Great Wolf Lodge of Traverse City, LLC v. Public Service Commission

Michigan Supreme Court
Lansing, Michigan
Chief Justice: Justices:

Opinion Robert P. Young, Jr. Michael F. Cavanagh
Marilyn Kelly
Stephen J. Markman
Diane M. Hathaway
Mary Beth Kelly
Brian K. Zahra

FILED MAY 9, 2011

STATE OF MICHIGAN

SUPREME COURT

GREAT WOLF LODGE OF TRAVERSE
CITY, LLC,

Plaintiff-Appellee,

v Nos. 139541 and
139542

PUBLIC SERVICE
COMMISSION,

Defendant-Appellant,

and

CHERRYLAND ELECTRIC
COOPERATIVE,

Defendant-Appellee.

GREAT WOLF LODGE OF TRAVERSE
CITY, LLC,

Plaintiff-Appellee,

v Nos. 139544 and
139545
PUBLIC SERVICE COMMISSION,

Defendant-Appellee,

and

CHERRYLAND ELECTRIC
COOPERATIVE,

Defendant-Appellant.

BEFORE THE ENTIRE BENCH
MARILYN KELLY, J.

This case requires us to resolve three issues. First, whether a utility’s right of first

entitlement to provide electrical service to “the entire electric load on the premises” of a

“customer” ceases when the “customer” on the property changes.1 Second, whether the

Public Service Commission (PSC) is required to impose interest on a refund it awards

when it determines that a utility has overcharged a consumer. Third, whether the PSC is

required to impose a fine whenever a utility “neglects” to comply with one of its orders.2

We conclude that a utility’s right of first entitlement set forth in Rule 460.3411

(Rule 411) of the Michigan Administrative Code extends to the entire premises initially

served. And the right is not extinguished when a customer is no longer present on the

premises. We also conclude that the PSC is not required to impose interest on a refund it

awards to an overcharged utility consumer. Finally, we hold that the PSC is required to

impose a fine pursuant to MCL 460.558 only when a utility “wilfully or knowingly”

1
Mich Admin Code, R 460.3411(11).
2
MCL 460.558.

2
neglects to comply with a PSC order. Therefore, we reverse the judgment of the Court of

Appeals and reinstate the decision of the PSC.

FACTS AND PROCEDURAL HISTORY

Plaintiff, Great Wolf Lodge of Traverse City, LLC, owns a water-park resort on 48

acres near Traverse City. The resort sits on part of a 120-acre parcel once farmed by the

Oleson family. On July 14, 2000, plaintiff entered into an option agreement to buy a

portion of the property from GDO Investments (GDO), which acquired it after Mr.

Oleson’s death.

Defendant Cherryland Electric Cooperative claims that it provided electricity to

the Oleson property beginning in the 1940s. Cherryland ran an electric line, known as a

“service drop,” to the property. At one time or another over the years, Cherryland,

Consumers Energy Company, and Traverse City Light & Power (TCLP) serviced farm

buildings on the property.

After the last farming tenant vacated the premises in September 2001, the

electricity was turned off. However, according to a GDO employee, GDO continued to

pay a minimum monthly bill from Cherryland so that it had the option to have the

electricity turned back on.

Later, when plaintiff was planning new construction on the property, it solicited

bids for electric service from Cherryland, Consumers Energy, and TCLP. At that time,

Cherryland did not claim that it had the sole right to provide electric service to the

property. TCLP was the winning bidder, and in December 2001, plaintiff contracted with

TCLP to provide electricity to its planned resort.

3
 By January 2002, the farm buildings were scheduled to be demolished. GDO

asked Cherryland to remove its service line so that the building it was attached to could

be taken down. But Cherryland made it a condition for removing the service drop that it

would be the electricity provider. Plaintiff claims that it agreed in order to keep the

project on schedule. Thus, plaintiff asserts, Cherryland coerced it to rescind its contract

with TCLP and contract with Cherryland to avoid construction delays, loss of revenue, or

litigation.3

In May 2002, plaintiff entered into a three-year contract for electrical service with

Cherryland. Under the contract’s terms, Cherryland charged plaintiff $0.0496 a kilowatt-

hour. This was the large resort service (LRS) rate set by the PSC. In February 2003,

Cherryland applied to the PSC for formal approval to charge plaintiff the LRS rate.

This rate is available to consumers with a load factor greater than 50 percent and

at least a 1500-kilowatt load. The application Cherryland signed recited these conditions.

It also stated that, if plaintiff did not meet them, a different rate would apply. Shortly

thereafter, in March 2003, plaintiff and Cherryland replaced their May 2002 contract with

another that expressly provided for service at the LRS rate.

In July 2004, the PSC rejected Cherryland’s application. It expressed concern that

plaintiff was the only customer that Cherryland charged the LRS rate and questioned

whether plaintiff’s electrical needs were typical for a large resort. The PSC directed

Cherryland to apply instead for a “special contract” to serve plaintiff. It also concluded

3
TCLP later sued Cherryland for tortious interference with a contract and recovered
$275,000. Plaintiff was not a party to that litigation.

4
that Cherryland had violated MCL 600.552 by implementing the LRS rate without PSC

approval and fined Cherryland $10,000 pursuant to MCL 460.558. However, the PSC

approved the LRS rate “for up to one year or until a special contract is approved.”4

Plaintiff and Cherryland attempted to negotiate a special contract but were unable

to reach an agreement. In August 2004, Cherryland filed an application with the PSC for

approval of a special contract with plaintiff. The contract had not yet been agreed to, but

Cherryland indicated that plaintiff was reviewing it. However, plaintiff intervened before

the PSC and expressed concerns about the proposed special contract. According to

plaintiff, it imposed unconscionable late charges and required plaintiff to forever bind

itself to Cherryland. The PSC dismissed Cherryland’s application in October 2004,

indicating that it could be refiled once the parties reached an agreement. It also indicated

that the parties could petition the PSC to resolve any disputes to the extent that the PSC

had jurisdiction to hear those disputes.

In November 2004, Cherryland began unilaterally charging plaintiff for electricity

at the large commercial and industrial (LCI) rate. Cherryland claimed that it made the

change because plaintiff almost never used enough electricity to satisfy the minimum

requirements of the LRS rate. Therefore, Cherryland feared that the PSC would again

fine it for charging an improper rate.

In July 2005, plaintiff filed a two-count complaint against Cherryland in the PSC.

Count I alleged that Cherryland had violated MCL 460.552 and the PSC’s 2004 order by

4
In re Application of Cherryland Electric Coop, order of the Public Service Commission,
entered July 22, 2004 (Case No. U-13716), p 8.

5
charging plaintiff the LCI rate rather than the LRS rate. Plaintiff sought a refund of the

amounts that it had paid in excess of the LRS rate. Finally, plaintiff asked that the PSC

fine Cherryland for violating its order and require Cherryland to stop charging plaintiff

the LCI rate and return to the LRS rate. In count II, plaintiff asked the PSC to declare

that plaintiff could receive all components of its electrical service from any provider of its

choosing. Plaintiff also asked the PSC to order Cherryland to transfer its distribution

facilities to any new provider chosen by plaintiff and to remove any unnecessary facilities

on its property.

Cherryland moved for summary disposition. A hearing referee ruled for plaintiff

on count I and for Cherryland on count II. The referee concluded that Cherryland’s

conduct was a “purposeful and flagrant violation” of the PSC’s 2004 order. He

determined that plaintiff was entitled to a refund of $72,550.16 plus interest and

recommended that Cherryland be fined $44,250. Regarding count II, he agreed that

plaintiff could choose its electric supplier, but added that no authority permitted plaintiff

a full choice of providers for all components of its electric service.

The PSC agreed that plaintiff was entitled to summary disposition on count I and

with the amount of the refund to which it was entitled. However, the PSC declined to

impose a fine or interest on Cherryland. Although the PSC concluded that Cherryland

“should have sought clarification” of its 2004 order, it stated that “Cherryland’s

interpretation of the July 22 order was not so clearly unreasonable as to justify the

6
imposition of a fine or interest on the refund to [plaintiff].”5 Finally, the PSC agreed with

the hearing referee that count II should be dismissed.

The circuit court affirmed the PSC’s order in large part. It concluded that plaintiff

was an existing customer of Cherryland under Rule 411 because the property (the Oleson

farm) was the customer, not the entity that owned the property. Therefore, Cherryland

had the right to continue providing electric service to the property. However, the circuit

court reversed the decision not to impose a fine and interest on Cherryland. It ruled that

the language of the PSC’s 2004 order was clear and unambiguous and concluded,

contrary to the PSC, that Cherryland’s misinterpretation of the order was clearly

unreasonable.

Plaintiff and the PSC both appealed. The Court of Appeals consolidated the

appeals and, in a published opinion, affirmed in part, reversed in part, and remanded to

the PSC for further proceedings.6 The Court of Appeals affirmed the circuit court’s

ruling that the PSC was required to impose a fine and interest on Cherryland. However,

the Court of Appeals concluded that plaintiff was free to choose its electric distributor if

there was no customer governed by the restrictions of Rule 411. It held that the plain

language of Rule 411(1)(a) defined “customer” as the “buildings and facilities served” by

an electricity provider. The panel reasoned as follows:

5
In re Complaint of Great Wolf Lodge of Traverse City, LLC, Against Cherryland
Electric Coop, order of the Public Service Commission, entered May 25, 2006 (Case No.
U-14593), p 15.
6
Great Wolf Lodge of Traverse City, LLC v Pub Serv Comm, 285 Mich App 26; 775
NW2d 597 (2009).

7
 If the changes in buildings and facilities and interruption of service
came about in reasonable proximity to and for the purpose of a change in
ownership and plan for the site, . . . those changes and that interruption did
not create a new customer. If, however, the previous owner held on to the
site for a significant period after all land uses requiring electricity had been
abandoned, requested that electric service be terminated, and demolished
buildings or removed facilities, or at least allowed them to stand without
electricity, for reasons other than anticipation of an immediate change of
ownership or land use, then those actions should be deemed to have
extinguished the previously existing customer or customers on the site, thus
severing the utility-customer relationship.[7]

The panel concluded that the record was insufficient to determine whether there

was an existing customer and remanded the case to the PSC for further factual

development, findings, and conclusions. It also directed the PSC to consider whether a

“customer[]” was “already receiving service” pursuant to MCL 124.3 when plaintiff

acquired the property. If so, MCL 124.3(2) would prohibit TCLP, a municipal electricity

provider not regulated by the PSC and not subject to Rule 411, from contracting with

plaintiff to provide electric service.8

Cherryland and the PSC appealed in this Court. We granted the parties’

applications for leave to appeal.9

7
Id. at 40.
8
MCL 124.3(2) provides that “[a] municipal corporation shall not render electric delivery
service for heat, power, or light to customers outside its corporate limits already receiving
the service from another utility unless the serving utility consents in writing.”
9
Great Wolf Lodge of Traverse City, LLC v Pub Serv Comm, 486 Mich 869 (2010).

8
 STANDARD OF REVIEW

A court reviewing an administrative agency’s interpretation of a statute should

give the agency’s interpretation “respectful consideration” and, if it is persuasive, should

not overrule it without “cogent reasons.”10 We have held that “[i]n construing

administrative rules, courts apply principles of statutory construction.”11 All rates, fares,

charges, classification and joint rates, regulations, practices, and services prescribed by

the PSC are presumed, prima facie, to be lawful and reasonable.12 A final order of the

PSC must be authorized by law and, if a hearing is required, supported by competent,

material, and substantial evidence on the whole record.13 A party aggrieved by a PSC

order must show by clear and satisfactory evidence that the PSC’s order is unlawful or

unreasonable.14

CHERRYLAND’S RIGHT OF FIRST ENTITLEMENT UNDER RULE 411(11)

The PSC adopted Rule 411 in 1982 as part of a comprehensive regulatory scheme

for electric utilities. At that time, it stated that the purpose of Rule 411 was “to avoid

10
In re Complaint of Rovas Against SBC Mich, 482 Mich 90, 108; 754 NW2d 259
(2008).
11
Detroit Base Coalition for Human Rights of the Handicapped v Dep’t of Social Servs,
431 Mich 172, 185; 428 NW2d 335 (1988), citing Gen Motors Corp v Bureau of Safety &
Regulation, 133 Mich App 284; 349 NW2d 157 (1984).
12
MCL 462.25; see also Mich Consol Gas Co v Pub Serv Comm, 389 Mich 624, 635-
636; 209 NW2d 210 (1973).
13
Const 1963, art 6, § 28.
14
MCL 462.26(8).

9
unnecessary and costly duplication of facilities and to provide objective standards for

extension of electric service . . . .”15

The PSC argues that its decisions interpreting Rule 411 clearly establish that “once

a first utility entitlement is established, a subsequent change in ownership does not create

a new prospective customer on the old premises.”16 In effect, the PSC’s interpretation of

Rule 411(11) gives the first-serving utility a right in perpetuity to serve the property on

which a customer is located.

Rule 411(11) provides that “[t]he first utility serving a customer pursuant to these

rules is entitled to serve the entire electric load on the premises of that customer even if

another utility is closer to a portion of the customer’s load.”17 Rule 411(1)(a) defines

“customer” as “the buildings and facilities served rather than the individual, association,

partnership, or corporation served.”18 Rule 102(f) defines “premises” as “an undivided

piece of land which is not separated by public roads, streets, or alleys.”19

When those definitions are incorporated into Rule 411(11), it reads as follows:

The first utility serving [buildings and facilities] pursuant to these
rules is entitled to serve the entire electric load on the [undivided piece of
land which is not separated by public roads, streets, or alleys] of [those

15
In re Regulations Governing Service Supplied by Electric Utilities, order of the Public
Service Commission, entered July 13, 1982 (Case No. U-6400), p 10.
16
In re Complaint of Indiana Mich Power Co Against Midwest Energy Co, order of the
Public Service Commission, entered June 7, 2005 (Case No. U-14193), p 19.
17
Mich Admin Code, R 460.3411(11).
18
Mich Admin Code, R 460.3411(1)(a).
19
Mich Admin Code, R 460.3102(f).

10
 buildings and facilities] even if another utility is closer to a portion of the
[buildings and facilities’] load.

Thus, Rule 411(11) grants the utility first serving buildings or facilities on an undivided

piece of real property the right to serve the entire electric load on that property. The right

attaches at the moment the first utility serves “a customer” and applies to the entire

“premises” on which those buildings and facilities sit. The later destruction of all

buildings on the property or division of the property by a public road, street, or alley does

not extinguish or otherwise limit the right. This conclusion is consistent with the rule’s

purpose of avoiding unnecessary duplication of electrical facilities.20

Plaintiff argues that this right of first entitlement lasts only as long as an “existing

customer” is being served. We disagree. If Rule 411(11) were intended to be read as

plaintiff argues, it could simply have stated that “[t]he first utility serving a customer

pursuant to these rules is entitled to serve the entire electric load of that customer.”

However, Rule 411(11) explicitly ties the right of entitlement to the premises, not to the

customer. Notably, nothing in Rule 411 or elsewhere in the PSC rules indicates that this

20
The dissent’s citation of Rule 411(14) does not aid its argument. First, the purpose
behind Rule 411(11) does not “influence [our] interpretation” of the rule. Post at 11 n 2.
We simply observe that our interpretation of the rule’s language is also consistent with
that purpose. Rule 411(14) does nothing to undercut our interpretation.

Second, Rule 411(14) is an irrelevant distraction from the issue presented in this
case. Both this opinion and the dissent decide this case on the basis of our interpretation
of the language in Rule 411(11). The dissent does not even attempt to argue that Rule
411(14) provides any additional support for its interpretation.

11
right of first entitlement terminates if the initial customer, the initial “buildings and

facilities served,” changes.21

For this reason, contrary to the dissent’s contention, our reading of the rule does

not redefine “customer” as “premises.” Both this opinion and the dissent give the same

effect to the word “customer” in Rule 411(11). We agree that to trigger the right of first

entitlement, there must first be a “customer” served by the utility. We further agree that

the “premises of that customer” dictate the scope of the utility’s right.22

Plaintiff argues that Rule 411(2) undercuts our interpretation because it refers to

“existing customers.” However, Rule 411(2) states simply that “[e]xisting customers

shall not transfer from one utility to another.”23 Hence, it establishes nothing more than

that existing “buildings and facilities” cannot transfer from one utility to another. It does

21
Thus, the dissent’s statement that “if there are no buildings or facilities being served,
there is no ‘customer,’” post at 8, is correct, but irrelevant.
22
Our disagreement with the dissent appears when the scope of this right is fully defined.
The dissent does not view the parameters of the right of first entitlement in Rule 411(11)
as firmly established when the utility first serves a customer. Instead, it is an undefined
right that a property owner is free to vitiate at any time by tearing down all of the
“customers” on the property. Similarly, a later-constructed road dividing the property in
two would create a new “premises,” hence a new “customer,” if there were no buildings
being served on the newly defined “premises.” This approach leaves the utility’s right of
first entitlement undefined, wholly outside the control of the utility and the PSC, and
subject to unilateral abrogation by property owners. This result would be contrary to the
purpose of keeping “[t]he electric transmission and distribution businesses . . . under a
regulated monopoly utility structure.” See Public Service Commission, The Commission
had its historic beginnings over 130 years ago (accessed May 9, 2011) (describing the history of the
PSC).
23
Mich Admin Code, R 460.3411(2).

12
not advance plaintiff’s argument that eliminating a customer cuts off the right in Rule

411(11) to serve the “entire electric load on the premises” of the initial customer.

In this case, is it undisputed that Cherryland was the first utility to provide electric

service to buildings and facilities on the Oleson farm. Once Cherryland did so, Rule

411(11) gave it the right to serve the entire electric load on the premises. That right was

unaffected by subsequent changes in the “customer,” because the right extends to the

“premises” of the “buildings and facilities” that existed at the time service was

established. Later destruction of the buildings and facilities on the property did not

extinguish that right.24

Given that Cherryland is entitled to the benefit of the first entitlement in Rule

411(11), it is irrelevant that TCLP is a municipal corporation not subject to PSC

regulation. Rule 411(11) both grants and limits rights. It grants a right of first

entitlement to Cherryland while limiting the right of the owner of the premises to contract

with another provider for electric service. Plaintiff put that limitation directly at issue by

seeking a declaratory ruling that it is free to contract for electric service with any

electricity provider. Assuming arguendo that MCL 124.3 does not restrict TCLP from

contracting with plaintiff to provide electric service, Rule 411(11) restricts plaintiff from

seeking that service from any entity other than Cherryland. Plaintiff may not circumvent

the limitation of Rule 411(11) by attempting to receive service from a municipal

24
We note that a utility may waive this right “if another utility is willing and able to
provide the required service and if the [PSC] is notified and has no objections.” Mich
Admin Code, R 460.3411(12).

13
corporation not subject to PSC regulation. Thus, MCL 124.3 has no application to the

instant dispute.

In sum, the PSC’s determination that Cherryland had the right to serve the entire

premises was authorized by law and supported by competent, material, and substantial

evidence. Plaintiff has failed to demonstrate that the PSC’s May 2006 order was

unlawful or unreasonable.

THE PSC IS NOT REQUIRED TO IMPOSE INTEREST ON A REFUND

The PSC’s authority to award interest in addition to a refund under these

circumstances is not explicitly authorized by statute. Rather, it has its genesis in the

Court of Appeals’ decision in Detroit Edison Co v Pub Serv Comm.25 In that case, the

Court of Appeals held that the PSC’s authority to award interest derives from MCL

460.6(1). MCL 460.6(1) vests the PSC with the power and jurisdiction, among other

things, to “regulate all rates, fares, fees, charges, services, rules, conditions of service,

and all other matters pertaining to the formation, operation, or direction of public

utilities.” Because “[t]he selected rate of interest has a direct impact on the fees and

charges that a utility’s customers ultimately pay for service,”26 the Court of Appeals

concluded that the PSC had authority to determine the amount of interest to award.

However, plaintiff has cited no authority for the proposition that the PSC must

award interest when it grants a refund in these circumstances.27 Rather, Detroit Edison

25
Detroit Edison Co v Pub Serv Comm, 155 Mich App 461; 400 NW2d 644 (1986).
26
Id. at 469.
27
Significantly, the Legislature has made interest awards mandatory under other
circumstances involving the PSC. See, e.g., MCL 460.6j(16) (stating that if the PSC

14
makes clear that the PSC has broad discretion when determining the amount of interest to

award.28 Therefore, plaintiff cannot demonstrate that the PSC’s decision not to impose

interest on the refund in this case was unlawful.

Nor has plaintiff demonstrated that the PSC’s failure to award interest was

“unreasonable.” We have defined “unreasonable” as “arbitrary, capricious or totally

unsupported by admissible and admitted evidence.”29 The PSC declined to impose

interest on the refund to plaintiff because it concluded that Cherryland reasonably

misconstrued its July 2004 order. This conclusion was not arbitrary or capricious

because evidence on the record supported the PSC’s conclusion that Cherryland’s

interpretation of the order was not clearly unreasonable.

Cherryland’s application for approval of the LRS rate noted that the rate is

available only to customers with a load factor greater than 50 percent and at least a 1500-

kilowatt load. Plaintiff met these requirements only in August 2003 and July 2005.

Moreover, the PSC had previously fined Cherryland for charging plaintiff an unapproved

orders “refunds or credits” to customers in orders involving “a power supply cost
reconciliation,” the refunds, credits, or additional charges “shall include interest”)
(emphasis added).
28
Detroit Edison, 155 Mich App at 470-471 (“[T]here is no reason why the interest
element of the guarantee needs or ought to be determined by the circuit court as part of its
equitable powers. The circuit court’s equitable powers arise from situations where there
is probable cause to believe that a party is threatened with irreparable injury. . . . The
method of establishing an interest rate simply does not present a situation of a
comparable nature. Moreover, this complex subject is one in which the Commission has
superior expertise.”).
29
Associated Truck Lines, Inc v Pub Serv Comm, 377 Mich 259, 279; 140 NW2d 515
(1966).

15
rate. Taken together, this evidence supported the PSC’s determination. It was not clearly

unreasonable for Cherryland to change the rate charged to plaintiff because plaintiff had

not complied with the load requirements for the LRS rate.

MCL 460.558 REQUIRES THAT A FINE BE IMPOSED WHEN A UTILITY FAILS
OR NEGLECTS TO COMPLY “WILFULLY OR KNOWINGLY”

MCL 460.558 states:

Every corporation, its officers, agents and employes, and all persons
and firms engaged in the business of furnishing electricity as aforesaid shall
obey and comply with every lawful order made by the commission under
the authority of this act so long as the same shall remain in force. Any
corporation or person engaged in such business or any officer, agent, or
employe thereof, who wilfully or knowingly fails or neglects to obey or
comply with such order or any provision of this act shall forfeit to the state
of Michigan not to exceed the sum of 300 dollars for each offense. Every
distinct violation of any such order or of this act, shall be a separate
offense, and in case of a continued violation, each day shall be deemed a
separate offense. An action to recover such forfeiture may be brought in
any court of competent jurisdiction in this state in the name of the people of
the state of Michigan, and all moneys recovered in any such action,
together with the costs thereof, shall be paid into the state treasury to the
credit of the general fund.[30]

The Court of Appeals reasoned that MCL 460.558 does not apply solely in cases

of “wilful or knowing failure to comply with a lawful PSC order; it also applies in the

event of negligent noncompliance.”31 We disagree. Under the Court of Appeals’

construction, MCL 460.558 would require that a fine be imposed any time a utility or its

agent fails to comply with a PSC order. If that construction were what the Legislature

intended in enacting MCL 460.558, there would have been no need to include the

30
Emphasis added.
31
Great Wolf Lodge, 285 Mich App at 47.

16
modifiers “wilfully or knowingly.” Rather, the Legislature could simply have mandated

a fine in cases in which a party “fails or neglects” to obey a PSC order.

“Wilfully” and “knowingly” are adverbs, which generally modify verbs. The most

natural reading of MCL 460.558 is that these terms are intended to modify both verbs

immediately following them and separated by the disjunctive “or.”32

The record here indicates that the PSC determined that Cherryland made a mistake

by unilaterally imposing the LCI rate. The PSC concluded that Cherryland should

instead have sought clarification of its July 2004 order. It was not unlawful or

unreasonable to conclude that Cherryland did not willfully or knowingly fail or willfully

or knowingly neglect to obey or comply with the PSC’s July 2004 order. Hence, MCL

460.558 did not require the PSC to impose a fine on Cherryland.

CONCLUSION

We hold that a utility’s right of first entitlement under Mich Admin Code, R

460.3411(11) entails the right to serve the entire premises. That right is not extinguished

when there is a new customer, i.e., new “buildings and facilities served,” on the premises.

We also hold that, absent a statutory mandate to do so, the PSC need not impose interest

when it awards a refund to a party. Finally, we hold that the PSC is required to impose a

fine pursuant to MCL 460.558 only when a utility willfully or knowingly neglects to

32
See generally Porto Rico Railway, Light & Power Co v Mor, 253 US 345, 348; 40 S Ct
516; 64 L Ed 944 (1920) (“When several words are followed by a clause which is
applicable as much to the first and other words as to the last, the natural construction of
the language demands that the clause be read as applicable to all.”).

17
comply with its order. Therefore, we reverse the judgment of the Court of Appeals and

reinstate the decision of the PSC.

Marilyn Kelly
Robert P. Young, Jr.
Michael F. Cavanagh
Mary Beth Kelly

18
 STATE OF MICHIGAN

SUPREME COURT

GREAT WOLF LODGE OF TRAVERSE
CITY, LLC,

Plaintiff-Appellee,

v Nos. 139541 and
139542

PUBLIC SERVICE
COMMISSION,

Defendant-Appellant,

and

CHERRYLAND ELECTRIC
COOPERATIVE,

Defendant-Appellee.

GREAT WOLF LODGE OF TRAVERSE
CITY, LLC,

Plaintiff-Appellee,

v Nos. 139544 and
139545

PUBLIC SERVICE COMMISSION,

Defendant-Appellee,

and

CHERRYLAND ELECTRIC
COOPERATIVE,

Defendant-Appellant.
MARKMAN, J. (concurring in part and dissenting in part).

Although I concur in the majority’s holdings that the Public Service Commission

(PSC) was not required to include interest on the refund it ordered Cherryland Electric

Cooperative to pay and that the PSC was not required to impose a fine on Cherryland, I

respectfully dissent from the majority’s holding that the right of Cherryland to provide

electrical service to the property at issue was not extinguished when all the buildings on

the property were demolished. Instead, I conclude that, pursuant to Mich Admin Code, R

460.3411 (Rule 411), once all the buildings on the subject property had been demolished,

Cherryland no longer had any “customer” on the property, and, thus, its “entitle[ment] to

serve the entire electric load on the premises of that customer” was extinguished.

Accordingly, I would reverse the Court of Appeals’ judgment regarding the imposition of

interest and a fine, vacate the remainder of the Court of Appeals’ decision, and remand to

the trial court for it to address the argument of Great Wolf Lodge of Traverse City, LLC,

that it should not now be considered a Cherryland “customer,” even though Cherryland is

currently serving Great Wolf Lodge, because Cherryland had coerced Great Wolf Lodge

into becoming its “customer.”

I. STANDARD OF REVIEW

MCL 462.26(8) provides, “In all appeals under this section the burden of proof

shall be upon the appellant to show by clear and satisfactory evidence that the order of

the commission complained of is unlawful or unreasonable.” To declare a PSC order

unlawful, “‘there must be a showing that the commission failed to follow some

mandatory provision of the statute or was guilty of an abuse of discretion in the exercise

of its judgment.’” In re MCI Telecom Complaint, 460 Mich 396, 427; 596 NW2d 164

2
(1999), quoting Giaras v Mich Pub Serv Comm, 301 Mich 262, 269; 3 NW2d 268 (1942).

“The hurdle of unreasonableness is equally high. Within the confines of its jurisdiction,

there is a broad range or ‘zone’ of reasonableness within which the [PSC] may operate.”

In re MCI Telecom Complaint, 460 Mich at 427, citing Mich Bell Tel Co v Pub Serv

Comm, 332 Mich 7, 26-27; 50 NW2d 826 (1952). In addition,

[w]hen considering an agency’s statutory construction, the primary
question presented is whether the interpretation is consistent with or
contrary to the plain language of the statute. While a court must consider
an agency’s interpretation, the court’s ultimate concern is a proper
construction of the plain language of the statute.

. . . As established in [Boyer-Campbell Co v Fry, 271 Mich 282; 260
NW 165 (1935)], the agency’s interpretation is entitled to respectful
consideration and, if persuasive, should not be overruled without cogent
reasons. . . . But, in the end, the agency’s interpretation cannot conflict
with the plain meaning of the statute. [In re Complaint of Rovas Against
SBC Mich, 482 Mich 90, 108; 754 NW2d 259 (2008).]
“In construing administrative rules, courts apply principles of statutory construction.”

Detroit Base Coalition for the Human Rights of the Handicapped v Dep’t of Social Servs,

431 Mich 172, 185; 428 NW2d 335 (1988).

II. ANALYSIS

A. RIGHT TO SERVE

Rule 411(2) states that “[e]xisting customers shall not transfer from one utility to

another.” Mich Admin Code, R 460.3411(2). Rule 411(11) provides that the “first utility

serving a customer pursuant to these rules is entitled to serve the entire electric load on

the premises of that customer even if another utility is closer to a portion of the

customer’s load.” Mich Admin Code, R 460.3411(11). Rule 411(1)(a) defines

“customer” as “the buildings and facilities served rather than the individual, association,

3
partnership, or corporation served.” Mich Admin Code, R 460.3411(1)(a). And Mich

Admin Code, R 460.3102(j) defines “premises” as “an undivided piece of land that is not

separated by public roads, streets, or alleys.”

In In re Complaint of Consumers Energy Co, 255 Mich App 496; 660 NW2d 785

(2003), the subject property was purchased by Meijer, Inc., in August 1999. Consumers

Energy Company provided electric service to the property from the 1940s until

November 1999, when all the buildings on the property were demolished so that Meijer

could build a store and gas station. After Great Lakes Energy Cooperative began

providing Meijer with electric service, Consumers filed a formal complaint against Great

Lakes, alleging that the latter had violated Rule 411. Consumers argued that because it

had continuously served the property and had never relinquished or abandoned its

entitlement to do so, it was the “first utility” with respect to the property and, thus, was

entitled to serve the entire electric load on the premises. The PSC rejected this argument

and held that Meijer was not an “existing customer” of Consumers and, thus, was not

obligated to receive its electric service from Consumers. However, the Court of Appeals

reversed the PSC and held that Meijer was, in fact, an “existing customer” and, thus, that

“Consumers [was] entitled to serve the entire electric load on Meijer’s property.” Id. at

504.

The Court of Appeals reached this conclusion by focusing on the fact that “a mere

change in ownership does not allow the customer to transfer to another utility,” id. at 503,

because the “customer” is not “the individual, association, partnership, or corporation

taking service,” id. at 502, citing Rule 411(1)(a). The problem with the Court of

Appeals’ opinion in Consumers Energy, however, is that, although it correctly recognized

4
that the “customer” is not “the individual, association, partnership, or corporation

served,” it failed to recognize that the “customer” is also not the property being served.

Mich Admin Code, R 460.3411(1)(a). Instead, the “customer” consists of the “buildings

and facilities served.” Id. Therefore, when all the buildings on a piece of property have

been demolished, the utility no longer has an “existing customer” on the property to

serve. That is, although a change in ownership does not by itself enable the new owner to

transfer to another utility, the destruction of all the buildings on a piece of property does

enable the new owner to do so, because that destruction is the equivalent of the

destruction of all the “existing customers.” And there are no rules or statutes that require

a new “customer” to use the same electrical provider as the former “customer”; instead,

the regulatory scheme provides merely that the same “customer,” as defined by the

“buildings and facilities served,” must use the same electrical provider. Therefore, I

believe the PSC correctly ruled in Consumers Energy that Consumers was not entitled to

serve Meijer’s new store and gas station, and that the Court of Appeals erred by reversing

that decision.

The Court of Appeals in the instant case, being bound by Consumers Energy but

apparently unconvinced by its analysis, sought to distinguish the two cases. It did this by

focusing on language in Consumers Energy, 255 Mich App at 503, that emphasized that

“the discontinuation of service was directly related to the change in ownership . . . .” It

interpreted this language as “leav[ing] open the possibility that a discontinuation of

service, and demolition of buildings coming about for reasons other than direct

furtherance of a plan to change ownership or land uses, can indeed extinguish an existing

5
customer.” Great Wolf Lodge of Traverse City, LLC v Pub Serv Comm, 285 Mich App

26, 38; 775 NW2d 597 (2009). That is, it interpreted Consumers Energy

as indicating that where service to buildings or facilities is interrupted, or
buildings are demolished or facilities are removed, in direct connection
with a change of ownership or land use, neither the service interruption nor
the replacement of old buildings and facilities with new ones creates a new
customer. To avoid interpreting that case, or the definition of “existing
customer,” as locking an incumbent utility into that status for a given parcel
in perpetuity if it so chooses, with no regard for periods of interruption in
service or elimination of buildings and facilities, it is necessary to recognize
that some such interruption or elimination would indeed work an end to the
utility-customer relationship. [Id. at 39-40.]
Accordingly, it held that

[i]f the changes in buildings and facilities and interruption of service came
about in reasonable proximity to and for the purpose of a change in
ownership and plan for the site, then under [Consumers Energy], those
changes and that interruption did not create a new customer. If, however,
the previous owner held on to the site for a significant period after all land
uses requiring electricity had been abandoned, requested that electric
service be terminated, and demolished buildings or removed facilities, or at
least allowed them to stand without electricity, for reasons other than
anticipation of an immediate change of ownership or land use, then those
actions should be deemed to have extinguished the previously existing
customer or customers on the site, thus severing the utility-customer
relationship. [Id. at 40.][1]

1
Because the Court of Appeals could not determine from the record whether the
discontinuation of service was directly related to the change in ownership, it remanded
this case to the PSC “for full factual development, findings, and conclusions in this
regard.” Great Wolf Lodge, 285 Mich App at 41. It also

vacate[d] the [PSC’s] holding, and the circuit court’s affirmance, that
Cherryland is entitled to continue serving Great Wolf [Lodge]; clarif[ied]
that for purposes of Rule 411, “customer” means buildings and facilities,
not the land on which they once stood; [and] declare[d] that a significant
interruption of service to buildings or facilities can extinguish the existence
of an existing customer in some situations[.] [Id.]

6
The problem, of course, is that this distinction is nowhere to be found or implied in Rule

411. In my judgment, the Court of Appeals here was attempting to effect a compromise

between the actual language of Rule 411 and Consumers Energy. The Court of Appeals

apparently recognized that Rule 411 defines “customer” as “the buildings and facilities

served,” rather than the parcel of land served. As it explained:

If Rule 411(1)(a) calls for carefully distinguishing between
individuals, associations, partnerships, or corporations taking service from
the buildings and facilities served, with only the latter two constituting a
“customer,” it also demands distinguishing buildings and facilities served
from the parcels served. The rule providing the definition could easily have
stated that the customer was the parcel, but instead specified buildings and
facilities. It follows, then, that where there are no buildings or facilities
being served, there is no customer. [Great Wolf Lodge, 285 Mich App at
39.]
However, the Court of Appeals was nevertheless bound to follow Consumers Energy,

which held that “for purposes of Rule 411, a change of ownership and demolition of all

buildings served did not create a new customer.” Id. at 38. As a result, the Court of

Appeals attempted to reconcile Rule 411 and Consumers Energy by holding that

sometimes, as in Consumers Energy, a change of ownership and demolition of all

buildings served does not create a new “customer,” while sometimes, as perhaps in the

instant case, a change of ownership and demolition of all buildings served does create a

new “customer.” Because this Court is not bound to follow Consumers Energy, I would

hold that Consumers Energy was wrongly decided because it is inconsistent with Rule

411, which defines “customer” as “the buildings and facilities served” rather than the

parcel of land served.

7
 I agree with the Court of Appeals that the “customer” consists of “the buildings

and facilities served”; the “customer” for purposes of the present dispute is neither the

owner of the property nor the parcel of land. Therefore, “where there are no buildings or

facilities being served, there is no customer.” Great Wolf Lodge, 285 Mich App at 39.

However, I do not believe that it matters whether the “changes in buildings and facilities

and interruption of service came about in reasonable proximity to and for the purpose of a

change in ownership . . . .” Id. at 40. Instead, I believe that if there are no buildings or

facilities being served, there is no “customer,” regardless of why there are no buildings or

facilities being served or when this came about. In Consumers Energy, once all the

buildings on the property had been demolished, Consumers no longer had any

“customers” on the property and therefore was no longer entitled, under Rule 411, to

serve Meijer’s newly constructed store and gas station.

The same is true here. Once all the buildings on the property had been

demolished, Cherryland no longer had any “customers” on the property and, therefore,

was not entitled to serve Great Wolf Lodge’s newly constructed water-park resort. Rule

411(2) provides, “Existing customers shall not transfer from one utility to another.”

Mich Admin Code, R 460.3411(2). Because Rule 411(1)(a) defines “customer” to mean

“the buildings . . . served,” Mich Admin Code, R 460.3411(1)(a), it communicates by

extrapolation that “[e]xisting [buildings served] shall not transfer from one utility to

another.” In this case, once all the buildings had been demolished, Cherryland no longer

had any “existing customer” on the property that was prohibited from transferring from

one utility to another.

8
 In addition, Rule 411(11) provides, “The first utility serving a customer pursuant

to these rules is entitled to serve the entire electric load on the premises of that

customer . . . .” Mich Admin Code, R 460.3411(11). Because Mich Admin Code, R

460.3411(1)(a) defines “customer” to mean “the buildings . . . served,” and Mich Admin

Code, R 460.3102(j) defines “premises” to mean “an undivided piece of land that is not

separated by public roads, streets, or alleys,” Rule 411(11) by extrapolation

communicates, “The first utility serving a [building] pursuant to these rules is entitled to

serve the entire electric load on the [undivided piece of land] of that [building] . . . .” In

this case, once all the buildings on the property had been demolished, there was no

“utility serving a building,” and, therefore, no utility, including Cherryland, was “entitled

to serve the entire electric load on the undivided piece of land of that [nonexisting]

building.” And the new “customer,” i.e., Great Wolf Lodge’s newly constructed water-

park resort, was not obligated under any provision of law to obtain its electric service

from the previous customer’s electric service provider.

The majority holds that a utility’s “right to serve the entire electric load on the

premises” of a “customer” is “unaffected by subsequent changes in the ‘customer[.]’”

Ante at 13. I do not necessarily disagree with this statement. For example, if Electric

Company XYZ served a house on the subject property, Electric Company XYZ would be

entitled to serve a subsequently built barn on the same property because, pursuant to Rule

411(11), a utility is “entitled to serve the entire electric load on the premises of that

customer . . . .” This right is not affected when the “customer” changes from being only

the house to being both the house and the barn. However, what the majority fails to

recognize is that because “customer” is defined as “the buildings . . . served,” Mich

9
Admin Code, R 460.3411(1)(a), if there are no buildings on the property, there are no

“customers” on the property. And if there are no “customers” on the property, there is no

longer any “first [or second or third] utility serving a customer [that] is entitled to serve

the entire electric load on the premises of that customer . . . .” Mich Admin Code, R

460.3411(11). That is, the majority overlooks what I view as the dispositive difference

between a “customer” changing and a “customer” being eliminated.

The majority focuses on the fact that Rule 411(11) states that the utility is “entitled

to serve the entire electric load on the premises of that customer . . . .” (Emphasis added.)

However, in doing so, the majority loses sight of the fact that in order for there to be a

right to serve the entire “premises,” the utility has to first be serving some “customer” on

the “premises.” In this case, once all the buildings on the property had been demolished,

Cherryland was no longer serving any “customers” on the property and, therefore, no

longer possessed any right to serve the entire “premises.” That is, it was no longer

“entitled to serve the entire electric load on the premises of that [nonexisting] customer.”

Mich Admin Code, R 460.3411(11). The fact that there is now a new “customer,” i.e.,

building, on the property does not change this result because there are no rules or statutes

that require a new “customer” to be served by the same electric utility that served the

previous “customer” on the same piece of property.2

2
The majority suggests that this interpretation is inconsistent with the rule’s “purpose of
avoiding unnecessary duplication of electrical facilities” because when a piece of
property is subdivided, new “customers” that would be free to contract with different
utility companies would be created. Ante at 11-12 & n 22. However, the majority fails to
apprehend the significance of Rule 411(14). This rule provides, “Regardless of other
provisions of this rule, . . . a utility shall not extend service to a new customer in a
manner that will duplicate the existing electric distribution facilities of another utility,

10
 The majority essentially relies on the use of the term “premises” in Rule 411(11)

to redefine “customer” to mean “premises.” The majority holds that a utility has a right

to serve the entire “premises” of a “customer,” even after that “customer” ceases to exist.

The only way to reach this conclusion is to redefine “customer” to mean “premises.”

However, Rule 411(1)(a) clearly defines “customer” to mean “the buildings . . .

served[.]” The majority suggests that it must read “premises” in the way that it does in

order to give the word some meaning. However, that is not the case because, although

“premises” may not have the meaning that the majority ascribes to it, it does have a

meaning of alternative significance: it means that the first utility serving a “customer” on

a piece of property is entitled to serve all the “customers” on that property. As the Court

of Appeals explained, “Rule 411(11) concerns extensions of service on premises already

being served, and guards against any single premises being served by multiple utilities.”

Great Wolf Lodge, 285 Mich App at 36. Without the phrase “on the premises” in Rule

411(11), this very considerable protection for utilities would not exist. Therefore,

“premises” need not be misconstrued in order to give it substantive meaning.

except where both utilities are within 300 feet of the prospective customer.” Mich
Admin Code, R 460.3411(4). Therefore, the majority’s concerns about the duplication of
electrical facilities when property is subdivided need not influence its interpretation of
Rule 411(11). Contrary to the majority’s contention, Rule 411(14) is not an “irrelevant
distraction.” Ante at 11 n 20. Indeed, given that the majority believes that it is important
enough to point out that its interpretation of Rule 411(11) is “consistent with the rule’s
purpose of avoiding unnecessary duplication of electrical facilities,” ante at 11, I believe
that it is equally relevant to point out that, regardless of Rule 411(11), Rule 411(14)
clearly serves the same purpose.

11
 Although an “agency’s interpretation is entitled to respectful consideration and, if

persuasive, should not be overruled without cogent reasons,” Rovas Complaint, 482 Mich

at 108, it must not be forgotten that in Consumers Energy, when all the buildings that

Consumers Energy had served had been demolished by Meijer, the PSC concluded that

Meijer did not constitute an “existing customer” of Consumers, and the Court of Appeals

reversed. Therefore, the PSC’s decision here that Great Wolf Lodge is an “existing

customer” of Cherryland may well have been a result of the Court of Appeals’

interpretation of Rule 411 in Consumers Energy, rather than the PSC’s own interpretation

of the rule. Furthermore, even assuming that the PSC’s decision was based on its own

interpretation of Rule 411, for the reasons discussed earlier, that interpretation is not

persuasive and there are, in fact, “cogent” reasons to overrule it. Great Wolf Lodge, in

my judgment, has fully met its burden of showing by clear and satisfactory evidence that

the PSC’s decision was inconsistent with the law.

However, there is no dispute that Cherryland is currently rendering electric service

to Great Wolf Lodge. Great Wolf Lodge has consistently argued that this should not

prevent it from transferring to another utility because the only reason Cherryland is

serving Great Wolf Lodge is that Cherryland refused to remove its service drop so that

the buildings could be demolished and the water-park resort could be built. Great Wolf

Lodge raised this issue before the PSC, the trial court, the Court of Appeals, and this

Court. The PSC summarized Great Wolf Lodge’s argument as follows: Great Wolf

Lodge “had a choice of electric service providers in 2001” and “because that choice was

thwarted by Cherryland’s refusal to remove the service drop, the [PSC] should now

declare that [Great Wolf Lodge] has full choice in transmission and distribution

12
services.” The PSC rejected this argument, stating that Great Wolf Lodge “has not cited

any legal authority as a basis for the [PSC] to grant the relief sought under the

circumstances of this case.” However, neither the trial court nor the Court of Appeals

addressed this issue. Therefore, I would remand this case to the trial court for it to be

addressed.3

B. INTEREST

I agree with the majority that the PSC was not required to award interest on the

refund it ordered Cherryland to pay. Although Detroit Edison Co v Pub Serv Comm, 155

Mich App 461, 469; 400 NW2d 644 (1986), held that the PSC possesses the authority to

award interest on refunds, it did not require the PSC to award interest. Because no

statute, rule, or caselaw requires the PSC to award interest on refunds, Great Wolf Lodge

has not satisfied its burden of showing by clear and satisfactory evidence that the PSC’s

decision to not award interest was unlawful or unreasonable. See MCL 462.26(8).

3
To the extent that Great Wolf Lodge argues that it should be allowed to obtain service
from Traverse City Light & Power (TCLP), a municipal corporation not subject to PSC
regulation, MCL 124.3(2) is applicable. MCL 124.3(2) provides, “A municipal
corporation shall not render electric delivery service for heat, power, or light to customers
outside its corporate limits already receiving the service from another utility unless the
serving utility consents in writing.” MCL 460.10y(2), like Rule 411(1)(a), defines
“customer” as “the building or facilities served . . . .” In this case, once all the buildings
on the property had been demolished, there were no “customers . . . already receiving
[electric] service from another utility,” and, thus, at that point, MCL 124.3(2) would not
have prevented Great Wolf Lodge from obtaining service from TCLP. However, whether
the fact that the water-park resort is now receiving electric service from Cherryland
prevents the resort from obtaining service from TCLP instead is a question that the trial
court should address on remand.

13
 C. FINE

I also agree with the majority that the PSC was not required to impose a fine on

Cherryland. MCL 460.558 provides that “[a]ny corporation . . . [that] wilfully or

knowingly fails or neglects to obey or comply with [a PSC] order or any provision of this

act [1909 PA 106; MCL 460.551 et seq.] shall forfeit to the state of Michigan not to

exceed the sum of 300 dollars for each offense.” Contrary to the Court of Appeals’

conclusion, this language does not encompass mere negligent non-compliance; otherwise,

there would have been no need to include the language “wilfully or knowingly” within

this statute. “Wilfully or knowingly” modifies both “fails” and “neglects,” and, therefore,

the PSC is required to impose a fine only where a utility “wilfully or knowingly” “fails,”

or “wilfully or knowingly” “neglects,” to “obey or comply with [a PSC] order.” MCL

460.558.

In the instant case, the PSC determined that Cherryland’s understanding of the

PSC’s July 22, 2004, order was not unreasonable, and, therefore, Cherryland did not

“wilfully or knowingly” fail or neglect to obey or comply with this order. In its July 22,

2004, order, the PSC ordered Cherryland to charge Great Wolf Lodge the large resort

service (LRS) rate. Four months later, Cherryland began to charge Great Wolf Lodge the

higher large commercial and industrial (LCI) rate. According to Cherryland, it did this

because Great Wolf Lodge was not satisfying the 1,500-kilowatt minimum monthly load

requirement that must be met for the LRS rate to be charged. The PSC explained that

when it ordered Cherryland to charge the LRS rate, it assumed that Great Wolf Lodge

was in compliance, and would remain in compliance, with the terms and conditions of the

LRS rate, and therefore it did not address what Cherryland should do if Great Wolf

14
Lodge failed to comply with the load requirement for the LRS rate. The PSC concluded

that, although “Cherryland should have sought clarification of the July 22 order,”

“Cherryland’s interpretation of the July 22 order was not so clearly unreasonable as to

justify the imposition of a fine . . . .” In other words, because Cherryland reasonably

believed that the PSC’s July 22, 2004, order did not preclude it from charging Great Wolf

Lodge the LCI rate if Great Wolf Lodge was not complying with the load requirement for

the LRS rate, it did not “wilfully or knowingly fail[] or neglect[] to obey or comply with

such order.” See MCL 460.558. Accordingly, Great Wolf Lodge has not satisfied its

burden of showing by clear and satisfactory evidence that the PSC’s decision to not

impose a fine was unlawful or unreasonable. MCL 462.26(8).

III. CONCLUSION

Once all the buildings on the property had been demolished, Cherryland no longer

had any “customer” on the property, and, therefore, its right to provide electric service to

the property was extinguished. Because no rule, statute, or caselaw requires the PSC to

impose interest on refunds, the PSC was not required to impose interest on the refund at

issue. Finally, because Cherryland did not “willfully or knowingly fail[] or neglect[] to

obey or comply with [the PSC’s July 22, 2004] order,” MCL 460.558, the PSC was not

required to impose a fine on Cherryland. Accordingly, I would reverse the Court of

Appeals’ judgment regarding the imposition of interest and a fine, vacate the remainder

of the Court of Appeals’ decision, and remand to the trial court for it to address Great

Wolf Lodge’s argument that it should not now be considered a Cherryland “customer,”

15
even though Cherryland is currently serving Great Wolf Lodge, because Cherryland had

coerced Great Wolf Lodge into becoming its “customer.”

Stephen J. Markman
Diane M. Hathaway
Brian K. Zahra

16