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HB-5549, As Passed House, April 17, 2008

SUBSTITUTE FOR

HOUSE BILL NO. 5549

A bill to require providers of retail electric service to

establish a renewable energy program; to prescribe the powers and

duties of certain state agencies and officials; and to provide for

sanctions.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

Sec. 3. As used in this act:

(a) "Biomass" means any organic matter that is not derived

from fossil fuels, that can be converted to usable fuel for the

production of energy, and that is available on a renewable basis,

including, but not limited to, all of the following:

(i) Agricultural crops and crop wastes.

(ii) Short-rotation energy crops.

(iii) Herbaceous plants.

House Bill No. 5549 (H-3) as amended April 17, 2008

(iv) Trees and wood, but only if derived from sustainably

managed forests or procurement systems, as defined in section 261c

of the management and budget act, 1984 PA 431, MCL 18.1261c.

(v) Paper and pulp products.

(vi) Precommercial wood thinning waste, brush, or yard waste.

(vii) Wood wastes and residues from the processing of wood

products or paper.

(viii) Animal wastes.

(ix) Wastewater sludge or sewage.

(x) Aquatic plants.

(xi) Food production and processing waste.

[

(xii)] Organic by-products from the production of biofuels.

(b) "Commission" means the Michigan public service commission.

retail customer. Customer meter does not include a municipal water

pumping meter or additional meters at a single site that were

installed specifically to support interruptible air conditioning,

interruptible water heating, net metering, or time-of-day tariffs.

(d) "Electronic waste" means any of the following discarded

items:

(i) A computer, including a computer monitor or peripheral.

(ii) A television.

(iii) A telephone.

(iv) A personal digital assistant device.

(v) A radio.

(vi) A compact disc or digital video disc or a compact disc or

digital video disc player.

(vii) Other similar items as determined by the commission.

(e) "Incremental costs of compliance" means the net revenue

required by a provider to comply with the renewable energy

portfolio standard, calculated as provided under section 27(2).

(f) "Industrial cogeneration" means the generation of

electricity using industrial thermal energy.

(g) "Industrial thermal energy" means thermal energy that is a

by-product of an industrial or manufacturing process and that would

otherwise be wasted. For the purposes of this subdivision,

industrial or manufacturing process does not include the generation

of electricity.

(h) "Provider", subject to sections 7(1) and 9(1), means any

of the following:

(i) Any person or entity that is regulated by the commission

for the purpose of selling electricity to retail customers in this

state.

(ii) A municipally owned electric utility in this state.

(iii) A cooperative electric utility in this state.

(iv) An alternative electric supplier licensed in this state.

(i) "PURPA" means the public utility regulatory policies act

of 1978, Public Law 95-617.

(j) "Qualifying cogeneration facility" means that term as

defined in 16 USC 824a-3.

(k) "Qualifying small power production facility" means that

term as defined in 16 USC 824a-3.

Sec. 5. As used in this act:

(a) "Renewable energy" means electricity generated using a

renewable energy system.

(b) "Renewable energy contract" means a contract to acquire

renewable energy and the associated renewable energy credits from 1

or more renewable energy systems.

this act that represents generated renewable energy.

(d) "Renewable energy portfolio" for the years 2012 through

2015 means the percentage determined as follows for a given

provider and year:

(i) Determine the number of renewable energy credits used to

comply with this act during that year.

(ii) Divide by 1 of the following at the option of the provider

as specified in its renewable energy portfolio plan:

(A) The number of weather-normalized megawatt hours of

electricity sold by the provider during the previous year to retail

customers in this state.

(B) The average number of megawatt hours of electricity sold

by the provider annually during the previous 3 years to retail

customers in this state.

(iii) Multiply by 100.

(e) "Renewable energy portfolio" for the year 2016 and

thereafter means the number of renewable energy credits used to

comply with this act during that year.

(f) "Renewable energy portfolio plan" or "plan" means a plan

approved under section 7(3) or 9(3).

House Bill No. 5549 (H-3) as amended April 17, 2008

(g) "Renewable energy portfolio standard" means the minimum

renewable energy portfolio required to be achieved under section

13.

(h) "Renewable energy resource" means any of the following:

(i) Biomass.

(ii) Solar energy.

(iii) Wind energy.

(iv) Kinetic energy of moving water, including all of the

following:

(A) Waves, tides, or currents.

(B) Water released through a dam.

extent that the water was pumped into the storage facility using

renewable energy.

(v) Hydrogen synthesis gas produced from the plasma

gasification of industrial by-products or electronic waste.

(vi) Geothermal energy.

(vii) Industrial thermal energy.

[(viii) Municipal solid waste, including, but not limited to, landfilled municipal solid waste that produces landfill gas.]

(i) "Renewable energy system" means a facility, electricity

generation system, or integrated set of electricity generation

systems that use 1 or more renewable energy resources to generate

electricity. Renewable energy system does not include any of the

following:

(i) A hydroelectric facility that uses a dam constructed after

the effective date of this act unless the dam is a repair or

replacement of a dam in existence on the effective date of this

act.

(ii) An incinerator unless the incinerator is a municipal solid

waste incinerator as defined in section 11504 of the natural

resources and environmental protection act, 1994 PA 451, MCL

324.11504, and was brought into service before the effective date

of this act.

(j) "Renewable energy generator" means a person that, together

with its affiliates, has constructed or has owned and operated 1 or

more renewable energy systems with combined gross generating

capacity of at least 10 megawatts.

(k) "Revenue recovery mechanism" means the mechanism for

recovery of incremental costs of compliance established under

section 7(4).

Sec. 15. (1) Upon petition by a provider, the commission may

for good cause grant 2 extensions of renewable energy portfolio

standard deadlines under section 13. Each extension shall be for up

to 1 year. Good cause includes, but is not limited to, the

provider's inability, as determined by the commission, to meet the

renewable energy portfolio standard because of a renewable energy

system feasibility limitation including, but not limited to, any of

the following:

(a) Renewable energy system site requirements, zoning, siting,

land use issues, permits, including environmental permits, any

certificate of need process under section 6r of 1939 PA 3, MCL

460.6r, or any other necessary governmental approvals that

effectively limit availability of renewable energy systems,

including, if the provider has exercised reasonable diligence in

securing the necessary governmental approvals. For purposes of this

subdivision, "reasonable diligence" includes, but is not limited

to, submitting timely applications for the necessary governmental

approvals and making good faith efforts to ensure that the

applications are administratively complete and technically

sufficient.

(b) Equipment cost or availability issues including, but not

limited to, electrical equipment or renewable energy system

component shortages or costs that effectively limit availability of

renewable energy systems.

transmission and interconnection.

(d) Projected or actual unfavorable electric system

reliability or operational impacts.

(e) Labor shortages that effectively limit availability of

renewable energy systems.

(2) If 2 extensions of the 2015 renewable energy portfolio

standard deadline have been granted under subsection (1), upon

subsequent petition by a provider at least 6 months before the

expiration of the second extended deadline, the provider shall be

considered to be in compliance with this act at a renewable energy

portfolio determined by the commission to be attainable by that

provider.

(3) Any provider that makes a good faith effort to spend the

full amount of incremental costs of compliance as outlined in its

approved renewable energy portfolio plan, revised, subject to

extensions under this section or revisions under section 29, shall

be considered to be in compliance with this act.

Sec. 25. (1) A provider is not required to comply with the

renewable portfolio standard to the extent that, as determined by

the commission, recovery under section 27 of the incremental cost

of compliance with the renewable energy portfolio standard pursuant

to the renewable energy portfolio plan, as calculated over 20 years

beginning when the plan is approved by the commission, subject to

annual revision, will have a retail rate impact that exceeds any of

the following:

(a) $3.00 per month per residential customer meter.

(b) $16.58 per month per commercial secondary customer meter.

customer meter.

(2) For a provider whose rates are regulated by the

commission, the commission shall determine the appropriate charges

for the provider's tariffs that permit recovery of the incremental

cost of compliance subject to the limits set forth in subsection

(1).

Sec. 27. (1) Notwithstanding any other provision of law, the

commission shall consider all actual costs reasonably and prudently

incurred in good faith to implement a commission-approved renewable

energy portfolio plan by a provider whose rates are regulated by

the commission to be a cost of service to be recovered by the

provider, whether or not those costs are incremental costs of

compliance. Notwithstanding any other provision of law, a provider

whose rates are regulated by the commission shall recover through

its retail electric rates all of the provider's incremental costs

of compliance during the 20-year period described in section 7(2)

and all reasonable and prudent ongoing costs of compliance during

and after that period. The recovery shall include, but is not

limited to, the provider's authorized rate of return on equity,

which shall remain fixed at the rate of return and debt to equity

ratio that was in effect in a provider's base rates when the

provider's renewable energy portfolio plan was approved. However,

the costs of purchasing renewable energy credits under section

31(1) are not a recoverable cost of service.

(2) Incremental costs of compliance shall be calculated as

follows:

(a) Determine the sum of the following costs to the extent

those costs are reasonable and prudent and not already approved for

recovery in electric rates as of the effective date of this act:

(i) Capital, operating, and maintenance costs of renewable

energy systems, including property taxes, insurance, and return on

equity associated with a provider's renewable energy systems,

including the provider's renewable energy portfolio initially

established to achieve compliance with the renewable energy

portfolio standard and any additional renewable energy systems that

are built or acquired by the provider to maintain compliance with

the renewable energy portfolio standard during the 20-year period

beginning when the provider's plan is approved by the commission.

(ii) Financing costs attributable to capital, operating, and

maintenance costs of capital facilities associated with renewable

energy systems.

(iii) Interconnection and substation costs associated with

renewable energy systems.

(iv) Except to the extent the costs are allocated under a

different subparagraph, all of the following:

(A) The costs of renewable energy credits purchased under this

act other than those purchased under section 31(1).

(B) The costs of contracts described in section 17(2).

(v) Expenses incurred as a result of state or federal

governmental actions related to renewable energy systems including,

but not limited to, changes in tax or other law.

(vi) Any additional provider costs considered relevant by the

commission.

(b) Subtract from the sum of costs not already included in

electric rates determined under subdivision (a) the sum of the

following revenues:

(i) Revenue derived from the sale of environmental attributes

associated with the generation of renewable energy. Such revenue

shall not be considered in determining power supply cost recovery

factors under section 6j of 1939 PA 3, MCL 460.6j.

(ii) Interest on regulatory liabilities as provided in section

27(4).

(iii) Tax credits specifically designed to promote renewable

energy.

(iv) Revenue derived from the provision of energy from

renewable energy systems to retail electric customers subject to a

power supply cost recovery clause under section 6j of 1939 PA 3,

MCL 460.6j, of a provider whose retail electric rates are regulated

by the commission. Beginning in 2008, after providing an

opportunity for a contested case hearing for a provider whose rates

are regulated by the commission, the commission shall annually

establish a price per megawatt hour. In addition, a provider whose

retail electric rates are regulated by the commission may at any

time petition the commission to revise the price. In setting the

price per megawatt hour under this subparagraph, the commission

shall consider factors including, but not limited to, projected

capacity, energy, maintenance, and operating costs; information

filed under section 6j of 1939 PA 3, MCL 460.6j; and information

from wholesale markets, including, but not limited to, locational

marginal pricing. This price shall be multiplied by the number of

megawatt hours of renewable energy. The resulting value shall be

considered a booked cost of purchased and net interchanged power

transactions under section 6j of 1939 PA 3, MCL 460.6j. For energy

purchased by such a provider under a renewable energy agreement,

the price shall be the lower of the amount established by the

commission or the actual price paid and shall be multiplied by the

number of megawatt hours of renewable energy purchased. The

resulting value shall be considered a booked cost of purchased and

net interchanged power under section 6j of 1939 PA 3, MCL 460.6j.

(v) Revenue from wholesale energy sales from a renewable

energy system. Such revenue shall not be considered in determining

power supply cost recovery factors under section 6j of 1939 PA 3,

MCL 460.6j.

(vi) Any additional provider revenue considered relevant by the

commission.

(3) The commission shall authorize a provider whose rates are

regulated by the commission to spend in any given month more to

comply with this act and implement an approved renewable energy

portfolio plan than the revenue actually generated by the revenue

recovery mechanism. A provider whose rates are regulated by the

commission shall recover its commission approved pre-tax rate of

return on regulatory assets during the appropriate period. A

provider whose rates are regulated by the commission shall record

interest on regulatory liabilities at the average short-term

borrowing rate available to the provider during the appropriate

period. Any regulatory assets or liabilities resulting from the

recovery of renewable energy through the power supply cost recovery

clause under section 6j of 1939 PA 3, MCL 460.6j, shall continue to

be reconciled under that section.

(4) If a provider's incremental costs of compliance in any

given month during the 20-year period described in section 7(2) are

in excess of the revenue recovery mechanism as adjusted under

section 29 and in excess of the balance of any accumulated reserve

funds, subject to the minimum balance established under section

7(5), the provider shall immediately notify the commission. The

commission shall promptly commence a contested case hearing

pursuant to the administrative procedures act of 1969, 1969 PA 306,

MCL 24.201 to 24.328, and modify the revenue recovery mechanism so

that the minimum balance is restored. However, if the commission

determines that recovery of the incremental costs of compliance

would otherwise exceed the maximum retail rate impacts specified

under section 25, it shall set the revenue recovery mechanism for

that provider to correspond to the maximum retail rate impacts.

Excess costs shall be accrued and deferred for recovery. Not later

than the expiration of the 20-year period described in section

7(3), for a provider whose rates are regulated by the commission,

the commission shall determine the amount of deferred costs to be

recovered under section 7 and the recovery period, which shall not

exceed 5 years and shall not commence until after the expiration of

the 20-year period described in section 7(3). The recovery shall be

proportional to the retail rate impacts set forth in section 25 for

each customer class. However, if the retail rate impact is below

the limits set forth in section 25, the recovery shall begin

immediately but, until the expiration of the 20-year period

described in section 7(3), shall occur only to the extent allowed

by the limits of section 25.

(5) If, at the expiration of the 20-year period described in

section 7(3), a provider whose rates are regulated by the

commission has a regulatory liability, the refund to customer

classes shall be proportional to the amounts paid by those customer

classes under the revenue recovery mechanism.

(6) After achieving compliance with the renewable energy

portfolio standard for 2015, the actual costs reasonably and

prudently incurred to continue to comply with this act both during

and after the conclusion of the 20-year period described in section

7(3) shall be considered costs of service. The commission shall

determine a mechanism for a provider whose rates are regulated by

the commission to recover these costs in its retail electric rates.

Remaining and future regulatory assets shall be recovered

consistent with subsections (3) and (4) and section 29.

Sec. 39. This act does not provide the commission with new

authority with respect to municipally owned electric utilities

except to the extent explicitly provided in this act.

Enacting section 1. As provided in section 5 of 1846 RS 1, MCL

8.5, this act is severable.

Enacting section 2. This act does not take effect unless all

of the following bills of the 94th Legislature are enacted into

law:

(a) House Bill No. 5383.

(b) House Bill No. 5524.

(d) House Bill No. 5548.

(e) House Bill No. 5972.

(f) House Bill No. 5973.

(g) House Bill No. 5974.

(h) House Bill No. 5975.

(i) House Bill No. 5976.

(j) House Bill No. 5977.