Michigan Public Service Commission establishes electric capacity demonstration process to promote long-term reliability of electric grid. Issue Brief attached

9-15-17                                                                                                                    ISSUE BRIEF

LANSING, Mich. – The Michigan Public Service Commission (MPSC) today established a capacity demonstration process pursuant to the state’s new energy laws, requiring all electric providers in the state to demonstrate to the MPSC that they have adequate resources secured to be able to reliably serve customers four years into the future.

The order in Case No. U-18197 was issued after a transparent, collaborative and open process, which involved numerous stakeholders and vigorous discussion as well as extensive public comment.

Section 6w of Public Act 341 of 2016 requires all electric providers – investor-owned utilities, alternative electric suppliers, municipal utilities, and electric cooperatives – to annually demonstrate to the MPSC that they have owned or contracted resources adequate to serve customer needs four years out. The new requirements are consistent with, and intended to complement, federal reliability requirements.

“The Commission's implementation of the new 'resource adequacy' requirements in the 2016 energy law provides flexibility for energy providers while ensuring Michigan homes and businesses have adequate electricity supplies over the long term,” said MPSC Chairman Sally Talberg. “The new law is clear that all electric providers must contribute to and support the reliability of our electric system. Based upon the input from many diverse stakeholders, the Commission has provided much-needed guidance and direction on how these reliability requirements can be met from a broad range of cost-effective options, such as adding new or using existing power plants, or utilizing programs to help customers cut energy waste or shift when they use electricity away from peak times.”

The current system only requires electric providers to demonstrate to MISO, the federally-sanctioned regional grid operator in which most of Michigan is located, that providers have enough capacity to serve customer needs in the upcoming year. As older electric generating units in Michigan and across the Midwest shut down, there are concerns about whether there will be adequate supplies available to serve customers in the future. If new resources need to be acquired or built, looking only one year ahead does not provide enough time. The new energy law recognizes this, which is why the four-year look-ahead was included.

“This is a great and successful demonstration of the Commission's commitment to the new energy law and an open, transparent process to make informed decisions to serve the public,” Talberg said.

The MPSC also indicated in today’s order that it would open a new contested case to more fully examine the issue of implementing a locational requirement for electric generating resources. Federal reliability standards require that a certain amount of electric generation capacity needs to be located in specific geographic areas in order to maintain reliability of the electric system. The MPSC found that the new energy laws require a locational requirement for generation, and allow the MPSC to require individual electric providers to contribute to meeting the locational requirement. The MPSC needs more information to make a decision on the best way to structure this requirement so that it is fair and helps to meet future reliability needs.

Michigan’s new energy laws went into effect on April 20, and included new requirements to promote the reliability of Michigan’s electric grid. The MPSC issued a second order today (Case No. U-18441) opening a docket for providers to submit capacity demonstrations for the 2018-2021 timeframe. Investor-owned electric utilities are required to submit their plans by December 1; all other providers – municipal utilities, electric cooperatives, and alternative electric suppliers – will submit their plans by February 9, 2018. In addition, the MPSC has several pending proceedings to establish State Reliability Mechanism charges under the new laws. Alternative electric suppliers, if they cannot or choose not to arrange generating capacity to meet the new requirements, can instead rely on the local utility to provide "capacity service” to their customers. If they do this, there would be a charge paid to the utility based on a rate determined by the MPSC. The MPSC must issue decisions in these cases by December 1, and is on track to do so.  

Click here for more details about capacity demonstration and the state reliability mechanism addressed in Case No. U-18197.

Chairman Talberg also made the following statement during today’s meeting:

“Section 6w of PA 341 was passed by the Legislature and signed by the Governor to enhance the reliability of Michigan’s electric grid, specifically by requiring all electric providers to secure sufficient supplies of electric capacity to serve their anticipated customer needs four years in advance. Through this order, the Commission is clarifying the requirements and process for each electric provider to make these demonstrations to the Commission.

“The Commission is providing flexibility for electricity providers to use a broad range of options to meet the requirements such as new or existing generation, purchased power contracts, and new or existing energy waste reduction or demand response programs.  Capacity supplies can be sourced from out of state but the electric provider must own or have contractual rights to the supply as mandated by the law.  This will improve reliability because capacity at the state and regional level will actually be secured in advance, whether by taking advantage of excess supply that exists today or investing in new resources.  This approach is also cost effective because the electric supplier is in the best position to pursue the lowest-cost options to meet its customers’ needs in a reliable manner and to manage the risk of importing capacity supplies from out of state.  Unlike approaches in some states that provide incentives or subsidies to specific types of generation in an attempt to protect reliability or meet other policy objectives, Michigan’s approach is ‘fuel neutral.’  That is, electric providers know their capacity requirement four years into the future and the provider – not the state – determines what fuel or combination of fuels to use, potentially taking into account factors such as reliability, fuel diversity, plant performance, cost, environmental impact, and risk.

 

“Due to fluctuations in customer demand and availability of resources that may occur over the four-year period, the Commission is also allowing electric providers to plan on up to 5 percent of their capacity portfolio to be acquired through the annual capacity auction of the regional grid operator, MISO.  Based on MISO’s data, this is consistent with the historical use of the auction in Michigan at the aggregate level.

 

“While the Commission has the authority under Section 6w to apply a local clearing requirement to individual electric providers, it does not impose such a requirement for planning years 2018-2021. This issue has generated a lot of attention and the Commission carefully considered the law in its entirety and the diverse viewpoints and legal arguments from stakeholders. The LCR was not ‘removed’ from the law.  The law explicitly defines the local clearing requirement and the Commission’s role in setting the LCR with technical assistance from MISO.  The Commission considered each and every provision in the law and how these provisions work together as a cohesive framework.  For these and other reasons stated in today’s order, the Commission believes its decision is expressly authorized by the law. 

 

“Notwithstanding this legal authority, the collaborative process over the past few months did not produce the kind of information necessary for the Commission to reasonably determine how to design and allocate the locational requirement and ensure consistency with federal requirements. Therefore, the Commission seeks to obtain clarity through a formal hearing process to determine the proper methodology and allocation of a locational requirement. This location requirement would apply in 2022.   During this transition, the Commission finds that homes and businesses should have adequate electricity supplies under the law’s pro-active approach to reliability.

 

“The Commission recognizes that ensuring resource adequacy—having enough resources over the long term to meet electricity demand at peak times—involves both state and federal regulators, and is implementing the provisions of Section 6w with a commitment to maintaining consistency with federal resource adequacy requirements.  In setting capacity obligations and establishing a capacity demonstration process as mandated by the new law, the Commission does not seek to supplant or replace the well-established MISO auction process, but instead to complement MISO’s approach by ensuring all electric providers, including investor-owned utilities, electric cooperatives, municipal utilities, and alternative energy suppliers, contribute to reliability.  Further, the Commission’s implementation of the law will allow the electric choice programs to continue to be viable and ensure that all providers are contributing toward long-term reliability.  We intend to continue to work toward maintaining electric reliability in a consistent and cost-effective manner.  When we have an open and transparent process that allows all voices to be heard and considered, and we follow the letter of the law, we are confident that we will be dutifully serving the people of this state.  

 

“The Commission greatly appreciates the technical assistance from MISO, which has been working closely with the Commission and our staff for years to find a reasonable solution to the resource adequacy challenges presented by Michigan’s hybrid market structure.  I also want to acknowledge our dedicated MPSC staff who worked with diverse stakeholders to find common ground and present options for the Commission on this complex topic.”