Michigan PSC: Choice Customers Must Help Shoulder Burden of Environmental Compliance, Other Costs of Utility Generation

Electric choice customers in Michigan, "must be expected to help shoulder the burden" of certain utility generation costs for assets, "that must stand ready to serve Choice customers again," the Michigan PSC said in an order in Detroit Edison's rate case (U-16472).

Despite this policy pronouncement, the PSC rejected, as unsupported by the evidence, a proposed 1 mill per kWh surcharge Staff had sought to impose on choice customers as a contribution towards Detroit Edison's environmental compliance costs (see 8/15).

"The Commission agrees with the ALJ, the Staff, the utility, and the Attorney General that Choice customers must be expected to help shoulder the burden of environmental compliance and non-nuclear decommissioning costs associated with production-related equipment that has served Choice customers in the past and that must stand ready to serve Choice customers again, anytime such customers find the wholesale market to be no longer desirable," the PSC said in its order.

"The Commission notes the escalating cost of environmental compliance – in this rate case alone, Detroit Edison seeks over $377 million in costs associated with pollution control equipment."

However, the Commission agreed with competitive suppliers and large customers that the 1 mill per kWh charge was not justified based on costs presented in the case. Opponents of the charge had noted that no evidence was presented showing that the 1 mill per kWh charge equated to environmental compliance costs caused by the fact that the utility must be ready to serve returning choice customers.

"[T]he Commission finds that it cannot adopt a charge that is unsupported by any record evidence showing that the amount of the charge corresponds to costs associated with serving past and future Choice customers," the PSC agreed.

Still, "[t]he Commission does not wish to preclude the Staff from making future proposals to include Choice customers in contributing to the recovery of costs associated with environmental compliance and non-nuclear plant decommissioning, but finds that any proposed charge must be related to costs associated with serving this community in the past, and with standing ready to serve this community in the future."

The rate case order also terminates Detroit Edison's choice incentive mechanism, which had adjusted Detroit Edison's allowed revenues, outside of a deadband, for variations in choice sales.

Regarding Detroit Edison's revenue decoupling mechanism, the Commission held that, for full service customers, revenues reflected in the calculation are equal to total rate class revenue less the customer charge, fuel and purchased power, and other surcharges. For retail open access customers, revenues reflected in the calculation are equal to total rate class revenue less customer charge revenue and other surcharges and shall not include revenue shortfalls in non-fuel power costs.