Having issued a comprehensive decision on electric utility restructuring on June 5, the Michigan Public Service Commission nevertheless must yet decide what to do about electric utilities that offer contracts to individual customers with off-the-tariff rate discounts. It must consider whether those discounts may stall efforts to promote unbundled direct-access service, whereby the regulated electric utility provides only transmission and distribution service to deliver energy produced by a competitive supplier.

Meanwhile certain competing energy suppliers have complained to the commission that Consumers Power Co. has been able to "lock up" capacity through rate discounts to "at-risk" customers before direct access service could become available.

Thus, the commission has agreed to review certain rate-discount contracts filed last December by Consumers Power Co. to determine whether to count those sales against a block of load to be kept open to competition as the pilot begins. The commission had originally held that the direct-access pilot would expose a total of 240 MW of Consumers' existing load to competition. Of those 240 MW, the utility could compete with third-party suppliers for 140 MW.

In effect, the PSC will decide whether the discounted rate contracts should "compete" against reservations of load for direct-access service.

Phased-In Restructuring. The June 5th restructuring order, which still must be fine-tuned, was guided by a set of recommendations developed by the Michigan Jobs Commission. (See Headlines, this issue, p. 12, for full story.) The PSC adopted a phase-in schedule for customer direct access to alternative suppliers that runs through 2002. The restructuring order also outlines stranded cost recovery policies and related "securitization" strategies. See, Re Restructuring of the Elec. Util. Industry, Case No. U-11290, June 5, 1997, 177 PUR4th 201 (Mich.P.S.C.).

Last Fall's Settlement. Last fall, however, the commission had approved a settlement agreement with Consumers Power that allowed the company to offer individual discounted rate contracts to at-risk customers, even as it established a direct-access program for Consumers Power (em that is, unbundled transmission and distribution service.

That settlement had set aside 240 MW of load for direct-access service, but allowed Consumers Power to continue to offer bundled energy supply service for 140 MW of that load. See, Re Consumers Power Co., Case Nos. U-1-685, Nov. 14, 1996, 173 PUR4th 201 (Mich.P.S.C.).

Later, however, after Consumers Power had filed actual rate discount contracts with the PSC in December, certain competitors questioned whether the contacts complied with the settlement. They argued that the discount contracts that Consumers Power had submitted in December were "obviously negotiated" before the utility had accepted the terms of the November settlement.

In April, on reconsideration of the November settlement order, the PSC agreed to hold hearings to determine whether the company complied with the settlement when it filed the discount contracts. The PSC said that only those discount contracts that meet a "requirement of comparability" may be counted toward the 140-MW block. To meet that requirement, the service provided under the discount contracts must comply with all standards and billing practices imposed on direct-access service. See, Case No. U-1-685, April 10, 1997 (Mich.P.S.C.).

Dissenting in the April 10th case, Commissioner David Svanda said that allowing Consumers Power to lock up 140 MW of the 240 MW available for the direct access program before any competition begins would require "a very convoluted interpretation" of the commission's intent last year in approving the settlement.

More Discounts Forthcoming. Even as the discount question draws concern, the commission continues to approve such arrangements.

On May 30, the Michigan PSC approved additional special discount contracts between Consumers Power and 14 of its larger customers. See, Case Nos. U-11254, et al.

On the same day, the PSC also approved 17 discount contracts filed by The Detroit Edison Company. See, Re Detroit Edison Co., Case Nos. U-11384, U-11343, U-11313, U-11317, U-11318, May 30, 1997 (Mich.P.S.C.). However, most of those contracts allowed the customer to opt out in favor of direct access service by 2003.

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