STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION

Transcription

1 STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION In the matter, on the Commission s own motion, establishing the method and avoided cost Case No. U calculation for CONSUMERS ENERGY (e-file paperless) COMPANY to fully comply with the Public Utilities Regulatory Policy Act of 1978, 16 USC 2601 et seq. / THE MICHIGAN PUBLIC SERVICE COMMISSION STAFF S REPLY BRIEF The Staff files the following brief replying to the parties initial briefs regarding the implementation of the Public Utility Regulatory Policies Act (PURPA) of 1978, 16 USC 2016 et seq. and its regulations with respect to Consumers Energy (Consumers or the Company). Staff endeavored in its initial brief to respond to the arguments based on the record. Thus, to the extent Staff is silent on an issue in this brief, it is not necessarily opining on Consumers or other parties views. Staff continues to rely upon its positions as stated in Staff s testimony, exhibits, and initial brief where not stated otherwise. I. The Staff s reply to Independent Power Producers Coalition (IPPC) A. What IPPC fails to understand is that Staff s model with respect to energy avoided cost is identical to the model used to calculate the transfer price. The only difference is the inputs, which result in significantly different avoided cost calculations. IPPC emphasizes the PURPA requirement at Section 210 (16 USC 824a-3) that requires the Federal Energy Regulatory Commission to promulgate rules to encourage cogeneration and small power production. (Emphasis supplied.) A 1

2 state s PURPA regulations must be in the public interest and not be discriminatory towards QFs. IPPC Initial Brief, pp IPPC states in its initial brief that Staff s resulting avoided energy and capacity methods are some 30 to 50% lower than the current PURPA contracts for almost all IPPC members, and would be a fraction of the cost compared to nearly all of Consumer s company-owned projects and approved PPAs using the Transfer Price Schedule. 1 IPPC Initial Brief, p 34. First, the lowered proposed avoided costs is concerning not just to IPPC, but Staff as well, in light of the requirement at Section 210 of PURPA to encourage offers to QFs. IPPC Initial Brief, pp 7-8. This is not due to a fault in Staff s model, however, but due to Staff altering its inputs with respect to the energy calculation to more closely align with the inputs provided by Consumers. The modified inputs are: plant size, plant capacity factor, heat rate, natural gas price forecast (fuel cost), fixed charge rate, fixed operations and maintenance (O&M) cost and capital costs. Each modification Staff made to the transfer price model input assumptions used in this case contributed to a lower avoided energy cost than is found on recent transfer price schedules. These inputs also change the CT capacity model outputs. The use of the input assumptions associated with transfer price schedules would result in an estimated avoided energy cost similar to the energy price associated with the transfer price. 1 The transfer price schedule represents what a utility would pay in a given year, through 2029, if it entered into a power purchase agreement for fossil fuel, and is based on a natural gas combined cycle plant (NGCC). See Michigan Public Service Commission Solar Working Group Staff Report, p 5. 2

3 Second, contrary to IPPC s assertions, Staff s model is appropriate. The model used for Staff s Proxy Plant Variable Rate Forecast is identical to the model used to calculate the transfer price with respect to the avoided energy costs, and only differs with respect to the capacity calculation. Although, when inputs are similar, Staff s modified proxy plant outputs will be similar to the transfer price model outputs when capacity, energy, and fixed ICE are factored in. This model is shown on S-6 as explained by Staff witness Jesse Harlow, who stated that Staff s option No. 3 is based on the variable costs of operating an NGCC and calculated using the transfer price model. 2 TR 162. Staff never intended to endorse Consumers inputs as the only reasonable inputs. Third, contrary to IPPC s brief, Staff s proposal does not seeks the lowest possible reasonable avoided cost, without regard to encouraging QF development. IPPC Initial Brief, p 16. IPPC points to the fact that Consumers is using the transfer price schedules to compensate itself for its Cross Winds Energy Park, Experimental Advanced Renewable Program and Solar Gardens Program, which is a valid point. IPPC s Initial Brief, p TR 92. As stated above, the difference in avoided energy costs with respect to the transfer price schedules to compensate Cross Winds Energy Park programs and the avoided cost calculations are driven by differing input assumptions. In light of the facts in this case and procedural history, both the inputs used with respect to the transfer price schedules, and the inputs proposed by Consumers may be reasonable to use for an avoided cost calculation. 3

4 B. Staff requests that the Commission consider the inputs proposed in Consumers application in this case as well as the inputs furnished with respect to determining the transfer price, as either inputs may be reasonable options. While there is no defect with Staff s proposed model, Staff requests that the Commission consider the inputs proposed in Consumers application in this case within the appropriate context. Neither Staff nor the intervening parties vetted Consumers model inputs to any extent other than reviewing them and determining that they were within the realm of reason. The inputs also changed partway through the case, due to a miscalculation, which was corrected with respect to the revised exhibits. It should be noted that minor changes in any of the inputs, particularly plant capacity factors, can have a significant impact on the resulting avoided cost calculation. This was an area that was not discussed in testimony or initial briefing; rather the focus was on the methodology in a more theoretical sense. The below chart illustrates the differences in the inputs and results with respect to those used to calculate the transfer price and those used by Staff, in accordance with Consumers application in this case. Comparison of Staff s Transfer Price NGCC Plant and NGCC Plant Used to Calculate Staff s Avoided Energy Cost Option #3 Model Input Transfer Price NGCC Plant 1 Avoided Energy Cost Option #3 NGCC Plant 2 NGCC Plant Size 400 MW 1,123 MW Capacity Factor 61.77% 67.45% Heat Rate 6,719 Btu/kW 6,555 Btu/kW Fuel Cost $5.28/MMBtu $4.59/MMBtu Fixed Charge Rate 12.38% % Fixed O&M $14.62/kW $7.30/kW Results $38.58/MWh $32.48/MWh 4

5 1 See 2016 Staff Transfer Price filing 2 See Exhibit S-7, page 1. Staff is concerned with the contrast in the inputs, and the result that ensues, and urges the Commission to closely examine this aspect of the case when choosing which inputs are the best choice. C. Staff wishes to correct IPPC s misconception and to assure that it supports continued offers to purchase from existing QFs. Staff also wishes to correct a misconception in IPPC s brief at pages 36 and 37. IPPC discusses the concern that Staff is recommending that Consumers would not continue purchasing capacity from an existing QF at the time of contract renewal should the utility s PURPA 10-year planning horizon capacity becomes full. IPPC s Initial Brief, p 36 (quoting 2 TR 140). IPPC has misunderstood Staff s position as it relates to existing QFs and avoided capacity cost payments at contract renewals. As IPPC states in its brief, many of these QFs have been part of the utility s portfolio for decades. Staff strongly agrees with IPPC that existing QFs already have their capacity accounted for in the utility s capacity portfolio and clarifies its position that, for those QFs, Consumers should pay the full standard capacity rate based on Staff s modified proxy plant methodology, not the Planning Resource Auction (PRA.) Staff s recommended standard offer capacity rate adjustment to the PRA would only apply to new QFs under Staff s proposal. Existing QFs, at the time of contract renewal, would continue to be compensated according to Staff s proposed capacity calculation methodology. 2 TR

6 D. Staff continues to disagree that the ZRC methodology should apply to baseload energy. IPPC s brief correctly asserts that Staff is not proposing that the Effective Load Carrying Capability (ELCC)/Zonal Resource Credit (ZRC) methodology, as recognized by the Midcontinent Independent System Operator (MISO), be applied to baseload-type hydroelectric, biomass, waste-to-energy landfill gas or other types of QF non-intermittent generation. Under Staff s proposal, the ZRC methodology with respect to capacity only applies to intermittent resources like wind and solar as a mechanism to account for the ability to dispatch and availability of such resources. 2 TR 161. II. The Staff s Reply to Consumers Consumers brief summarizes its revised standard offer tariff proposal. Consumers Initial Brief, pp Staff appreciates the Company s proposed compromise to increase the QF size cap from 100 kw to 1.5 MW, lengthen the contract term options to 10 years provided the any forecasted energy rate is refreshed after 5 years. Additionally, the Company compromised on the capacity payment criteria and agreed to pay a QF for avoided capacity if the Company has a need for capacity in the first 5 years of the 10-year PURPA planning horizon. If the Company does not need capacity in the first 5 years, then the Company proposes that the avoided capacity payment be based on the PRA. At the time of the energy price update, if the Company needs capacity during the first 5 years, then contracts based on the PRA would be updated to the capacity payment based on the NGCC. 6

7 Staff recommends that the Commission accept the Company s compromise of 1.5 MW as the current size cap for the standard offer tariff. Staff, however, requests that the Commission adopt Staff s escalating approach to adjusting the standard offer size cap based on the Company s future capacity need in place as a guideline for consideration during the biennial avoided cost review. In many cases, as explained by some of the QF intervenors, Staff believes that 10 years is not long enough to finance necessary on-going maintenance and upgrades. Staff requests that the Commission establish the option for a 15 year or longer term as requested by some of the QF intervenors for the standard offer tariff. PURPA provides a QF with the option to obtain a fixed payment based on a forecast over the term of the contract. Therefore, Staff continues to recommend that the Commission s implementation of PURPA for Michigan include a long-term (over the term of the contract), fixed price avoided energy rate as an option for QFs. Staff does not recommend approval of Consumers proposal asking the Commission to set the avoided capacity rate at the PRA when the Company does not need capacity during the first 5 years of the 10 year planning horizon. In particular, for the standard offer tariff, where capacity would be added in small increments, 1.5 to 2 MW QF size cap, (or larger depending on the size cap approved by the Commission), Staff continues to recommend that capacity needs during the full 10-year PURPA planning horizon be the determining factor for basing the capacity payment on the PRA (if no capacity is needed for the full 10 years) or Staff s CT proxy plant (if there are capacity needs during the 10-year planning 7

8 period). Staff would like to make its position clear that any existing QFs with contracts being renewed, should receive the avoided CT proxy plant capacity rate. III. The Staff s Reply to ELPC Staff agrees with ELPC regarding the inappropriateness of Consumers revised proposal to value capacity at the PRA if the utility needs no capacity in years 1 through 5 of the 10-year PURPA planning horizon, but needs capacity in years 6 through 10. ELPC Initial Brief, p 11. ELPC points out that utilities look beyond 5 years when deciding whether to build a large plant and build for future need, and may choose to build in excess of actual need, such that they may not have need for 5 years. Rather than filling the remaining five years with QF purchases to avoid having to go to the expense of building new, it could then buy from the PRA and avoid QF purchases entirely, as testified by Mr. Jester. Id. This would defeat the purpose of the PURPA. Staff continues to support its position to set the avoided capacity cost using a proxy CT plant when capacity is needed at any time in the 10- year PURPA planning horizon. IV. Staff s Comments on Public Act 341 of 2016 While this case was ongoing, the Legislature passed, and the Governor signed, Public Act 341 of 2016, which takes effect April 20, Among other things, the Act requires the Commission to conduct a proceeding every 5 years to reevaluate the procedures and rates schedules including avoided cost rates, as originally established by the commission in an order dated March 17, 1981 in case 8

9 no. U MCL 460.6v(1). After conducting this proceeding, the Commission is to issue an order that does all of the following: (a) Ensure that the rates for purchases by an electric utility from, and rates for sales to, a qualifying facility shall, over the term of a contract, be just and reasonable and in the public interest, as defined by PURPA. (b) Ensure that an electric utility does not discriminate against a qualifying facility with respect to the conditions or price for provision of maintenance power, backup power, interruptible power, and supplementary power or for any other service. (c) Require that any prices charged by an electric utility for maintenance power, backup power, interruptible power, and supplementary power and all other such services are cost-based and just and reasonable. (d) Establish a schedule of avoided cost price updates for each electric utility. (e) Require electric utilities to publish on their websites template contracts for power purchase agreements for qualifying facilities of less than 3 megawatts that need not include terms for either price or duration of the contract. The terms of a template contract published under this subsection are not binding on either an electric utility or a qualifying facility and may be negotiated and altered upon agreement between an electric utility and a qualifying facility. [MCL 460.6v(4).] For Consumers, this proceeding should qualify as the first 5-year review, but there are some issues that would be better addressed in a different proceeding. For one, the Commission s order in the five-year review must ensure that rates charged for maintenance power, backup power, interruptible power, and supplementary power are cost-based and just and reasonable. This was not an issue that was addressed in the record in this case. It is, however, an issue that is being addressed in the Standby Rate Working Group that the Commission initiated in Case 9

10 No. U In addition to this Working Group, Staff believes that this is an issue that can be addressed in the Commission s order in Consumers next rate case (assuming it is filed within five years). It is a natural fit since Consumers and Staff will be filing a cost-of-service study that will cover standby rates. Staff, therefore, recommends that, if the Commission agrees with Staff, it may notify the parties that this case qualifies as the avoided-cost review required under Act 341 and that Standby rates will be addressed in Consumers next rate case. V. Conclusion Based on the testimony and exhibits, Staff submits that, in light of the initial briefs, it is reasonable for the Commission to give serious consideration to the transfer price schedule inputs as well as the inputs suggested in Consumers application in terms of Staff s proposed option No. 3. Staff stands by its positions already articulated in this matter and reiterated above, in response to the parties initial briefs and recommends that the Commission adopt its positions. Respectfully submitted, MICHIGAN PUBLIC SERVICE COMMISSION STAFF DATED: February 9, /Reply Brief Heather M.S. Durian (P67587) Spencer A. Sattler (P70524) Assistant Attorneys General Public Service Division 7109 W. Saginaw Hwy., 3rd Floor Lansing, MI Telephone: (517)

11 STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION In the matter, on the Commission s own motion, establishing the method and avoided cost Case No. U calculation for CONSUMERS ENERGY (e-file paperless) COMPANY to fully comply with the Public Utilities Regulatory Policy Act of 1978, 16 USC 2601 et seq. / STATE OF MICHIGAN ) ) ss COUNTY OF EATON ) PROOF OF SERVICE TINA L. BIBBS, being first duly sworn, deposes and says that on February 9, 2017, she served a true copy of the Michigan Public Service Commission Staff s Reply Brief upon the following parties VIA ONLY: Consumers Energy Company Anne M. Uitvlugt Robert W. Beach Consumers Energy Company One Energy Plaza Jackson, MI anne.uitvlugt@cmsenergy.com robert.beach@cmsenergy.com mpsc.filings@cmsenergy.com Cadillac Renewable Energy, LLC, Genesee Power Station Limited Partnership, Grayling Generating Station Limited Partnership, & T.E.S. Filer City Station Limited Partnership Thomas J. Waters Fraser Trebilcock 124 W. Allegan St., Ste.1000 Lansing, MI twaters@fraserlawfirm.com Administrative Law Judge Hon. Mark E. Cummins Administrative Law Judge Michigan Public Service Comm W. Saginaw Hwy., 3 rd Floor Lansing, MI cumminsm1@michigan.gov Independent Power Producers Coalition of Michigan Timothy J. Lundgren Laura A. Chappelle John W. Sturgis Varnum Law The Victor Center 201 N. Washington Sq., Ste. 910 Lansing, MI tjlundgren@varnumlaw.com lachappelle@varnumlaw.com jwsturgis@varnumlaw.com 1

12 Michigan Environmental Council Christopher M. Bzdok Olson, Bzdok & Howard 420 E. Front St. Traverse City, MI Kimberly Flynn, Legal Assistant Karla Gerds, Legal Assistant Environmental Law & Policy Center, Ecology Center, Solar Energy Industries Association, & Vote Solar Margrethe K. Kearney Environmental Law & Policy Center 1514 Wealthy St. SE Suite 256 Grand Rapids, MI Great Lakes Renewable Energy Association Don L. Keskey Brian W. Coyer Public Law Resource Center PLLC University Office Place 333 Albert Ave., Ste. 425 East Lansing, MI Michigan Power Limited Partnership & Ada Cogeneration Limited Partnership David E.S. Marvin Fraser Trebilcock Davis & Dunlap 124 W. Allegan St., Ste Lansing, MI Subscribed and sworn to before me this 9th day of February, TINA L. BIBBS Corinna C. Swafford, Notary Public State of Michigan, County of Ionia Acting in the County of Eaton My Commission Expires: