ENERGY FOR ECONOMIC DEVELOPMENT ACT S.B. 1456 (S-1):
ANALYSIS AS PASSED BY THE SENATE
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Senate Bill 1456 (Substitute S-1 as passed by the Senate)
Sponsor: Senator Tony Stamas
Committee: Energy Policy and Public Utilities
Date Completed: 11-18-10
RATIONALE
Hemlock Semiconductor (HSC), a manufacturer of polycrystalline silicon with semiconductor and photovoltaic applications, has been located in Michigan since 1961. Several years ago, the company began searching for a location to expand its operations. In response, legislation was enacted to provide millions of dollars in tax abatements for the company, and the Public Service Commission (PSC) approved an agreement stipulating that Consumers Energy would provide electric service to HSC at a reduced rate. Due in part to these incentives, HSC chose Michigan for the expansion.
Legislation that could affect the contract between HSC and Consumers Energy, however, was enacted in 2008. Before that amendment took effect, electric rates in Michigan were not based on the true cost of providing service to each customer class. Large commercial and industrial customers were subsidizing residential electric rates. Under Public Act 286 of 2008, for utilities with at least 1.0 million Michigan retail customers, the PSC must "deskew" electric rates so each customer class pays its true cost of service. The new rate schedule must be phased in by October 6, 2013. Under Public Act 286, HSC may no longer receive the reduced rate established in its contract with Consumers Energy. It has been suggested that the company's economic development tariff should be exempt from the deskewing requirement.
CONTENT
The bill would create the "Energy for Economic Development Act of 2010" to prohibit the Public Service Commission from taking any action that would alter a contract between an electric utility and a particular industrial customer pursuant to an economic development tariff provision approved by the PSC.
Specifically, if an electric utility were to execute or had executed a written contract with an industrial customer providing for an increase in connected load at a single premises of at least 70.2 million kilowatt hours over 12 consecutive months pursuant to an economic development tariff provision approved by the PSC as of October 6, 2008, the Commission could not take any action that would alter the rates, terms, conditions, duration, or enforceability of the contract. Prohibited actions would include an order that would eliminate, phase out, or otherwise modify the economic development tariff provision in a manner that would allow or require an electric utility to alter the rates, terms, conditions, duration, or enforceability of the contract.
In addition, the PSC would have to allow the utility to recover fully from all of its other electric ratepayers in all classes the full amount of the difference, if any, between the revenue generated pursuant to the economic development tariff and the utility's cost to provide service to that customer under the tariff, as determined by the Commission. The utility's recovery of the difference would have to be based on the cost allocation method identified in Section 11(1) of the PSC enabling law (MCL 460.11, which provides for a 50-25-25 method of cost allocation).
If there were a conflict between the proposed Act and any other State statute, the Energy for Economic Development Act would control.
("Electric utility" would mean that term as defined under the Electric Transmission Line Certification Act. That Act defines the term as a person, partnership, corporation, association, or other legal entity whose transmission or distribution of electricity is regulated by the PSC. The term does not include a municipal utility, affiliated transmission company, or independent transmission company.)
ARGUMENTS
(Please note: The arguments contained in this analysis originate from sources outside the Senate Fiscal Agency. The Senate Fiscal Agency neither supports nor opposes legislation.)
Supporting Argument
As the manufacturer of a high-tech product that is being used increasingly all over the world, Hemlock Semiconductor is critical to Michigan's economic development. The discounted rate for electricity was a significant factor in HSC's decision to expand in this State. The mandatory deskewing of electric rates would conflict with the company's contract with Consumers Energy. This contract should continue to be honored and HSC should receive the electric rate that it was promised in exchange for investing and creating jobs in Michigan.
Legislative Analyst: Julie Cassidy
FISCAL IMPACT
The bill would have no fiscal impact on State or local government.
Fiscal Analyst: Josh SeftonAnalysis was prepared by nonpartisan Senate staff for use by the Senate in its deliberations and does not constitute an official statement of legislative intent. sb1456/0910