Consumers Energy requests short extensions to power deals from the 1980s

Consumers Energy on Jan. 27 requested that the Michigan Public Service Commission grant approval to amendments to the company’s Power Purchase Agreements (PPAs) with Hillman Power Co. LLC, Thornapple Association Inc. and White’s Bridge Hydro Co.

Consumers Energy and Hillman had long ago entered into a long-term PPA, dated February 1984, and subsequently amended in 1988, which provided for Hillman to supply and sell electric capacity and energy to Consumers Energy, and Consumers Energy to purchase and accept from Hillman, all electric capacity and energy which Hillman has available from the Hillman Generating Plant until the end of calendar year 2015. The PPA further provided that the agreement can continue on a year-to-year basis until terminated by mutual consent of the parties or by either party giving the other at least one year’s written notice of its desire to terminate the PPA at the expiration of the initial term or at the expiration of any yearly term thereafter.

In December 2014, Consumers Energy exercised the PPA termination provision by providing notice to Hillman of its intent to terminate the PPA between the parties at the end of calendar year 2015. Subsequent to the issuance of Consumers Energy’s notice of intent to terminate, Consumers Energy and Hillman commenced negotiations with the intent of reaching a new PPA which would provide for Hillman to supply and sell electric capacity and energy to Consumers Energy, and Consumers Energy to purchase and accept from Hillman all electric capacity and energy which Hillman has available from the Hillman Generating Plant. However, the negotiations between Consumers Energy and Hillman were unable to result in a mutually acceptable PPA.

On Dec. 14, 2015, Consumers Energy and Hillman therefore amended their existing PPA by executing a document titled “Amendment No. 2 to Power Purchase Agreement between Consumers Energy Company and Hillman Power Company, L.L.C.” to extend the term of that agreement until May 31, 2017. The PPA Amendment is consistent with the existing terms of the PPA which allows for the agreement to be extended on a year-to-year basis. Furthermore, the amendment allows the expiration of the PPA to align with the planning year concept currently defined by the Midcontinent Independent System Operator (MISO) and also allows the commission sufficient time to perform the investigation into the continuing appropriateness of the commission’s current regulatory implementation of the Public Utility Regulatory Policies Act of 1978 (PURPA), which is occurring in an ongoing docket.

In addition to the company’s PPA with Hillman, Consumers Energy also entered into long-term PPAs with Thornapple, dated March 1984, and White’s Bridge, dated December 1983, and subsequently amended. Those PPAs provided for Thornapple and White’s Bridge to supply and sell electric capacity and energy to Consumers Energy, and Consumers Energy to purchase and accept from Thornapple and White’s Bridge all electric capacity and energy which Thornapple and White’s Bridge have available from the Thornapple and White’s Bridge generating plants until the end of calendar year 2016.

For reasons similar to those involving the Hillman PPA, Consumers Energy has also amended its PPAs with Thornapple and White’s Bridge to extend the terms of those agreements until May 31, 2017. The amendments allow the expiration of the PPAs to align with the planning year concept as defined by MISO and also allow the commission the time to perform the investigation into the continuing appropriateness of the commission’s current regulatory implementation of PURPA.

Since the company only seeks to extend its PPAs with Hillman, Thornapple, and White’s Bridge, approval of the relief requested in this application will not increase rates or charges for any customer beyond the levels which were previously approved by the commission, the utility noted. Consumers Energy therefore respectfully requests the commission approve this relief without the time and expense of a public hearing.

Consumers hit with a complaint late last year over Hillman situation

The Independent Power Producers Coalition of Michigan (IPPC-MI) filed in November 2015 a complaint against Consumers Energy at the Michigan PSC accusing this CMS Energy (NYSE: CMS) utility subsidiary of improperly terminating a power contract with one of its members, which was Hillman. The group charged Consumers Energy with violations of 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 LLCViking Energy of McBain LLCBoyce Hydro Power LLC; White’s Bridge Hydro Co.; Black River LPElk Rapids Hydroelectric Power LLC; and Michiana Hydroelectric Co.

The PSC docket shows this November complaint is still open.

In September 2015, Consumers filed its application with the commission for approval of an annual Power Supply Cost Recovery Plan. In its application, Consumers stated an intention to terminate PPAs of certain of IPPC-MI’s members, and asserted that it will offer certain IPPC-MI members new, short-term PPAs based on a “market”-based price and a forecasted capacity expense. 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.

In October 2015, the Michigan commission, on its own motion, commenced an investigation of PURPA matters generally and established a Technical Advisory Committee that would report back to it by no later than April 8, 2016. While the members of IPPC-MI said they 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.

Consumers has several power contracts up for prospective end

In that September 2015 Power Supply Cost Recovery (PSCR) filing, utility official David Ronk Jr. said power purchase agreements that have terminated or will terminate include:

  • The company’s contract with Hillman Power 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 that point, the company and Hillman had 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 is 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.
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.