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.
