Statement of Facts

The Customer Choice and Electricity Reliability Act (CCERA), 2000 PA 141, became effective June 5, 2000. The Legislature stated that the purpose of the act was the following:

(a) To ensure that all retail customers in this state of electric power have a choice of electric suppliers.

(b) To allow and encourage the Michigan public service commission to foster competition in this state in the provision of electric supply and maintain regulation of electric supply for customers who continue to choose supply from incumbent[1] electric utilities.

(c) To encourage the development and construction of merchant plants which will diversify the ownership of electric generation in this state.

(d) To ensure that all persons in this state are afforded safe, reliable electric power at a reasonable rate.

(e) To improve the opportunities for economic development in this state and to promote financially healthy and competitive utilities in this state.

MCL 460.10(2).[2]

One provision of the CCERA allowed the MPSC to create an informational program to educate customers about the benefits of using renewable energy:

The commission shall establish the Michigan renewables energy program. The program shall be designed to inform customers in this state of the availability and value of using renewable energy generation and the potential of reduced pollution. The program shall also be designed to promote the use of existing renewable energy sources and encourage the development of new facilities.

MCL 460.10r(6). Another provision states, "The commission shall establish rates, terms, and conditions of electric service that promote and enhance the development of new generation, transmission, and distribution technologies." MCL 460.10b(1).

On July 25, 2001, in In re Consumers Energy Co, MPSC Case No. U-13029, the MPSC approved Consumers’ request for "authority to establish a voluntary program to encourage the use of renewable resources." Id. at 1. This was a three-year program that allowed individual Consumers’ customers to purchase 100 percent, 50 percent, or 10 percent of their power from a renewable provider. The surcharge was 3.2 cents per kilowatt-hour for purchasers who chose 100 percent; 1.6 cents per kilowatt-hour for purchasers who chose 50 percent; and 0.32 cents per kilowatt-hour for purchasers who chose 10 percent.

While Consumers’ voluntary program was underway, the commission began developing a separate industry-wide renewable-energy program. On May 16, 2002, in In re Michigan Renewables Energy Program, MPSC Case No. U‑12915, the MPSC entered an order that established the "Michigan Renewable Energy Program" (MREP). In this order, contrary to the MPSC’s argument in the instant case, the commission acknowledged that the CCERA did not provide a funding mechanism for the MREP. The commission stated: "One of the limiting issues surrounding the creation of a renewable-energy program is identifying funding for its activities. As noted earlier, the statute that directs the Commission to establish the program does not provide a mechanism for creating a revenue stream to fund projects." Id. at 8-9. The MPSC also rejected the argument that it could impose a "surcharge"[3] on all of a utility’s customers: "the language adopted in Act 141 persuades the Commission that the Legislature did not intend to create a program that would require consumers to pay an additional surcharge to support it." Id. at 10. The MPSC also discussed where it was likely to obtain funding:

Funding sources for renewable energy projects may be found through other agencies with which the MREP will coordinate its efforts. Among some of the possibilities for funds mentioned by the commenters are the United States Department of Energy, the CIS Energy Office, and the Michigan Economic Development Corporation. Perhaps additional grant sources may be found as well.


In addition to admitting that the CCERA did not provide a funding mechanism for the MREP, the MPSC expressed an unwillingness to force the incumbent utilities (such as Consumers and Detroit Edison) to purchase a quota of renewable energy. Instead, the commission expressed a preference to let the market dictate purchases of renewable energy:

[T]he Commission finds that it should permit the market to drive the demand for power from renewable energy sources. The intent of the public education component of this program is to encourage customers to request power from renewable energy sources. Disclosure requirements . . . will inform customers about the available power portfolios [i.e., the mix of fossil fuels, nuclear power, and renewable energy available], and green tariffs [premiums paid voluntarily by customers] can be a legitimate marketing tool for utilities. The current price for power from renewable energy sources is, on average, higher than that from traditional generation sources. However, alternative electric providers may be encouraged to purchase and market renewable energy in a competitive market if customers find the benefits outweigh the additional costs.

. . .

The Commission finds that green tariffs are an appropriate method of providing customers with the ability to purchase energy produced by renewable energy sources. At this juncture, the Commission is persuaded that green tariffs or renewable energy programs should be undertaken on a voluntary basis, as the market dictates. Several commenters state that customers have demonstrated that they are willing to pay additional amounts to obtain power from renewable energy sources. As the open access provisions of Act 141 are implemented and the market of alternate service providers expands, the demands of the market may be expected to reflect these trends. And, as demand grows, so will the market opportunities for renewable energy producers.

Id. at 11-12, 14.

On July 22, 2003, in In re Mackinaw Power, LLC, MPSC Case No. U-13843, Mackinaw Power, LLC and North American Wind Energy filed an application with the MPSC to amend Consumers’ voluntary renewable-energy program. The applicants candidly admitted that from their perspective too few electricity customers were willing to pay the voluntary surcharge for green power,[4] which prevented the applicants from obtaining financing to expand or create new renewable-energy facilities:

Without financiable [sic] EPAs[5], substantial new Green Power assets cannot be financed to complement existing generation portfolios. The initial Green Power Pilot Project . . . was financed without debt. The developer [Mackinaw Power] took 100% of the financial risks. Larger wind power projects with scope and scale sufficient to diversify the generation resource portfolios require leveraged financing. The financial institutions will not provide sufficient debt because the EPAs do not have long-term, firm pricing approved by the MPSC.

MPSC Case No. U-13843 Application at 3 (footnote and emphasis added).

Thus, the applicants asked the MPSC for permission to change the existing EPAs. Under those EPAs, the volume of renewable power purchased by Consumers on behalf of its customers could fluctuate. The price that Consumers paid for this renewable power was equal to the "avoided cost"[6] (roughly the amount that Consumers saved by not generating the electricity itself) plus the voluntary surcharge paid by customers who chose to buy green power.[7] The applicants sought to replace this financial arrangement with a 20-year agreement that obligated Consumers to purchase a guaranteed volume of renewable energy from them at a guaranteed price. Specifically, the applicants sought an initial price of 5.8 cents per kilowatt-hour, with the price escalating 1 percent annually.

Thus, the applicants requested long-term, guaranteed contracts so that they could use the resulting revenue to obtain private financing for the construction of new generating capacity. The applicants also set forth public policy arguments in favor of renewable energy:

Large renewable energy projects will deliver economic benefits to Michigan through new construction, maintenance and manufacturing jobs, increased tax revenues and annual payments to rural landowners who lease their land for the projects. New renewable projects provide energy security and self-sufficiency.

. . .

When wind power is developed by Michigan-based companies, this increases the probability of economic development through manufacturing wind turbines, blades and towers in Michigan. Manufacturers are holding multiple conferences to promote this activity, but without projects in Michigan, this activity will be futile.

With long-term, firm-priced EPAs, the new wind power projects will be financed. And, long-term, firm priced EPAs for new, zero-emissions wind power projects reduce the risk of volatile pricing and eliminate emissions risks. Like a Treasury Bill boosts financial portfolio performance, new renewable power boosts generation portfolio performance by eliminating volatile pricing and emission risks. The solution will diversify the generation portfolio and leverage investments in Clean Air Act Compliance. Total benefits to Michigan include increased energy security, public health, farmland protection, environmental values and economic development through manufacturing.

MPSC Case No. U-13843 Application at 4.

On May 18, 2004, in MPSC Case No. U‑13843, the MPSC issued an order meant to facilitate the construction of new renewable-energy plants. The commission held that it had the power to order that each of Consumers’ customers be charged 5 cents per meter every month to finance the renewable-energy program:

The Commission finds that Consumers should be authorized to implement a renewable resource program funding mechanism to recover green power program costs not covered by contributions of customers who agree to pay a premium for green power. . . . A five-cent per meter per month customer charge will ensure that the amount that any customer pays will be minimal. It also ensures that the bulk of the cost of the program will fall on residential customers, who traditionally seem more supportive of green power.

MPSC Case No. U-13843, May 18, 2004 Order at 20.

The commission also approved the use of long-term contracts, stating that "the new green power program should be structured to encourage financial institutions to finance new facilities. Toward that end, the Commission approves the use of long-term contracts between Consumers and its suppliers. Specifically, the Commission finds that contract terms of up to 20 years would be appropriate." Id. at 17-18.[8]

Because such long-term contracts could expose Consumers to financial risk, the commission ordered that the 5 cent per-meter per-month tax be levied and disbursed to Consumers to offset any losses that the company sustained:

Revenues collected from the monthly five-cent charge will be placed into a renewable resource program fund. The fund will be used to compensate Consumers for costs that are not recovered from customers who voluntarily choose the green power program. . . . Consumers should enter into renewable contracts commensurate with the anticipated amount of the fund.{2} . . .

. . . In 2006, when rate caps on residential customers disappear, the funding mechanism is expected to generate . . . $1,000,000 per year.


{2} The funds will accrue interest at Consumers’ average short-term interest rate. In the event that the fund develops a significant unused balance, the Commission may direct other appropriate uses for the fund, such as advertising to promote renewable energy.

Id. at 20-21. Thus, the risk of financial loss in the renewable-energy contracts was passed from Consumers to Consumers’ customers.[9]

On January 25, 2005, in MPSC Case No. U‑13843, the MPSC ordered Consumers to create a process for soliciting bids from potential renewable-energy providers in the program the commission had established in the May 18, 2004 Order. On April 28, 2005, in In re Consumers Energy Co, MPSC Case No. U‑14471, the commission also approved a continuation of Consumers’ original program, in which the company’s customers could voluntarily pay a surcharge in order to receive some or all of their power from renewable-energy sources.

The Michigan Attorney General appealed the MPSC’s Orders of May 18, 2004 (MPSC Case No. U‑13843), January 25, 2005 (MPSC Case No. U‑13843), and April 28, 2005, (MPSC Case No. U‑14471). These appeals were consolidated by the Michigan Court of Appeals.

On November 22, 2005, in a published decision, the Court of Appeals affirmed in part and reversed in part.[10] In the sole ruling that is pertinent here, the Court of Appeals held that the MPSC lacked the statutory authority to impose the 5 cent per-meter per-month tax:

We hold that the PSC lacked the statutory authority to authorize CEC to impose an additional charge of $0.05 per meter per month on all customers, including customers who had not agreed to pay a premium to receive green power, to finance the development of renewable resource power programs. The PSC established a renewable energy program, as required by MCL 460.10r(6). The PSC’s authority to set rates that facilitate the development of new energy technologies is set out in MCL 460.10b(1); however, that authority does not include the power to make management decisions on behalf of a utility. Union Carbide Corp v Public Service Comm, 431 Mich 135, 148; 428 NW2d 322 (1988). The PSC’s ability to consider a wide variety of factors when setting rates is well established, Detroit Edison Co v Public Service Comm, 221 Mich.App. 370, 375, 562 NW2d 224 (1997), but is not unlimited. MCL 460.10b(1) and MCL 460.10r(6) were enacted as part of the CCERA, and became effective on June 5, 2000. The PSC’s interpretation of new legislation is not entitled to the same degree of deference as is its interpretation of longstanding legislation. [In re Procedure & Format for Filing Tariffs Under the Michigan Telecommunications Act, 201 Mich App 533, 538-539; 534 NW2d 194 (1995)]. Under any circumstances, though, a doubtful statutory power does not exist. [Attorney General v Public Service Comm, 231 Mich App 76, 78; 585 NW2d 310 (1998)]. The Legislature clearly intended consumer participation in green power programs to be voluntary. Neither MCL 460.10b(1) nor MCL 460.10r(6) specifically authorizes the PSC to enable a utility to compel customers to pay to support a voluntary renewable resource energy program even if they have not chosen to receive power from the program. The PSC exceeded its authority in concluding to the contrary.

Requiring all customers to pay a monthly charge to build a fund to compensate CEC for costs associated with the development of renewable resource energy programs might well have positive economic and public policy implications; however, we must not consider such implications when determining if the PSC acted within its statutory authority. Consumers Power Co v Public Service Comm, 460 Mich 148, 156, 596 NW2d 126 (1999).

Slip opinion at 5 (citation omitted and emphasis added).

The MPSC has filed the instant application. The Attorney General responded, and the MPSC has already filed its reply.

[1] "Incumbent utilities" are those electricity providers that operated under the monopoly-franchise system that existed prior to the enactment of Public Act 141.

[2] For reasons that are not clear, the "purpose" language included in the legislation "does not apply after December 31, 2003." MCL 460.10(3). This date does not, however, affect the remaining provisions of the act.

[3] "Surcharge" is the MPSC’s language for this levy. As discussed in other portions of this brief, this "surcharge" is actually a tax.

[4] According to Mackinaw Power, LLC and North American Wind Energy, the voluntary surcharge worked out to about a 40 percent or 50 percent premium over the standard rates.

[5] An EPA is an Energy Purchase Agreement — in this case, a contract between Consumers and the renewable-energy providers regarding the sale and purchase of electricity.

[6] The term "avoided cost" derives from federal law. In 1978, Congress enacted the Public Utility Regulatory Pricing Act (PURPA). Under PURPA, utilities are required to buy power from "qualifying facilities" that use alternative fuel sources. Ass’n of Businesses Advocating Tariff Equity v Michigan Public Service Comm, 216 Mich App 8, 11; 548 NW2d 649 (1996). The utility must pay the qualified facility the "avoided cost," which is defined as "the cost to a utility of energy or capacity, or both, which the utility would have generated for itself or purchased from another facility but for the purchase from the QF [qualified facility]." Id.

[7] The EPAs did permit Consumers to retain a small portion of this surcharge to cover overhead costs.

[8] The commission did, however, refuse to give Mackinaw Power or North American Wind Energy the exclusive right to provide renewable energy to Consumers under the new plan.

[9] The MPSC has also established a similar 5 cent per-meter per-month tax for all of Detroit Edison’s customers. The case involving that tax is currently working its way through the state’s appellate courts. Attorney General v Michigan Public Service Comm, Court of Appeals Case No. 259845.

[10] The order has been approved for publication, but was not in either Mich App or NW2d at the time this brief was submitted.