S T A T E O F M I C H I G A N

BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION

* * * * *

In the matter of the application of ) MIDLAND COGENERATION VENTURE LIMITED ) PARTNERSHIP for elimination of the availability ) Case No. U-15320 caps that limit Consumers Energy Company’s ) recovery of capacity payments with respect to its ) power purchase agreement. ) )

At the June 10, 2008 meeting of the Michigan Public Service Commission in Lansing,

Michigan.

PRESENT: Hon. Orjiakor N. Isiogu, Chairman

Hon. Monica Martinez, Commissioner Hon. Steven A. Transeth, Commissioner

ORDER APPROVING SETTLEMENT AGREEMENT

On May 30, 2007, the Midland Cogeneration Venture Limited Partnership (MCV) filed an

application requesting the Commission to eliminate the “availability caps” that limit Consumers

Energy Company’s (Consumers) recovery of capacity payments made to the MCV pursuant to a

power purchase agreement (PPA) dated July 17, 1986, as amended, between Consumers and the

MCV for capacity and energy supplied from the MCV generating facility located in Midland,

Michigan (MCV facility).

On September 4, 2007, Attorney General Michael A. Cox (Attorney General) and the

Association of Businesses Advocating Tariff Equity (ABATE) filed a joint motion for summary

disposition and a supporting brief.

Page 2 U-15320

On September 13, 2007, Consumers and the MCV filed briefs in opposition to the motion. On

September 14, 2007, ABATE and the Attorney General filed a reply to the MCV and Consumers.

On September 18, 2007, Administrative Law Judge Daniel E. Nickerson, Jr., (ALJ) presided

over a prehearing conference that was attended by the MCV, Consumers, ABATE, the Michigan

Environmental Council and the Public Interest Research Group in Michigan (collectively,

MEC/PIRGIM), Dow Corning Corporation (Dow), the Attorney General, and New Covert

Generating Company (New Covert).1 The Commission Staff (Staff) also participated in the

proceedings.

At the prehearing conference, the ALJ first granted all petitions for intervention. The ALJ

next considered arguments by the parties regarding the motion for summary disposition filed by

ABATE and the Attorney General. In so doing, the ALJ indicated that he would take the matter

under advisement and would issue a decision within 30 days. Finally, the ALJ established a

schedule for the proceeding.

On October 8, 2007, the ALJ issued a ruling in which he denied the motion for summary

disposition. On October 12, 2007, ABATE and the Attorney General filed a joint application for

leave to appeal and a motion for immediate consideration. On October 15, 2007, New Covert also

filed an application for leave to appeal the ALJ’s ruling. On October 19, 2007, the MCV and

Consumers filed responses in opposition to the motion for leave to appeal. On October 22, 2007,

the same parties filed responses to New Covert’s application for leave to appeal. On October 29,

2007, New Covert filed a document titled “motion to permit reply to the MCV and Consumers’

1AARP Michigan also filed a petition for intervention, which it later withdrew.

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responses to its application for leave to appeal.” 2 On November 2, 2007, the MCV filed a

response to New Covert’s October 29, 2007 motion.

Subsequently, the parties resolved their differences and submitted a settlement agreement and

several attachments.3 According to the terms of the settlement agreement, attached as Exhibit A,

the parties agree that the terms of the 1986 PPA, as amended, between MCV and Consumers

should be amended and restated (the amended and restated PPA). The terms of the amended and

restated PPA reduce the capacity charge from the 3.62 cents per kilowatt-hour (kWh) that the

Commission had previously approved for cost recovery to 1.014 cents per kWh, and change the

variable energy charge from a coal-based charge to a natural gas-based charge.4 Other material

terms in the amended and restated PPA include the following:

(i) The amended and restated PPA will become effective after both of the following have occurred: (a) issuance of a Commission order approving this settlement agreement without modification; and (b) the commercial operation date of at least four supplemental boilers to be installed by the MCV for purposes of enhancing the MCV’s operational flexibility,

(ii) A procedure to measure the availability of the MCV facility, as set forth

more fully in the amended and restated PPA. (iii) Revised fuel assurance provisions. (iv) The primary term of the amended and restated PPA continues through

March 15, 2025, with Consumers having the option, at the conclusion of the primary term, to purchase the MCV facility at fair market value as determined by a mutually acceptable appraisal of the facility, or to extend the term of the amended and restated PPA at a reduced capacity price.

2Neither the Administrative Procedures Act, MCL 24.201 et seq., nor the Rules of Practice and

Procedure before the Commission, 1999 AC, R 460.17101 et seq., permit the filing of “replies to responses.” See, e.g., May 9, 1995 order in Case No. U-10787. New Covert’s October 29, 2007 motion is therefore denied and the Commission disregards the MCV’s response to that motion.

3 New Covert submitted a statement of non-objection to the terms of the settlement agreement.

4The MCV uses natural gas to produce electric power.

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(v) Capacity available pursuant to the amended and restated PPA will initially be offered into the Midwest Independent Transmission System Operator, Inc., (MISO) energy market by Consumers based upon the variable energy charge (cost of production) described in paragraph 1 of the settlement agreement, and dispatched by MISO based upon the variable energy charge (cost of production) or to meet reliability requirements. The MCV will have the option, subject to Commission approval of the necessary amendment, to assume responsibility for offering this capacity into the MISO energy market.

(vi) All jurisdictional costs incurred by Consumers as a result of implementing

the settlement agreement shall be fully recoverable by Consumers. The parties anticipate that such recovery will be accomplished through the power supply cost recovery (PSCR) process governed by 1982 PA 304, as amended. The settlement agreement provides that, when approved by the Commission without modification, there is assurance of such cost recovery to Consumers during the term of the amended and restated PPA, including approvals pursuant to 1909 PA 300, as amended; 1909 PA 106, as amended, 1939 PA 3, as amended; 1982 PA 304, as amended, and 1987 PA 81, as amended. Notwithstanding the preceding, discretionary decisions made during the course of the administration of the settlement agreement or the amended and restated PPA are, to the extent such decisions affect power supply costs, subject to review for reasonableness and prudence in PSCR proceedings.

(vii) The MCV agrees to contribute $5 million annually to the Renewable

Resources Program Fund, with such payment to be collected as set forth in the amended and restated PPA. The Renewable Resources Program Fund is part of the Renewable Resources Program approved by the Commission in Case Nos. U-13843, U-12915, U-14031, and U-15433 and is described in Consumers’ electric tariffs in Rule C10. If the Renewable Resources Program is terminated or modified in a manner that eliminates the need for the Renewable Resources Program Fund, the settlement agreement provides that the MCV shall contribute the $5 million to support the development of renewable resources in a manner permitted by law. In such event, all parties shall have the opportunity to propose how the $5 million should be utilized.

The Commission finds that the settlement agreement is in the public interest and should be

approved. Among other things, the amended and restated PPA, which reduces the capacity charge

to be paid by Consumers from 3.62 cents per kWh to 1.014 cents per kWh and which changes the

variable energy charge from a coal-based charge to a natural gas-based charge, aligns costs borne

by Consumers’ ratepayers to the MCV facility’s actual operating characteristics. The amended

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and restated PPA also provides for the plant to be dispatched on an economic basis in accordance

with the MCV facility’s variable energy costs or to meet reliability requirements. The

Commission finds that these changes provide important benefits to the stakeholders and the

ratepayers, and justify approval of the settlement agreement without modification.

THEREFORE, IT IS ORDERED that:

A. The settlement agreement, attached as Exhibit A, is approved.

B. This order constitutes approval of the amended and restated power purchase agreement

that is the subject of the settlement agreement for purposes of 1982 PA 304 and 1987 PA 81, and

all jurisdictional costs incurred by Consumers Energy Company as a result of implementing the

settlement agreement shall be fully recoverable by Consumers Energy Company for the term of

the amended and restated power purchase agreement.

C. The joint application for leave to appeal filed by the Association of Businesses Advocating

Tariff Equity and Attorney General Michael A. Cox and the application for leave to appeal filed

by New Covert Generating Company are denied because they are moot.

The Commission reserves jurisdiction and may issue further orders as necessary.

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Any party desiring to appeal this order must do so in the appropriate court within 30 days after

issuance and notice of this order, under MCL 462.26.

MICHIGAN PUBLIC SERVICE COMMISSION

________________________________________ Orjiakor N. Isiogu, Chairman

________________________________________ Monica Martinez, Commissioner

________________________________________ Steven A. Transeth, Commissioner By its action of June 10, 2008. ________________________________ Mary Jo Kunkle, Executive Secretary

EXHIBIT A

P R O O F O F S E R V I C E

STATE OF MICHIGAN ) Case No. U-15320

County of Ingham )

E. David Lechler being duly sworn, deposes and says that on June 11, 2008, A.D. he served a copy of

the attached Commission order by first class mail, postage prepaid, or by inter-departmental mail, to

the persons as shown on the attached service list.

_______________________________________

E. David Lechler Subscribed and sworn to before me this 11th day of June 2008

_____________________________________

Sharron A. Allen Notary Public, Ingham County, MI My Commission Expires August 16, 2011

SERVICE LIST FOR DOCKET # U - 15320- CASE # DATE OF PREPARATION: 06/11/2008-------------------------------------------------------------------------------- MR. GARY PASEK MR. DONALD E. ERICKSON MIDLAND COGENERATION VENTURE L.P. ASSISTANT ATTORNEY GENERAL 100 PROGRESS PLACE 525 W. OTTAWA; 6TH FLOOR MIDLAND MI 48640 G. MENNEN WILLIAMS BLDG. LANSING MI 48933

MR. VINCENT J. LEONE MR. DON L. KESKEY ASSISTANT ATTORNEY GENERAL CLARK HILL PLC 6545 MERCANTILE WAY, 2ND FLOOR 212 EAST GRAND RIVER AVE. LANSING MI 48910 LANSING MI 48906 4328 ID MAIL

MR. ROBERT A. STRONG MR. JOHN C. SHEA CLARK HILL PLC CONSUMERS ENERGY COMPANY 255 S. WOODWARD AVE. ONE ENERGY PLAZA SUITE 301 JACKSON MI 49201 BIRMINGHAM MI 48009

MR. RICHARD J. AARON MR. DAVID E. MARVIN FAHEY SCHULTZ BURZYCH RHODES PLC FRASER TREBILCOCK DAVIS & DUNLAP, PC 4151 OKEMOS ROAD 124 WEST ALLEGAN LANSING MI 48864 SUITE 1000 LANSING MI 48933 1742

MR. JON D. KREUCHER MR. DANIEL E. NICKERSON, JR. KREUCHER LAW FIRM PLC PSC ALJ DIVISION 8315 THENDARA BLVD. 6545 MERCANTILE WAY CLARKSTON MI 48348 LANSING MI 48911 ID MAIL

SUBSCRIPTION LIST ALL ELECTRIC ORDERS

MR. LARRY LEWIS MR. MICHAEL BYRNE GENERAL SERVICES ADMINISTRATION SENATE DEMOCRATIC STAFF 670 MORRISON ROAD, ROOM 209 ROMNEY BUILDING COLUMBUS OH 43230 LANSING MI ID MAIL MR. JOHN PESTLE VARNUM, RIDDERING, SCHMIDT & HOWLETT BRIDGEWATER PLACE P.O. BOX 352 GRAND RAPIDS MI 49501 0352