The Midwest ISO is offering support to the city of Escanaba, Mich., so that the city will keep two small (12.5 MW each) coal units operating until MISO can make grid upgrades to compensate for the loss of that capacity.
MISO noted in an Oct. 5 application to the Federal Energy Regulatory Commission that System Support Resources (SSR) Tariff provisions permit MISO to negotiate compensation for selected generation resources where a market participant wants to retire or mothball the facility but MISO determines that it is needed to maintain system reliability. In December 2011, Escanaba submitted a form to MISO to put Escanaba Units 1-2 into mothball status for the three-year period between June 15, 2012, and June 14, 2015.
MISO concluded that the proposed mothballing of these units prior to the completion of transmission upgrades in the area would result in violations of reliability standards. As a result, MISO designated Escanaba units 1-2 as SSR units until such time as appropriate alternatives can be implemented to mitigate reliability issues. MISO began working with Escanaba and the MISO Independent Market Monitor to negotiate and develop MISO’s first-ever SSR Agreement.
The tariff requires that the costs associated with the subject SSR Agreement will be allocated to all load serving entities (LSEs) within the footprint of the American Transmission Co. on a pro rata basis. MISO completed its reliability analysis and deemed the units required for reliability and notified Escanaba on May 25 that the subject facilities qualified to become SSR Units. As required by the tariff, MISO and Escanaba entered into good faith negotiations over the proper compensation to include in the SSR Agreement. Escanaba has in the meantime maintained the availability of the subject SSR units pursuant to MISO’s request, and Escanaba incurred costs that would otherwise be covered by the rate contained in the SSR Agreement.
On July 2, Escanaba Green Energy LLC (EGE) made a Section 203 filing with FERC seeking approval to transfer ownership of the Escanaba units to EGE under a a purchase deal with the city. That application also contained a request to accept transfer of the SSR Agreement. The commission approved that transaction on Sept. 24, and Escanaba and EGE anticipate closing it in the next few weeks.
ESE plans to convert the units from using coal to using biomass. Such a conversion will alleviate the need for SSR treatment, MISO noted. Until the conversion has been completed, the SSR Agreement is necessary, and it can be terminated when that conversion is completed, it added.
Michael Furmanski, Electric Superintendent for the city of Escanaba, said in attached testimony about the units: “The plant began commercial operation in 1956. The plant contains 2 identical Babcock and Wilcox boilers coupled to 2 Allis Chalmers turbines and generators. The stoker boilers can produce up to 125,000 pounds of steam per hour. The heat rate for each boiler is 14,500–16,000. The boilers burn central Appalachian coal. Net output of each generator is 12.5 MW.”
Discussions concerning the closing of these units have been ongoing for many years, based on the fact that the city had options for purchasing power that were more economical than the costs of self-generation, Furmanski noted. In the last ten years, the city has been faced with a series of coal price increases which resulted in those costs increasing by over 100%. As a result, the city has incurred significant operating losses for its electric operations during that time, despite unprecedented rate increases, he added.