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In re Implementing Section 6W OF 2016 PA 341 for Cloverland Electric Cooperative.

Court of Appeals of Michigan

July 23, 2019

CLOVERLAND ELECTRIC COOPERATIVE, Appellant,
v.
MICHIGAN PUBLIC SERVICE COMMISSION, Appellee.

          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 ...

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