic requests that the Commission order
Detroit Edison to pay Nordic for damages sustained for lost gross margin and excess power prepurchases, whereas the Staff urges the Commission to convene a subsequent proceeding to
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determine damages that Nordic incurred because of Detroit Edison’s violation of the RAST. The
ALJ found that the record in this case does not support a reliable computation of damages with
respect to either lost gross margin or losses attributed to the cost of excess power pre-purchases.
The ALJ said that Nordic’s claim for lost gross margin is barred by the AES agreement that
prohibits recovery of consequential, incidental, and indirect damages, such as Nordic’s costs for
personnel and benefits, depreciation, leases, cost of capital, supplies, utilities, taxes, and profit.
Although Nordic did not ask for lost profits, it failed to demonstrate, the ALJ found, that the AES
agreement does not bar recovery of these other items as well.
Although Nordic claimed it suffered losses attributable to the cost of excess power prepurchases that were never used, the ALJ found that Detroit Edison’s testimony and exhibits raised
serious doubt as to the validity of Nordic’s claimed loss. Detroit Edison endeavored to show that
Nordic’s scheduled power was insufficient to meet its existing load, and, therefore, it had not
purchased excess power to cover new customers who were not enrolled in a timely manner.
Further, the ALJ found that Detroit Edison cast serious doubt on Nordic’s calculations for its cost
of power per MWh, and, therefore, concluded that Nordic failed to carry its burden of proof with
respect to its claim for the cost of excess power pre-purchases.
Although the Staff recommended that the Commission open a docket addendum in this case to
allow Nordic to present evidence regarding damages using the same methodology used in the
similar consolidated case, the ALJ found that the recommendation was unjustified in this case.
Nordic opposed the Staff’s recommendation and asked that the damage claim be heard and was
given an opportunity to present its case for damages in this proceeding. The ALJ concluded that it
would be inequitable and unreasonable to provide Nordic a second opportunity to show damages.
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The Commission finds, as the ALJ did, that Nordic failed in its burden of proof regarding
losses attributable to the cost of excess power pre-purchases.
Fines
Nordic requested that the Commission fine Detroit Edison at least $1,000 for the first
violation, $2,000 for the second violation, and $5,000 for subsequent violations, pursuant to
Section 10c(1)(a) of Act 141, for the 187 Nordic customers Detroit Edison failed to enroll within
45 days as required by the RAST. The ALJ found that Detroit Edison failed to enroll at least 175
of Nordic’s customers in a timely manner and recommended that Detroit Edison be fined pursuant
to the statute. The Commission agrees with Nordic and the ALJ that a fine is warranted in this
case.
The Commission finds that Detroit Edison engaged in anti-competitive behavior and thwarted
customer choice and the intent of the Legislature in passing Act 141, by failing to complete
enrollment activities for choice customers within 45 days as mandated by the RAST. Detroit
Edison, by its actions, has managed to delay, or deny altogether, choice for thousands of AES
customers. The Commission agrees with Michael Carosio, Nordic’s Vice President of Sales, that
Detroit “Edison’s failure to meet the 45 day meter installation period prevented the Nordic Electric
Choice customers from being able to begin enjoying the savings offered by becoming a Nordic
customer. The customers paid a higher cost to remain a bundled electricity customer and were
prohibited from saving money on their electricity bill.” 2 Tr., p. 23.
Although the Commission agrees with Nordic and the ALJ that a fine is appropriate in this
case, it also agrees with the Staff and Detroit Edison that it has already paid a fine for most of the
days that are the subject of this complaint. See, Consolidated Order, pp. 18-20, where the
Commission fined Detroit Edison $5,000 for each of the 195 days from October 20, 2003 through
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May 2, 2004, that Detroit Edison was not in compliance with the 45-day enrollment requirement
of its RAST. However, the Commission does not agree with Detroit Edison’s argument that
Nordic must prove damages prior to the Commission imposing a fine. The complainants in Case
Nos. U-14025, U-14054, and U-14070 had not proven damages before the Commission imposed a
fine (see, Consolidated Order, pp. 17-20), a fine that Detroit Edison has paid.
Exhibit C-2 shows that of the Nordic accounts documented at the hearing, account number
50312270014 took 210 days for enrollment to be complete from October 24, 2003 until May 21,
2004. For the account information available at the hearing, this was the last account that Detroit
Edison failed to enroll within 45 days. Detroit Edison was only noncompliant for an additional 19
days beyond what was found in the Consolidated Order. Therefore, the Commission will fine
Detroit Edison $95,000, $5,000 for each of the additional 19 days it was in further noncompliance
with its RAST.
The Commission FINDS that:
a. Jurisdiction is pursuant to 1909 PA 106, as amended, MCL 460.551 et seq.; 1919 PA 419,
as amended, MCL 460.51 et seq.; 1939 PA 3, as amended, MCL 460.1 et seq.; 1969 PA 306, as
amended, MCL 24.201 et seq.; and the Commission’s Rules of Practice and Procedure, as
amended, 1999 AC, R 460.17101 et seq.
b. Detroit Edison has violated the RAST and the Commission’s December 20 order, and
should be ordered to: (1) cease and desist from future violations of the RAST, and (2) pay costs,
attorney fees, and fines, as described in this order.
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THEREFORE, IT IS ORDERED that:
A. The Detroit Edison Company shall cease and desist from violating its retail access service
tariff.
B. The Detroit Edison Company shall pay to Nordic Marketing, L.L.C., within 30 days of
issuance of this order, $21,600 for its reasonable costs and attorney fees. Any additional
reasonable attorney fees and costs in the final bill must be paid, within 30 days, unless contested
by The Detroit Edison Company.
C. The Detroit Edison Company shall pay a fine of $95,000 for its violation of its retail access
service tariff and shall deliver to the Commission’s Executive Secretary a cashier’s check for that
amount within 30 days of the issuance of this order.
The Commission reserves jurisdiction and may issue further orders as necessary.
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.
MICHIGAN PUBLIC SERVICE COMMISSION
(SEAL)
/s/ J. Peter Lark
Chairman
By its action of October 18, 2005.
/s/ Laura Chappelle
Commissioner
/s/ Mary Jo Kunkle
Its Executive Secretary
/s/ Monica Martinez
Commissioner
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THEREFORE, IT IS ORDERED that:
A. The Detroit Edison Company shall cease and desist from violating its retail access service
tariff.
B. The Detroit Edison Company shall pay to Nordic Marketing, L.L.C., within 30 days of
issuance of this order, $21,600 for its reasonable costs and attorney fees. Any additional
reasonable attorney fees and costs in the final bill must be paid, within 30 days, unless contested
by The Detroit Edison Company.
C. The Detroit Edison Company shall pay a fine of $95,000 for its violation of its retail access
service tariff and shall deliver to the Commission’s Executive Secretary a cashier’s check for that
amount within 30 days of the issuance of this order.
The Commission reserves jurisdiction and may issue further orders as necessary.
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.
MICHIGAN PUBLIC SERVICE COMMISSION
_______________________________________
Chairman
By its action of October 18, 2005.
________________________________________
Commissioner
_____________________________
Its Executive Secretary
________________________________________
Commissioner
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