Don M. Schmidt | Steven D. Mann | Miller, Canfield, Paddock and Stone, P.L.C. | 277 S. Rose Suite 500 | Kalamazoo, MI 49007 |
269-381-7030

Michigan State Bar Public Corporation Law Section (PCLS)

There is no basis for the Court of Appeals to insert its own definition of who is a “contractual customer” into the statute, particularly when it has determined that the statute is not ambiguous. The fact that a sentence in subsection 2 indicates that the actual cost limitation in that subsection does not remove any minimum or maximum limits imposed contractually for “wholesale customers” cannot be expanded by the Court of Appeals to mean that the limitation in subsection 2
applies only to wholesale customers and therefore the limitation in subsection 3 applies to any and all retail customers.
The effect of this incorrect interpretation on the arrangement under which local governments will be willing to supply water to other local governments will be major, not to mention illogical. Under the Court of Appeals’ interpretation, whether a water-supplying municipality (other than Detroit) may
charge more than its actual cost to provide service to customers outside of its boundaries depends solely on whether the service is provided on a wholesale basis or on a retail
basis. According to the Court of Appeals, if it is on a wholesale basis, the water supplying municipality is not bound by the actual cost limitation because of the exemption language in subsection 2 of the statute. If it is on a retail basis, it is limited to
actual cost by the limitation in subsection 3. This makes no sense. As the historical and commonly-accepted practice is for the water-supplying municipality to charge an additional amount for serving customers outside of its boundaries, this decision wvill create a major disincentive to supply such water or to provide water outside of their boundaries only on a wholesale basis. One of the problems with supplying water on a wholesale basis is that many of the water-receiving
municipalities do not want to establish and operate a retail billing and collection system for water service. They would prefer to let the water-supplying municipality, which
already has a retail billing and collecting system in place, provide that function as part of its service. Having the water-supplying municipality provide the retail billing and
collection with its existing system avoids the unnecessary duplication of separate systems for this function.

On order of the Court, the application for leave to appeal the February 12, 2009 judgment of the Court of Appeals is considered and, pursuant to MCR 7.302(H)(1), in lieu of granting leave to appeal, we REVERSE the judgment of the Court of Appeals and we REMAND this case to the Eaton Circuit Court for reinstatement of the March 15, 2007 order that dismissed the case with prejudice. MCL 123.141(2) exempts water departments that are not contractual customers of another water department and that serve less than 1% of the population of the state, such as the City of Grand Ledge, from the cost-based requirement of subsection (2). Contrary to the Court of Appeals ruling, that subsection does not indicate that the second sentence of MCL 123.141(2) somehow modifies or limits application of the exemption that appears in the subsequent sentence by defining “contractual customers” as wholesale contractual customers. Moreover, MCL 123.141(3) prohibits only “contractual customers as provided in subsection (2)” from charging retail rates in excess of the actual cost of providing service. Grand Ledge is not a contractual customer as provided in subsection (2), so subsection (3) is not applicable.