S T A T E O F M IC H I G A N BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION

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1 S T A T E O F M IC H I G A N BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION In the matter, on the Commission s own motion ) regarding the regulatory reviews, revisions, ) determinations, and/or approvals necessary for ) Case No. U BAYFIELD ELECTRIC COOPERATIVE, INC. ) to fully comply with Public Acts 286 and 295 of 2008 ) ) APPLICATION FOR APPROVAL OF RENEWABLE ENERGY PLAN Bayfield Electric Cooperative, Inc. seeks biennial review and approval of its current Renewable Energy Plan applicable to its customers located in the State of Michigan, pursuant MCL (8) and the Commission s Order dated February 22, 2011, implementing the Clean, Renewable and Efficient Energy Act, 2008 PA 295, MCL et seq. (the Act ). BACKGROUND Bayfield Electric Cooperative, Inc. ( BEC ) is a retail electric distribution cooperative with its principal place of business in Iron River, Wisconsin. BEC serves approximately 8,700 member-customers in Ashland, Bayfield, Douglas, Iron, Sawyer and Vilas Counties in the State of Wisconsin, and a total of 67 member-customers in Gogebic County, Michigan. As of December 2010, BEC s Michigan customers consisted of 10 year-round and 57 seasonal residences and hunting cabins in the extreme western Upper Peninsula of Michigan along the Wisconsin border. (See ATTACHMENT A to the attached Bayfield Electric Cooperative CY 2010 Compliance Filing in Case No. U-15814, showing bills by customer class.) In 2010, BEC s customers in Michigan accounted for 186,420 kwh, or 0.23% of BEC s total sales. (See ATTACHMENT B to Bayfield Electric Cooperative CY 2010 Compliance Filing in Case No. U-

2 15814.) BEC s revenues from its Michigan member-customers in 2008 were $43, (See ATTACHMENT C to CY 2010 Compliance Filing in Case No. U ) BEC is a member of Dairyland Power Cooperative ( Dairyland ), a generation and transmission cooperative headquartered in LaCrosse, Wisconsin, and obtains all of its power and energy for resale, including energy from renewable resources, from Dairyland under a wholesale all-requirements contract that currently extends through December 31, Dairyland s wholesale rates under the contract are established on a not-for-profit basis to produce revenues which are just sufficient to meet the cost of the operation and maintenance of Dairyland s generating plant, transmission system and related facilities, the cost of any power and energy purchased for resale by Dairyland, transmission service, payment of principal and interest on all indebtedness, and a reasonable margin. Dairyland has financed substantially all of its generation and transmission facilities through loans from or guaranteed by the United States Rural Utilities Service (the RUS ), an agency of the United States Department of Agriculture. Dairyland s wholesale rates are approved by its board of directors, which is elected from its 25 member distribution cooperatives, and because Dairyland is an RUS borrower, its rates are subject to further approval by the RUS. Dairyland is currently not subject to wholesale rate regulation by the Federal Energy Regulatory Commission ( FERC ). Dairyland s wholesale rates reflect the cost of owned and purchased renewable energy to meet renewable portfolio and green pricing regulations applicable to itself and its 25 distribution cooperative members in Wisconsin, Minnesota, Iowa and Illinois. Dairyland also supplies renewable energy to 16 municipal electric utility members under long-term wholesale all-requirements contracts. Dairyland does not currently charge a separate wholesale rate for renewable energy and capacity provided to its distribution cooperative members, nor does 2

3 Dairyland separately itemize the incremental additional cost of generating and procuring energy from renewable sources on its power bills to its distribution cooperative members. In addition, Dairyland sponsors a renewable green pricing program and wholesale rate, known as Evergreen, that its distribution cooperative members, including BEC, offer to their retail member-customers. Currently there are no Michigan member-customers of BEC who have subscribed to the Evergreen program. BEC establishes its retail rates on a not-for-profit basis, based on the cost of wholesale power from Dairyland and BEC s distribution and other operating expenses, in amounts that are sufficient to cover its wholesale power, distribution facility and operating costs and a reasonable margin. BEC s retail rates are determined on an as-needed basis, but not less than annually by its board of directors, which is democratically elected from its member-consumers. Retail rates and purchase cost adjustment charges are determined primarily on the basis of an analysis and projection of wholesale rates under the Dairyland contract. Any annual margins derived from operations are allocated back to the BEC member-consumers on the basis of their annual patronage. BEC s retail rates do not include a separate itemization or surcharge for renewable energy to meet the Cooperative s regulatory requirements in the State of Wisconsin, and BEC would not propose to surcharge Michigan customers under the Renewable Energy Plan described herein. ACT 295 RENEWABLE ENERGY PLAN I. INTRODUCTION By Order dated June 2, 2009, in Case No. U-15814, the Commission denied BEC s request for waiver of the requirements of 2008 PA 295. Instead, the Commission granted BEC s request to be afforded treatment as a member-regulated cooperative, and approved BEC s 3

4 Renewable Energy Plan by which BEC complies with the renewable energy standards of Michigan Act 295 by including annual sales to its Michigan customers in the kwh retail sales total used to calculate compliance with the Wisconsin RPS in Section of the Wisconsin Statutes. In its June 2, 2009, Order, the Commission found that BEC s Plan falls within the intent of the Legislature in passing Act 295, and accordingly accepted the Plan for filing. The Commission further directed BEC to make annual compliance filings consisting of (1) copies of its annual Wisconsin RPS compliance reports, supplemented, if necessary to demonstrate compliance with Michigan s renewable energy plan requirements and to verify that RECs are not double-counted, and (2) data showing annual retail sales to all of Bayfield s customer-members, separately indicating the rate classifications, sales, and number of bills to Michigan customermembers. As show in ATTACHMENT D to Bayfield s CY 2010 Compliance Filing in Case No. U-15814, Dairyland continues to retire RECs representing a percentage of Bayfield s annual electric sales, including sales to Michigan customers, for purposes of meeting the Wisconsin RPS. BEC seeks the Commission s biennial review and approval of its current Renewable Energy Plan on an ongoing basis, based on considerations of regulatory efficiency and the undue burden and cost associated with separate compliance filings for its extremely small number of member-customers located in the State of Michigan. BEC files this application as a comment proceeding, consistent with the Commission s finding that Bayfield is a member-regulated cooperative for purposes of Act 295 compliance. 4

5 II. PLAN FOR MEETING THE RENEWABLE ENERGY STANDARDS (2008 ACT 295, 27) BEC is an all-requirements capacity and energy wholesale customer of Dairyland and is subject to the Wisconsin RPS for more than 99% of its member-consumers. BEC s renewable resource plan is based entirely on Dairyland s renewable resource planning and the requirements of the Wisconsin RPS. Dairyland plans for and supplies renewable capacity and energy to its Wisconsin member cooperatives, including BEC, from a variety of its own renewable energy generation facilities and purchased power resources. Those resources include wind turbines, a hydroelectric station, and landfill gas-fired and manure digester gas-fired generation facilities to ensure those members compliance with the Wisconsin RPS. Dairyland administers compliance with the Wisconsin RPS for all of its Wisconsin cooperative members under a Wisconsin provision that allows a wholesale supplier to aggregate and allocate the RECs created from purchased or generated power among its members or customers. See Wis. Stat (2)(b)4. The Wisconsin RPS, first enacted in 1999, required electric providers beginning in 2001 to provide an escalating percentage of sales to retail customers 1 from renewable resources, either directly or through the purchase of renewable resource credits. From its beginning, the Wisconsin RPS has been administered by the Wisconsin Public Service Commission, which has promulgated rules for that purpose. Total retail sales for purposes of the Wisconsin RPS are calculated on the basis of the average of the provider s retail electric sales during the prior 3 years. See Wis. Stat (2)(b). Subsequent amendments to Wis. Stat added the concept of a baseline renewable percentage, which is defined as the average of a provider s percentage of energy 1 Pursuant to Wis. Admin. Code PSC (11), a retail customer is a customer that receives retail electricity in Wisconsin. 5

6 supplied by renewable resources in 2001, 2002 and As amended, Wis. Stat (2) requires electric providers to supply the following percentages of renewable energy: (a) For the years inclusive, each electric provider may not decrease its renewable energy percentage below the baseline renewable percentage [on a system-wide basis, Dairyland s baseline renewable percentage is 2.22%]; (b) For the year 2010, each electric provider shall increase its renewable energy percentage by at least 2% over the baseline, which shall not be decreased in the years inclusive; (c) For the year 2015, each electric provider shall increase its renewable energy percentage by at least 6% over the baseline, which shall not thereafter be decreased. In 2010, Dairyland allocated and retired renewable resource credits ( RRCs ) representing 3,613 MWh of renewable generation to satisfy BEC s obligation under the Wisconsin RPS. The number of credits for 2010 compliance purposes was calculated by applying a 4.44% renewable percentage to a rolling three-year average of BEC s retail sales between , including BEC s retail sales to Michigan member-customers. The Wisconsin renewable percentage for REC retirement purposes was calculated on a system-wide basis for all of Dairyland s cooperative members and municipal wholesale all-requirements customers. (See ATTACHMENT D to Bayfield s CY 2010 Compliance Filing in Case No. U , attached.) Dairyland s current (system-wide) renewable resources, either owned or purchased under long-term power purchase agreements, representing approximately 7% of system capacity, include the following: 6

7 Hydroelectric Generation Wind Generation Biomass Landfill Gas Biomass Biogas Biomass Wood Waste Solar 49,689 MWh 70,130 MWh 51,540 MWh 13,794 MWh 28,123 MWh 2 MWh 2010 Total Renewable Generation 213,278 MWh Each of these renewable resource types meets the definition of a renewable energy resource in Section 9(i) of Act 295, MCL (i). Dairyland has allocated and retire RRCs created from these renewable generation sources for its distribution cooperative members at the 4.44% level in 2010 to meet the Wisconsin baseline plus 2% statutory requirement. See Wis. Stat (2)(a)2. Allocation and retirement of credits for Wisconsin RPS compliance is administered via the Midwest Renewable Energy Tracking System ( M-RETS ). Registration of generation facilities with M-RETS requires the generator owner to enter into an agreement with the M- RETS Administrator to register 100% of the generation of the facility to insure against doublecounting. The registration form includes over 50 static data fields which track the profile of renewable energy generated from the registered source. Upon verification of the characteristics of a registered generation facility, Dairyland logs the monthly generation from each owned or purchased renewable source for the creation of one (1) renewable energy credit ( REC ) for each MWh of renewable generation. The resulting RECs (also known as M-RETS certificates) are banked in Dairyland s M-RETS account and allocated and retired on an annual basis to a sub-account created for each Wisconsin distribution cooperative in the Dairyland system, including BEC, to administer compliance with the percentage standards set forth in the Wisconsin RPS. Dairyland reports compliance in the 7

8 aggregate for all of its member distribution cooperatives, including BEC, via annual filings with the PSCW. The PSCW verifies compliance with the RPS by reviewing the retirement of RECs in Dairyland s M-RETS account. In allocating and reporting compliance with Wisconsin s RPS, Dairyland includes BEC s total retail sales, including those to its Michigan member-customers, as reported on Rural Utilities Service ( RUS ) financial reporting Form 7. By using total retail sales, including sales to Michigan member-customers, as the denominator for compliance with Wisconsin s renewable portfolio standard, BEC has already substantially exceeded compliance with the percentage standard required by Michigan Act 295 beginning in Table 1 below is a side-by-side comparison of the Wisconsin RPS standard with the renewable energy requirements of Michigan Act 295: Compliance Year TABLE 1 WI RPS (as a % of retail sales) MI RPS (as a % of retail sales) % 2 n/a % n/a % 2.00% % 3.30% % 5.00% % 10.00% 2 RECs (M-RETS certificates) representing 3,613 MWh were retired in the M-RETS system for 2010 compliance with the Wisconsin RPS. See ATTACHMENT D to Bayfield s CY 2010 Compliance Filing in Case No. U-15814, attached. Of those retired RECs, 0.23%, or approximately 8 MWhs/RECs were retired based on sales to Bayfield s Michigan customers. 8

9 BEC intends to continue to use its total retail sales (including sales to Michigan members) for purposes of calculating compliance with the Wisconsin RPS. As described below, BEC believes that the inclusion of Michigan sales for purposes of Wisconsin RPS compliance will effectively result in overcompliance with the renewable energy requirements of Michigan Act 295 at least through This is based on the concept of pre-act RECs count toward the Michigan Act 295 percentage requirements under Section 27(3)(a)(ii) of Act 295. Pursuant to sub-subsection 27(3)(a)(iii)(B), the Michigan renewable percentage standard is 20% of 10% or 2% for 2012; 33% of 10% or 3.3% for 2013; 50% of 10% or 5% for 2014; and 10% for Subtracted from that base percentage standard are pre-act RECs, calculated as the number of RECs equal to the number of megawatt hours of electricity obtained by the electric provider in the 1-year period preceding the effective date of this act from renewable energy systems for which recovery in electric rates was approved on the effective date of this act MI P.A. 295, 27(3)(a)(ii). As set forth below in Table 2, Bayfield counts as pre-act RECs that portion of RECs retired in the Cooperative s M-RETS account for compliance with the Wisconsin RPS in the year preceding the effective date of the Michigan Act that were calculated based on retail sales to Michigan customers. Based on sales, BEC s pre-act renewable generation based on Michigan sales in the amount of 4 RECS is the equivalent of 4,000 kwh, or approximately 2% of BEC s annual retail sales to Michigan members in any given year. 3 3 For example, in 2010, BEC provided 186,420 kwh of electricity to Michigan customer-members. (See ATTACHMENT B to Bayfield Electric Cooperative CY 2010 Compliance Filing in Case No. U-15814, attached.) Bayfield s pre-act renewable energy totalling 4,000 kwh represents 2.15% of those sales. 9

10 TABLE 2 Month BEC systemwide sales (kwh) RECs allocated for WI RPS BEC Michigan retail sales (kwh) pre-act RECs (Section 27(3)(a)(ii)) (2.44% of all sales) 10/2007 5,969, ,262 * 11/2007 6,900, ,022 * 12/2007 8,714, ,373 * 1/2008 8,914, ,128 * 2/2008 8,246, ,561 * 3/2008 7,575, ,758 * 4/2008 6,498, ,307 * 5/2008 5,660, ,651 * 6/2008 5,535, ,362 * 7/2008 6,114, ,878 * 8/2008 5,738, ,850 * 9/2008 5,331, ,435 * Total 81,199,878 1,981** 180,587 4 *Less than 1 REC (1 MWh). M-RETS does not recognize fractional RECs. **The actual number of RECs allocated to BEC for Wisconsin RPS compliance in 2008 is slightly less, because compliance is based on a 3-year rolling average of annual retail sales, rather than retail sales on a current month-bymonth basis. 10

11 Because BEC s pre-act RECs contribute approximately 2% of the applicable Michigan RPS annual percentage standard in the years 2012 through 2015, the effective Michigan RPS (i.e., the number of RECs required to be retired from current-year generation or from RECs created within the 3 years prior to the compliance year) will be less than the number of RECs retired for Wisconsin compliance purposes, at least through As shown in Table 3, retirement of RECs for purposes of the Wisconsin RPS (including RECs based on Michigan retail sales) will result in overcompliance with Michigan Act 295 through 2015: Compliance Year TABLE 3 WI RPS requirement (as a % of retail sales) Effective MI RPS (as a % of retail sales; net of pre-act RECS) % n/a % n/a % 2% - 2% = % 3.3% - 2% = 1.3% % 5% - 2% = 3% % 10% - 2% = 8% 4 As set forth above in Table 2 and the accompanying text, Bayfield counts as pre-act RECs that portion of RECs retired in the Cooperative s M-RETS account for compliance with the Wisconsin RPS in the year preceding the effective date of the Michigan Act that were calculated based on retail sales to Michigan customers. 11

12 III. CONCLUSION Bayfield Electric Cooperative hereby seeks approval of its Renewable Energy Plan by which the Cooperative intends to meet the renewable energy plan requirements of Michigan Act 295 by continuing to retire RECs reflecting the applicable percentage of BEC s system-wide retail sales, including sales to Michigan member-customers, based on the annual percentage levels established by the Wisconsin RPS, Section of the Wisconsin Statutes. RECs will be created from renewable generation sources that meet the definition of renewable energy resource in Section 9(i) of Act 295, MCL (i). RECs will be prevented from doublecounting via M-RETS verification of generation source, tracking from the Dairyland Power main account to BEC subaccount, and retirement from the BEC subaccount. BEC proposes to continue to make annual compliance filings in this docket as outlined in the Commission s June 2, 2009, Order in Case No. U WHEREFORE, Bayfield Electric Cooperative, Inc. respectfully requests that this accept for filing this application for approval of a Renewable Energy Plan. Dated: June 2, 2011 Respectfully submitted, Mary Beth Peranteau Wheeler, Van Sickle &Anderson, S.C. Co-Counsel for Bayfield Electric Cooperative, Inc. 25 West Main Street, Suite 801 Madison, WI (608) FISCHER, FRANKLIN & FORD By: Arthur J. LeVasseur (P29394) Matthew M. Peck (P66361) Attorneys for Bayfield Electric Cooperative, Inc. 500 Griswold Street, Suite 3500 Detroit, MI (313)

13 ATTACHMENT