Cliffs fears decision by FERC could hike region’s electric rates

MARQUETTE – Cliffs Natural Resources officials are concerned the ruling in a dispute between Michigan and Wisconsin’s public service commissions – centered on the Presque Isle Power Plant – could result in substantially higher electric costs for all Upper Peninsula ratepayers, including the mining company.

“From a standpoint of residences, small businesses even medium-sized manufacturers, everybody is going to be hit by this, just how hard is the hit going to be?” said Dale Hemmila, Cliffs Natural Resources’ director of public affairs for North America.

Cliffs – which is one of the region’s largest electric consumers with its Empire and Tilden mines – is concerned the decision could set a precedent having a potentially negative impact on the affordability of electric power in the U.P. in the future.

The Federal Energy Regulatory Commission in Washington, D.C., is considering the Wisconsin Public Service Commission’s complaint against Midcontinent Independent System Operator Inc., which oversees the electrical grid in the Upper Midwest and part of Canada.

In April, the FERC approved an agreement between MISO and We Energies to pay the Wisconsin utility $52.2 million in System Support Resource subsidy payments to continue operating five units at the Presque Isle Power Plant. The agreement expires Jan. 31, 2015, although MISO could renew it on an annual basis.

We Energies wanted to shut the plant down after Cliffs changed providers last year, but MISO said the plant needs to keep operating for power reliability in the region until another source of power generation or transmission is created.

A provision in MISO’s tariff states costs of operating an SSR unit located within the transmission footprint of the American Transmission Co. – which includes the entire Upper Peninsula and more than half of eastern Wisconsin – will be allocated to all load serving entities on a pro-rata basis.

That allocation results in 92 percent of the Presque Isle plant’s $52 million annual subsidy costs being paid by Wisconsin ratepayers and the remaining 8 percent allocated to the U.P. electric customers.

However, the Wisconsin Public Service Commission said a MISO analysis showed the U.P. is the dominant electric load reliability beneficiary of the agreement, with only 42 percent of the benefitting load located in Wisconsin.

“This ‘pro rata’ allocation is unjust and unreasonable because it allocates the bulk of the costs of the SSR agreement to ratepayers who do not receive a reliability benefit,” the Wisconsin commission said in pleadings to the FERC. “It is also unduly discriminatory because it applies only to load serving entities in ATC’s footprint.”

The commission said in the rest of MISO’s jurisdiction, subsidy costs are allocated based on which entities require operation of the unit for electric grid reliability purposes. The Wisconsin commission argues a “just, reasonable and non-discriminatory” allocation of the costs associated with Presque Isle subsidy payments would apply the alternate method used elsewhere in MISO, resulting in 58 percent of costs borne by Michigan ratepayers and 42 percent by those in Wisconsin.

Under that scenario, the Presque Isle plant’s subsidy cost to Upper Peninsula ratepayers would climb from $4.2 million each year to $30.2 million.

If the plant is still operating after 2016, federally-mandated pollution controls will need to be installed at Presque Isle, the costs of which would be covered by subsidy payments and borne by ratepayers.

“Fifty-two million is kind of the baseline,” said Patrick Bloom, Cliffs director of government relations in Cleveland. “Any other costs that they incur to keep this plant open will then also flow to ratepayers in some capacity.”

Cliffs officials are concerned the situation could worsen further for the U.P. if the cost allocation methodology suggested by the Wisconsin Public Service Commission is adopted, setting a precedent for costs of new power sources in the future.

“At some point, there’s going to be a huge bill coming our way, whether that’s to pay for transmission or additional generation or some combination of the two,” Hemmila said. “We don’t want to see Michigan on the hook for a larger proportion of that than what we feel we should pay and we feel that should be in that 8 percent range.”

We Energies serves roughly 1.1 million electric customers in Wisconsin and 28,000 in the U.P.

Brian Manthey, We Energies senior communications specialist, said recently the utility expects the SSR agreement would be extended as long as MISO believes that one or more of Presque Isle’s five operating units are needed to maintain reliability.

“We recognize that the majority of the benefits from the continued operation of the Presque Isle units rest in Michigan, not Wisconsin,” Manthey said. “Going forward, we would support the relief the Public Service Commission of Wisconsin proposes in future reliability agreements related to the Presque Isle Power Plant.”

The Michigan Public Service Commission said MISO’s tariff – including the cost-allocation provision for the ATC footprint – has been vetted through a stakeholder process and was approved by the FERC.

“The Presque Isle SSR agreement and Rate Schedule 43-G correctly apply the MISO tariff, compensate Wisconsin Electric accordingly and ensure the continued operation of the Presque Isle Power facilities,” the Michigan Public Service Commission said in pleadings to the FERC.

The Michigan commission said it does not believe its Wisconsin counterpart has carried its burden of demonstrating the MISO tariff provision is unjust and unreasonable to warrant disparate treatment for the Presque Isle plant.

The Wisconsin commission wants the FERC to remove the ATC footprint provision from the tariff or waive the provision for Presque Isle, reassigning costs as it suggested as just, reasonable and non-discriminatory. Alternately, the Wisconsin commission wants a hearing set, but hold that hearing in abeyance, having a settlement judge be appointed.

Bloom said over the past several years, Wisconsin was making major investments in power generation and transmission and U.P. ratepayers were subsidizing those costs.

“Now we’re in this unique circumstance where the shoe is on the other foot for Wisconsin and all of a sudden, they don’t like the outcome of that cost allocation methodology,” Bloom said. “It’s why they’ve challenged it before the FERC.”

Bloom said there were conscious decisions made over the past six or seven years since the “Power of the Future Plan” was initiated by Wisconsin Electric to make substantial investments in both generation and transmission. Included was to expand the Elm Road and Port Washington facilities and “effectively shore up the long-term energy future for Wisconsin.”

“Michigan paid their share of that but got nothing in return effectively. And now the lack of long-term planning in Michigan by the utility has produced this scenario where we have this SSR issue,” Bloom said.

Cliffs officials said they are hoping the FERC decision will be guided by past actions.

“We feel like the cost allocation methodology is well-established, it’s got all this precedent behind it, we’re hopeful that we can prevail,” Bloom said. “That being said, this is such a unique circumstance between Wisconsin and the Upper Peninsula so it’s hard to predict how it will come out.”

John Pepin can be reached at 906-228-2500, ext. 206. His email address is jpepin@miningjournal.net.