News Story

Commentary: Court Decision Could Unplug Green Energy Mandate in Michigan

By Kevon Martis

On June 7, the U.S. Court of Appeals for the Seventh Circuit delivered a unanimous ruling that may be a death blow to Michigan's renewable energy mandate.

Writing for the majority, Judge Richard Posner wrote: "Michigan cannot, without violating the commerce clause of Article I of the Constitution, discriminate against out-of-state renewable energy."

That single sentence may throw into jeopardy Michigan's entire renewable energy mandate, Public Act 295, which requires Michigan utilities to generate 10 percent of their electricity from in-state renewable sources by 2015.

The problem? Among its competitor states in the region, Michigan is a high-priced wind energy producer. Wind energy in Midwest Independent System Operator states like Iowa and Minnesota is selling in the $30/MWh range. But Michigan's cheapest wind energy contracts are just slipping below (a likely unsustainable) $50, while the average price remains above $80/MWh. That is a tremendous competitive disadvantage for Michigan's artificially constructed wind industry.  

These numbers leave aside the matter of the cost of producing that energy, which in all cases is far higher than the sales price. Consumer's Energy CMS' Lakewinds wind plant reports a levelized cost of energy of $110-115/MWh, for example.

Judge Posner's opinion means those out-of-state low-priced producers of renewable energy must be given equal access to Michigan's energy market. All that remains is for a wind producer to legally challenge PA 295 and demand their constitutional right to participate in Michigan's renewable energy mandate. The ruling suggests they will prevail.

The impact could be profound and far-reaching.

For wind developers wishing to induce municipalities to adopt wind-friendly zoning, they must abandon their current mantra of using the law to tell communities that they might as well agree to building wind farms because the state eventually will force the issue.

Wind energy developers will have to discover a means to generate wind energy at a competitive price in a state with a regionally anemic wind resource, or they'll have to walk away.

The Michigan Public Service Commission, whose mission is "… to grow Michigan's economy and enhance the quality of life of its communities by assuring safe and reliable energy… at reasonable rates (emphasis added)" will have to justify approving any more in-state wind contracts if cheaper contracts from out-of-state are available.

Michigan's major monopoly utilities, DTE and CMS Energy, are compelled by PA 295 to own and operate 50 percent of their renewable energy fleet. Will they still be forced to do so if it is cheaper to import?

And what of the federal Production Tax Credit for wind energy? The bulk of these tax credits are accruing to a relatively small number of states and wind developers. If free competition across state lines pushes the majority of new wind installations to an even smaller number of recipients, will that hinder further attempts to extend that tax credit beyond its end-of-2013 expiration date?

But there are clear winners in this ruling: Michigan ratepayers and true environmentalists.

If Michigan's renewable energy mandate is to continue, Michigan ratepayers will at the very least have access to renewable energy sources at free market pricing rather than inflated pricing resulting from Michigan's current protectionist mandate. Perversely, over the long term, meaningful competition may even benefit wind developers who now will be forced to lower costs or perish just like any other industry.

For those who truly wish to protect Michigan's air and water, Judge Posner's opinion tosses into the waste bin the most effective, yet most specious, argument in support of wind development: green jobs.

There now is no reason to believe PA 295 will ever drive a boom in turbine manufacturing in Michigan or any other state with uncompetitive wind resources. The debate about environmental impacts of power generation can now refocus on the only metric that ever really mattered: price per unit-of-emissions avoided. And in this regard, industrial wind is a colossal loser, losing badly to combined cycle gas turbines, and if natural gas prices rise significantly, to nuclear as well.

For those Michigan residents who desire energy policy that is both economically and environmentally efficient, this ruling has opened a window of opportunity for a new element to enter the renewable energy debate: truth. It will be interesting indeed to see how Michigan's energy industry and its regulators respond.

Kevon Martis is senior policy analyst for the Interstate Informed Citizen’s Coalition Inc., a bipartisan grassroots renewable energy watchdog group based in Blissfield, Mich.

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.