In re Review of Consumers Energy Co. Renewable Energy Plan

• Decision Date: 12 July 2011
• Docket Number: Docket No. 292659.
• Citation: 820 N.W.2d 170,293 Mich.App. 254
• Parties: In re REVIEW OF CONSUMERS ENERGY COMPANY RENEWABLE ENERGY PLAN.
• Court: Court of Appeal of Michigan — District of US

293 Mich.App. 254

820 N.W.2d 170

In re REVIEW OF CONSUMERS ENERGY COMPANY RENEWABLE ENERGY PLAN.

Docket No. 292659.

Court of Appeals of Michigan.

Submitted May 11, 2011, at Lansing.

Decided July 12, 2011, at 9:00 a.m.

Clark Hill PLC (by Roderick S. Coy, Lansing, and Robert A.W. Strong) for the Association of Businesses Advocating Tariff Equity.

Bill Schuette, Attorney General, John J. Bursch, Solicitor General, and Steven D. Hughey and Kristin M. Smith, Assistant Attorneys General, for the Public Service Commission.

Jon R. Robinson and Raymond E. McQuillan, Jackson, for Consumers Energy Company.

Olson, Bzdok & Howard, P.C., Traverse City (by Christopher M. Bzdok), for the Michigan Environmental Council and the Natural Resources Defense Council.

Before: MARKEY, P.J., and FITZGERALD and SHAPIRO, JJ.

MARKEY, P.J.

Appellant, the Association of Businesses Advocating Tariff Equity (ABATE), appeals by right a May 26, 2009, order of the Michigan Public Service Commission (PSC), issued in In re Review of Consumers Energy Company Renewable Energy Plan (PSC Case Nos. U–15805 and U–15889), approving the energy optimization (EO) plan and renewable energy (RE) plan submitted by Consumers Energy Company pursuant to Michigan's Clean, Renewable, and Efficient Energy Act, 2008 PA 295, MCL 460.1001 et seq. (the Act).¹ We affirm.

I. BACKGROUND

A. GENERAL PROVISIONS

The Act became effective on October 6, 2008. MCL 460.1191 provides that the PSC was to issue a temporary order implementing the Act within 60 days of its passage. Among the Act's other provisions, part 2(A) requires regulated electric utilities to adopt “renewable energy plans” in which the electric companies are required to demonstrate how they will achieve compliance with the Act's requirements for obtaining electric capacity and energy production from “renewable energy resources” as defined in the Act. See MCL 460.1011(h) and (i); MCL 460.1021 to MCL 460.1053. The Act requires Consumers Energy to meet: (1) a standard for new renewable energy capacity, and (2) a standard for its renewable energy credit portfolio. MCL 460.1027. The renewable energy capacity standard for Consumers Energy is 500 megawatts (MW) by December 31, 2015.²MCL 460.1027(1)(a). The renewable energy credit portfolio standard will, by 2015, result in 10 percent of the total megawatt hours (MWh) sold to retail customers being obtained from renewable energy resources. MCL 460.1027(3) through (5). To meet their goals, companies may use and trade “renewable energy credits” (REC).³MCL 460.1011(d). Consumers Energy and other companies may build or own up to 50 percent of the renewable energy systems necessary to meet their REC requirements and are required to purchase at least 50 percent of their required RECs through power purchase agreements (PPAs) with independent energy developers. See MCL 460.1033(1)(a). Utilities are allowed to recover the cost of the renewable energy program in two ways. First, they will receive a price that represents what the same amount of energy would have cost (in MWh) had it been acquired from conventional sources through a proceeding similar to the utilities' general power supply cost recovery process. See MCL 460.1049(3)(c) and MCL 460.6j. Utilities will then pass on to their customers the rest of the cost of renewable energy through an “incremental cost of compliance” surcharge that represents the additional cost of complying with the renewable energy program. MCL 460.1011( l ). This surcharge is assessed on a per meter or “ nonvolumetric mechanism” basis and is capped at $3 a month for residential customers, $16.58 a month for commercial customers and $187.50 a month for industrial customers. MCL 460.1021(3); MCL 460.1045. The surcharge will be assessed for the 20–year life of the program and can be front-loaded so that the utility can build up a balance from excess revenues during early years of the program and use that balance to fund revenue shortfalls during the program's later years. MCL 460.1047(3). The company's renewable energy plan, outlining how it will meet the REC requirements, the projected costs of doing so, and its proposed cost recovery mechanisms, including the transfer price and the 20–year levelized surcharge for the incremental cost of compliance, is reviewed through a contested case proceeding. The PSC cannot approve the plan unless it is reasonable and prudent and the company demonstrates that the incremental cost of developing clean energy sources—minus the energy saved in the company's energy optimization plan—is less, over the projected life cycle of the source, than the incremental cost of developing new coal-fired power plants. MCL 460.1021(6).

Part 2(B) of the Act requires, among other things, that regulated electric and natural gas providers adopt “energy optimization” plans. MCL 460.1005(e). Broadly speaking, an energy optimization plan is designed to reduce the demand for energy and provide for load management, thereby reducing the future costs of providing service to customers, “[i]n particular ... to delay the need for constructing new electric generating facilitiesand thereby protect consumers from incurring the costs of such construction.” MCL 460.1071(2). See also MCL 460.1001(2). Combination utilities, such as Consumers Energy, are to adopt both electric and natural gas energy optimization plans. The Act provides companies with the option of enacting their own energy optimization plans, with PSC approval, MCL 460.1071 to MCL 460.1089, or of turning to an “independent energy optimization program administrator,” a nonprofit organization selected by the PSC through a competitive bid process. MCL 460.1091. Certain electric customers can also opt to enact a self-directed energy optimization plan. MCL 460.1093. Pertinent to this appeal, gas or electric companies are permitted to recover certain costs for the energy optimization plans from their customers, MCL 460.1089; MCL 460.1091, while electrical customers who have a self-directed plan would be exempt from some of the utilities' plan costs. MCL 460.1093(1).

B. INSTANT CASES

After the enactment of the Act, the PSC conducted meetings and discussions on a proposed order and released its temporary order on December 4, 2008, followed by amendatory orders on December 23, 2008, and January 13, 2009. In re Temporary Order to Implement 2008 PA 295 (PSC Case No. U–15800).⁴ At the same time, to comply with the strict time limits placed on the PSC to complete the initial phases of the implementation process, see MCL 460.1021; MCL 460.1073, the PSC opened cases for all rate regulated electric and natural gas distribution companies, including two for Consumers Energy.

While the two cases in the instant appeal began separately, they were subsequently consolidated at the request of Consumers Energy. Consumers Energy then filed a Notice of Intent to File Applications to seek review and approval of its energy optimization and renewable energy plans. Seventeen entities, including ABATE, the Michigan Environmental Council (MEC), the Natural Resources Defense Council (NRDC), the Michigan Cable Telecommunications Association, and the Michigan Sustainable Energy Coalition petitioned to intervene.⁵ On February 17, 2009, Consumers Energy filed its application for approval of both plans.

With respect to its renewable energy plan, Consumers Energy proposed that to meet its goal that 10 percent of its retail sales consist of energy generation from qualifying renewable energy sources, see MCL 460.1027(3), it intended to add 200 MW of renewable energy capacity by the end of 2013, 500 MW of renewable energy capacity by the end of 2015, and 900 MW of renewable energy capacity by 2017. Consumers Energy planned that wind generation sources would provide most of the capacity and that it would build approximately half of its wind capacity (450 MW) itself and buy the other half through PPAs with other companies. Consumers Energy also proposed an experimental plan to partner with retail customers to derive some capacity from their wind and other renewable electricity generation systems. Consumers Energy estimated the cost of its plan at approximately $5.3 billion, with an offset of $3.5 billion for the transfer price. The remaining $1.8 billion for the incremental cost of compliance would be surcharged to Consumers Energy's customers over a 20–year period.

In addition to this proposal concerning its renewable energy plan, Consumer's Energy presented its proposed energy optimization plan. With respect to the issues on appeal, Consumers Energy proposed various energy optimization plan surcharges for its different customer classes. Among other surcharges it sought to impose on customers for implementation of the plan was a surcharge of $0.1588/Mcf ⁶ on its natural gas “gas transportation only” customers ⁷ who used from 0 to 100,000 Mcf the previous year, and a surcharge of $0.0053/Mcf for transportation only customers who used over 100,000 Mcf the previous year.

From April 13, 2009, to April 16, 2009, a hearing was conducted on Consumers Energy's application. For purposes of this appeal, the dispute with respect to Consumers Energy's renewable energy plan involves its projected costs of wind energy, in particular its proposal to build 450 MW of wind generation facilities. Consumers Energy presented the testimony of Thomas Swartz, a principal analyst in the company's Risk, Strategy, and Financial Advisory Services group, concerning Consumers Energy's decision to build its own generation facilities. He testified that Consumers Energy had decided to do so for several reasons, including: (1) substantial savings that could be generated by “gaining economies of scale,” providing the chance to negotiate favorable contracts for the purchase of turbines and other equipment, (2) to balance the risks of complying with the Act, in particular the availability and pricing risks of purchasing adequate capacity through PPAs...