Renewable energy contract case in Michigan could set precedent

The MPSC bases its authority to set rates for Consumers, DTE and other utilities on a 1978 federal law, the Public Utility Regulatory Power Act, which requires regulated utilities to purchase power from renewable power generators under 20 megawatts.

Under PURPA, utilities must pay the price based on the “avoided costs” to generate the same amount of power used in the current standard power-generation source, which used to be coal.

Since the MPSC’s May 31 order, the state’s approved avoided cost methodology is now based on natural gas generation with several energy and capacity factor adjustments. The last time Consumers agreed to contract prices with independent, qualified facility renewable power owners was in 1982.

The three-member MPSC now must decide whether to support rates based on a modified avoided cost methodology that the IPPC contends is 20 percent to 30 percent lower than the previous two staff recommendations and lower than current contracts. The rates also “do not reflect similar costs that Consumers receives to run its own similarly-situated facilities,” the IPPC said.

On the utility side, Consumers and other utilities say they want to pay the lowest price possible to keep electricity rates down for customers. But renewable energy operators say they need fair prices that also comport with federal law to continue operations and build for the future.

Margrethe Kearney, a staff attorney in Grand Rapids with Environmental Law and Policy Center, said ELPC believes the MPSC staff’s third recommendation on June 19 is in error and has objected in a response to the commission. She said ELPC supported the commission staff’s first recommendation and felt the rates complied with federal law and would sustain the small renewable operators.

Kearney said the third set of numbers lowered prices by at least 20 percent.

“One of the goals of PURPA is by reaching the right avoided cost you are properly incentivizing small independent power producers, like hydro, to help meet renewable goals. It strengthens the grid and you have a national security benefit,” Kearney said. “If avoided costs are too low, like double counting inflation, customers get hurt because you have falsely low avoided costs.”

Gary Melow, director of Michigan Biomass, said the PURPA avoided cost formula must fairly price projected electric capacity and energy production provided by the independent power producers.

Melow said Michigan Biomass, which is not a part of the case before the commission, has three members in IPPC — the Hillman Power Co., Viking Energy of Lincoln, and Viking Energy of McBain.

Darwin Baas, director of the Kent County Department of Public Works, said preliminary rate projections Consumers would pay for the county’s 15-megawatt waste-to-energy facility range from 6 cents to 6.5 cents per kilowatt hour, down from its current 8.5 cent rate.

Kent County stands to lose $2.5 million in annual electrical revenue if the MPSC recommendation stands, Baas said. Kent County’s contract with consumers expires in early 2022. The county recently made a $2 million refurbishment investment on its plant that employs 40 workers, Baas said.

“We continue to push back and do not think the (MPSC) staff-proposed proxy figures are anywhere near reality nor accurately represent Consumers Energy actual avoided cost calculations for electrical generation,” Baas said. “We’re worried to say the least.”

James Charles is director of operations with Sacramento, Calif.-based Fortistar Biomass Group, which owns Hillman, a 20 megawatt biomass plant that powers about 14,000 homes.

Charles said the MPSC staff has been recommending declining rates the past month. He said the impact to Hillman won’t be known until the commission’s decision.

“We are concerned. We have been providing renewable energy at Hillman’s for 30 years. We want to continue to generate renewable energy as long as the commission comes up with a fair rate,” Charles said.

IPPC’s other members include Lansing-based Granger Energy Services (landfill gas) and about 22 other hydroelectric facilities, among them Boyce Hydro; Michiana Hydro Electric Co.; Tower Kleber LP/Black River LP; the city of Beaverton; and Elk Rapids Electric Power.

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