Recent Publications

Don't Unplug Fairness, Rule Changes for New Power Plants Shouldn't Favor Existing Utilities

By Robert B. Nelson

An Editorial Originally Printed in the Detroit Free Press on January 4, 2006.

If you have ever been involved in building your own home, you know that you can withhold the final payment to the contractor until you are satisfied that the home meets the specifications in the contract. If the contractor has not substantially complied with your specifications, you may be able to walk away from the project and get fully reimbursed for all payments previously made.

The same basic principle has held true for power plant construction in the State of Michigan for more than 60 years. If a utility wanted to construct a new power plant , it had to demonstrate to the Public Service Commission that the facility was “used and useful” after construction was completed. Although some funding was available to utilities during the course of the construction, the utility was responsible for making sure that the plant was needed and operational before ratepayers bore the full financial risk for the plant.

Michigan’s electric utilities want to change all that and transfer the risk of building new power plants to you, the ratepayer.

The Public Service Commission Staff has just issued a comprehensive review of the State’s long term needs for electric generation. The report, required by a Commission initiative that began while I was still a member, calls for the construction of a number of baseload power plants over the next ten years in order to replace an aging fleet of existing plants and meet the demands of economic growth.

Although there may be some disagreement with the number of plants that are needed and whether some of the plants can be replaced with energy efficiency, renewable
energy or transmission upgrades, it is clear that some major
new generation is needed and we should start planning today.

The fundamental questions that remain are who should build the plants that are needed and how should they be paid for.

Michigan’s major electric utilities, Detroit Edison and Consumers Energy have supported, in comments filed with the Commission, “a legally binding” pre-approval process for the construction of new generation, but only for generation constructed by the utilites. In other words, the utilities want to be assured that they will recover, in the rates you are charged for electricity, the costs of a plant that may appear to be needed today, but may not be needed when its completed. This will give them a tremendous advantage over any other entity that desires to build a power plant in Michigan.

In addition, the utilities support significant recovery of the cost of a new plant during the construction process from ratepayers, something that would also not be available to competitive suppliers.

Finally, the utilities are proposing to assess customers who have chosen an alternative provider for their electricity a charge for not only new plants but existing generation as well, allowing utilities to drive competitors out of business. Pre-approval and other uncompetitive rate assessments by utilities run counter to the Legislature’s intent, expressed in 2000, to “diversify the ownership of electric generation in this state” and “foster competition in this state in the provision of electric supply.”

In the same way that homeowners solicit bids from contractors before deciding who should build their houses, so too should the State of Michigan solicit bids from all available suppliers before deciding who should build the next round of power plants. Renewable energy providers should be given strong consideration in this process because they will help wean us away from our dependence on increasingly expensive fossil fuels.

Equally important, no supplier should be given an undue advantage in the bidding process by charging ratepayers for a plant that has not been completed.

Nuclear generation is controversial because we have not resolved, as a country, the issue of the ultimate disposal of the waste. If we can do so, it could be one more component to consider as Michigan moves forward to develop a comprehensive long term energy plan.

Michigan’s road to economic recovery starts with the rebuilding of its infrastructure, but only if the rebuilding is done in the fairest and most cost-effective way possible.

Mr. Nelson practices in the Utilities Law Department at Fraser Law Firm in the Lansing office. He served as Commissioner of the Michigan Public Service Commission from 1999 to 2005. He may be contacted at 517-377-0854 or at rnelson@fraserlawfirm.com.