Energy Mich., Inc. v. Scripps

658 F.Supp.3d 511

ENERGY MICHIGAN, INC., and Association of Businesses Advocating Tariff Equity, Plaintiffs, v. Daniel C. SCRIPPS, Sally A. Talberg, and Tremaine L. Phillips, Defendants,andConsumers Energy Company, Intervening defendant.

Case Number 20-12521

United States District Court, E.D. Michigan, Southern Division

Signed February 24, 2023

Justin Kevin Ooms, Laura Chappelle, Tim Lundgren, Potomac Law Group, PLLC, Lansing, MI, Zachary C. Larsen, Clark Hill PLC, Lansing, MI, Brion B. Doyle, Varnum, Riddering, Grand Rapids, MI, for Plaintiff Energy Michigan, Inc.

Michael J. Pattwell, Zachary C. Larsen, Clark Hill, PLC, Lansing, MI, Stephen A. Campbell, Clark Hill PLC, Detroit, MI, for Plaintiff Association of Businesses Advocating Tariff Equity.

Benjamin Holwerda, Lawrence T. Garcia, Miller Canfield, Detroit, MI, Nicholas Quinn Taylor, State of Michigan Department of Attorney General, Lansing, MI, Spencer A. Sattler, Michigan Attorney General's Office, Public Service Division, Lansing, MI, for Defendants Daniel C. Scripps, Tremaine L. Phillips.

Kelly M. Hall, Consumers Energy Company Legal Department, Jackson, MI, Lawrence T. Garcia, Sydney G. Johnson, Miller Canfield, Detroit, MI, Zachary C. Larsen, Clark Hill PLC, Lansing, MI, for Intervening Defendant.

Valerie J.M. Brader, Rivenoak Law Group, P.C., Troy, MI, for Amicus Spartan Renewable Energy, Inc.

OPINION AFTER TRIAL

DAVID M. LAWSON, United States District Judge

Plaintiff Energy Michigan, Inc. is an association representing electric power sellers, known as "alternative energy suppliers" (AES); plaintiff Association of Businesses Advocating Tariff Equity (ABATE) represents industrial electricity customers. They challenge the constitutionality of certain orders issued on September 15, 2017 and June 28, 2018 by the Michigan Public Service Commission (MPSC) that implement legislation regulating the amount of electrical generating capacity required of energy suppliers. The legislation, known as Public Act 341 passed in 2016, created a State Reliability Mechanism (SRM) intended to ensure the reliable delivery of electricity to the state's retail consumers. The MPSC's orders establish individual "local clearing requirements" (LCRs), a term that refers to the amount of electricity that a supplier must obtain from sources within certain federally designated geographic zones. The plaintiffs seek a declaration that those orders violate the Constitution's Commerce Clause, U.S. Const. art. I, § 8 cl. 3.

After motion practice, the case came on for trial on August 8, 2022 before the Court sitting without a jury. Six witnesses testified and the Court received 225 exhibits, which included by stipulation expert witness reports from individuals who also testified at trial. Afterward, the parties submitted proposed findings of fact and conclusions of law. And in lieu of closing arguments, the parties submitted post-trial briefs, which were supplemented with recent authority.

The disputed trial issues are whether the individual local clearing rule discriminates in practical effect against alternative energy suppliers, whether the state's legitimate purpose of ensuring electrical grid health and security can be achieved in a nondiscriminatory way, and whether any of the burden on interstate commerce is "clearly excessive" when measured against the local benefits.

The following constitutes the Court's findings of fact under Federal Rule of Civil Procedure 52(a)(1), based on the record evidence, followed by its application of the governing law.

I. Factual Findings

A. Background

This case is about regulations that govern the operation of the electrical power grid, a complex system of generation, transmission, and delivery of electricity to residential, commercial, and industrial consumers. As explained in the earlier opinions, because electricity is a commodity that cannot be stored easily, there must be synchronicity between demand and supply. An electric grid network is used to deliver electrical energy to consumers in a way that allows generation (supply) to match demand (load) in real time.

The parties agree on many of the basic facts of the case, which have been discussed in some detail in the Court's previous opinions adjudicating the defendants' motion to dismiss, Energy Michigan, Inc. v. Scripps, 549 F. Supp. 3d 647, 650-55 (E.D. Mich. 2021), and the cross motions for summary judgment, Energy Michigan, Inc. v. Scripps, 587 F. Supp. 3d 581, 584-88 (E.D. Mich. 2022), motion to certify appeal denied, No. 20-12521, 2022 WL 910351 (E.D. Mich. Mar. 28, 2022).

Under the Federal Power Act, as amended, 41 Stat. 1063, 16 U.S.C. § 791a et seq., the Federal Energy Resource Commission (FERC) is given the responsibility for regulating wholesale energy and transmission markets, F.E.R.C. v. Elec. Power Supply Ass'n, 577 U.S. 260, 264, 136 S.Ct. 760, 193 L.Ed.2d 661 (2016). States regulate the retail markets within their boundaries. Ibid. In Michigan, that responsibility falls to the MPSC. The two agencies work cooperatively to ensure that there is adequate capacity so that energy suppliers will be able to meet commitments to deliver electricity to customers continuously, especially during times of peak demand.

The task of matching demand with instantaneous, reliable supply requires considerable planning. FERC has conferred regulatory authority upon Regional Transmission Organizations (RTO) to plan for resource adequacy in wholesale markets. RTOs are comprised of public and non-public utilities, state officials, and certain interest groups. Reg'l Transmission Orgs., 90 FERC ¶ 61,201, at 1, 4 (2000). The Midcontinent Independent System Operator, Inc., or "MISO," established in 2001, is the RTO that oversees electricity transmission planning for fifteen states in the Midwest and South (and one Canadian province), including nearly all of Michigan.

MISO's plans for resource adequacy focus on successive one-year periods to ensure that the market will have the capacity to deliver a supply of electricity to meet demand when it is at its highest. Its jurisdiction is divided into ten local resource zones. Zone 7 is located in Michigan and no other state, and it comprises most of Michigan's lower peninsula. The Upper Peninsula is in Zone 2, along with much of Wisconsin. See MISO, 2020/2021 Planning Res. Auction (PRA) Results (April 14, 2020), p. 5, available at https://cdn.misoenergy.org/2020-2021%20PRA%20Results442333.pdf (last visited February 18, 2022). The evidence in this case exclusively concerns Zone 7.

One physical reality incorporated into planning decisions is that electrical energy degrades when it is transmitted over long distances due to energy losses that naturally occur over transmission facilities and "transmission constraints," terms that refer to the current-carrying capability of the facilities in the transmission system. Ex. 119, Dauphinais Aff., ¶¶ 116-117, 119-120, ECF No. 55-4, PageID.21019-20. To address those energy losses, MISO implements a local clearing requirement (LCR) as part of its overall planning. That LCR prescribes the amount of capacity on a percentage basis that suppliers (known as load servicing entities, or LSEs) must obtain from generating facilities within a MISO zone to reduce the risk of blackouts. Midcontinent Indep. Sys. Operator, Inc., 165 FERC ¶ 61,067, at p. 2 (2018).

Each year, electricity suppliers submit to MISO their anticipated electric capacity (the amount of electricity output that a generation unit can produce reliably), so that MISO can ensure short-term reliability. In re Reliability Plans of Elec. Utilities for 2017-2021, 505 Mich. 97, 109, 949 N.W.2d 73, 81 (2020). MISO also sets a "planning reserve margin requirement" (PRMR) for each provider. Ibid. (citing Midcontinent Indep. Sys. Operator, Inc., 165 FERC ¶ 61,067, at p. 2 (2018)). Under this planning requirement, electricity providers must ensure that a certain amount of electricity is available to meet its customers' demands for the upcoming year. Id. at 101, 949 N.W.2d at 76. To meet part of that requirement, electricity providers also must demonstrate that they will generate enough capacity locally (the LCR). Id. at 109-10, 949 N.W.2d at 81.

MISO determines the capacity thresholds by ascertaining the amount of electricity resources a zone reasonably could be expected to import during peak demand times (i.e., MISO calculates anticipated transmission constraints on out-of-zone resources). Id. at 111, 949 N.W. 2d at 82. Zone 7's local capacity requirement is relatively high due to "the age and reliability of resources within the zone, the geographic nature of the zone (a peninsular state with limited interconnection), and the amount of available transmission import capacity." MPSC Order No. U-18197, ECF No. 64-5, PageID.2460. Accordingly, a certain amount of "geographically based planning" is necessary because reliance on far-off resources can cause congestion and undermine reliability "[g]iven the constraints of the electrical grid in moving power large distances from" zone to zone. In re Reliability Plans, 505 Mich. at 110, 949 N.W. 2d at 81 (citing Borenstein & Bushnell, Electricity Restructuring: Deregulation or Reregulation?, 23 Reg. 46, 51 (2000)).

MISO effectuates local capacity demands by requiring electricity providers to have sufficient "Zonal Resource Credits" from within a given MISO zone. Id. at 111, 949 N.W.2d at 82. Electricity providers can accumulate Zonal Resource Credits in three ways. First, they can supply power from plants within their respective zones. Second, they can contract with other providers within the zone to purchase electricity produced locally. And third, if a producer cannot do either of those, it can participate in MISO's single-year Planning Resource Auction (PRA). Ibid. The PRA is a process through which any registered provider can buy or sell units of capacity across zones. Ibid.

Michigan's Act 341, which created the SRM, established an integrated...