Ass'n of Businesses Advocating Tariff Equity v. Mich. Pub. Serv. Comm'n, Consumers Energy Co. (In re For)

• Decision Date: 12 July 2018
• Docket Number: No. 340607,No. 340600,340600
• Citation: 325 Mich.App. 207,926 N.W.2d 584
• Parties: IN RE RELIABILITY PLANS OF ELECTRIC UTILITIES FOR 2017-2021. Association of Businesses Advocating Tariff Equity, Appellant, v. Michigan Public Service Commission, Consumers Energy Company, Energy Michigan, Inc., and Michigan Electric and Gas Association, Appellees. 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.
• Court: Court of Appeal of Michigan — District of US

325 Mich.App. 207

926 N.W.2d 584

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

Association of Businesses Advocating Tariff Equity, Appellant,

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

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.

No. 340600

No. 340607

Court of Appeals of Michigan.

Submitted May 9, 2018, at Lansing.

Decided July 12, 2018, at 9:00 a.m.

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

Bill Schuette, Attorney General, Aaron D. Lindstrom, Solicitor General, B. Eric Restuccia, Chief Legal Counsel, Ann M. Sherman, Assistant Solicitor General, and Steven D. Hughey, Spencer A. Sattler, and Lauren D. Donofrio, Assistant Attorneys General, for the Michigan Public Service Commission.

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

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

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 on individual alternative electric suppliers. In Docket No. 340607, Energy Michigan additionally contends that the MPSC’s order purports to impose new rules on 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 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, MCL 460.10 et seq., as enacted by 2000 PA 141 and 2000 PA 142, 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 limiting customers to purchasing electricity from incumbent utilities, such as appellee Consumers Energy Company (Consumers). Consumers Energy Co. v. Pub. Serv. Comm. , 268 Mich.App. 171, 173, 707 N.W.2d 633 (2005). 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).

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 on 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. The auction allows suppliers to buy and sell electricity capacity and acquire enough capacity to meet their planning reserve margin requirement. The auction also 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,⁶ which imposes resource adequacy requirements on electric service providers in Michigan and imposes certain responsibilities on the MPSC. Under MCL 460.6w(2), the MPSC is required under certain circumstances to establish a "state reliability mechanism." That subsection 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 § 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 consistently with § 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).]

Thus, § 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 § 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

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