Michigan’s Public Service Commission and the monopoly utilities it regulates appear committed to imposing an in-state generation mandate on Michigan’s electricity choice providers. But the Commission’s own lawyers say the plan would harm the reliability of the electric system, push electricity costs up and even contradict federal policy.

Last December, lawmakers’ plans to pass significant new electricity legislation – Public Acts 341 and 342 – were delayed when some legislators opposed including a “local clearing requirement” in the law. The requirement, which would essentially mandate that electricity sold in Michigan be produced in Michigan, would hit alternative energy suppliers (AES) the hardest. Those suppliers, which compete with the two big utility companies — Consumers Energy and DTE — are an essential part of Michigan’s electricity choice market.

A part of the new law (Section 6w) requires electricity suppliers to show the Michigan Public Service Commission (MPSC) that they can meet the energy needs of their customers. The Commission, in turn, says that any electricity sold in Michigan needs to be generated in Michigan. But currently federal policy – set by the Midcontinent Independent System Operator (MISO) — allows electricity suppliers to buy the electricity they sell to customers from the open market, which could mean turning to out-of-state sources. That policy is consistent with the Constitution’s interstate commerce clause, which allows for goods and services to cross state lines freely.

No problems have been reported with alternative electric suppliers purchasing electricity from outside Michigan. But the state’s monopoly utilities, DTE and Consumers Energy, argue that an in-state requirement is essential to maintaining a stable electricity system.

In an emailed comment, DTE’s media relations office said that “With Michigan’s unique geography and the physical constraints of electricity, nearly 95 percent of Michigan’s electric supply must be generated within Lower Michigan. … Holding all energy suppliers responsible for their own customers’ needs is fundamental to reliability and the 2016 energy law.”

Electricity choice suppliers argue that no mandate is required; they must meet their customer’s needs if they want to stay in business. Further, they say, DTE and Consumers Energy own and operate the vast majority of Michigan’s generation facilities. So the in-state requirement would force them to build redundant and expensive facilities to generate electricity, or to rely on their competitors for their electricity supply.

It is just this sort of tension that stopped the voting on electricity legislation in December. As long as the in-state requirement remained in the draft legislation, House leaders couldn’t cobble together enough votes to pass the bills. Many Republican House members, who supported electricity choice in Michigan, recognized that leaving an in-state generation requirement in the law would effectively kill off Michigan’s choice market. Therefore, they opposed leaving it in the final bill.

Only after the language requiring in-state generation was removed in the final hours of the final evening of debate did enough Republicans agree to vote “yes.” By waiting until the requirement was removed from the bills, Michigan’s elected representatives sent a clear statement that using the legislative process to kill off electricity choice was a nonstarter.

Despite that clear legislative intent, the MPSC stated in a June 15, 2017, order that it planned to resurrect the same in-state generation requirement that legislators had openly rejected just six months earlier. Not surprisingly, the MPSC’s plans are injecting back into the discussion all the concerns first raised by advocates of choice.

An August 21 letter by House Energy Policy Committee chair, Gary Glenn, blistered Sally Talberg, chair of the MPSC, for “imposing such a damaging policy on (Michigan’s) economy.” In his comments, Glenn referred to a May 26, 2017, letter, written by three assistant attorneys general who were assigned to provide guidance to the Commission. That letter clearly “advises against introducing a new [in-state] requirement in 2018.”

The attorneys explained that imposing the in-state mandate on electricity choice markets “would not improve reliability in Michigan and could potentially be a detriment to customers.” They argued the mandate would “make it extremely difficult, if not impossible,” for alternative electricity suppliers to find enough electricity for their customers.

The attorneys also said that the in-state requirement would “actually compromise reliability for some specific Michigan customers.” They warned it would work against the rules established by MISO, the regional operator for the Midwest and overseer of Michigan’s electric grid. In contrast, they stated, “if the status quo is kept for 2018,” alternative electricity suppliers “could continue to serve the capacity requirements of their customers” by getting the electricity they need from outside the state.

In another statement, Glenn stated his clear intent to step up his resistance to the Public Service Commission:

I will recommend that the Legislature itself go to court, if necessary, to reassert that energy policy in Michigan will be set by the Legislature, who are elected by and accountable to the people, and not by an appointed bureaucracy that seems intent on advancing the financial self-interests of two corporate monopolies at the expense of Michigan ratepayers and our economy.

When Michigan citizens elect their representatives, they expect them to have a say in the policies that affect their lives. When those representatives make a clear statement of intent on a key policy issue, it seems eminently reasonable to expect Michigan’s government employees to pay attention. When those government employees seek further legal advice on how to respond, and that advice agrees with the clearly stated intention of the Legislature, it seems odd that they would ignore it. If the Commission is going to ignore the Legislature and its own lawyers, and push forward with its plan for an in-state mandate, one has to ask why they bothered with the regulatory review process in the first place.

Permission to reprint this blog post in whole or in part is hereby granted, provided that the author (or authors) and the Mackinac Center for Public Policy are properly cited.