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Environment & Energy Report

Michigan High Court to Hear Challenge to ‘Buy Local’ Power Rule

Nov. 7, 2019, 11:00 AM

Michigan’s largest electricity consumers will make their case Nov. 7 at the Michigan Supreme Court that a state agency shouldn’t enforce a utility rule that those consumers say could jeopardize hundreds of millions of dollars in savings.

On one side is the Michigan Public Service Commission and companies like Consumers Energy Co. and DTE Energy Co., which back a commission rule requiring “alternative electric suppliers"—businesses that sell electricity from out-of-state sources—to get small but increasing amounts of energy from Michigan power companies.

Proponents argue this rule, called a “local clearing requirement,” is necessary to ensure all consumers have a guarantee of reliable energy, and that the state can meet its needs and prevent future blackouts.

On the other side are big energy buyers like foundries, manufacturers, hospitals, chemical companies, and schools that argue the rule will greatly affect their energy costs without boosting reliability. They say in-state providers can meet the state’s needs, so there’s no need for alternative providers to buy Michigan-made energy to ensure reliability. And the current alternative market system has saved 157 school districts $133 million, or $30 per student.

Arguments are likely focus on narrow legislative interpretations, and larger questions about state agency power to regulate the electricity industry.

State’s Novel Electricity System

At stake is big money for the state’s energy consumers, and market power for the state’s largest utilities.

In addition to legal issues, the advocates are fighting over what policies make sense for regulating Michigan’s novel electricity system, where 10% of consumers—large users—are allowed to purchase power on a multi-state market, while 90% purchase from in-state utilities.

The rule, which is on hold pending the case, would start small, requiring alternative electric suppliers to purchase 1.5% of their power from in-state generators in 2022, and 3% the next year.

But critics say this will increase costs, as utilities dictate their prices to the smaller electric suppliers, and the state increases the percentage for the local clearing requirement in years to come.

‘Awesome Power’

The Michigan Court of Appeals ruled in favor of challengers to the “local clearing requirement,” because the 2017 statute that the agency used to create the rule didn’t have express language authorizing the mandate, something critics highlighted in their brief.

The Court of Appeals also agreed with the rule’s opponents that the legislative history demonstrates intent to not have the rule apply to alternative suppliers—that provision was stripped from the bill.

“The court of appeals correctly decided the issue below, and it did so applying well-established legal precedent,” Michael J. Pattwell, attorney for Association of Businesses Advocating Tariff Equity, told Bloomberg Environment.

Pattwell is a member of Clark Hill PLC in Lansing, Mich., and will argue on behalf of the interest group for the state’s large energy-consuming businesses and organizations

“The Public Service Commission was wrong to presume that the legislature would have granted it the awesome power of banning out-of-state electric resources in such a cryptic fashion,” he said.

Legislative Authority

But proponents, including the Michigan Chamber of Commerce, say the Legislature has empowered the commission to make this kind of rule to plan for the future.

The state and federal government have created what amounts to a “reliability puzzle,” the chamber said in its brief supporting the commission.

On the federal side, regional transmission organizations provide a large supply for interstate markets, but that doesn’t eliminate a state’s need to ensure it can supply its citizens and businesses, and prevent blackouts, it said.

“Simply put, the lower court appears to read MCL 460.6w as inserting state action into an existing and ongoing federal role and responsibility,” the chamber said in its brief. “Instead, the opposite is true: under longstanding federal law and recent U.S. Supreme Court precedent, Michigan has the primary responsibility to ensure resource adequacy, and its law should be read through that lens.”

‘Persnickety Fashion’

Michigan’s laws are meant to “ensure reliable energy service for all customers” and, “we believe it’s the responsibility of all energy providers to ensure they have secured adequate capacity to serve their customers and contribute to grid reliability in Michigan,” Consumers Energy, a public utility and one of the main litigants, said in a statement.

The commission cast the issue in dire terms, saying the Court of Appeals’ decision “will cause material injustice” if not corrected by the Michigan Supreme Court. The agency said it must do things that don’t appear in “clear and unmistakable language” in statute, but that are essential to governing the state’s power systems.

“It would redefine how courts understand an agency’s clear and unmistakable authority. Before this decision, the Legislature could delegate authority to administrative agencies along with discretion to carry out that authority as long as it was not unbridled discretion,” the agency argued in its brief. “If the Court of Appeals decision stands, the Legislature would have to detail, in persnickety fashion, every action an administrative agency can or cannot take.”

The cases are: In re Reliability Plans of Elec. Utils. for 2017-2021, Mich., Nos. 158305, 158306, 158307, 158308, oral argument 11/7/19.

To contact the reporter on this story: Alex Ebert in Columbus, Ohio at aebert@bloomberglaw.com

To contact the editors responsible for this story: Gregory Henderson at ghenderson@bloombergenvironment.com; Rob Tricchinelli at rtricchinelli@bloombergenvironment.com; Anna Yukhananov at ayukhananov@bloombergenvironment.com