Energy Mich., Inc. v. Scripps

• Decision Date: 15 July 2021
• Docket Number: Case Number 20-12521
• Parties: ENERGY MICHIGAN, INC., and Association of Businesses Advocating Tariff Equity, Plaintiffs, v. Daniel C. SCRIPPS, Sally A. Talberg, and Tremaine L. Phillips, Defendants, and Consumers Energy Company, Intervening defendant.
• Court: U.S. District Court — Eastern District of Michigan

549 F.Supp.3d 647

ENERGY MICHIGAN, INC., and Association of Businesses Advocating Tariff Equity, Plaintiffs,

v. Daniel C. SCRIPPS, Sally A. Talberg, and Tremaine L. Phillips, Defendants,andConsumers Energy Company, Intervening defendant.

Case Number 20-12521

United States District Court, E.D. Michigan, Southern Division.

Signed July 15, 2021

Brion B. Doyle, Varnum, Riddering, Grand Rapids, MI, for Plaintiff Energy Michigan, Inc.

Michael J. Pattwell, Zachary C. Larsen, Clark Hill, PLC, Lansing, MI, Stephen A. Campbell, Clark Hill PLC, Detroit, MI, for Plaintiff Association of Businesses Advocating Tariff Equity.

Benjamin Holwerda, Nicholas Quinn Taylor, Spencer A. Sattler, Michigan Attorney General's Office, Public Service Division, Lansing, MI, for Defendants.

Kelly M. Hall, Consumers Energy Company Legal Department, Jackson, MI, for Intervening Defendant.

OPINION AND ORDER DENYING DEFENDANTS’ MOTION TO DISMISS

DAVID M. LAWSON, United States District Judge

The plaintiffs, associations representing electric power sellers and industrial electricity customers, have filed a complaint challenging orders issued by the Michigan Public Service Commission (MPSC) that implement legislation regulating the amount of electrical generating capacity required of energy suppliers. The orders establish "local clearing requirements," a term that refers to the amount of electricity that a supplier must obtain from sources within certain federally designated geographic zones. The plaintiffs seek a declaration that the orders violate the Constitution's Commerce Clause, U.S. Const. art. I, § 8 cl. 3, contending that the orders favor in-state electrical producers and suppliers over their out-of-state counterparts. The defendants — the commissioners and chairperson of the MPSC — move to dismiss the complaint, arguing that it fails to state a viable claim. At oral argument, the Court granted the motion in part and dismissed the MPSC as a defendant because the lawsuit against it is prohibited by the Eleventh Amendment and the State's sovereign immunity. Because the complaint states a viable claim that the remaining defendants must rebut with a factual presentation, the motion will be denied in all other respects.

I.

Electricity, a commodity that is essential to modern life, cannot be stored easily in quantities that are required daily by commercial and residential users. It must be generated in volumes that match demand in real time and transmitted over facilities that minimize degradation and maximize reliability. All of that is accomplished in this region through an electrical grid — that is, an interconnected network for electricity delivery from producers to consumers — which is jointly regulated by federal and state authorities. The federal government regulates the wholesale electric power market (with some exceptions), and state governments regulate the retail markets. See F.E.R.C. v. Elec. Power Supply Ass'n , 577 U.S. 260, 264, 136 S.Ct. 760, 193 L.Ed.2d 661 (2016) (citing the Federal Power Act, 41 Stat. 1063, as amended, 16 U.S.C. § 791a et seq. ).

Federal regulatory authority for wholesale energy and transmission markets is lodged in the Federal Energy Resource Commission (FERC) under the Federal Power Act. The Michigan legislature has charged the MPSC with the responsibility of regulating retail electricity markets within the state. Both entities share the task of ensuring adequate capacity (sometimes referred to as "resource adequacy"), meaning that electrical energy suppliers must be able to deliver electricity to customers during times of peak demand.

Over 20 years ago, FERC conferred authority on institutions known as Regional Transmission Organizations (RTO) to regulate wholesale markets. These institutions are comprised of public and non-public utilities, state officials, and certain interest groups, and, although participation is voluntary, the organizations address operational and reliability issues. Reg'l Transmission Orgs. , 90 FERC ¶ 61, 201, at 1, 4 (2000). The primary RTO that oversees the wholesale electricity market in the Midwest is the Midcontinent Independent System Operator, Inc., or "MISO," established in 2001. It engages in forward planning for successive one-year periods to ensure that the market will have the capacity to deliver a supply of electricity to meet demand when it is at its highest. Its jurisdiction is divided into ten local resource zones. Zone 7 comprises most of Michigan's lower peninsula, and the Upper Peninsula is in Zone 2, along with much of Wisconsin. See MISO, 2020/2021 Planning Res. Auction (PRA) Results (April 14, 2020), p. 5, available at https://cdn.misoenergy.org/2020-2021% 20PRA% 20Results442333.pdf (last visited July 12, 2021).

In many states, the supply of electricity to retail consumers is controlled by a single state-owner or regulated utility responsible for "electricity generation, transmission, and sale to retail consumers." Hughes v. Talen Energy Mktg., LLC , 578 U.S. 150, 136 S. Ct. 1288, 1292, 194 L.Ed.2d 414 (2016). Michigan is one of a handful of states (17 in number) that has partially deregulated retail energy markets; it allows other electrical suppliers to sell electricity to retail customers. There are four "categories" of such suppliers: (1) public utilities (i.e., investor-owned utilities, like intervening defendant Consumers Energy Company); (2) municipal-owned utilities; (3) cooperative electric utilities; and (4) alternative electricity suppliers. In re Reliability Plans of Elec. Utils. for 2017-2021 , 505 Mich. 97, 104, 949 N.W.2d 73, 78 (2020).

This case primarily involves the fourth category: alternative electricity suppliers. Those entities do not generate electricity; they buy it from other sources, in some instances well beyond the State's boundaries. They do not build or maintain transmission facilities; they use other electricity providers’ infrastructure to deliver it to their customers. They are, in a sense, electricity power brokers that furnish their customers an "alternative" for the upstream provider of their electricity. The label "alternative electricity supplier" has no relation to the means of electricity generation, such as renewable energy.

Alternative energy suppliers came into the picture after Michigan partially deregulated its energy markets in 2000, allowing retail customers to purchase electricity from a provider other than a local utility. Mich. Pub. Acts 141, 142 (2000). Alternative energy suppliers "are not subject to the MPSC's complete power and jurisdiction, although they are subject to the MPSC for some purposes." In re Reliability Plans , 505 Mich. at 104, 949 N.W.2d at 78. For instance, the state legislature charged the MPSC with ensuring that alternative electricity suppliers furnish no more than 10% of any utility's average retail sales. Mich. Pub. Act 286 (2008).

Another area within the MPSC's jurisdiction deals with capacity. In 2016, to address concerns about the long-term reliability of the State's electricity supply, the Michigan Legislature passed Public Act 341 of 2016 ("Act 341"), which is the subject of this action. Act 341 maintained the 10% retail electric choice cap and added new, state-specific capacity obligations. See Mich. Comp. Laws § 460.6w. That statute "require[s] each electricity provider to demonstrate enough capacity, including in-state capacity, to meet peak demand." In re Reliability Plans , 505 Mich. at 127, 949 N.W.2d at 90.

The legislation authorizes the MPSC to coordinate retail capacity regulation with the wholesale retail electricity market regulated by MISO. Ibid. (Section "460.6w uses capacity measurement vocabulary also used by MISO in its capacity planning and has the same goal — ensuring grid reliability by requiring that each provider supply enough electric capacity and enough local capacity.").

Each year, electricity providers (sometimes called "load serving entities"), including public utilities and alternative electricity suppliers, submit to MISO their anticipated electricity capacity (the amount of electricity output that a generation unit can produce reliably), so that MISO can ensure short-term reliability. Mot. Intervene, ECF No. 16, PageID.232-33. MISO also sets a "planning reserve margin requirement" for each provider. In Re Reliability Plans , 505 Mich. at 109, 949 N.W. 2d at 81 (citing Midcontinent Indep. Sys. Operator, Inc. , 165 FERC ¶ 61,067, at p. 2 (2018) ). Under this planning requirement, an electricity provider must demonstrate that it not only has enough overall capacity but that enough of its capacity is generated locally (the "local clearing requirement"). Ibid.

The Michigan Supreme Court observed that efficiency in the wholesale electricity market "requires some geographically based planning" because "when there are insufficient local resources available to meet demand, resources must come from afar." Id. at 110, 949 N.W. 2d at 81. And reliance on distant resources can undermine reliability "[g]iven the constrains of the electrical grid in moving power large distances from state to state." Ibid. (citing Borenstein & Bushnell, Electricity Restructuring: Deregulation or Reregulation? , 23 Reg. 46, 51 (2000)).

MISO's local clearing requirement sets the total amount of capacity that must originate within a MISO zone to reduce the risk of blackouts. Midcontinent Indep. Sys. Operator, Inc. , 165 FERC ¶ 61,067, at p. 2 (2018). MISO determines these capacity thresholds by ascertaining the amount of electricity resources a zone's grid reasonably could be expected to import during peak demand times (i.e., MISO calculates anticipated congestion constraints on out-of-zone resources). In Re Reliability Plans , 505 Mich. at 111, 949 N.W. 2d at 82. The rest must be supplied from within each respective zone. Ibid.

MISO enforces these requirements using certain economic tools that derive from market forces. For instance, electricity producers satisfy the local clearing requirements by...