Michigan Utility Seeks Approval to Conduct Auction for Forward Capacity

Consumers Energy has sought Michigan PSC approval to conduct an auction to meet its reserve requirements for the Midwest ISO Planning Year 2016 and determine if certain capacity acquisitions can achieve a net reduction in PPA, fuel and labor costs for MISO Planning Years 2014 and 2015.

Consumers said that it has identified potential fuel and labor savings that can be expected to occur if it is able to remove Karn Units 3 and 4 from service in MISO Planning Years 2014 and 2015. Such savings would be offset by the cost to acquire replacement capacity needed to maintain compliance with the requirements of the MISO Tariff.

Based on projected short-term capacity prices the company believes it may be possible to acquire replacement capacity at a low enough cost so as to achieve a net reduction in overall costs, the company said.

Accordingly, Consumers proposes to conduct an auction to purchase approximately 1100 Zonal Resource Credits (ZRCs) for 2014 at a cost no greater than $5.9 million and approximately 1100 ZRCs for 2015 at a cost no greater than $7.8 million. To the extent capacity can be acquired at costs at or below these levels, a net reduction in overall cost of service can be realized for 2014 and 2015.

Consumers Energy notes that its ability to remove Karn Units 3 and 4 from service in 2014 and 2015 is subject to the review and approval of MISO. As of the date of the company's application, MISO has indicated that there would be reliability concerns associated with the removal from service of these units during 2014 and 2015.

Consumers intends to conduct an auction to obtain up to 500 ZRCs for Planning Year 2016.

Consumers selected World Energy to conduct the auction as an independent administrator.

Consumers Energy has established weighted average ceiling prices (net of World Energy fees which are paid by the sellers) for purposes of this auction of $5,475/ZRC for the tranche of ZRCs applicable to the MISO Planning Year 2014, $7,238/ZRC for the tranche of ZRCs applicable to the MISO Planning Year 2015, and $107,357/ZRC for the tranche of ZRCs applicable to the MISO Planning Year 2016; i.e., it will accept no combinations of offers that result in weighted average prices (net of World Energy fees) in excess of the stated ceiling prices.

Additionally, the company does not intend to accept any offers for Planning Year 2014 unless it is able to purchase virtually all 1100 ZRCs at a weighted average price less than the 2014 ceiling price and the company does not intend to accept any offers for Planning Year 2015 unless it is able to purchase virtually all 1100 ZRCs at a weighted average price less than the 2015 ceiling price.

Consumers Energy believes that it would be prudent to conduct the solicitation for up to 500 ZRCs for Planning Year 2016 on or about February 1, 2014. "Current market prices for capacity are at depressed levels. A significant amount of electric generating capacity in the MISO geographical area is expected to be retired in the next several years, which is expected to result in an increase in capacity prices. Thus, conducting an auction on or about February 1, 2014 will allow acquisition of at least a portion of the needed capacity at lower price levels than may be available in the future," the company said.

Case: U-17496