Michigan PSC approves costs for coal unit shutdowns at Consumers

The Michigan Public Service Commission on Dec. 6 approved for Consumers Energy a “securitization” financing plan that mostly covers the costs of shutting seven coal-fired units in 2016 due to the federal Mercury and Air Toxics Standards (MATS).

On Sept. 9, this CMS Energy (NYSE: CMS) subsidiary filed an application seeking a financing order authorizing the issuance of securitization bonds covering approximately $454.3m in qualified costs.

The utility sought to securitize: unrecovered book value of BC Cobb units 1-5, Weadock units 7-8, and Whiting units 1-3 of $361.2m; $28.5m in issuance ($8.5m) and debt retirement ($20m) costs; and $64.7m in costs associated with the demolition of the to-be-shut Cobb, Weadock and Whiting units.

Consumers said that Cobb units 1-3 will be inoperable as of Dec. 31, 2013 (operation has been suspended since 2009 for safety reasons), and the remaining units will be inoperable as of April 15, 2016, which is a deadline for MATS compliance under a one-year extension approved by state regulators. The basic MATS deadline is April 2015. 

One of the Consumers Energy officials supplying testimony for the Sept. 9 application was David Kehoe, Director of Staff, Electric Generation.

Consumers Energy suspended operation of the currently gas-fired Cobb Units 1-3 in January 2009 due to safety concerns, Kehoe noted. Original repair estimates exceeded $10m and the company suspended operation of the units with the intent of monitoring future market conditions. Since that time, market conditions have not warranted the investment needed to return these 65-year-old, small (183 MW combined operating capacity) and relatively less efficient units to service.

Cobb Units 4 and 5, Weadock Units 7 and 8, and Whiting Units 1-3 are currently operational. If not for the impact of the MATS rule, the company would expect these units to remain in operation until their current retirement date of 2025. “However, the impact of the MATS rule means that the Company could only keep the units in operation past April 15, 2016 if it installed the emissions controls necessary to achieve compliance with the MATS rule,” Kehoe wrote. “The Company has concluded that installing the controls necessary to achieve compliance and allow continued operation of these units past April 16, 2016 would be uneconomical, based on our current projections of future capacity prices. In summary, the cost of the modifications to comply with MATS will be more costly than the net market value of the energy and capacity those units are likely to produce between April 2016 and their planned retirement date of 2025.”

The affected coal units are:

  • BC Cobb Units 4 (156 MW installed) and 5 (156 MW);
  • JC Weadock Units 7 (145 MW) and 8 (145 MW): and
  • JR Whiting Units 1 (101 MW), 2 (99 MW) and 3 (124 MW).

MISO has approved these coal shutdowns

In 2012, Consumers Energy filed documents with MISO declaring its intent to suspend operation of these units on April 16, 2015. MISO approved the company’s plan to suspend operation of these units, provided a series of network upgrades were done, establishing these units as System Stability Resources.

After the Michigan Department of Environmental Quality (MDEQ) granted the company’s one-year extension for compliance with the MATS rule, the company filed documents with MISO declaring its intention to suspend operation of these units on April 15, 2016. MISO responded with approval without requiring any prerequisite network upgrades for these units from April 15, 2016, through April 15, 2019.

Cobb Units 1-3 were originally coal-fired units, but have been converted to natural gas, so they are not affected by MATS. Operating these gas units without the presence of the Cobb 4 and 5 operating staff would make them even more uneconomical than they have already been determined to be, Kehoe noted.

Asked if it is possible Consumers might shut any of these units before April 2016, Kehoe responded: “Yes, it is. Assuming the investments in the air quality controls needed to operate past 2016 are not made, any investment prior to 2016 will need to be evaluated based on the current expectation that the units would retire in 2016. In this context, it is possible that the failure of a major piece of equipment or plant component would be more costly to repair than is warranted by the remaining value to the customer of continuing to operate the unit. The Company has restricted further capital investment in these units to only those items required to safely operate the units until April 15, 2016, but as that date approaches, the cost threshold for ceasing operation of the units becomes progressively smaller.”

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.