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Michigan House wrestles with market ideologies

Bill that moves delays resource requirements

Rockville, MD (November 9, 2015) –The Michigan House Energy Policy Committee moved a new version of its competition bill that would not immediately impose onerous resource adequacy requirements on retailers. The bill is an updated version of the Senate package introduced this summer (UMT, July-6) that would have the PSC analyze resource adequacy and only apply the requirements retailers have complained about if a shortfall is expected.

Chairman Aric Nesbitt, R, introduced two amendments to his substitute that brought in language backed by Gov Rick Snyder, R, to address the concerns retail market supporters have had about the resource-adequacy requirements. The new language was meant to ensure the state has a "safety net" that keeps the lights on for both utility and competitively served customers, Michigan Agency for Energy Executive Director Valerie Brader told the committee.

The change would create an annual licensure proceeding at the PSC to set up the number of MW retailers would serve in the event the state is facing a capacity shortage, she added. The capacity shortage would happen if the PSC finds, in a contested case, that MISO's prices are expected to rise by 1,000%, or hit the cost of new entry (the latter would be higher).

Michigan has seen low prices in MISO's Planning Reserves Auction, but the prices spiked in Ameren Illinois' territory by nearly 900%. The situation in Illinois is far different. It has no restrictions on consumer choice and Ameren sold all of its generation there while Michigan's utilities have no intention to do that.

No new requirements would be placed on competitive suppliers unless the PSC found that a capacity shortfall was likely in the next three years and the price would spike, Brader said. If that happens, retailers would have to show they could cover their customers' demand plus a reserve margin for three years.

If Michigan were to fall short of capacity in its own local capacity zones, the PSC would require retailers to cover their share of the need. Retailers' licenses would only be allowed to serve the amount of load they could cover with the needed in-state generation for up to three years.

If MISO had a broader capacity issue that led to major price spikes, retailers would have to procure capacity three years out but they could use imports into Michigan for that. The PSC would divvy up the import capacity among load servers so that no entities could hoard it, Brader said.

The PSC would conduct the license reviews each year, allowing retailers to bring in more capacity as needed.

The bill would also impose lengthy requirements on customers who want to go back to utility service, Brader said. If a utility is not short of capacity, then customers have to stay for 15 years. If the utility is actually short, they would have to stay for 20 years.

The 15- and 20-year requirements were derived from how long utilities take to pay off new power plants, Brader said.

"We thought that a 20-year, when you're returning when they're short, helps make sure that when the utility builds to serve you, you're there," Brader said.

MISO itself is looking at changes to its capacity market, especially in jurisdictions with retail choice and that could lead to a three-year forward market (UMT, Oct-30). If that happens, every retailer would be covered under MISO's rules, Brader said.

But that effort could take years and it is unclear if anything will make it out of the stakeholder process, she noted. Looking at when power plants in Michigan could retire, it makes sense for the state to try to ensure its own resource adequacy, Brader said.

While the changes were meant to preserve electric choice, Vice Chair Gary Glenn, R, read a message he got from one of the largest retail suppliers and generators in the country that said the law could still make it leave Michigan's market.

"It's been indicated to me from Exelon Corporation… the language they sent to me in a message is they would find it challenging if not impossible to find and execute bilateral contracts to meet the capacity requirements in this substitute, and still be able to efficiently and economically serve customers,'" Glenn said.

Glenn tries bill reboot

Glenn introduced his own bill to expand choice (UMT, Sept-21) and tried to get some of that language into Nesbitt's bill, but his amendment was voted down.

Another amendment from Glenn sought removal of the 15-year stay requirement for any customer returning to utility service, which he called unreasonable. That amendment did not pass either.

Glenn introduced an amendment to open up the process for any new generation needs for the utilities to a competitive procurement process. That vote was closer, but the amendment also failed.

This story was originally published in Utility Markets Today (http://www.utilitymarketstoday.com/public/Michigan-House-wrestles-with-market-ideologies.cfm?ref=PressRelease) on November 6, 2015, and has been slightly edited for this format. To read more articles like this one, sign up for a Free Trial to Utility Markets Today.

UTILITY MARKETS TODAY is published 245 times per year on business days by Modern Markets Intelligence Inc. UMT's mission is to deliver exclusive news chronicling ongoing efforts to build competitive wholesale and retail energy markets with in-depth analysis on why some fail and others succeed.

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