The effort to produce electricity in Michigan from sources other than public utilities has been stymied while the state's Public Service Commission weighs the possible impact of the nation's largest cogeneration plant. The case reflects the mounting tension among state and federal regulators and private power developers over using alternative generating sources, including cogeneration, to meet the nation's growing electricity needs. Cogeneration facilities and small power plants supply electricity to large commercial or industrial facilities, or they sell electricity to the utility for resale to its customers.
Cogeneration received congressional endorsement in 1978 through the Public Utilities Regulatory Policy Act (PURPA). Since 1984, these alternative generating units have grown so fast they have made it unnecessary for utilities in California and for the Houston Lighting and Power Company to build new power plants to meet gradual, or incremental, increases in electricity demand, says Reinier Lock, legal advisor to Federal Energy Regulatory Commission (FERC).
Electric utility service areas in Massachusetts, Virginia, and Connecticut are also expected to meet future incremental needs this way.
By the middle of last year, 3,378 applications for qualifying facility status had been filed with FERC, representing 58,000 megawatts of power. Industry analysts believe at least half of this amount reflects active projects. This means that nearly 50 percent of the 60,000 megawatts of capacity the Department of Energy estimates will be needed by the year 2000 (beyond what is already planned by utilities) could be met by cogeneration or small power facilities.
Most of these units are comparatively small. In Michigan, for example, nine power purchase contracts between Consumers Power Company and the qualifying facilities seeking Public Service Commission approval were for 50 megawatts or less.
But the entire alternative power enterprise in Consumers Power's service area has ground to a halt because of the utility's plan to turn its abandoned Midland nuclear plant into a 1,350 megawatt, gas-fired cogeneration plant. To be built by an affiliate of Consumers Power, along with a group of equity partners, the Midland Cogeneration Venture (MCV) is 27 times larger than the largest cogeneration facility currently under contract with Consumers. The Midland plant is, in fact, the largest qualifying facility ever certified by the FERC.
The Michigan Public Service Commission has said that when it wrote the rules governing utility buyback prices for this nonutility generated electricity, it never contemplated a project of this size. ``Further,'' the commission said in September, ``it cannot be ignored that there is a close relationship between Consumers and the MCV to a degree which has not been present with respect to other contracts ... where the cogeneration project was largely to be developed by an independent entity.''
The commission is concerned that the large Midland plant could squeeze out other cogenerators and small power producers in the region, thus violating the spirit of PURPA, the law that cleared the way for these independent projects.
``There is a limit to the amount of PURPA capacity which Consumers Power should be required to accommodate,'' Charles V. Waits, the utility's director of power resources and system planning, told the commission in December. ``That limit, we believe, is approximately 1,900 megawatts.''
This means that if the 1,350-megawatt Midland plant is approved as requested, it will provide 71 percent of the electricity needs in the utility's service territory for the foreseeable future.
But it is unlikely that the agency's certification of the MCV will be overturned because it is so large, says an attorney at the FERC. ``There is no decent legal argument for a size limitation'' he said.
When the commission agreed to consider electricity buyback rates for the Midland facility in September, it promised not to neglect review of other ongoing projects. But on Jan. 14, the agency consolidated into one proceeding the review of the Midland facility, the evaluation of complaints by independent developers, and several other key issues pertaining to cogeneration and small power production in Michigan.
The decision to review these generic issues, such as earlier-drafted rules for cogeneration, means the commission's past orders may not be meaningful guides to future policy. Consumers Power was counting on the contract price it had previously given to two cogenerators to form the basis for its offer for electricty from the Midland facility. This rationale is now in jeopardy.
``We are concerned how much this case will now encompass,'' utility spokesman Paul Knopick said. He added that Consumers would press for a narrowing of the scope of the hearings and might even challenge the commission's Jan. 14 consolidation order in court.