Consumers Energy says its announced shift from coal to solar would be compromised without changes to PURPA rates.

Three months after unveiling a widely celebrated plan to phase out coal and add solar capacity, Consumers Energy is warning stakeholders that it may need to go back to the drawing board if Michigan regulators won’t let it pay a lower rate to independent power producers.

Consumers Energy filed its long-term integrated resource plan (IRP) with state regulators in June. It calls for a major shift from coal to solar by 2040 but also assumes concessions from renewable developers and others who sell power to the company under the federal Public Utilities Regulatory Policies Act (PURPA).

Critics say the utility’s demand is an attempt to subvert an ongoing, two-year-old rate case before the Michigan Public Service Commission that is specifically looking at the company’s avoided cost rate, the amount utilities have to pay independent generators under the federal law. It’s latest dispute between advocates and the utility over PURPA.

“Clearly they’re trying to leverage the good parts of their plan to get changes in PURPA that would otherwise be out of reach,” said Becky Stanfield, senior director of western states with Vote Solar, which is joined by the Environmental Law and Policy Center and Ecology Center in the challenge.

A favorable avoided cost rate for developers could lead to a flood of new solar projects in Michigan and other states where utilities are challenging PURPA contracts. Consumers appealed a judge’s September 10 ruling that sides with environmental groups on the avoided cost rate. The ruling blocks the company from proposing a way of setting rates for PURPA contracts.

Consumers said in its appeal that if the MPSC denies it, the company would have to “significantly modify its initial (long-range plan) filing; thus causing the potential need for the Company to withdraw and refile its case.” Consumers has said in previous filings that excluding its PURPA-related proposals would “render the IRP meaningless.”

Michigan’s sweeping 2016 energy laws required state regulators to re-examine avoided costs, which also comes as interest in third-party solar development grows in Michigan. The laws also created a new IRP process in Michigan.

While the MPSC hasn’t issued a final ruling on Consumers’ avoided costs, it has approved a new cost methodology, set a 10-year capacity outlook when considering projects and set the qualifying size of a “standard offer” PURPA project at up to 2 megawatts.

Consumers is seeking lower avoided cost rates, a three-year capacity outlook and a 150 kilowatt standard offer size, arguing PURPA contracts are too expensive for ratepayers. Consumers has now proposed the avoided cost rates it wants within its IRP.

Administrative Law Judge Sharon Feldman rejected Consumers’ arguments in a September 10 ruling.

“While Consumers Energy views this case as an opportunity to relitigate its dissatisfaction” with the MPSC’s decisions on avoided costs to date, “the company’s arguments do not overcome the need to provide in this case a reasonable opportunity to conduct the legislatively mandated review of the company’s plans,” Feldman wrote.

Feldman added that Consumers chose to make avoided costs a “lynchpin” of its IRP: “Attempting to force consideration of the avoided cost method in its plan by failing to provide a status-quo alternative is objectionable.”

MPSC spokesperson Nick Assendelft declined to comment, citing an open and contested case.

The Independent Power Producers Coalition has called Consumers’ proposal a “collateral attack” on the MPSC’s decisions in Consumers’ avoided cost case.

Consumers appeals

Consumers appealed Feldman’s decision to the MPSC, suggesting that excluding its avoided cost proposals jeopardizes the entire IRP and would have “significant unfavorable consequences both for customers and the Company.”

In its appeal, Consumers argues avoided costs are “integrally related” to other aspects of the plan. Excluding PURPA issues makes Consumers’ plan “impossible to evaluate,” the company says.

Consumers spokesperson Katelyn Carey said in a statement: “This appeal is necessary to carry out the Company’s plan of obtaining the lowest cost for new energy that’s generated here in Michigan. The administrative law judge’s ruling would have required us to overpay for resources before we needed them, and caused us to refile the company’s Integrated Resource Plan (IRP) to address the differences in capacity and prices.”

Consumers’ position was supported by MPSC staff, the Attorney General’s Office and the Association for Businesses Advocating Tariff Equity.

In its IRP, Consumers proposes a competitive bidding process for all capacity needed in the future and revising avoided costs based on those bids. The company also proposes a three-year capacity forecast and contract terms with independent power producers “which align with the Company’s actual needs,” according to case filings.

Specifically, Consumers says it can’t retire two coal units at its Karn plant early and add more solar unless its competitive bidding and avoided cost proposals are considered.

Consumers also says it is complying with an earlier MPSC order to include PURPA issues in its IRP.

Stanfield says while there are ongoing questions about meeting capacity needs with PURPA contracts, the group wants to resolve them through a settlement discussion with Consumers.

“We’re very willing to sit down with Consumers to work that out,” Stanfield said.

Solar interest, settling PURPA

Meanwhile, declining solar prices and the MPSC’s decision on Consumers’ avoided costs so far have led to interest from developers.

Consumers says that from May 2017 to May 2018 it received 398 interconnection requests for 1,800 MW of generation, with projects ranging from .15 MW to 20 MW. The average cost of these projects is $98.40 per megawatt-hour over a 20-year contract, which is “substantially higher” than the company’s contracts for three new wind projects at about $45 per MWh.

Consumers was the first Michigan utility to file an IRP under energy laws passed by state lawmakers in 2016. When it was filed in June, Consumers’ IRP was widely praised for the company’s commitment to retire its coal plants and focus on solar, energy efficiency and demand response.

The Michigan Public Service Commission has 300 days to approve the plan or reject portions of it. Being the first utility to file an IRP, Consumers says the MPSC’s decision on the scope of the case “will undoubtedly have an impact on all future IRP filings.”

In May 2017, the MPSC adopted a staff methodology for setting avoided costs based on the cost of a natural gas combustion turbine power plant. Whether those payments to independent producers are required is based on whether the utility shows a capacity need over the next 10 years. The MPSC also will evaluate Consumers’ avoided costs every two years.

The MSPC has not yet approved Consumers final standard offer tariff and draft power purchase agreement for PURPA projects.

“We’ve been on the edge of our seat for a long time now hoping for an order in that docket,” Stanfield said. “All of these companies are willing to start building in Michigan.”