Island Wins Round One in Legal Contest With Edison Sault
By Karen Gould

Edison Sault Electric Company may have to return up to $2,520,000 to customers, if the Michigan Public Service Commission (PSC) upholds an administrative law judge's decision in one of two cases the City of Mackinac Island has filed against the company. If the decision is sustained by the PSC, then Edison Sault customers would see a credit on their accounts next fall.

The second case is pending, with a PSC staff recommendations that another $347,704 be returned to Edison Sault customers.

The two lawsuits were sparked by a 16 percent rate hike by the Sault Ste. Marie company, with Mackinac Island City Council contending the increase was an effort to boost corporate profits of Edison Sault's parent company, Wisconsin Energy Corporation of Milwaukee. The Island charged that the rate increase was not necessary.

The potential rate adjustment affects approximately 23,000 customers Edison Sault serves in the Eastern Upper Peninsula. The amount of money that could be credited to each Edison Sault customer depends on how much energy was used.

Michigan Administrative Law Judge Sharon Feldman heard the case in which the City of Mackinac Island contested Edison Sault's proposed 2006 Power Supply Cost Recovery Plan. The recovery plan is a process by which Edison Sault estimates its proposed costs for 2006.

Edison Sault's plan is submitted to the PSC and requires that the company identify power supply sources and estimate expected utility costs for the year.

Legal discussions began one year ago and the documents in the case have been made public.

Also important to Edison Sault's customers and affecting future rate charges was Judge Feldman's agreement with the City of Mackinac Island that Edison Sault should develop a five-year, long-term energy plan. The company has been using a two-year plan.

With energy purchasing contracts between Edison Sault and two other energy companies near expiration, the city contends the longer plan is needed, since future customer rates will be affected. The city has suggested Edison Sault replace the expiring contracts with those from companies operating coal-fired energyproducing plants. Purchasing energy from natural gas, diesel, and nuclear generating power plants would be more expensive and mean a rate increase to Edison Sault customers, the city argues.

Judge Feldman's opinion now will be considered by the PSC, which will make a final determination. The PSC does not have to accept Judge Feldman's recommendations, although if it does not, the PSC would have to validate its reasons, explained Mackinac Island City attorney Tom Evashevski.

Mr. Evashevski worked with attorney Tom Waters of the Lansing law firm of Fraser, Trebilcock, Davis, and Dunlap, who represented the city before the PSC.

Mackinac Island politicians continued to push on with the case after they failed to get the support of the Mackinac County Board of Commissioners and other area municipalities. Only Clark Township offered support by intervening in Edison Sault's 2005 cost reconciliation case with Mackinac Island. The Island is paying the legal fees, which are expected to be approximately $20,000.

Using similar arguments in both cases, the Island charged that Edison Sault did not use available lower cost energy, did not require power be sold to the company at cost, and to prepare for changing energy supplies, long-term planning should be for five years and not two years, as Edison Sault has preferred.

Mackinac Island charges that Edison Sault is not requiring Wisconsin Electric Power Company (WEPCO) to sell its excess electricity at cost, which a joint operating agreement between the two companies states it can do.

Both Edison Sault and WEPCO are subsidiaries of Wisconsin Energy Corporation.

The Island argued that Edison Sault proposed it pay $2,520,000 for its share of Pooled Capacity Resources, then allow WEPCO to take the excess resources and resell them to the multi-state power supply grid, known as the MISO Energy Markets. If WEPCO sold to Edison Sault, it would get approximately $24.48/Mwh. By selling the

excess power to the MISO, it gets approximately $73/Mwh, and makes a $18,536,720 profit. Then, to acquire additional power, Edison Sault must purchase it at a higher market price, which then increases customer rates.The City further charged that in April 2005, Edison Sault voluntarily terminated an agreement with WEPCO, replacing it with a new agreement that would potentially result in higher prices to customers, without first determining if less expensive power was available.

Judge Feldman also found the transactions between Edison Sault and WEPCO were between related companies and not at arms length and should be subject to a heightened degree of scrutiny.

The new joint operating agreement allows the two companies to purchase electricity from third parties, known as Pooled Capacity Resources.

Judge Feldman opined that Edison Sault failed to prove that the $2,520,000 payment for a share of the Pooled Capacity Resources was reasonable and prudent, notably because Edison Sault admitted that it had no right to that power. The judge also agreed with Mackinac Island that Edison Sault should require WEPCO to sell it excess electricity at cost, but only from specific power plants.

After the Judge found that Edison Sault had not proven the costs, which the City challenged were not reasonable and prudent, she said Edison Sault could continue to collect its 2006 rates, but would be required to refund the challenged amounts in its 2006 Power Supply Cost Recovery plan.

This will take place unless Edison Sault offers new proof that the rates were reasonable and prudent. Edison Sault has until March 30, 2007, to file its 2006 Power Supply Cost Recovery Plan with the PSC. Following review by the PSC, adjustments are made approximately six months after the March filing.

The PSC can accept or reject Judge Feldman's decision. The PSC could issue a final decision within eight weeks.

"We thought it was a mixed ruling with no specific allowances, but a warning included," said Lee Baatz, the assistant vice president of rates for Edison Sault.

He said the company expected to file an exception by November 3 and the city will file a response to that, after which Edison Sault had until November 21 to submit a final argument in the matter before it goes to PSC.

The second case, which awaits a determination, is over Edison Sault's 2005 Power

Supply Cost Recovery. Early PSC staff recommendations have supported Island charges and, so far, say Edison Sault's 2005 costs to customers were overstated by $347,704.

In this case, Mackinac Island is arguing that Edison Sault paid $484,618 more for Pooled Capacity Resources than it should have and that charges to Edison Sault customers need to be adjusted. Edison Sault's cost should be $2,112,437, although the company actually paid $2,597,055, argues the Island.

The judge's final opinion on the second case is expected in approximately six weeks.