Michigan Attorney General Mike Cox has objected to the way the Michigan Public Service Commission (MPSC) last week quickly allowed Michigan Consolidated Gas Co. to pass through a large rate hike in gas cost recovery portion of its bills to customers. Cox said the MPSC broke the rules by not allowing concerned parties to comment before the ruling was made.

“The [MPSC] took the extraordinary step of approving a 15% price increase from $5.36 to $6.15/Mcf before parties in the pending case had even finished filing briefs,” Cox said. “The people of Michigan are accustomed to a commission that hears from all sides, rather than one that preemptively raises consumers’ rates.” MichCon requested that the MPSC issue a temporary order approving a revised maximum 2004 gas cost recovery factor (GCR) to avoid a significant underrecovery of gas costs estimated at about $180 million due to significantly higher New York Mercantile Exchange gas futures prices.

The MPSC approved MichCon’s request and also authorized the utility’s plan to increase rates when market prices go up without the customary hearing process. As a result of the order, residential customers can expect to see an increase in monthly gas bills ranging from $8 to $30 and may face futures increases this year. State regulators said they found it reasonable and in the public interest to match market prices to the GCR factor as closely as possible in the interim period. They also said that the utility was granted flexibility to adjust the GCR without a hearing in order to avoid having to file multiple GCR adjustments. To protect ratepayers, the MPSC capped any potential increases at $6.62/Mcf.

“Last year, we filed a rate of $5.36, which is all inclusive of gas costs as well as the transportation to get it here. I’m sure you are aware of where Nymex is today,” said Don Stanczak, director of regulatory affairs at MichCon. “We buy much of our gas based on what Nymex is when we actually close the transaction. We buy some gas ahead of time, but with the spike in prices, the $5.36 was just not going to be enough.

“Every month that went by we were further under collected,” he said. “What we were facing was a significant underrecovery for this plan year and an artificially high GCR factor for next year, so the commission recognized that…

“It’s my belief that the commission can enter a temporary order, which is what this is, as long as there was a hearing,” said Stanczak. “We believe the commission’s action was appropriate, and we believe it will help minimize any underrecovery, and therefore, any artificially high GCR factor for next year, which are all good things.”

Cox, however, said the MPSC’s actions were not in line with standard procedure. “The price increase is connected with a 15-month period, although the applicable statute requires the commission to use 12 months,” he said. “Furthermore, the MPSC went beyond MichCon’s motion and authorized the company to make further price increases without prior hearings. The price adjustment clause approved by the Commission ignores a specific statute addressing how it should review price changes.”

Cox said his office will continue to participate in the case until the commission issues a final order. In the next few weeks, the attorney general also plans on filing a motion for rehearing.

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