Michigan Public Service Commission approves changes to avoided costs approach for utilities
The Michigan Public Service Commission (MPSC) recently approved key aspects to an update to the approach utilities must take to determine avoided costs under the federal Public Utility Regulatory Policies Act (PURPA) of 1978.
PURPA allowed small renewable power producers to sell the electricity they produce to utilities. A utility must pay the small producer the avoided cost, which is the cost the utility would have incurred if it had bought or produced the energy itself.
Long-term PURPA contracts in Michigan are beginning to expire. The first review case to come before the Commission’s involves Consumers Energy Co.
The recent order approved a revised approach to determining avoided cost, but the calculations of the new rates require more information from parties in the case. The approved methodology would require Consumers to base its determination on the cost to produce power with natural gas as opposed to coal.
MPSC also ordered that the Standard Offer, the tariff utilities pay to qualified facilities, must be available to facilities that produce up to two megawatts of power, an increase from 100 kilowatts, and should be for a term of up to 20 years. The MPSC also called for a biennial avoided cost review.
Under Michigan’s new energy laws, which went into effect in April, the MPSC must review PURPA avoided cost determinations at least every five years. The recently approved change will be the modification first in 25 years.
The Commission is seeking comments regarding natural gas power production methods as part of determining avoided costs. Comments should be filed with the Administrative Law Judge Mark E. Cummins by June 12, with responses due by June 19.
