Energy Mich., Inc. v. Scripps

• Decision Date: 23 February 2022
• Docket Number: Case Number 20-12521
• Citation: 587 F.Supp.3d 581
• 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

587 F.Supp.3d 581

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.

Case Number 20-12521

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

Signed February 23, 2022

587 F.Supp.3d 583

Tim Lundgren, Potomac Law Group, Lansing, MI, 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, State of Michigan Department of Attorney General, 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, Zachary C. Larsen, Clark Hill PLC, Lansing, MI, for Intervening Defendant.

OPINION AND ORDER DENYING MOTIONS FOR SUMMARY JUDGMENT

DAVID M. LAWSON, United States District Judge

In a complaint, the plaintiffs allege that certain orders issued by the Michigan Public Service Commission (MPSC) that implement legislation regulating the amount of electrical generating capacity required of energy suppliers violate the Constitution's Commerce Clause, U.S. Const. art. I, § 8 cl. 3. The legislation, known as Act 341 passed in 2016, created a State Reliability Mechanism (SRM) intended to ensure the reliable delivery of electricity to the state's retail consumers. As explained in an earlier opinion in this case denying the defendants’ motion to dismiss, plaintiff Energy Michigan, Inc. is an association representing electric power sellers, known as "alternative energy suppliers" (AES); plaintiff Association of Businesses Advocating Tariff Equity (ABATE) represents industrial electricity customers. Energy Michigan, Inc. v. Scripps , 549 F.Supp.3d 647, 650-51 (E.D. Mich. July 15, 2021). The MPSC's orders establish "local clearing requirements" (LCRs), a term that refers to the amount of electricity that a supplier must obtain from sources within certain federally designated geographic

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zones. The plaintiffs seek a declaration upsetting those orders so they can import and sell electricity from outside the resource zone without any obligation to ensure that a portion of it is generated within the zone. They contend that the orders economically disadvantage them and favor local electric utilities. The defendants, including the intervening defendant, contend that the orders are lawful and necessary to ensure the long-term health and reliability of the grid that furnishes electricity to retail customers in Michigan. All parties have moved for summary judgment. The motions are fully briefed, and oral argument will not assist in their disposition. The Court, therefore, will decide the motion on the papers submitted. E.D. Mich. LR 7.1(f)(2).

As discussed in the earlier opinion, a Commerce Clause challenge of this nature requires the Court to determine first whether the state law discriminates against interstate commerce on its face, or in its essential purpose, or in "practical effect." See Energy Michigan , 549 F.Supp.3d at 659-61 (citing Cherry Hill Vineyards, LLC v. Lilly , 553 F.3d 423, 431-32 (6th Cir. 2008) ). If it does, the law is invalid unless the state shows a legitimate local purpose that cannot be served by alternate, nondiscriminatory means. If the law does not discriminate and has only incidental effects on interstate commerce, the Court then must determine if the burden on interstate commerce is "clearly excessive" when measured against the local benefits. Pike v. Bruce Church, Inc. , 397 U.S. 137, 142, 90 S.Ct. 844, 25 L.Ed.2d 174 (1970).

The record presented by the parties shows that the MPSC's local clearing rule does not discriminate against interstate commerce on its face, and its purpose is not to benefit in-state economic interests at the expense of out-of-state commercial actors. However, the evidence presents a question of fact whether the local clearing rule discriminates in practical effect against alternative energy suppliers. Similarly, fact questions preclude a determination as a matter of law on whether the state's legitimate purpose of ensuring electrical grid health and security can be achieved in a nondiscriminatory way. And the balancing under Pike is so fact-bound that summary judgment is not a viable option for resolving the questions presented. Therefore, the motions for summary judgment will be denied.

I.

A.

The rather complex background of the MPSC's orders in the context of the complimentary scheme of federal and state regulations of the electric power grid was discussed in the earlier opinion denying the motion to dismiss. See Energy Michigan , 549 F.Supp.3d at 650-54. Those facts (taken from the complaint and the public record) are incorporated here, supplemented below by the discovery record that the parties submitted.

Until the year 2000, Michigan electricity customers purchased their electric power almost exclusively from local utility companies. In that year, the state legislature passed the Customer Choice and Electricity Reliability Act, Public Acts 141 and 142 of 2000, Mich. Comp. Laws § 460.10 et seq. , which allowed electricity customers the option of purchasing electricity from an alternative electricity supplier. The legislature later capped AESs’ market share at 10%. Public Act 286 (2008), Mich. Comp. Laws § 460.10a(1)(a). Currently, in Michigan there are four "categories" of electricity suppliers, sometimes referred to as "load servicing entities" (LSEs): (1) public utilities (i.e., investor-owned utilities, like intervening

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defendant Consumers Energy Company); (2) municipal-owned utilities; (3) cooperative electric utilities; and (4) alternative electricity suppliers. In re Reliability Plans of Elec. Utilities for 2017-2021 , 505 Mich. 97, 104, 949 N.W.2d 73, 78 (2020). The first three categories generally generate and deliver their own electricity. AESs provide electricity to retail customers through the existing local infrastructure. They do not necessarily generate the electricity they sell, and they may obtain some or all of it from sources outside Michigan. The MPSC, as authorized by the state legislature, has promulgated rules that prescribe the amount of electricity that LSEs must source within certain regions within Michigan. Those rules are the subject of the plaintiffs’ challenge in this case.

As explained in the earlier opinion, because electricity cannot be stored easily at present, an electric grid network is used to deliver electrical energy to consumers in a way that allows generation (supply) to match demand in real time. Under the Federal Power Act, as amended, 41 Stat. 1063, 16 U.S.C. § 791a et seq. , the Federal Energy Resource Commission (FERC) is given the responsibility for regulating wholesale energy and transmission markets, 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). States regulate the retail markets within their boundaries. Ibid. In Michigan, that responsibility falls to the MPSC. The two agencies work cooperatively to ensure that there is adequate capacity so that energy suppliers will be able to meet commitments to deliver electricity to customers continuously, especially during times of peak demand.

B.

All parties acknowledge that ensuring the availability of adequate electricity generation capacity to meet demand requires considerable planning. FERC has conferred regulatory authority upon Regional Transmission Organizations (RTO) to plan for resource adequacy in wholesale markets. RTOs are comprised of public and non-public utilities, state officials, and certain interest groups. Reg'l Transmission Orgs. , 90 FERC ¶ 61,201, at 1, 4 (2000). The Midcontinent Independent System Operator, Inc., or "MISO," established in 2001, is the RTO that oversees electricity transmission planning for fifteen states in the Midwest and South (and one Canadian province), including nearly all of Michigan.

MISO's forward planning for resource adequacy focuses on 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 February 18, 2022).

One physical reality incorporated into planning decisions is that electrical energy degrades when it is transmitted over long distances due to energy losses that naturally occur over transmission facilities and "transmission constraints," terms that refer to the current-carrying capability of the facilities in the transmission system. Dauphinias Aff., ¶¶ 116-117, 119-120, ECF No. 55-4, PageID.21019-20. To address those energy losses, MISO implements a local clearing rule as part of its overall planning. Each year, electricity suppliers submit to MISO their anticipated electric capacity (the amount of electricity output that a generation unit can produce reliably),

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so that MISO can ensure short-term reliability. In re Reliability Plans , 505 Mich. at 109, 949 N.W.2d at 81. MISO also sets a "planning reserve margin requirement" (PRMR) for each provider. Ibid. (citing Midcontinent Indep. Sys. Operator, Inc. , 165 FERC ¶ 61,067, at p. 2 (2018) ). Under this planning requirement, electricity providers must demonstrate that they not only have enough overall capacity for the upcoming year but that enough capacity is generated locally (the "local clearing requirement"). Id. at...