MPSC
LC No. 00-018258.
Before: O'Brien, P.J., and Fort Hood and Cameron, JJ.
Cameron, J.
Appellant,
Cloverland Electric Cooperative (Cloverland), is a
member-regulated electric cooperative, which generates and
delivers electricity to five counties in Michigan's Upper
Peninsula. In 2016, the Michigan Legislature passed Public
Act 341 to ensure that alternative electric suppliers
(AES)[1] demonstrate that they are able to generate
enough electricity to meet their capacity obligations. If an
AES cannot meet its obligations, then the electric utility,
such as Cloverland, must provide the AES's customers with
electric capacity, and in return, implement a State
Reliability Mechanism (SRM) charge, which must be paid by the
AES's customers. After a hearing was held, the Public
Service Commission (the PSC or the commission) issued an
opinion and order on November 30, 2017, requiring Cloverland
to also implement an SRM charge on Cloverland's
full-service member-customers pursuant to the newly enacted
law. On appeal, Cloverland challenges the PSC's decision
to require the implementation of the SRM charge. We affirm.
I.
BACKGROUND
As
explained by Cloverland's chief financial officer, Robert
J. Malaski, Cloverland is a member-regulated electric
cooperative that generates, distributes, and sells electric
energy to its
member-customers in the counties of Chippewa, Delta, Luce,
Mackinac and Schoolcraft in Michigan's Upper Peninsula,
including the cities of Sault Ste. Marie, St. Ignace,
Mackinac Island and Manistique. Cloverland has approximately
42, 000 member-customers, consisting of residential, farm
residential, seasonal, commercial, outdoor lighting and large
power accounts.
Malaski testified that "Cloverland has a single member,
UP Paper, LLC, ('UP Paper') which purchases a portion
of its electric energy from an AES. Cloverland also serves UP
Paper for the remainder of its electric energy needs under
the terms of a special contract."
This
case is about the legal requirements for ensuring the
reliability of the electric grid in Michigan. In order for a
summary of the proceedings in this case to make sense, it is
necessary to quote pertinent language from the governing
statute, MCL 460.6w, which was added by 2016 PA 341 (Act
341), effective April 20, 2017, and to explain a recent
opinion of this Court, In re Reliability Plans of
Electric Utilities for 2017-2021, 325 Mich.App. 207; 926
N.W.2d 584 (2018).
"At
the end of 2016, our Legislature enacted new electric utility
legislation that included Act 341. That act added, among
other statutory sections, MCL 460.6w." In re
Reliability Plans, 325 Mich.App. at 210-211.
By way of background, Michigan's Legislature previously
enacted what was known as the Customer Choice and Electricity
Reliability Act, MCL 460.10 et seq., as enacted by
2000 PA 141 and 2000 PA 142, to further the deregulation of
the electric utility industry. That act permitted customers
to buy electricity from alternative electric suppliers
instead of limiting customers to purchasing electricity from
incumbent utilities . . . . Among the purposes of the act, as
amended by Act 341, is the promotion of "financially
healthy and competitive utilities in this state." MCL
460.10(b). [In re Reliability Plans, 325 Mich.App.
at 211 (quotation marks and citation omitted).]
As additional background information, it is noted that
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. [Id.]
Further,
MISO "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." Id. at 212.
"At
the end of 2016, our Legislature enacted Act 341, in part
adding MCL 460.6w, which imposes resource adequacy
requirements on electric service providers in Michigan and
imposes certain responsibilities on the [PSC]." In
re Reliability Plans, 325 Mich.App. at 213. MCL
460.6w(2) provides, in relevant part, "If, by September
30, 2017, the Federal Energy Regulatory Commission [(FERC)]
does not put into effect a resource adequacy tariff that
includes a capacity forward auction[2] or a prevailing state
compensation mechanism, then the commission shall establish
[an SRM] under subsection (8)." It is undisputed here
that the FERC did not implement a resource adequacy tariff
that included a capacity forward auction or a prevailing
state compensation mechanism by September 30, 2017. Thus, the
PSC was required to establish an SRM under MCL 460.6w(8). See
MCL 460.6w(2); In re Reliability Plans, 325
Mich.App. at 213 ("The parties agree that because the
[FERC] did not put into effect the MISO-proposed tariff, the
[PSC] is required by [MCL 460.6w(2)] to establish [an
SRM]."). An SRM "means 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).
When an
AES fails to demonstrate that it has sufficient capacity to
meet its capacity obligations, the electric utility must
provide the AES's customer with electric capacity, and in
return, an SRM charge must be paid.[3] In particular, MCL 460.6w(6)
provides:
A capacity charge shall not be assessed for any portion of
capacity obligations for each planning year for which an
alternative electric supplier can demonstrate that it can
meet its capacity obligations through owned or contractual
rights to any resource that the appropriate independent
system operator 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. Any electric provider that
has previously demonstrated that it can meet all or a portion
of its capacity obligations shall give notice to the
commission by September 1 of the year 4 years before the
beginning of the applicable planning year if it does not
expect to meet that capacity obligation and instead expects
to pay a capacity charge. The capacity charge in the utility
service territory must be paid for the portion of its load
taking service from the alternative electric supplier not
covered by capacity as set forth in this subsection during
the period that any such capacity charge is effective.
MCL
460.6w(7) states:
An electric provider shall provide capacity to meet the
capacity obligation for the portion of that load taking
service from an alternative electric supplier in the electric
provider's service territory that is covered by the
capacity charge during the period that any such capacity
charge is effective. The alternative electric supplier has
the obligation to provide capacity for the portion of the
load for which the alternative electric supplier has
demonstrated an ability to meet its capacity obligations. If
an alternative electric supplier ceases to provide service
for a portion or all of its load, it shall allow, at a cost
no higher than the determined capacity charge, the assignment
of any right to that capacity in the applicable planning year
to whatever electric provider accepts that load.
MCL 460.6w(8) states, in relevant part:
If a state reliability mechanism is required to be
established under subsection (2), the commission shall do all
of the following:
(a) Require, by December 1 of each year, that each 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
electric utility owns or has contractual rights to sufficient
capacity to meet its capacity obligations as ...