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Michigan PSC's Double-Fumble 911 Nightmare

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During 2013, an admittedly difficult Michigan 911 taxation issue degenerated into a farce – comical if it weren't so pathetic and didn't bespeak such incompetence and obduracy on the part of the state public utility authority. The Michigan Court of Appeals took the PSC to the woodshed in no uncertain terms for repeatedly failing to comprehend and apply the state’s revised 911 surcharge regime as instructed, and for exacerbating those failings by botching the Court’s directions on remand. Quotations are from the Opinion (“In re Implementation of Section 401e of 2007 PA 164. COUNTY OF GRAND TRAVERSE, et al., v. MICHIGAN PUBLIC SERVICE COMMISSION, et al.,” Case Nos. 301877, 302151, Court of Appeals of Michigan, 2013 Mich. App. LEXIS 291).

This major headache started in 2007 when the Legislature undertook modernizing Michigan’s county-level 911 levy (the “Surcharge”) to keep pace with telecom technology advances, enacting legislation which “amended the 9-1-1 Service Enabling Act (MCL 484.1101, et seq.) to broaden the base from which 911 services might be supported, by including communication service devices beyond conventional landline telephone service” among the media paying the Surcharge. The statute created a limited, year-long role for the PSC – which had never handled Surcharge matters – so the law directed the PSC to consult Michigan’s 911 overseers, the Emergency Telephone Service Committee (“ETSC”) for helpful expertise. The new regime was to commence in 2008.

On January 2, 2008, the PSC Ordered Michigan counties levying the Surcharge to supply information justifying their proposed rates: 1) the revenue anticipated under the current (fiscal 2007) rate; 2) the new rate, effective July 2008; and 3) projected 2008 revenue. Under the new law, the PSC would evaluate that data:

If the amount to be generated in 2008 exceeds the amount received in 2007 plus an amount not to exceed 2.7% of the 2007 revenues, the [PSC], in consultation with the [ETSC], shall review and approve or disapprove the county 9-1-1 surcharge adopted under section 401b. ... If the surcharge is rejected, it shall be adjusted to ensure that the revenues generated do not exceed the amounts allowed under this subsection. (MCL § 484.1401e(2))

The ETSC met in February 2008 to evaluate “thousands of sheets of paper” from counties looking to increase their Surcharges, and it recommended the PSC approve 35 (out of 83) counties’ requests. The Court of Appeals (in its remand Opinion, April 2010) on what ensued:

The PSC, however, incorrectly concluded that MCL 484.1401e(2) barred any surcharge increases above the 2.7 percent figure and so it simply denied all requested surcharges above 2.7 percent and adjusted all such requested surcharges down to 2.7 percent, based on this legal error. Likely as a result of this legal error, the PSC did not request any of the ETSC records or filings, since whatever materials the counties had filed, it could not alter the 2.7 percent cap that the PSC believed the statute imposed. As a result, the PSC did not conduct a particularized review of the revenue necessary and reasonable to meet the costs of the respective counties’ 9-1-1 systems. We reversed the PSC’s erroneous legal conclusion that any surcharge greater than 2.7 percent above 2007 levels was barred, and directed the PSC

to recompute, using the correct procedure this time.

So far, so bad. But wait:

On remand, however, the PSC refused to reopen proofs and refused to consider any of the evidence relevant to costs of implementation, maintenance and operation of the 9-1-1 system that had been submitted to the ETSC. Thus, the PSC made its decision on remand based solely on the revenue materials that the counties had filed with the Commission pursuant to the January 2, 2008 order. Not surprisingly, given its refusal to consider the ETSC record or to take new proofs, the Commission concluded as to each county that the "county had failed to provide the Commission with evidence sufficient"

to support its revisions!

So the PSC again rejected the counties’ submissions (Order, December 21, 2010), and they again appealed the (wrongheaded) decision to the Appellate Court, which again (with impatience bordering on annoyance) found in their favor – while dealing with the PSC’s conflating the matter with an unrelated one! One last time, the Court of Appeals (which is getting dizzy):

Appellants [the counties] argue that the PSC failed to heed this Court’s command on remand by refusing to consider evidence of the cost of providing 9-1-1 services. The PSC argues that the remand order underlying this case expressly rebuffed calls to reopen proofs and relies on our refusal to remand for additional proofs on a different issue. However, that issue was wholly resolved in the prior opinion and, unlike the instant issue, we did not order a remand on that issue at all. As to the instant issue, however, we did order a remand and we did not foreclose additional proofs if required to comply with our directions...

It is clear that the PSC did not comply with these directions. Moreover, its claim that it cannot do so because the necessary data is not available to it is not credible given its refusal to consider the thousands of pages of evidence submitted to the ETSC – at the direction of that body and the PSC – prior to the original PSC ruling.

Appellants additionally argue that the PSC failed to comply with the statute’s mandate that it consult with the ETSC, an entity with expertise in the implementation, operation, and maintenance of 9-1-1 systems. While we reject the suggestion that the PSC must defer to the ETSC’s conclusions that the surcharges were proper, we agree that the PSC appears to have made its own determinations as to what constitutes reasonable and necessary 9-1-1 operations without any record support and without any consideration of the ETSC recommendations. Instead, the PSC appears to have treated the statutory mandate that it consult with the ETSC as a mere formality, completely ignoring its recommendations and its record. We vacate the December 21, 2010 Opinion and Order of the PSC and remand the matter to that Commission

… whose behavior through this whole sorry episode was just appallingly inept. [Supply your own punchline.]

About the Author: Marc Palmer Kram is a Senior Tax Analyst at Wolters Kluwer Tax & Accounting US, where he performs quality control and troubleshooting on the vast taxability database supporting its best-in-class CCH tax-compliance software, and then sometimes writes about what he finds. Learn more about him by visiting his author bio page. Learn more about Wolters Kluwer at WoltersKluwer.com and SalesTax.com.

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