Independent power producers see rates fizzle

By DAN NIELSEN
The Record-Eagle

TRAVERSE CITY — A late-November ruling by the Michigan Public Service Commission set a new schedule of rates that Consumers Power Co. must pay to small independent power producers. That group includes hydro plants, biomass generators, landfill gas generation plants and a waste-to-energy operation.

The rates Consumers pays to independent power producers took a nose dive.

“It’s half what we’re currently getting,” said Bill Stockhausen, who operates the hydro generation plant in the Elk Rapids dam and a second hydro plant between Lansing and Battle Creek.

He said his operations will be paid about 4.2 cents per kilowatt hour under the new formula. The previous rate, set in 1982, was between 7 and 8 cents per kilowatt hour, said Stockhausen.

Consumers Power has individual contracts with each independent power producer. Some of those long-term contracts have expired, other soon will.

“The federal law at the center of the PURPA (Public Utility Regulatory Policies Act) discussion was established to address a national energy crisis nearly 40 years ago,” Katie Carey, Consumers Energy director of media relations, said in a prepared statement. “Since then, the market has changed drastically and adjustments were needed to best meet the energy demands of today’s customers.

“While we are currently reviewing the order and its implications on our customers, we remain committed to providing the safe, affordable and reliable energy our customers rely on now and into the future,” said Carey.

The November ruling finalized a new “avoided cost formula,” the calculation that Consumers Energy Co. is required under federal rules to use to buy power from independent power generators. Facilities affected by the Michigan ruling include the hydro dam in Elk Rapids, three other hydro generators, Kent County’s waste-to-energy operation, eight landfill gas plants and three biomass plants, Stockhausen said.

He said the reduced pay rate could put some of the small producers out of business — and reduce the diversity of Michigan’s power generation network, which is rapidly moving from a historical reliance on coal toward natural gas.

“They say they’re not trying to put us out of business,” Stockhausen said. “Most of us probably still would not be able to stay in business at 6 cents.”

At the very least, the change delivers an unwelcome jolt to independent power producers’ profit margin. The independent power producers became aware of the push toward lower avoided cost rates and formed a group to fight the price reduction.

“We banded together,” said Stockhausen. “We figured there’s strength in numbers.”

The Independent Power Producers Coalition argued that lower rates weren’t fair. But the public service commission ruling is not what the independent producers hope for.

The group issued a statement the day after the MPSC made its ruling. It said that the ruling “will result in rates up to 40 percent below their current rates, which will cause many of them to shut down. In comparison, Consumers Energy’s average price charged to customers continues to climb.”

The statement said the Commission used a model based on an “unrealistic mash up of two different technologies that have not been built,” and therefore set rates too low.

“The Commission order does not meet the standards of PURPA, the 1978 federal energy law that requires regulated utilities to purchase energy and capacity from these qualified facilities, under rates and terms that are ‘just and reasonable to the electric consumer of the electric utility and in the public interest;’ and that do not ‘discriminate against qualifying cogeneration and small power production facilities,'” according to the coalition’s statement.

The statement said the methodology approved by the commission isn’t fair, isn’t reasonable and discriminates against small renewable energy producers  and therefore is a violation of federal PURPA law. The coalition said it plans to appeal the Commission decision.

“Legislation is the only thing in the state that trumps what the MPSC decides,” said Stockhausen.

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Posted by Tribune News Services

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