State forces alternative energy power to come from within Michigan

LANSING ‑- Companies that sell electricity in Michigan's power-choice market will have to generate electricity at their own power plants or buy power produced in the state by 2022, state energy regulators said Friday.

The three-member Michigan Public Service Commission unanimously issued a rule on a section of the state's new energy law that sets the phased-in requirement for alternative energy suppliers, who serve customers who buy power from a company other than the state's large electric utilities. Those customers include 200 school districts and thousands of businesses, which typically get cheaper rates in the program.

Friday's decision is controversial, and speculation about how the public service commission would rule on the issue elicited criticism from some state lawmakers, businesses, school districts and other groups concerned that the move would threaten Michigan's so-called electric "choice" market. The state allows 10 percent of its electric customers to buy power from alternative suppliers, which often don't generate their own electricity and instead buy and resell it to their customers.

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More than 6,100 customers, which include 200 school districts and thousands of businesses, participate in the choice program. They say buying power from alternative suppliers saves them millions of dollars in electricity costs compared with prices they would pay to the state's utility companies, Jackson-based Consumers Energy Co. and Detroit-based DTE Energy Co.

Commissioners have not yet decided how much electricity these companies would have to own or buy in Michigan. They plan to start a process that will allow input from all energy stakeholders, from utilities to customers, to offer input before guidelines are finished next year, commission Chairman Sally Talberg said.

"We think we've done this in a way that allows electric choice programs to continue to be viable, but also make sure that everyone is contributing to our reliability," Talberg told reporters after the decision was announced.

Legislators, including state Rep. Gary Glenn, who leads the House energy committee, have said the commission's plans violate the spirit of the energy law. Gov. Rick Snyder signed the two-bill energy package in December after lengthy negotiations at the end of the last legislative session, which led to the in-state generation requirement for individual electricity providers being removed in order to get the bills to Snyder's desk.

Glenn, a Republican from Midland County's Larkin Township, said he continues to believe the commission lacks authority to impose what is called a "local clearing requirement" on alternative energy suppliers because it was the state Legislature's intent not require local generation in the 2016 energy bill.

"The key question is whether all electricity providers have to show proof of capacity" to do business in Michigan, Glenn said. He said the intent was for alternative energy suppliers simply to need to prove they can buy electricity on the Midwest's regional energy market, known as MISO.

The MPSC's order, however, requires all electric providers to prove they have sufficient capacity to supply their customers over a four-year period. AES companies, however, purchase electricity from MISO only in annual auctions.

Still, Glenn said the MPSC gave the Legislature time to correct the problem by drafting a new bill in 2018 to fix the part of the energy bill that affects the choice program.

"It gives us next year with a new Senate energy committee, a new governor — all favoring a free market-based approach — to take a different direction," said Glenn, adding that it is possible to move to a 100 percent choice market.

State regulators, DTE and Consumers all maintain that it's hard to plan for Michiganders' electricity demands when customers switch between regulated utilities and the choice market. The energy laws will require utilities and alternative suppliers alike to demonstrate that they have enough power owned or under contract to meet demand for electricity. They want all electricity suppliers serving Michigan customers to contribute to the state's power generation needs in an equitable way.

"Today's order allows the Commission to thoroughly examine the way the local clearing requirement is implemented to ensure continued reliability across the state and that electric suppliers are all acting responsibly in planning ahead for their customers," DTE said in a statement. "The MPSC will conduct its due diligence through the contested case process it has established, as they have the authority to direct and implement the law."

In a statement, Consumers said: "Access to affordable, reliable and increasingly clean energy is essential to the way we live. Michigan's 2016 Energy Law laid out a framework that ensures access to all of these important elements of energy service. At Consumers Energy, we believe it's the responsibility of all energy providers to ensure they have secured adequate capacity to serve their customers."

Utilities plan power generation partly based on the need to meet peak electricity demand. In Michigan, peak demand occurs on hot, humid, sunny weekday afternoons. Having enough generation capacity in Michigan is key to Public Service Commission planners.

What concerns the MPSC are projections that Michigan's Lower Peninsula could face a shortfall in reserve electricity capacity sometime in the next three or four years, depending on power plant shutdowns and the speed of new plant construction. Reserve capacity is the amount of electricity needed to meet maximum peak daily demand.

Glenn also said the MPSC and utility executives used "irresponsible scare tactics" last year to make statements that Michigan was facing imminent electricity shortages because of coal-fired power plant closures.

Energy experts say that the commission and MISO are rightly concerned that Michigan has enough adequate capacity to meet both generation requirements and reserve capacity requirements in future years. But energy experts tell Bridge Magazine and Crain's that even if a shortage occurs, utilities could always implement their demand response plan and ask companies to limit electricity use based on their agreements to endure interrupted service.

Alternative energy suppliers currently can buy power from any source within the 15-state coverage territory of the regional grid operator, known as Midcontinent Independent System Operator Inc., or MISO. It serves portions of multiple states. Most of Michigan, specifically the Lower Peninsula, is included in MISO's coverage zone.

Under the commission's decision, alternative suppliers will have to include power produced in Michigan as part of that portfolio. That could include new or existing electricity generation, power purchase contracts with other producers and programs that encourage efficient or less energy use, Talberg said.

Snyder did not immediately weigh in on the decision, his office said, but will review the order in detail as the process unfolds.

"The Governor supports an electric system that makes Michigan's electric grid more reliable and affordable for customers, while ensuring Michigan has adequate resources well into the future," Snyder spokeswoman Tanya Baker said via email. "He looks forward to reviewing further information on this issue, based on the MPSC's decision (Friday) to open a new contested case to more fully examine the requirement."

As part of the input process, the public service commission's staff in May advised against adopting such a location requirement. Glenn has wanted the staff members or the attorneys who filed a letter on their behalf to testify before the House energy committee, which has not happened to date.

The staff letter said that if the commission chose to impose the rule, they should phase it in starting at least five years out in order to give electric suppliers time to plan.

Talberg said she believes the commission was authorized to establish the rule based on the language in the new law.

"I don't know how people will react, but what I can tell you is that the commission really was faithful in implementing the new law and staying true to the letter of the new law, and also coming up with an approach that we think is going to be reasonable," she said. "It's not uncommon for orders of the commission to be appealed, but we think we're in a strong position."

Maureen McNulty Saxton, a spokesman for Energy Choice Now, said the dozens of choice customer ECN represents are "furious at the move made" by the MPSC. ECN represents schools and major companies like Kellogg Co. and Amway.

"This law was carefully and contentiously negotiated deep into the night with the Governor and lawmakers finally coming to an agreed upon compromise," Saxton said in a statement.

"This action by the MPSC is a slap in the face of those lawmakers and the Governor. It puts Michigan's competitive electric market at risk, and worst of all, it will cost electricity customers — the schools and businesses and organizations that were part of this negotiation — millions more in higher electric bills," she said. "The bill would have never passed without the compromise."

Saxton said that the decision will cost schools, grocers, colleges, hospitals, nursing homes and other companies in the choice market an estimated $1 billion in higher electricity bills.

Glenn said he believes choice customers like Dow Chemical Co., local schools and other large companies can breath a little easier for the time being.

"We have dodged a bullet in the short term but not the sights in the long term," he said. "The battle is not over. It will extend beyond this legislative session. Hopefully, next year this will be an opportunity with new legislature and a new governor to take dramatics to impose free-market principles into Michigan's energy market."

Crain's senior reporter Jay Greene contributed to this report.