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The Michigan Public Service Commission (PSC) has approved a comprehensive settlement in a series of closely watched cases in which Consumers Power Co. had proposed to realign electric rates and cost recovery to anticipate retail competition in electricity.

Among other points, the settlement allows Consumers Power to implement a "direct access" tariff to meet anticipated competition for its largest customers. And, by approving the settlement, the commission allowed the company to reach a long-held goal of recovering costs associated with its full contractual commitment to purchase power from the large, gas-fired cogeneration plant operated by its affiliate, Midland Cogeneration Venture Limited Partnership (MCV).

Nevertheless, the commission stopped short of approving the level of nuclear plant write-downs requested by the utility, and also rejected a proposed "price cap" formula based upon the annual average percentage change in the Detroit Consumer Price Index, minus a 1-percent productivity offset.

The agreement settled three cases: a general rate case, a depreciation case, and a competitive tariff proceeding. It reaffirms a $46.5 million (2.1%) increase in electric rates (based on a 12.25% return on equity) provided for in a partial PSC order issued last February. It also allows the company to reduce the "claimed rate subsidization of residential customers by primary customers" through a two-step increase in residential rates totalling 7.8 percent. Step one occurred in the February order; step two was to take place on December 1, 1996. It was expected that the rate realignment would shift about $35 million in rate responsibility from industrial to residential customers. The commission emphasized, however, that the rate settlement taken as a whole would help ratepayers by limiting rate increases at a time when additional capacity was needed.

In a key admission, however, the commission acknowledged from past experience that "gradualism did not work" in reforming electric markets. It noted that incremental reforms (em such as small-scale retail wheeling experiments and competitive bidding requirements for capacity acquisitions (em were quickly overtaken by external market developments and changing federal policy.

Direct Access. The settlement approves two distinct programs. First, a "limited direct-access service" will permit retail customers with a maximum demand of at least 2 megawatts (mWs) to purchase generation services directly from a broad range of third-party suppliers. The average customer will pay an overall rate of approximately 1 cent per kilowatt-hour (kWh) for providing the necessary transmission and ancillary services. Second, the utility will introduce an "independent contract service" to compete directly with third-party suppliers and other generators for customers who take service at transmission or subtransmission levels. Under this service, Consumers Power can offer prices no lower than the variable cost of providing generation service, plus all mandatory charges imposed under the direct-access tariff.

The direct access program is technically open to 650 mWs, or approximately 31 percent of the company's industrial load, but the settlement will allow the company to fulfill part of the load requirement with existing discount contracts it had recently

negotiated with "at-risk" industrial users in the state. Thus, the company must open to competition a total of at least 240 mWs of