Michigan IPPs file complaint against Consumers Energy over PURPA issues

The Independent Power Producers Coalition of Michigan (IPPC-MI) filed a Nov. 4 complaint against Consumers Energy at the Michigan Public Service Commission accusing this CMS Energy (NYSE: CMS) utility subsidiary of improperly terminating a power contract with one of its members.

The group is charging Consumers Energy with violations of the Public Utility Regulatory Policies Act of 1978 (PURPA) and related rules issued by the PSC. Under PURPA, Consumers Energy purchases from IPPC-MI members both capacity and energy at either an avoided cost approved by the commission, or at a rate otherwise determined by the commission to be just and reasonable.

IPPC-MI is a coalition of independent power producers and includes among its members: Kent County; Hillman Power Co. LLC; Viking Energy of Lincoln LLC; Viking Energy of McBain LLC; Boyce Hydro Power LLC; White’s Bridge Hydro Co.; Black River LP; Elk Rapids Hydroelectric Power LLC; and Michiana Hydroelectric Co.

On Sept. 30, Consumers filed its application for approval of an annual Power Supply Cost Recovery Plan and for authorization of Monthly Power Supply Cost Recovery Factors for the Year 2016. In its application, Consumers states an intention to terminate the power purchase agreements (PPAs) of certain of IPPC-MI’s members, and asserts that it will offer certain IPPC-MI members new, short-term PPAs based on a “market”-based price and a forecasted capacity expense, said the IPP coalition. This “market” price does not reflect factors required under PURPA to establish a true market price of energy, and Consumer’s proposed costs are based on improper assumptions, the coalition added.

In December 2014, Consumers provided IPPC-MI member Hillman Power with notice of termination of Hillman’s PPA effective Dec. 31, 2015, the coalition said. Similarly, Consumers is planning to terminate its PPA with IPPC-MI member White’s Bridge Hydro effective Dec. 31, 2016. Consumers has stated that it is planning to offer White’s Bridge a new short-term contract of five years, which “will be based on the actual market price of energy (Locational Marginal Price), as well as a forecasted capacity expense, based on [Consumers’] recent purchase of capacity for the next five years.”

Said the coalition: “The market price of energy proposed by Consumers is substantially less than the rate that White’s Bridge is receiving under its existing contract, and the shortened proposed contract term violates the rights of White’s Bridge under PURPA, as Consumers lacks approval from the Federal Energy Regulatory Commission (‘FERC’) to require Michigan’s QF providers under 20 MWs to be subject to market pricing for energy and/or capacity.”

A Consumers Energy witness has testified that the company “plans to follow a similar approach for other Public Utility Regulatory Policies Act contracts with capacity less than 20 MW, at the time of their current contract expiration.” The coalition said that similar statements have been made to other members of IPPC-MI when they have approached Consumers about renegotiating the contracts for their QFs as the dates of expiration begin to approach.

On Oct. 27, the Michigan commission, on its own motion, commenced an investigation of PURPA matters generally and is establishing a Technical Advisory Committee to “assess the continuing appropriateness of the Commission’s current regulatory implementation regarding the Public Utility Regulatory Policies Act of 1978, and to report its findings and recommendations to the Commission by filing a report in this docket no later than April 8, 2016.”

While the members of IPPC-MI very much appreciate the commission’s initiative in looking into the pressing issues surrounding the implementation of PURPA obligations in Michigan, that inquiry presumably will not address the violations of PURPA and commission orders that are alleged against Consumers Energy in this complaint, and so is not a substitute for this complaint.

Furthermore, the commission’s process to review its PURPA obligations and its past determinations on avoided costs will not be completed in time to avoid the harms that will be suffered when Consumers terminates Hillman’s contract in December 2015 or provides notice of termination to White’s Bridge or otherwise acts in ways that are harmful to the credit ratings, economics, and/or sustainability of other IPPC-MI members, said the Nov. 4 complaint.

Consumers has several power contracts up for prospective end

In that Sept. 30 Power Supply Cost Recovery (PSCR) filing, utility official David Ronk Jr. said in answer to a question about any power purchase agreements that have terminated or will terminate in 2016:

  • He noted that he had already advised the commission that the company’s contract with Hillman Power Company was eligible to terminate effective Dec. 31, 2015. On Dec. 18, 2014, the company provided the appropriate notice to Hillman electing to terminate the agreement. At this point in time, the company and Hillman have not reached a new agreement, he added.
  • The company’s contract with Thornapple Association is eligible to terminate on Dec. 31, 2016. In 2014, the company paid about $64/MWh for the output from that facility during a period when the capacity and energy had a value of about $35/MWh. While Consumers Energy expects the value to be greater in the future, the company does not anticipate the value reaching the $64 level for several years and, as a result, it is anticipated that the company will provide notice to terminate this 600-kW contract.
  • The company’s contract with White’s Bridge Hydro eligible to terminate on Dec. 31, 2016, as well. In 2014, the company paid approximately $73/MWh for the output from that facility for capacity and energy that had a value of about $35/MWh. The company anticipates that it will provide notice to terminate this 300-kW contract.
  • Ronk said the company anticipates offering both Thornapple and White’s Bridge new five-year contracts for the energy and capacity of the respective facilities. The new contract offers will be based on the actual market price of energy (Locational Marginal Price), as well as a forecasted capacity expense, based on the company’s recent purchase of capacity for the next five years.
  • The company’s Public Act 295 contract with Zeeland Farms Services Plant No. 2 expires on Oct. 12, 2016. In 2014, the company paid approximately $109/MWh (approximately $88/MWh charged to PSCR) for the output from this facility. The Zeeland Plant will be available to bid into future solicitations, Ronk said.
About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.