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Hundreds of megawatts worth of renewable developments are on hold as Consumers seeks a ruling from regulators on its PURPA obligations.
A major Michigan utility says it doesn’t need new generation from renewable energy developers, and it shouldn’t be forced to pay for it.
Michigan has become the latest battleground over a decades-old federal law known as the Public Utilities Regulatory Policies Act, or PURPA.
The law essentially requires utilities to buy power from small, independent producers when doing so will save money for ratepayers.
In multiple states recently, that’s opened the gates for a flood of utility-scale solar projects, which can now routinely sell power at utilities’ avoided cost rate — defined as the incremental cost a utility pays for not generating the electricity itself. Utilities have begun to push back, lobbying for state and federal reforms.
Michigan regulators spent months reviewing how much independent producers should be paid and in November settled on a new, lower rate. One of its largest utilities, though, argues even that number is too high.
Consumers Energy told regulators in December that it doesn’t project a need for new generation capacity in the next decade, and that as a result it should be allowed to sign PURPA contracts at an even lower rate. Developers say they couldn’t build projects with such low compensation.
Solar and clean energy advocates have also scoffed at Consumers’ projection, which assumes the company will continue to operate four coal-fired units through 2030. Critics also note that Consumers plans to build 625 MW of its own wind and solar, even though the Michigan Public Service Commission hasn’t formally approved those plans. Meanwhile, the utility projected growing capacity need as recently as September 2016.
In November, the MPSC approved new avoided cost rates for Consumers, which has 33 PURPA contracts in place across its service territory. The rates hadn’t been updated for about two decades. It also ruled that if the utility’s capacity needs are met for the next decade it could enter PURPA contracts at a far lower “planning resource auction” rate.
The commission suspended its ruling on Dec. 20 based on formal opposition from hydroelectric and biomass owners. The same day, Consumers filed a motion asking that its PURPA rate be reset to the lower figure, and since then at least three developers have objected, saying those lower rates would jeopardize upwards of 800 MW worth of solar projects. Michigan had roughly 100 MW of solar capacity installed statewide at the start of the year.
“These issues need to be resolved quickly. There is a market for renewable energy that’s being paralyzed here,” said Margrethe Kearney, staff attorney for the Environmental Law and Policy Center. “That is going to damage the market and disadvantage ratepayers who want more renewable energy.”
Hundreds of megawatts
California-based Cypress Creek Renewables says Consumers is stalling 700 MW and $3 billion in investments in Michigan “over the next few years.” And Geronimo Energy filed testimony stating 70 MW worth of plans are on hold.
Six other utilities have pending cases before regulators to set PURPA avoided cost rates, including DTE Energy, which is also seeking permission to build a nearly $1 billion natural gas plant to make up for generation lost by retiring coal units. Critics of that plan say new PURPA contracts could help make up for the capacity shortage.
“It means people want to come to Michigan and build solar at a cost that is lower than (the price) DTE and Consumers could do it,” Kearney said, even though not all of that capacity is likely to be built. “That’s a good sign of a healthy market.”
Kevin Borgia, Midwest policy director for Cypress Creek, said the company is interested in smaller projects around 2 MW in Michigan. PURPA contracts offer more certainty to third-party developers compared to selling generation on the wholesale market.
“The ruling that came out of the MSPC in November was a real positive thing for renewable energy and Michigan,” Borgia said. “In short, PURPA is about saving ratepayers money.”
Consumers is seeking an “ex parte” finding from the MPSC that it does not have a capacity need in the next 10 years, which would block other parties from intervening in the case.
Consumers Energy spokeswoman Katelyn Carey said in a statement: “Consumers Energy remains committed to developing cost-effective solar and other renewable energy projects in Michigan. Consumers Energy remains committed to develop more renewable energy to meet the interest of households and businesses that want to be powered by increasingly clean energy that is safe, affordable and reliable.”
Critics say Consumers may support a larger renewable portfolio, but the company wants to own it rather than purchase it. “I think this is a response by the company to the potential for competition,” Kearney said.
No capacity needed
Consumers’ position that it doesn’t need new capacity for 10 years came as a surprise to some. In testimony with the MPSC, Consumers said it plans to build more wind and solar projects in the next 10 years to comply with a 15 percent by 2021 renewable energy standard passed by the Legislature in 2016. This includes a 6 MW expansion of the company’s Solar Gardens program and 525 MW of new wind within the next five years. The company also plans to build 100 MW of new solar by 2025.
“We think that can be done cheaper and is demonstrated in applications from us and other companies to the utility,” Borgia said.
Consumers said multiple factors changed its outlook, including the performance of demand response and energy efficiency programs and the extension of existing PURPA contracts. Based on Consumers’ “current electric generation and load reduction resources” available, the company “has no need for additional capacity for the next 10 years,” the company said in its Dec. 20 filing.
If regulators agree with Consumers, the utility would pay avoided costs set at the Midcontinent Independent System Operator (MISO) “planning resource auction” rate, which is far below the avoided cost rate set in November. Consumers has also asked that “its capacity position be reexamined” after it files long-term portfolio plans this year.
PURPA in Congress
Meanwhile, Rep. Tim Walberg, a Republican from Michigan’s 7th District, introduced a bill in December that critics say would gut the 40-year-old PURPA law. Walberg’s PURPA Modernization Act would, among other things, remove the mandatory purchasing requirement for utilities.
When introducing the bill in November, Walberg said the “commonsense reforms” would help reduce utility bills. His press release included a statement by Consumers President and CEO Patti Poppe in support of the bill. She echoed Walberg’s need to keep energy costs affordable for ratepayers “while ensuring a clean energy future.”
Consumers says its existing PURPA contracts — which have been in place for decades in some cases — don’t reflect current market prices for energy. Poppe said the company’s existing PURPA contracts are 30 to 50 percent above market value, amounting to $300 million in costs to ratepayers over the past 10 years. Walberg’s bill, she added, “will have an added bonus of attracting new jobs and businesses to our great state.”
Independent producers dispute these claims, saying the bill would stifle third-party development. Also, critics said the point of PURPA contracts is for utilities to buy clean energy at rates cheaper than what it would cost the utility to develop itself.
Rich Vander Veen’s father, former Congressman Richard Vander Veen of Grand Rapids, helped write the original PURPA bill in the 1970s. Today Rich Vander Veen is an Upper Peninsula-based developer with projects in the works across the state. He said he has not been directly affected by the PURPA delay in Michigan. However, he is more concerned about Walberg’s bill at the federal level.
“The whole idea (of PURPA) was to find a way to encourage entrepreneurship and innovative technologies that would be part of the future of how we make and use power in this country,” Vander Veen said. “If it’s a sound project that has earned community support … it ought to be part of the portfolio.”
Walberg’s effort to “water it down” is “disingenuous at best,” he said. “If it’s passed, it basically ends PURPA.”
Meanwhile, stakeholders involved with the Consumers case are hoping for swift action from state regulators.
“It’s very difficult for companies to come forward when there is so much regulatory uncertainty,” Kearney, of ELPC, said. “We’re at a pivot-point in Michigan, transitioning from fossil fuels to more renewable energy. That’s the market we should be fostering.”