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Proposed Michigan Order Would Impose 1 Mill/kWh Charge on Retail Access Customers
August 15, 2011
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A proposed order from a Michigan ALJ would allow Detroit Edison to charge retail open access customers 1 mill per kWh, for the cost of Detroit Edison's environmental compliance (U-16472).
The charge was first proposed by Michigan PSC Staff, as part of Detroit Edison's current rate case.
Staff said that the Retail Open Access (ROA) Customer Charge is required because Detroit Edison incurs many production-related expenses for resources that have served current ROA customers in the past and are fully available to serve them again should they return to full service.
Furthermore, Staff noted that when ROA sales were weak and the electric choice program was experiencing declining participation, Detroit Edison's full service customers were required to contribute over $18 million toward the payment of stranded costs arising from the choice program (under a 2006 order).
The proposed charge was opposed by large customers and Energy Michigan, which argued that: (1) because the suppliers that provide service to ROA customers also face environmental compliance costs, Staff's proposal could result in them paying twice for such compliance, (2) the one mill per kWh adder is arbitrary and does not reflect costs incurred to currently provide service to ROA customers, (3) imposition of this charge would be inconsistent with Act 286's mandate to bring rates to cost-of-service levels, (4) neither of the cost-of-service studies offered by the utility or the Staff reflect the effects of this charge, (5) ROA customers already contribute to Detroit Edison's production costs via nuclear decommissioning and securitization surcharges, (6) ROA customers' existence already benefits full service customers by reducing overall Power Supply Cost Recovery costs, and (7) the effect of Electric Choice customer migration upon full service customers due to unrecovered production costs is, if anything, very small.
The ALJ, however, would adopt Staff's proposal due to, in part, Detroit Edison's role as a POLR, under which it must stand ready to assume returning ROA load.
"Notwithstanding claims to the contrary, the ALJ agrees with the premise espoused by the Staff, Detroit Edison, and the Attorney General to the effect that at least some portion of the utility's production costs serve to benefit ROA customers, even if such benefit is solely due to those customers' ability to rest assured that, should the wholesale price of electricity rise to what they ultimately view as an unacceptable level, they can immediately return to the Company's service without financial penalty," the ALJ said.
"Over much of the past decade, Detroit Edison has made significant investment in its production plant, most recently with regard to pollution control equipment ... Moreover, the financial burden that these capital expenditures place on many full-service customers has been enhanced by (1) a declining customer base over the last several years, and (2) a rise in residential customers' monthly bills as a result of rate de-skewing," the ALJ continued.
"Finally, a review of the Commission's September 26, 2006 order in Case No. U-13808-R indicates that, indeed, full-service ratepayers were required to forfeit $18,671,000 in potential revenue credits simply to reduce stranded costs that arose from Electric Choice customers' switch from full-service to ROA rates," the ALJ said.
Accordingly, the ALJ recommended that ROA customers should be required to pay 1 mill per kWh toward defraying Detroit Edison's cost of environmental compliance.
The ALJ did not, however, address the disposition of such funds collected from ROA customers. Staff initially recommended crediting any revenue against Detroit Edison's Power Supply Cost Recovery (PSCR) costs paid by full service customers.
However, the ALJ expressed no opinion regarding whether the funds obtained through the ROA surcharge should be applied toward production costs in general, environmental costs within that cost-of-service area, or segregated in a trust account for future use in funding non-nuclear decommissioning operations, due to the lack of a record regarding which option would be most beneficial to full service customers.
Regarding revenue decoupling, the ALJ recommended adopting Staff's proposed revenue decoupling mechanism (RDM) over Detroit Edison's proposal. However, the ALJ would not adopt any modifications to Staff's proposal filed by intervenors, including those offered by Energy Michigan (unless and until the actual operation of the Staff's suggested RDM shows their adoption to be necessary).
Aside from several clarifications, Energy Michigan had sought to modify the Staff RDM such that any RDM surcharges or refunds are computed, "by means of a uniform distribution charge/credit for all customers and a uniform power charge/credit for all full service customers," which would have the effect of relieving choice customers for the portion of the RDM related to commodity supply for full service customers.
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