Energy Generation

The issue presented in this case is whether the Michigan Public Service Commission (MPSC) is empowered to levy a tax on all customers of Consumers Energy (Consumers).[1] The purpose of this tax is to subsidize the development of renewable-energy sources, so a general understanding of electricity generation and energy markets will help provide context in the instant case.

Electricity is measured commercially in "watt-hours,"[2] with kilowatt-hours (1,000 watt-hours) typically used to measure residential energy use, and megawatt-hours (1 million watt-hours) typically used to measure the electricity generated by power plants. In the United States in 2004, there were roughly 3,953 million megawatt-hours (MWh) of electricity generated.[3] This electricity originated from three main fuel sources: (1) fossil fuels (used by coal and gas plants); (2) nuclear power; and (3) renewable energy, such as wind power. Fossil fuels included coal (1,976 million MWh), petroleum (118 million MWh), and natural gas (700 million MWh). Nuclear plants generated 789 million MWh. Renewable power sources included hydroelectric (270 million MWh), wood (37.3 million MWh), waste (22.7 million MWh), geothermal (14.4 million MWh), solar (0.6 million MWh), and wind (14.2 million MWh).

The latest readily accessible figures for energy production in Michigan are from 2002.[4] In that year, about 118 million MWh of electricity were generated. The majority came from fossil fuels: coal (67 million MWh), petroleum (1.1 million MWh), natural gas (16 million MWh), and other gases (0.01 million MWh). Nuclear plants generated 31 million MWh. Figures for renewable-energy power are readily available in only two categories: hydroelectric (0.6 million MWh), and "other" (2.5 million MWh).

According to the Michigan Department of Labor & Economic Growth, there are currently only three wind turbines in Michigan.[5] The oldest one, which was installed in 1996, can generate 600 kilowatts and is owned by Traverse City Power and Light. The other two, which were installed in 2001, can generate 900 kilowatts apiece. These latter two wind turbines are owned by Mackinaw Power, LLC, which is one of the two entities that filed the application petitioning the MPSC to create the tax in the instant case. The other entity that filed was North American Wind Energy, LLC, which to date has not constructed a single wind turbine in Michigan.

Two companies dominate the Michigan electricity market, Detroit Edison, which provided around 48 million MWh in 2002, and Consumers Energy, which provided about 36 million MWh in 2002. (Consumers is the company involved in this litigation.) The next highest supplier was Indiana Michigan Power Co., which provided around 3 million MWh.

As the figures above indicate, the vast majority of power produced in the United States and Michigan comes from fossil fuel and nuclear plants. Coal and natural gas are relatively cheap commodities, and the plants that burn them are generally efficient. But fossil fuel plants do emit carbon dioxide and sulfur dioxide. Nuclear power plants do not produce these emissions and therefore are considered more efficient than fossil fuel plants. Still, they generate nuclear waste, which can be harmful if not properly disposed of.

Some people believe that renewable-energy sources can reduce demand for fossil fuels and nuclear energy. But renewable sources are far more costly and in some cases do not provide the dependability of fossil fuels and nuclear energy. For example, wind and solar power are weather-dependent, while coal, oil, natural gas, and nuclear power can produce energy on demand.

Since electricity cannot be stored, the unpredictability of some renewable-energy sources makes them less attractive in the marketplace. The market for electricity is required to make available not just the amount of power actuarially forecast for that time and day, but also a government-regulated overage to meet unanticipated demand surges. The market thus places a premium on reliability.

The MPSC has deemed that the production of more renewable energy would benefit Michigan. In the commission’s May 18, 2004 Order in In re Mackinaw Power, LLC, MPSC Case No. U-13843, the MPSC stated:

[T]he Commission is persuaded that the time is right for the Commission to take another step in the direction of promoting renewable resources. . . . [G]reen power programs are favored by the public and have flourished in other jurisdictions. Green power has far less of the expensive and health hazardous externalities frequently associated with fossil fuel power production.

Id. at 12.[6] Unfortunately, in this order, the MPSC took a statute that merely created a renewable-energy information program and stretched it into a purported justification for the commission’s taxing all of Consumers’ customers to subsidize renewable-energy facilities. This was a violation of Michigan law and the Michigan Constitution.


[1] The rationale for the use of the term "tax" will be discussed in Argument I. In brief, when a charge is imposed on everyone to raise revenue independent of the service rendered, it is a "tax." When someone pays an amount that reflects the value of a service rendered, the payment is a "fee."

[2] A watt-hour is an intuitive concept. Using light bulbs as an example, a 75-watt bulb that is on for four hours will use 300 watt-hours of energy.

[3] The source of the information for this paragraph is the U.S. government’s Energy Information Administration. The electricity generation table for 1949 to 2004 is located at the following Web address: http://www.eia.doe.gov/emeu/aer/pdf/pages/sec8_8.pdf. Note that the figures in this federal government table are provided in billions of kilowatt-hours. This unit is mathematically equivalent to "millions of megawatt-hours," and the latter unit is used in this brief to provide an easier comparison to Michigan’s figures and to other industry data.

[4] The source of the information for this paragraph is the U.S. government’s Energy Information Administration. The Michigan profile for 2002 is located at the following Web address:
http://www.eia.doe.gov/cneaf/electricity/st_profiles/michigan.pdf.

[5] This wind-turbine information is located at the following Web address: http://www.michigan.gov/documents/CIS_EO_Wind_Chart_140011_7.pdf.

[6] MPSC case orders are available online at http://www.dleg.state.mi.us/mpsc/orders/electric/. Unfortunately, the database is unwieldy, since users cannot search for an order by case number. Instead, they must locate a particular order by identifying the month, date, and year it was issued.