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In re Reliability Plans of Electric Utilities for 2017-2021

Court of Appeals of Michigan

July 12, 2018

In re RELIABILITY PLANS OF ELECTRIC UTILITIES FOR 2017-2021.
v.
MICHIGAN PUBLIC SERVICE COMMISSION, CONSUMERS ENERGY COMPANY, ENERGY MICHIGAN, INC., and MICHIGAN ELECTRIC AND GAS ASSOCIATION, Appellees. ASSOCIATION OF BUSINESSES ADVOCATING TARIFF EQUITY, Appellant, In re RELIABILITY PLANS OF ELECTRIC UTILITIES FOR 2017-2021. ENERGY MICHIGAN, INC., Appellant,
v.
MICHIGAN PUBLIC SERVICE COMMISSION, CONSUMERS ENERGY COMPANY, and MICHIGAN ELECTRIC AND GAS ASSOCIATION, Appellees.

          Public Service Commission LC No. 00-018197

          Before: Meter, P.J., and Gadola and Tukel, JJ.

          Gadola, J.

         In Docket No. 340600, appellant Association of Businesses Advocating Tariff Equity (ABATE)[1] appeals as of right the final order of appellee Michigan Public Service Commission (MPSC) in its case no. U-18197. In Docket No. 340607, appellant Energy Michigan, Inc. (Energy Michigan)[2] appeals as of right the same order of the MPSC. In each of these consolidated cases, [3] appellants contend that the MPSC erred by determining that it is empowered by the Legislature under 2016 PA 341 (Act 341) to impose a local clearing requirement upon individual alternative electric suppliers. In Docket No. 340607, Energy Michigan additionally contends that the order of the MPSC purports to impose new rules upon electric providers in this state without the required compliance with Michigan's Administrative Procedures Act (APA), MCL 24.201, et seq. We reverse and remand.

         I. BACKGROUND AND FACTS

         At the end of 2016, our Legislature enacted new electric utility legislation that included 2016 PA 341 (Act 341). That act added, among other statutory sections, MCL 460.6w. These appeals arise from an order issued by the MPSC as part of its implementation of MCL 460.6w.

         By way of background, Michigan's Legislature previously enacted what was known as the Customer Choice and Electricity Reliability Act, 2000 PA 141 and 2000 PA 142, MCL 460.10 et seq., to "further the deregulation of the electric utility industry." In re Application of Detroit Edison Co for 2012 Cost Recovery Plan, 311 Mich.App. 204, 207 n 2; 874 N.W.2d 398 (2015). That act permitted customers to buy electricity from alternative electric suppliers instead of being limited to purchasing electricity from incumbent utilities, such as appellee Consumers Energy Company (Consumers). Consumers Energy Co v Michigan Pub Serv Comm, 268 Mich.App. 171, 173; 707 N.W.2d 633 (2005). Among the purposes of the act, as amended, is to "promote financially healthy and competitive utilities in this state." MCL 460.10(b).

         Also by way of background, the Midcontinent Independent System Operator (MISO) is the regional transmission organization responsible for managing the transmission of electric power in a large geographic area that spans portions of Michigan and 14 other states. To accomplish this, MISO combines the transmission facilities of several transmission owners into a single transmission system. In addition to the transmission of electricity, MISO's functions include capacity resource planning. MISO has established ten local resource zones; most of Michigan's lower peninsula is located in MISO's local resource zone 7, while the upper peninsula is located in MISO's local resource zone 2.

         Each year, MISO establishes for each alternative electric supplier in Michigan the "planning reserve margin requirement."[4] MISO also establishes the "local clearing requirement."[5] Under MISO's system, there generally are no geographic limitations on the capacity resources that may be used by a particular supplier to meet its planning reserve margin requirement. That is, MISO does not impose the local clearing requirement upon alternative electric suppliers individually, but instead applies the local clearing requirement to the zone as a whole. Each individual electricity supplier is not required by MISO to demonstrate that its energy capacity is located within Michigan, as long as the zone as a whole demonstrates that it has sufficient energy generation located within Michigan to meet federal requirements.

         MISO also serves as a mechanism for suppliers to buy and sell electricity capacity through an "auction." This allows for the exchange of capacity resources across energy providers and resource zones. The MISO auction is conducted each year for the purchase and sale of capacity for the upcoming year, which allows suppliers to buy and sell enough capacity to meet their planning reserve margin requirement and allows each zone as a whole to meet the zone's local clearing requirement.

         At the end of 2016, our Legislature enacted Act 341, in part adding MCL 460.6w, which imposes resource adequacy requirements upon electric service providers in Michigan and imposes certain responsibilities upon the MPSC. Under MCL 460.6w(2), the MPSC is required under certain circumstances to establish a state reliability mechanism. That section provides, in relevant part:

If, by September 30, 2017, the Federal Energy Regulatory Commission does not put into effect a resource adequacy tariff that includes a capacity forward auction or a prevailing state compensation mechanism, then the commission shall establish a state reliability mechanism under subsection (8). MCL 460.6w(2).

         The parties agree that because the Federal Energy Regulatory Commission did not put into effect the MISO-proposed tariff, the MPSC is required by section 6w(2) to establish a state reliability mechanism. A "state reliability mechanism" is defined by the statute as "a plan adopted by the commission in the absence of a prevailing state compensation mechanism to ensure reliability of the electric grid in this state consistent with subsection (8)." MCL 460.6w(12)(h). The state reliability mechanism is to be established consistent with section 6w(8), which provides, in relevant part, that the MPSC shall:

(b) Require . . . that each alternative electric supplier, cooperative electric utility, or municipally owned electric utility demonstrate to the commission, in a format determined by the commission, that for the planning year beginning 4 years after the beginning of the current planning year, the alternative electric supplier, cooperative electric utility, or municipally owned electric utility owns or has contractual rights to sufficient capacity to meet its capacity obligations as set by the appropriate independent system operator, or commission, as applicable. One or more municipally owned electric utilities may aggregate their capacity resources that are located in the same local resource zone to meet the requirements of this subdivision. One or more cooperative electric utilities may aggregate their capacity resources that are located in the same local resource zone to meet the requirements of this subdivision. A cooperative or municipally owned electric utility may meet the requirements of this subdivision through any resource, including a resource acquired through a capacity forward auction, that the appropriate independent system operator allows to qualify for meeting the local clearing requirement. A cooperative or municipally owned electric utility's payment of an auction price related to a capacity deficiency as part of a capacity forward auction conducted by the appropriate independent system operator does not by itself satisfy the resource adequacy requirements of this section unless the appropriate independent system operator can directly tie that provider's payment to a capacity resource that meets the requirements of this subsection. By the seventh business day of February in 2018, an alternative electric supplier shall demonstrate to the commission, in a format determined by the commission, that for the planning year beginning June 1, 2018, and the subsequent 3 planning years, the alternative electric supplier owns or has contractual rights to sufficient capacity to meet its capacity obligations as set by the appropriate independent system operator, or commission, as applicable. If the commission finds an electric provider has failed to demonstrate it can meet a portion or all of its capacity obligation, the commission shall do all of the following:
(i) For alternative electric load, require the payment of a capacity charge that is determined, assessed, and applied in the same manner as under subsection (3) for that portion of the load not covered as set forth in subsections (6) and (7). . . . [MCL 460.6w(8)(b) (emphasis added).]

         Thus, section 6w(8)(b) requires each alternative electric supplier, cooperative electric utility, and municipally owned electric utility to demonstrate to the MPSC that it has sufficient capacity to meet its "capacity obligations." The statute does not define "capacity obligations," but in section 6w(8)(c), the statute provides that:

(c) In order to determine the capacity obligations, [the MPSC shall] request that the appropriate independent system operator provide technical assistance in determining the local clearing requirement and planning reserve margin requirement. If the appropriate independent system operator declines, or has not made a determination by October 1 of that year, the commission shall set any required local clearing requirement and planning reserve margin requirement consistent with federal reliability requirements. [MCL 460.6w(8)(c).]

         Section 6w(8)(b) also provides that municipally owned electric utilities are permitted to "aggregate their capacity resources that are located in the same local resource zone to meet the requirements of this subdivision" and that cooperative electric utilities are permitted to "aggregate their capacity resources that are located in the same local resource zone to meet the requirements of this subdivision." Section 6w(8)(b) also permits a cooperative or municipally owned electric utility to "meet the requirements of this subdivision through any resource, including a resource acquired through a capacity forward auction, that [MISO] allows to qualify for meeting the local clearing requirement." Section 6w(8)(b), however, does not include a similar provision for alternative electric suppliers and is, in fact, silent as to whether alternative electric suppliers may aggregate their capacity resources that are located in the same local resource zone to meet the requirements of the subdivision.

         MCL 460.6w(3) directs the MPSC to establish a capacity charge that a provider must pay if it fails to satisfy the capacity obligations established under section 6w(8). Section 6w(6), however, directs that no capacity charge be assessed against an alternative electric supplier who demonstrates that "it can meet its capacity obligations through owned or contractual rights to any resource that the appropriate independent system operator[6] allows to meet the capacity obligation of the electric provider. The preceding sentence shall not be applied in any way that conflicts with a federal resource adequacy tariff, when applicable." MCL 460.6w(6).

         After the enactment of Act 341, the MPSC worked collaboratively in a workgroup process to implement MCL 460.6w. On September 15, 2017, the MPSC issued an order in its case number U-18197, imposing new requirements on alternative electric suppliers as part of its implementation of MCL 460.6w. Among the holdings of the MPSC in that order, the MPSC determined that MCL 460.6w authorizes it to impose a local clearing requirement upon individual alternative electric suppliers.[7] ABATE and Energy Michigan challenge this interpretation of MCL 460.6w as erroneous, while Consumers supports the decision of the MPSC. Energy Michigan further challenges the new requirements imposed by the MPSC as improperly implemented without compliance with the APA.

         II. ANALYSIS

         A. RIPENESS

         As an initial consideration, we address the assertion by the MPSC and Consumers that the issue in this appeal related to the imposition of a local clearing requirement is not yet ripe for resolution by this Court. They contend that the September 15, 2017 order of the MPSC in U-18197 did not impose a local clearing requirement on individual alternative electric suppliers, but instead merely announced that the MPSC has the authority to do so. The MPSC and Consumers assert that until the MPSC takes the final step of imposing a specific local clearing requirement upon an individual alternative electric supplier, the question whether the MPSC has the authority to do so is not ripe for review. We disagree.

         The ripeness doctrine requires that an actual injury be sustained by the plaintiff. Van Buren Charter Twp v Visteon Corp, 319 Mich.App. 538, 554; 904 N.W.2d 192 (2017). "The doctrine of ripeness is designed to prevent 'the adjudication of hypothetical or contingent claims before an actual injury has been sustained.'" Huntington Woods v Detroit, 279 Mich.App. 603, 615; 761 N.W.2d 127 (2008), quoting Mich Chiropractic Council v Comm'r of the Office of Fin and Ins Servs, 475 Mich. 363, 371 n 14; 716 N.W.2d 561 (2006), overruled on other grounds Lansing Sch Ed Ass'n, 487 Mich. 319. "A claim is not ripe if it rests upon contingent future events that may not occur ...


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