Gov. Snyder supports Presque Isle Power Plant operation, but other forces may conspire against it

MARQUETTE – In trying to help resolve the multi-faceted, time-sensitive questions surrounding the future of the Presque Isle Power Plant, Gov. Rick Snyder will support any solution that keeps the plant operating and does not result in unaffordable rates for consumers.

Over the past several months, through several significant developments, the efforts to keep the Upper Peninsula’s only major power generating source operating have taken several twists, which ultimately could result in dramatic rate increases of up to 71 percent for Michigan customers if alternatives are not discovered.

“From the governor’s perspective, we believe the plant coming down is the wrong choice,” said Valerie Brader, deputy legal counsel and senior policy advisor to Snyder. “We think for the U.P., for all kinds of reasons – adaptability, reliability, affordability, protection of the environment – it’s important that that plant remain up and we’re ready to work with stakeholders to make that happen.”

Brader outlined the administration’s perspective Thursday for attendees to the Upper Peninsula Energy Summit in Marquette, encouraging them to work creatively and cooperatively to help find answers to the complicated issue.

“We are looking for the best solution in both the short- and long-term for everybody,” Brader said.

After a deal was announced last November between the Wisconsin Electric Power Co., which owns the plant, and the Cadillac-based Wolverine Power Cooperative, Snyder and other officials celebrated anticipated new life for the facility.

In October 2011, We Energies officials planning long-range to contend with federal environmental pollution regulations had said there was a likelihood the plant could be retired in 2017.

The announcement set off shock waves throughout the region as local government officials, consumers, workers and others dependent on the plant began scrambling to determine the potential ramifications and possible solutions.

The Presque Isle plant employs 170 workers. The facility was built from 1955 to 1979, originally with nine operating units, five of which remain, producing a combined 431 megawatts of power.

With the November co-ownership deal, Wolverine agreed to invest up to $140 million in pollution control upgrades at the plant in exchange for a one-third interest in the facility. Ratepayers would not fund any of that cost, Brader said.

Three months after the Wolverine deal was announced, the American Transmission Co. of Waukesha, Wis., scaled back its plans to extend 122 miles of power lines from Green Bay, Wis., into the U.P. to 45 miles.

The Midcontinent Independent System Operator, Inc., which oversees the electrical grid in the Upper Midwest and part of Canada, concluded that with the Presque Isle Power Plant operating, there was less need for new transmission lines into the region.

However, in July, the Presque Isle plant’s largest customer, Cliffs Natural Resources, told Wisconsin Electric that as of Sept. 1 the mining company would switch its electric provider service to Integrys Energy Services Inc. of Chicago.

Brader estimated the switch would save Cliffs roughly $25 million annually, assuming a three-year deal. Cliffs spent about $120 million with We Energies last year.

Last month, in response to the Cliffs decision, We Energies filed a request with the MISO to suspend operations at the Presque Isle plant beginning in February 2014.

Michigan’s utility choice law allows customers to choose their energy provider, but the amount of departing customers is capped at 10 percent of a company’s state retail sales. In 2008, Cliffs’ mines were exempt from that cap.

Michigan Public Service Commission Chairman John Quackenbush said when Cliffs switched, We Energies’ cap was filled up and Cliffs was 75 percent of the company’s Michigan load. Cliffs consumed 270 to 280 megawatts of power from the Presque Isle plant each day.

“It’s kind of unprecedented to have 85 percent of their load go away,” Quackenbush said. “They (MISO) are reviewing the request to suspend operations. They are going to provide an answer soon, I think.”

The MISO could agree with the closure or allow a partial closure of the plant’s five units. However, if it ultimately decides the plant is too vital to the stability and reliability of the regional electric grid, the organization may agree to offer “system support resource payments” to We Energies in exchange for keeping the plant operating.

Previous MISO studies have concluded the plant is important to regional reliability.

“If they come to that same conclusion, they would likely say that the plant has to stay open,” Quackenbush said. “But then the question becomes if the company is not recovering the cost of generating electricity there, how do they get paid to keep it open?”

The Cliffs’ supplier switch has also prompted We Energies to rethink its contract with Wolverine. The utility said that unless changes to the agreement can be made, it may result in “the full or partial death of the plant.”

Quackenbush said We Energies will likely wait for MISO’s decision on whether the plant should remain open before it finalizes its talks with Wolverine.

“They give the answer to the utility and it doesn’t necessarily become public right away,” Quackenbush said. “So there might be a little bit of lag before we know about it, but the company would get the answer and have some chance to formulate a response and then if it does turn out that all or part of the plant can’t be suspended in operations, then that would then kick off a process to determine the SSR payment amount.”

Brader said that short-term compensation is for companies that don’t want to be operating a plant, but have to. A rough We Energies analysis estimates 16 months of those payments, amortized over a decade, would cost Wisconsin and Michigan consumers a small rate increase of 0.1 to 0.2 percent, Brader said.

That percentage would climb to 2.4 to 4.1 percent if only Michigan customers were footing the bill.

For the longer term, state staff preliminary estimates of lost revenue contributions to fixed, embedded production costs – from the Tilden and Empire mines only – could translate into rate increases to remaining customers of 2.7 percent if spread according to tradition over Michigan and Wisconsin consumers.

“If it were to be given to the remaining Michigan customers only, again with a lot of assumptions, we’re talking about a 47 percent rate increase for those remaining,” Brader said.

A similar estimate for all Michigan choice customers lost could result in rate increases of 2 to 4 percent if spread over Michigan and Wisconsin ratepayers and 71 percent if only Michigan only was involved.

“We also believe it is essential that this does not make rates unaffordable for all customers, remaining customers, future customers and we think that any solution has to look at both the short- and the long-term impacts of rates,” Brader said.

Brader said MISO can’t order We Energies to run the plant indefinitely and must provide an alternative, but MISO can’t order generation solutions, only transmission solutions. All of the players involved have only limited authority to influence the issue and must work cooperatively if a satisfactory solution is to be found, Brader said.

In addition, in the long term, an eventual plant closure could trigger a requirement to build $250 million to $750 million worth of transmission, which would have to be borne by Michigan and Wisconsin ratepayers.

“Beyond pure energy, we also believe that it is vital to keep that plant up for the continued economic health of both the city and the school district and the associated tax revenue,” Brader said.

Local officials said the plant closure could result in a severe blow to Marquette’s tax base, including impacts to the Marquette Area Public Schools, which would stand to lose state per-pupil funding from workers and their families leaving the area. The city receives just under $1.5 million in tax revenue each year from the plant.

“We think this problem has to get solved fast so that whatever the future is we have time to actually implement the solution before it turns into a reliability crisis or an affordability crisis,” Brader said. “We don’t have a lot of time, because again if you’re looking at how long it takes to get transmission there, we’re pretty much out of time. If you’ve got to get those pollution control devices installed, we basically need to start soon, like in a couple of months soon.”

On Aug. 29, the Michigan Public Service Commission granted We Energies accounting authority to defer “unrecovered” costs of implementing customer choice, subject to certain limitations. The measure is for accounting purposes only and will not affect current customer rates.

On Sept. 24, the commission ordered We Energies to switch customers immediately who have decided to move to Integrys. The order was made in response to a complaint by Integrys that We Energies was delaying switches for Dickinson County Memorial Hospital and Northern Star Industries, both located in Iron Mountain.

John Pepin can be reached at 906-228-2500, ext. 206.