Ass'n of Bus. Advocating Tariff Equity v. Consumers Energy Co. (In re Reliability Plans of Elec. Utilities for 2017–2021)

• Decision Date: 02 April 2020
• Docket Number: No. 158308, No. 158307,No. 158305, No. 158306,158305
• Citation: 505 Mich. 97,949 N.W.2d 73
• Parties: IN RE RELIABILITY PLANS OF ELECTRIC UTILITIES FOR 2017–2021. Association of Businesses Advocating Tariff Equity, Appellee, v. Consumers Energy Company, Appellant, and Michigan Public Service Commission, Energy Michigan, Inc., and Michigan Electric and Gas Association, Appellees. Energy Michigan, Inc., Appellee, v. Consumers Energy Company, Appellant, and Michigan Public Service Commission and Michigan Electric and Gas Association, Appellees. Association of Businesses Advocating Tariff Equity, Appellee, v. Michigan Public Service Commission, Appellant, and Consumers Energy Company, Energy Michigan, Inc., and Michigan Electric and Gas Association, Appellees. Energy Michigan, Inc., Appellee, v. Michigan Public Service Commission, Appellant, and Consumers Energy Company and Michigan Electric and Gas Association, Appellees.
• Court: Michigan Supreme Court

505 Mich. 97

949 N.W.2d 73

IN RE RELIABILITY PLANS OF ELECTRIC UTILITIES FOR 2017–2021.

Association of Businesses Advocating Tariff Equity, Appellee,

v.Consumers Energy Company, Appellant,andMichigan Public Service Commission, Energy Michigan, Inc., and Michigan Electric and Gas Association, Appellees.

Energy Michigan, Inc., Appellee,

v.Consumers Energy Company, Appellant,andMichigan Public Service Commission and Michigan Electric and Gas Association, Appellees.

Association of Businesses Advocating Tariff Equity, Appellee,

v.Michigan Public Service Commission, Appellant,andConsumers Energy Company, Energy Michigan, Inc., and Michigan Electric and Gas Association, Appellees.

Energy Michigan, Inc., Appellee,

v.Michigan Public Service Commission, Appellant,andConsumers Energy Company and Michigan Electric and Gas Association, Appellees.

No. 158305

No. 158306

No. 158307

No. 158308

Supreme Court of Michigan.

Argued on application for leave to appeal November 7, 2019

Decided April 2, 2020

Dana Nessel, Attorney General, Fadwa A. Hammoud, Solicitor General, B. Eric Restuccia, Chief Legal Counsel, Ann M. Sherman, Assistant Solicitor General, and Steven D. Hughey and Spencer A. Sattler, Assistant Attorneys General, for the Michigan Public Service Commission.

Kelly M. Hall, Jackson, and Gary A. Gensch, Jr., for Consumers Energy Company.

Clark Hill PLC (by Robert A. Strong, Birmingham, and Michael J. Pattwell, Lansing) for the Association of Businesses Advocating Tariff Equity.

Varnum, LLP (by Laura Chappelle, Lansing, Tim Lundgren, and Brion B. Doyle, Grand Rapids) for Energy Michigan, Inc.

Rivenoak Law Group, PC (by Valerie J. M. Brader and Catherine T. Dobrowitsky, Troy), Amici Curiae for the Michigan Chamber of Commerce.

Quarles & Brady LLP (by Bradley D. Jackson ), Amicus Curiae for the Midcontinent Independent System Operator, Inc.

Lauren DuVal Donofrio, Amicus Curiae for DTE Electric Company.

Sean P. Gallagher PLC (by Sean P. Gallagher ), Amicus Curiae for Charles River Laboratories, Inc.; the Electricity Consumers Resource Council; and the United States Steel Corporation.

Foster, Swift, Collins & Smith, PC, Grand Rapids (by Michael D. Homier and Laura J. Genovich ), Amici Curiae for the Foundry Association of Michigan and the Michigan Schools Energy Cooperative.

Barnes & Thornburg LLP, Grand Rapids (by Charles M. Denton and Aaron D. Lindstrom ), Amici Curiae for the Michigan Chemistry Council and the Grand Rapids Area Chamber of Commerce.

BEFORE THE ENTIRE BENCH

McCormack, C.J.

In 2016, the Legislature passed Public Act 341 to ensure reliability of the state's electric grid. The act charged the Michigan Public Service Commission (MPSC), which regulates retail electricity markets, with setting what are known as "capacity requirements" for a four-year period. Those capacity requirements are imposed upon the state's electricity providers. MCL 460.6w. As explained below, "capacity" refers roughly to the electrical system's ability to meet future demand, especially at times of very high demand.

At issue here is what exactly the MPSC can require of one category of those providers, known as "alternative electric suppliers," under the act. Alternative electric suppliers sell electricity to retail customers in Michigan, but they use other providers’ infrastructure to deliver it. The name "alternative electric suppliers" reflects that these providers give consumers a choice (i.e., an alternative) about the upstream provider of their power; it has no relationship to renewable energy.

As the Court of Appeals correctly observed, Act 341 requires every provider in the marketplace to meet the capacity requirements set by the MPSC, and capacity is measured using both a "planning reserve margin requirement" and a "local clearing requirement." In re Reliability Plans of Electric Utilities for 2017–2021 , 325 Mich. App. 207, 224-225, 926 N.W.2d 584 (2018). To explain, the planning reserve margin requirement is the total amount of electricity that a given provider must make available to meet its customers’ demand (think quantity). The local clearing requirement is the amount of that electricity which the provider must produce or purchase locally (think location). Important to the question we decide here, these are not original concepts. Although the terms have slightly different meanings in different contexts, the body to whom the federal regulator (the Federal Energy Regulatory Commission) has delegated operational responsibility over the wholesale electricity markets affecting most of Michigan, the Midcontinent Independent System Operator (MISO), also uses these terms for its capacity planning.

While the Court of Appeals also correctly observed that the act requires each provider to meet the planning reserve margin requirement and the local clearing requirement as set by the MPSC, it held that "no provision of MCL 460.6w clearly and unmistakably authorizes the MPSC to impose a local clearing requirement on individual alternative electric [suppliers]." Id. at 224, 926 N.W.2d 584. The panel's mistaken conclusion hinged on its misunderstanding that the MPSC could impose a local clearing requirement only exactly as MISO does. Id. at 225-226, 926 N.W.2d 584.

In particular, the panel misread the statute's requirements that the MPSC coordinate with the organizations that are responsible for federal regulation of the wholesale electricity market—in this case, MISO—to mean that the MPSC must impose a local clearing requirement in the very same methodological manner that MISO does. Id. at 226, 926 N.W.2d 584. MISO, a different regulatory body from the MPSC with a very different jurisdiction and mandate, imposes a local clearing requirement with reference to certain geographic zones. But Act 341 does not refer to or contemplate zones at all. Moreover, and confusingly, the panel did not say what the relevant "zone" is or might be under MCL 460.6w. And while the panel focused on the lack of clear language allowing the MPSC to impose the local clearing requirement on alternative electric suppliers individually, its holding that the MPSC could impose a local clearing requirement only on providers together within a zone means that the MPSC may not impose a local clearing requirement on any provider individually, a logical inference that calls the panel's conclusion into still greater question. In short, its holding misread the statutory language, misunderstood MISO's wholesale capacity measurements, and failed to appreciate how the MPSC's regulatory jurisdiction differs from MISO's.

The Legislature authorized the MPSC to set a planning reserve margin requirement and a local clearing requirement for each energy provider in the state, including alternative electric suppliers, and required each, in turn, to meet those capacity measurements individually or face the consequences set by statute. We reverse and remand to the Court of Appeals for further proceedings not inconsistent with this opinion.

I. FACTS AND PROCEDURAL HISTORY

A. ELECTRICITY MARKETS AND REGULATION

Background

Electricity is unique. First, it cannot be stored in very large quantities (yet). Second, for technical reasons implied by the laws of physics (not among the laws this Court interprets authoritatively), the supply of electricity must match demand in real time; otherwise, the electrical system is susceptible to massive and highly disruptive blackouts and brownouts, which can cascade across the state and the country. Third, much of everyday life depends on its reliable supply, from smartphone addiction to the operation of businesses to the defense of the nation. Given electricity's distinct qualities and our dependence on its ready availability for virtually everything, state and federal governments regulate power markets carefully, and the regulatory regime is complex.

By way of relevant background, state governments regulate retail power markets, while the federal government regulates wholesale power markets—where electricity generators send power to those who will ultimately deliver it to consumers—and the transmission of electricity among states.

Given the importance of meeting demand, the federal government also regulates "capacity." As noted above, capacity is the ability to satisfy demand for electricity when demand peaks. In a capacity market, electricity suppliers make the guarantee that they can indeed meet demand at the hypothetical highest-use moments.¹

Michigan has four categories of electricity providers that sell to retail customers: (1) investor-owned utilities, commonly referred to, simply, as utilities (or public utilities); (2) municipally owned utilities (munis); (3) cooperative electric utilities (coops); and (4) alternative electric suppliers. The Legislature delegated regulatory authority to the MPSC to "regulate all rates, fares, fees, charges, services, rules, conditions of service, and all other matters pertaining to the formation, operation, or direction of public utilities." MCL 460.6(1).² Because alternative electric suppliers are not public utilities, they are not subject to the MPSC's complete power and jurisdiction, although they are subject to the MPSC for some purposes. Compare MCL 460.6 with MCL 460.10g(1)(a).

Evolving regulatory regimes

Historically, geography determined a consumer's electricity provider. The customer base for early utilities, munis, and coops was located within the geographic areas each served. For practical reasons—the wires connecting providers and consumers only ran so far and could carry only so much electricity—a provider could sell electricity only within its geographical boundary, and a consumer could not receive service from a provider outside that boundary. This was the noncompetitive era of electricity.

The energy shortages of the 1970s along with technological and infrastructure improvements over recent decades eventually led to policy changes toward increased competition in electricity markets in many parts of the country. Reflecting such...