Small, independently owned power plants across Michigan are locked in a battle with Jackson-based Consumers Energy over what may very well decide their fate.
In a rate case before the Michigan Public Service Commission that’s expected to be settled in mid July, state regulators are setting a new course for how these independently owned facilities — most of which generate electricity using renewable hydroelectric and landfill gas power — are compensated by utilities for the power they produce.
Under the federal Public Utility Regulatory Policies Act (PURPA) of 1978, utilities are required to pay the “avoided cost” for the energy, or a rate comparable to what Consumers would pay by owning the generation.
A methodology to set the costs was approved in late May but the final prices are still undetermined. The changes are the first PURPA update in Michigan in two decades, and come as several contracts are set to expire. There are nearly 50 facilities across the state under avoided cost contracts with utilities.
Consumers is pushing for lower avoided cost rates based on the type of new generation that’s expected to be built in the future: new natural gas plants instead of coal plants. However, the Independent Power Producers Coalition of Michigan says Consumers’ plan would put companies out of business across the state, including several in West Michigan.
“We are all waiting for the next decision to come out (from the MPSC),” said Victor Leabu, owner of White’s Bridge Hydro Co. in Lowell, whose contract with Consumers Energy has been extended as the rate case is ongoing. Despite favorable decisions so far, Leabu fears that the final avoided cost determination could be low enough to make his facility uneconomical.
“The (MPSC) staff is moving in the right direction,” he said, referring to changes that allow for longer contracts and standard tariffs for certain facilities that would cut down on administrative costs. “We’re all kind of hanging in there and wondering how it’s possible that after generating renewable energy for 32 years, I might go out of business.”
Leabu and other companies say they have put thousands of dollars in legal consulting fees to navigate the complex rate case. In general, the companies — whose generation makes up a small fraction of Consumers’ overall portfolio — have felt disrespected by the utility as negotiations have dragged on.
While the rate case involves Consumers Energy, it’s expected to create precedent for how other Michigan utilities set avoided cost rates for independently owned power plants.
“Consumers Energy works to provide a reliable and affordable supply of energy to serve Michigan customers,” spokesperson Brian Wheeler said in a statement in mid June. “We expect to continue working with the Michigan Public Service Commission as it moves toward a final order in this case.”
The avoided costs paid to independent generators (or “qualified facilities”) vary from roughly 7 cents per kilowatt-hour to 8.5 cents per kilowatt-hour. Critics say Consumers’ original proposal would have roughly halved them. Leabu and others hope the final rates will land near 8 cents per kilowatt-hour.
As this story went to press, stakeholders in the case were filing what they believe to be the proper “inputs” that go into the avoided cost calculation.
Advocates involved in the MPSC case say there is a middle ground that should be sought — that avoided costs shouldn’t be so low as to put companies out of business but not so high that a utility’s customers pay more than they should be for the generation.
Critics say it’s ultimately the utility’s goal to own the generation outright so it can earn a return on its capital investment.
Private companies make up only a portion of the affected producers. Darwin Baas, director of the Kent County Department of Public Works, said the county’s waste-to-energy facility may be in jeopardy of being economically unviable. The Grand Rapids plant also needs millions of dollars in preventative maintenance in the coming years.
“From my perspective, I’m still a little uneasy,” Baas said. “In this whole process, Kent County and other members of the (Independent Power Producers Coalition of Michigan) have continued to spend thousands and thousands of legal consulting dollars to help everyone involved understand and think about what PURPA and avoided costs mean.
“What we’re looking for is fairness — we don’t believe that’s been delivered yet. The residents of Kent County invested over $100 million (in the facility). I’m very uneasy about having a stranded asset.”
Lansing-based waste management company Granger Energy Services also has been closely involved in the rate case and negotiations with Consumers. The company has facilities across the state that capture gas from landfills and convert it to energy, including in Coopersville, Watervliet and Lansing. It’s also a partner with Kent County at the South Kent Generating Station, a landfill gas-to-energy plant in Byron Center.
Of the firm’s 34.6 megawatts of landfill gas capacity, about 16 megawatts of that are under avoided cost contracts with Consumers Energy, said Marc Pauley, commodity manager for Granger Energy Services.
While the company’s contracts don’t expire for another eight to 10 years, Pauley said Granger may have options to sell the generation to alternative energy suppliers if the avoided costs with Consumers are uneconomical. He added that he’s “cautiously optimistic” that the commission will land at a fair price.
“This, of course, affects us statewide,” said Pauley, who added that it’s too soon to tell what, exactly, may happen to the company’s landfill gas operations. “From the independent power producers’ side, this is really simple. It’s made complicated by the investor-owned utilities because any regulated utility wants to own and control every aspect of their portfolio.”
OPPORTUNITY FOR RENEWABLES
While existing facilities remain concerned about the final avoided cost determination, others say the steps taken so far by the MPSC could open the door for more renewable generation in general — and solar in particular — to come online in the coming years.
Clean energy advocates say the declining cost of solar energy makes it particularly open for development. Avoided contracts are for plants under 20 megawatts, which generally limits wind projects.
“This definitely opens the door for more solar development,” Margrethe Kearney, an attorney based in Grand Rapids with the Environmental Law and Policy Center, told Midwest Energy News in June. “The price of solar is coming down, and this will ensure utilities aren’t able to discriminate against small solar projects.”
Ultimately, independent power producers say they want to maintain the fair rates that have kept their facilities open for decades, and that Consumers’ proposal doesn’t amount to discrimination since the federal PURPA law requires utilities to enter into these contracts if the energy is available.
The MPSC has taken steps in the right direction, but the prolonged battle has frustrated companies and officials across the state.
“Why — as a municipal government that has an integrated management system for waste and decided to solve that problem — are we having to fight for our lives?” said Baas of Kent County. “Why does it seem like Consumers is doing everything they can to put us out of business?”