Senate leader trying to find a third path on state energy overhaul

Lansing is debating an overhaul of the state’s energy policy, including debate over what role longer-term thinking on wind and solar power should play in the state’s energy strategy. (Photo by Getty Images/iStockphoto)

LANSING — Some state lawmakers will spend this summer working to earn enough votes to pass the biggest overhaul of Michigan's energy policy in eight years, with just 25 scheduled session days left before the end of the legislative term.

That deadline is looming amid summer break and elections this fall for the state House. Adding to the pressure: Republicans and Democrats in the Senate remain far apart on a package of bills sent to the full body shortly before the Legislature left for break.

Now, Sen. Mike Nofs, who as chairman of the Senate's energy committee has spearheaded the two-bill energy package, is quietly floating revisions to business leaders that would drastically scale back a process to plan for utilities' long-term electricity needs in exchange for allowing outside companies to bid on individual power projects.

Nofs, R-Battle Creek, said concerns from the Michigan Chamber of Commerce prompted him to work this summer on rewriting bill language. The substitute version of Senate Bill 437, obtained by Crain's/Bridge, has not yet been presented to the full Senate, Nofs' office said. The draft policy is circulating among chamber members in hopes of winning support from the business community, particularly as Nofs tries to secure votes from Republicans.

The major difference: Rather than requiring utilities to present a plan for generating power every few years to the Michigan Public Service Commission that considers all electricity sources, including renewables and efficiency — a process known as integrated resource planning (IRP) — utilities only would have to do so when they proposed to build a major new power facility.

That change would significantly curtail the IRP process, which is championed by Gov. Rick Snyder's administration and Nofs himself as an alternative to mandates that since 2008 have required utilities to produce a percentage of their electricity from renewable sources and by cutting down on wasted energy.

The administration's Michigan Agency for Energy supports a previous version of the bill approved by the Senate committee that contains the IRP process, spokeswoman Judy Palnau said.

Under Nofs' proposed amendment, the IRP would be folded into what's known as a certificate of necessity process, through which utilities seek approval from the MPSC to build power plants costing at least $500 million before they start construction so they know whether they'll be able to recover the cost later in rates.

A draft of the revised bill also suggests the certificate of necessity, or CON, threshold would be lowered from $500 million to $250 million, meaning utilities would be able to ask for upfront approval on less-costly projects. Nofs' office said the goal with a lower cost threshold is to get utilities, and the stripped-down IRP process, in front of state regulators more often.

Nofs said he tried to move the new version at the end of the spring session this month, but "I just couldn't do it in two days."

Rich Studley, president and CEO of the state chamber, declined to comment on whether he favors the certificate of necessity process to an IRP, adding that he didn't want to negotiate legislation in the press.

He did say, however, that the chamber had concerns about how competitive bidding would be applied under an IRP, including whether alternative-energy suppliers would be allowed to offer their own proposals to counter a traditional utility's plan.

Through integrated resource planning, utilities would have to compare natural gas baseload generation against the costs of renewables, energy efficiency and all other power sourcges to reach what Snyder's administration calls the most reasonable and prudent plan. IRP supporters say these longer-term plans would improve energy reliability, affordability and flexibility in Michigan.

The current certificate of necessity process was created as part of the 2008 legislation. It has been used once. The commission in 2013 approved a nearly $851 million certificate for Fort Wayne, Ind.-based Indiana Michigan Power Co.'s Cook Nuclear Plant in Bridgman, in Berrien County. Michigan ratepayers were to pay 17 percent of that amount, the MPSC said.

Jackson-based Consumers Energy Co. filed what would have been the second CON in 2013 to build a $700 million, 700-megawatt gas plant in Genesee County, but withdrew it when the utility decided instead to purchase a 540-megawatt gas plant in Jackson for $155 million.

Greg Moore, Nofs' legislative director, said the state chamber wants to protect suppliers like Midland Cogeneration Venture — which contracts to sell 1,240 megawatts of electric capacity to Consumers Energy through 2025 — once those purchase agreements expire.

The chamber agrees with both Detroit-based DTE Energy Co. and Consumers that utilities should not be forced to sign purchase agreements to produce power simply because an alternative supplier has proposed another option, Studley said.

Studley said the chamber's goals include sustaining current levels of electric choice. Michigan has a 10 percent cap on the number of electric customers that can leave a regulated utility and purchase power from an alternative energy supplier.

"We're still optimistic that we can find the right balance between all of the different interests that are involved in this," he said.

Ariana Gonzalez, an energy policy analyst for Michigan with the Natural Resources Defense Council, a nonprofit environmental advocacy group, said she'd prefer to see an IRP component to the plan remain, in conjunction with mandates on renewable energy. Environmental groups are able to intervene in a utility's IRP process and offer other options to generate power, she said, but the proceedings are costly and time-intensive — contributing to the argument for keeping renewable and efficiency standards in place.

Dave Mengebier, Consumers Energy's senior vice president of governmental and public affairs and chief compliance officer, said the utility favors the changes Nofs is making.

Mengebier said utilities have to consider solar and wind projects, along with natural gas and other generating sources.

"You would have to demonstrate that is the most reasonable way to provide for customer needs," he said. "The big difference between certificate of necessity in existing law (and what Nofs is proposing) is that it is project-specific. You propose a CON and then go in and present a whole suite of options (to generate power) and then get upfront approval."

Critics of the IRP process as Nofs proposed it say it lacks enforceable measures that would hold utilities accountable for their use of renewables and programs to increase efficiency.

Nofs' proposed amendment tries to wed long-term energy thinking with a project-based approach, and the two aren't complementary, said Sam Gomberg, lead Midwest energy analyst with the Union of Concerned Scientists in Chicago.

When integrated resource planning only happens within the certificate of necessity process, "it very much puts the cart before the horse" because utilities enter with the goal of convincing the public service commission to approve the large power project, Gomberg said. The purpose of an IRP, instead, is to explore all possible energy options and develop a business case based on the findings.

Nofs' proposal would make it harder for environmental groups and others to intervene, he said.

"The line has already been drawn in the sand when you lead with the certificate of need process," Gomberg said, adding: "I don't know if there is actually a sweet spot to thread the needle between the chamber and the utilities on this."

Senate Majority Leader Arlan Meekhof will reserve judgment on energy policy until Nofs has a chance to present the revised bill to the Senate's Republican caucus, said his spokeswoman, Amber McCann.