Key Regulatory Issues &
Challenges Confronting the
MI Public Service Commission
Energy Regulatory Partnership Program
Abuja, Nigeria
July 14-18, 2008
Ikechukwu N. Nwabueze, Ph.D.
Director, Regulated Energy Division
Michigan Public Service Commission
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http://www.cis.state.mi.us/mpsc/electric/map.htm
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COMPARISON OF AVERAGE RATES (IN CENTS PER kWh)
FOR MPSC-REGULATED ELECTRIC UTILITIES IN MICHIGAN
July 1, 2008
RESIDENTIAL
kW
kWh
SMALL COMMERCIAL
1,000
5
1,000
25
5,000
LARGE COMMERCIAL
100
21,600
100
28,800
100
36,000
INDUSTRIAL
1,000
432,000
250
500
INVESTOR OWNED
ALPENA POWER
CONSUMERS ENERGY
DETROIT EDISON
EDISON SAULT ELECTRIC
AEP (I&M) ST JOSEPH
AEP (I&M) THREE RIVERS
NORTHERN STATES POWER
UPPER PENINSULA POWER
UPPER PENINSULA POWER IRON RIVER
WISCONSIN ELECTRIC
WISCONSIN PUBLIC SERVICE
12.30
12.02
10.73
9.99
7.97
8.03
10.24
16.94
14.41
13.52
12.47
11.45
10.82
10.73
9.31
6.86
7.11
9.39
15.34
12.81
10.08
10.67
11.02
11.71
11.42
8.97
6.56
6.66
8.96
14.54
12.01
9.12
9.77
11.57
13.02
11.50
10.67
10.24
8.16
9.50
16.26
12.51
10.24
11.50
11.03
11.70
10.75
10.08
8.45
8.05
8.90
15.30
11.55
10.62
9.74
10.71
12.51
10.62
9.97
8.15
7.70
9.06
15.20
12.39
8.88
9.45
9.58
10.86
10.60
9.92
7.84
7.22
8.17
13.17
11.25
8.85
9.42
8.80
9.87
10.26
9.43
7.65
6.75
7.63
11.95
10.57
7.59
9.40
6.93
9.04
7.95
8.87
5.42
5.01
7.28
8.91
9.77
5.92
8.58
COOPERATIVES
ALGER DELTA
CHERRYLAND
CLOVERLAND
GREAT LAKES
MIDWEST ENERGY
ONTONAGON
PRESQUE ISLE
THUMB
TRI COUNTY
18.89
14.50
14.26
15.56
14.43
21.30
15.30
13.91
15.35
16.49
12.10
12.46
13.16
12.03
18.90
12.90
12.51
12.95
15.29
10.90
11.23
11.96
10.83
17.70
11.70
11.81
11.75
15.19
10.70
11.88
12.43
11.02
17.26
11.62
11.95
12.83
15.64
9.50
11.08
10.99
9.90
15.66
10.34
11.23
11.23
15.27
10.61
10.57
11.16
10.21
16.04
11.82
13.10
11.78
14.14
9.36
9.91
10.26
9.21
14.33
10.72
11.86
10.68
13.46
8.60
9.52
9.71
8.61
13.31
10.06
11.12
10.03
12.98
7.41
8.13
6.89
9.44
10.66
8.66
9.07
8.89
AVERAGE INVESTOR OWNED
AVERAGE COOPERATIVE
AVERAGE ALL COMPANIES
11.69
15.94
13.60
10.42
13.72
11.90
10.07
12.57
11.19
11.38
12.76
12.00
10.56
11.73
11.09
10.42
12.28
11.26
9.71
11.16
10.37
9.08
10.49
9.72
7.61
9.12
8.29
10,000
4,320,000
50,000
21,600,000
5.59
8.71
7.54
8.85
5.31
4.75
7.25
8.86
9.77
5.65
8.30
5.59
8.49
7.29
8.85
5.04
4.56
7.25
8.85
9.77
5.46
7.69
7.33
7.17
7.33
7.17
Source: Michigan Public Service Commission Utility Rate Books
Compiled by the Regulated Energy Division
Revised July 1, 2008 by Mark Pung
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Price Regulations - MPSC Authority
• Public Act 3 grants MPSC authority over rates
and tariffs of the regulated utilities (includes
Investor Owned and Cooperatives – not
Municipally owned utilities)
• Public Act 141establishes MPSC authority to
implement Retail Customer Choice programs
and applicable charges
• Public Act 304 implements MPSC authority over
Power Supply Cost Recovery mechanisms (also
Gas Cost Recovery mechanisms)
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Recent Rate Reviews – Consumers
• Commission approved an electric rate
increase of $27,468,600 related to
Consumers Energy’s pending purchase of
the Zeeland Generating Station
– average residential electric customer’s bill
increased $2.10 per month (June 10, 2008
order in Case No. U-15245)
• Consumers Energy originally requested a
$157 million rate increase in the main part
of the case, filed on January 30, 2007.
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Recent Rate Reviews –
Detroit Edison
• Detroit Edison current rate proceeding in Case
No. U-15244 which was filed on April
13,2007,originally requesting an increase of
$123 million (2.86% overall).
– Updated to a 2009 test year with additional increases
now totaling $284,200,000.
• Its rates increased on April 13, 2008 due to
expiration of a rate reduction credit granted in
Case No. U-14838, in 2006, which had reduced
rates by $78,750,000.
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Recent Rate Reviews – We Energies
• Commission approved a settlement agreement
in authorizing an annual rate increase of
$316,000 for We Energies.
– Company’s original request totaled $2,137,804
– average residential customer using 500 kilowatt-hours
per month saw an increase of 60 cents per month.
(May 22, 2007 order in Case No. U-15039)
• On January 31, 2008, We Energies filed a new
rate application requesting a rate increase
totaling $22,000,000 inclusive of an Interim
request of $8,422,000.
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Recent Rate Reviews – Alpena
Power
• Commission approved a settlement agreement
authorizing Alpena Power to increase its electric rates
by $1,261,000 annually; 28% below the company’s
request (June 12, 2007 order in Case No. U-15250)
• This was Alpena Power’s first electric base rate
increase in 15 years.
– Increase was needed to provide recovery of rising operation
and maintenance expenses, employee pension and
healthcare costs, and new plant additions.
• Monthly bill of an average residential electric customer
increased $4.03 per month
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Recent Rate Reviews – WI Public
• Commission approved a settlement agreement
authorizing Wisconsin Public Service
Corporation to increase its Michigan
jurisdictional electric retail rates by $560,000
annually.
– Company’s original request totaled $804,335
(December 4, 2007 order in Case No. U-15352)
• Average urban residential customer’s monthly
bill increased by $4.40, and the average rural
residential customer’s monthly bill increased by
approximately $4.63.
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Recent Rate Reviews – TIER Cases
• Commission approved five settlement agreements in
2007 authorizing revised rates for the sale of electricity
and implementation of times interest earned ratio (TIER)
ratemaking mechanism
– Midwest Energy Cooperative, Thumb Electric Cooperative of
Michigan, Great Lakes Energy Cooperative, Tri-County Electric
Cooperative, and Presque Isle Electric and Gas Cooperative.
• Three TIER ratemaking filings resulted in no rate
changes
– Alger Delta Co-operative Electric Association, Cloverland Electric
Cooperative, and Cherryland Electric Cooperative.
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Residential Electric Rates
Utilities
Rate
Change/Increase
Typical Residential
Monthly Bill Increase
$1,261,000
$4.03
Consumers Energy
$27,468,600
$2.10
Great Lakes Energy
$4,389,101
$1.92
$969,005
$1.85
$1,797,306
$1.76
Thumb Electric
$556,446
$2.36
Presque Isle Electric
$673,472
$1.29
Wisconsin Public Service Corp.
$316,000
$0.60
Alpena Power
HomeWorks
Midwest Energy
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Electric Power Plants
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Energy Prices
• Electricity rates are sharply rising due to a surge in coal prices
over the past year.
– National average retail price of electricity rose 2.3 percent last year
(Energy Department)
• There is an abundance of coal in the United States, but like
many other commodities its price is increasingly dependent
on events elsewhere in the world.
– Snowstorms this winter cut coal production in China
– Heavy rain flooded mines in Australia - the world's largest coal exporter
– Demand for coal to generate electricity and make steel is rising almost
everywhere, especially in fast-growing China and India.
• World’s appetite for American coal has increased, pushing up
the price of the fuel utilities burn to generate half of the
country's electricity.
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Coal Prices
• Central Appalachian coal
– Benchmark grade that's widely used by power plants
– Price has jumped from around $40 a ton in early 2007 to almost $90 a ton
now
• Powder River Basin Coal in Wyoming and Montana
– Has about three-quarters the heat content of Central Appalachian coal
– Price has jumped from less than $10 a ton to almost $15 a ton over the
same time period.
• Utilities must burn more Powder River Basin coal to generate an
equivalent amount of energy, and it must travel east by rail, which
adds significantly to its final cost.
– American Electric Power Co. burns mostly Appalachian coal in their eastern
plants, but relies on cheaper Powder River Basin coal in the west
– Some American Electric plants are designed to burn only the types of coal
that are close to their plants
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Coal Prices (Continued)
• Energy Dept. says the amount of the nation's electricity
generated by burning coal will actually grow to 54
percent by 2030 from 49 percent now
• Coal is still cheap compared to other fuels
– Coal cost $1.69 per British thermal unit (BTU) in 2006 while
Natural gas cost $6.87 per BTU (Energy Dept)
• Reasons coal prices are up
– Weather related disruptions in China and Australia this winter,
will likely be resolved quickly
– Ports in Australia aren't adequate to handle growing demand,
leaving ships lined up 30 to 50 deep waiting to load coal.
– South Africa faces similar transportation bottlenecks
• Demand for coal is growing worldwide
– China recently shifted from mostly exporting coal to mostly
importing it.
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Coal Prices (Continued)
• Cost of mining coal has also increased due to transportation costs,
rising wages and expensive new safety regulations
• If enacted, laws sharply restricting polluting carbon emissions raises
the possibility of even greater cost increases as producers spend on
equipment and technology to cut emissions.
• In West Virginia, American Electric attributes:
– 54 percent of its recent rate hike to increased coal costs
– 32 percent to the rising expense of buying power from other companies
- which is also more expensive due to rising coal prices
– Remainder of the increase will pay for equipment to reduce coal plant
emissions
• American Electric is able to limit its rate increase in West Virginia to
15 percent
– Buys coal via a portfolio of hundreds of contracts that let it lock in prices
– As contracts expire, they must then be re-negotiated at rising rates.
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Demand Projections and Capacity Allocation
Detroit Edison
Total Owned Capacity (MW)
Total Purchases (MW)
2008
2009
2008
2009
11,020
11,016
6,562
6,562
2,148
1,994
3,467
3,147
10,029
9,709
11,954
8,778
8,933
(641)
(200)
(200)
Subtotal (MW)
13,168
Demand (MW)
12,168
Interruptible Load (MW)
Consumers Energy
(587)
13,010
Subtotal (MW)
11,581
11,313
8,578
8,733
Reserve Margin (MW)
1,587
1,697
1,451
976
Margin Reserve %
13.7%
15%
16.92%
11.18%
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Transmission Infrastructure Status and Expansion
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Transmission Infrastructure Status and Expansion
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Transmission Infrastructure Status &
Expansion
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Third-Party Access
Electric Customer Choice
• Michigan’s state legislature passed Public
Acts 141 and 142 of 2000, the Customer
Choice and Electricity Reliability Act on
June 3, 2000.
• Generation and supply of power is open to
competitive suppliers.
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Demand Side Management
• All kinds of efforts to “shape” demand for
energy services in order to produce
system benefits.
• Could be demand reductions or
increases…
• Typically includes: energy efficiency, load
management, generically demand-side
management (DSM).
• More recently: demand response (DR)
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Demand Side Management Options
May be driven by Rates and/or Programs
• Peak Clipping
– Reduces peak demand, and may shift use to
shoulder or off-peak periods. May even increase
kWh usage.
• Valley Filling
– Strategic means of selling more during off-peak
periods.
• “Baseload” efficiency improvements
– “on” all the time that end-use devices are in use
(e.g. more efficient lights, motors, etc.)
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Demand Side Management
Detroit Edison
• Detroit Edison is an example of a Michigan
regulated electric utility that has embraced
demand response and load management
programs for a number of years
• This has resulted in power supply savings
for the company and its customers
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Demand Response Programs at
Detroit Edison
• Long history of active load management and passive
Demand Response programs dating back to the 1960’s
– Active load management refers to programs where the utility
initiates action to reduce customer load
– Passive demand response programs require a customer choice
to reduce demand based on a pricing incentive offered by the
utility.
• Incentive is usually either price based on the time
electricity is used (time-of-day or season of year) or
penalty for non-compliance to a load reduction requested
by the utility based on customer contract provisions
– Interruptible tariffs are commonly referred to as active load
management programs
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Demand Response Programs at
Detroit Edison
• Offers a variety of active and passive programs for all
major rate classes
– One of the nation’s largest, and most successful, D1.1
Interruptible Air Conditioning (IAC) program with over 280,000
active customers
– Residential customers: D5 Interruptible Water Heating and D1.2
Time-of-Use rates
• Promotes savings if the customer can shift electric use to off-peak
hours in exchange for lower kilowatt-hour pricing)
– Commercial customers: Interruptible Air Conditioning,
Interruptible Water Heating and Time-of-Use rates
• May take service under the optional Commercial Interruptible D3.3
or D-8 Interruptible Supply tariffs
– Industrial customers may also take service under the D8 tariff or
R-10 Primary Interruptible Supply tariff
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Rational for Energy Efficiency
• Utility systems need to have adequate supply
resources to meet customer demand
• To keep the system in balance, you can add
supply resources, reduce customer demand, or
a combination of the two
• In most cases, it is cheaper to reduce customer
demand than to acquire new supply resources
• There needs to be a practical mechanism for
utilities to acquire energy efficiency resources
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Energy Efficiency
• Reduces system peak demand
• Reduces total energy consumption
• Reduces consumption of natural
resources & air emissions
• Can reduce energy imports
• Effects are long-lasting
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Energy Efficiency (Continued)
• Energy efficiency is more than a
‘virtue’….it’s a RESOURCE
• Energy efficiency costs less than new
supply, even less than fuel & variable
O&M only
• Proven examples are readily available
• Energy efficiency still requires policy and
regulatory action
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Renewable Energy
• Renewable Portfolio Standard (RPS) requires
that a certain percentage of a utility's [loadserving entity’s, or LSE’s] overall or new
generating capacity or energy sales must be
derived from renewable resources, i.e., 5% of
electric sales must be from renewable energy in
the year 2006
• Michigan Legislator introduced law to require
RPS, which is still pending.
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Renewable Portfolio Standards
MN: 10% by 2015 Goal +
Xcel mandate of
1,125 MW wind by 2010
MT: 15% by 2015
VT: RE meets load
growth by 2012
WI: requirement varies by
utility; 10% by 2015 Goal
ME: 30% by 2000
MA: 4% by 2009 +
1% annual increase
RI: 15% by 2020
CT: 10% by 2010
CA: 20% by 2010
☼ NY: 24% by 2013
IA: 105 MW
☼ NV: 20% by 2015
☼ CO: 10% by 2015
IL: 8% by 2013
☼ NJ: 22.5% by 2021
☼ PA: 18%¹ by 2020
*MD: 7.5% by 2019
*DE: 10% by 2019
☼ AZ: 1.1% by 2007
☼ DC: 11% by 2022
*NM: 10% by 2011
TX: 5,880 MW by 2015
HI: 20% by 2020
State RPS
☼ Minimum solar or customer-sited requirement
* Increased credit for solar
¹PA: 8% Tier I, 10% Tier II (includes non-renewable sources)
State Goal
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Related Policies
•
•
•
•
•
•
Interconnection Standards
Funding, financing, incentives
Required Green Pricing Options
Solar & wind access laws
Net metering
Disclosure of fuel mix
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Stakeholder Involvement in
Ratemaking Process
• Stakeholder Inclusion through:
– Formal Rate Case participation as a party to
the case
– Customer Comments filed in a Rate Case
dockets
– Formal Complaints to the MPSC
– Informal Complaints and Inquiries to the
MPSC
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Stakeholders Needs in
Ratemaking Process
• Utilities: a reasonable return on investment
(compensatory and non-confiscatory) to ensure
financial viability, and protection from ruinous
competition
• Customers: Nondiscriminatory service at fair,
reasonable, and affordable rates, and protection
from monopoly abuse
• Regulators: Utility services that promote the
public interest, including price signals that
encourage efficient use of resources and
promote other social goals
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Reliability and Security of Supply
• Generating units must be available to run barring an unforeseen
outage or planned maintenance outage
• Utilities must have enough self-owned or purchased capacity to
reliably serve their load with some Reserve Margin
• MISO (Midwest Independent transmission System Operator) has a
planning reserve sharing group that helps set the reserve margin for
utilities in the Midwest region – current margin is set at 13.7%
• Utilities also maintain redundant transmission system to help assure
limited interruptions.
• Since September 11, 2001, U. S. generating plants (in particular
nuclear plants) have increased security in and around their plants,
limiting access to some units
– Increased costs for security have been passed through rates
• MPSC requires regulated utilities to file summer reliability
assessments to ensure that each utility will have a secure, reliable
supply of energy during peak usage periods.
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Power Market Issues
• MISO (Midwest Independent transmission System Operator) is
the regional coordinator for transmission
• MISO operates a Day-2 energy market in which electricity is
traded and scheduled – Market began in April 2005
– Requires utilities to “offer” their generating units into the market and to
“bid” in prices for their load
– Consists of a Real-time market giving price updates every 5 minutes
and a Day-ahead market where prices are set before next day’s
operation
• MISO also launching an Ancillary Services Market in Sept. 2008
– Allow utilities to sell essential services such as voltage regulation and
reactive supply that support Capacity and the transmission of electricity
• MISO has an independent market monitor (IMM) that oversees
the market activities of all participants
– IMM looks for possible market manipulation or gaming of prices by any
participant
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Restructuring and Interconnections
Electric Customer Choice
• PA 141 of 2000 provides that all retail customers
have a choice of electric suppliers
• MPSC has issued many orders to implement the
law
• Open access or Choice, became available to all
customers of Michigan investor owned utilities,
beginning January 1, 2002
• The rules are different for municipal electric
utilities that are not regulated by the MPSC (see
MCL 460.10y)
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Interconnection of Merchant Plants
• Commission developed Electric Interconnection
Standards rules (R460.481- R460.489)
• Utilities filed interconnection procedures in
concert with the rules
– Procedures provide Michigan regulated electric
distribution companies with a process for considering
interconnection requests
– They include the required application process, basic
technical criteria, filing fees and deadlines for
completion of various steps in the process
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Interconnection Procedures
Technical Criteria
• Specify technical, engineering and
operational requirements suitable for the
system.
• Include distinct set of requirements for the
following project capacity classifications:
– Less than 30 kW
– 30 to 149 kW
– 150 kW but less than 2 megawatts
– 2 megawatts or more
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Questions?
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