Consumers Energy plans to grow its owned power generation by 2025

The pending purchase of a gas-fired power plant in Jackson, Mich., is part of a Consumers Energy plan to replace seven coal units to be shut in 2016 and to eventually replace a major amount of capacity under a series of power purchase agreements with in-house capacity.

Consumers expects to make capital investments of about $7bn from 2014 through 2018, parent CMS Energy (NYSE: CMS) noted in its April 24 Form 10-Q filing at the SEC. Consumers’ planned base capital investments of $3.5bn represent projects to maintain Consumers’ system and comprise $2.1bn at the electric utility to preserve reliability and capacity and $1.4bn at the gas utility to sustain deliverability and enhance pipeline integrity.

An additional $1.9bn of planned reliability investments at Consumers are aimed at reducing outages and improving customer satisfaction; these investments comprise $1bn at the electric utility to strengthen circuits and substations, replace poles, and upgrade the Ludington pumped-storage plant and $0.9% at the gas utility to replace mains and enhance transmission and storage systems. Consumers also expects to spend $0.9bn on environmental investments needed to comply with state and federal laws and regulations.

Renewable energy projects are a major component of Consumers’ planned capital investments. Consumers expects to spend $0.2bn on renewable energy investments, under a Michigan Public Service Commission (MPSC)-approved renewable energy plan, from 2014 through 2018. The 2008 Energy Law from the state of Michigan requires that at least 10% of Consumers’ electric sales volume come from renewable energy sources by 2015, and it includes requirements for specific capacity additions. Consumers has historically included renewable resources as part of its portfolio, with about 8% of its present power supply coming from such renewable sources as hydropower, landfill gas, biomass, wind, anaerobic digestion, and solar.

Seven ‘classic’ coal units to be partially replaced with purchased gas plant

In December 2013, Consumers signed an agreement to purchase a 540-MW gas-fueled plant located in Jackson for $155m. In January 2014, as a result of this planned purchase, Consumers announced plans to defer the development of its proposed 700-MW gas-fueled plant at its Thetford complex in Genesee County, Mich.

Subject to a successful Securitization financing transaction, Consumers plans to retire the seven smaller coal units and three smaller gas units by April 2016. Consumers had previously announced plans to mothball the seven coal-fueled units effective April 2016 and had received approval from the Midcontinent ISO to do so. The three gas-fueled units were mothballed in April 2009.

With the planned retirement of these units and the potential tightening of the MISO capacity market, Consumers could experience a shortfall in generation capacity of up to 1,500 MW in 2016. In order to address future capacity requirements and growing electric demand in Michigan, Consumers updated its balanced energy initiative, a comprehensive energy resource plan designed to meet the short-term and long-term electricity needs of its customers through:

  • energy efficiency;
  • demand management;
  • expanded use of renewable energy;
  • construction or purchase of generating units; and
  • continued operation or upgrade of existing units.

As part of the plan, in December 2013, Consumers signed an agreement to purchase a 540-MW gas plant in Jackson from AlphaGen Power LLC and DPC Juniper LLC, which are affiliates of JPMorgan Chase & Co. Consumers expects to close the purchase, which is subject to MPSC, Federal Energy Regulatory Commission and other approvals, in late 2015. 

In December 2013, the MPSC approved, with modification, Consumers’ Securitization application and issued a Securitization financing order that authorizes Consumers to proceed, at its sole discretion, with the sale of up to $389m in Securitization bonds to finance the recovery of the remaining book value of the seven coal units and three gas units. Consumers expects to proceed with the Securitization financing and issue Securitization bonds in 2014, subject to market conditions.

Consumers harnesses the winds of regulatory change

The 2008 Energy Law also requires Consumers to obtain 500 MW of new capacity from renewable energy resources by the end of 2015, either through generation resources owned by Consumers or through agreements to purchase capacity from other parties. Through March 2014, Consumers has contracted for the purchase of 302 MW of nameplate capacity from renewable energy suppliers and owns 100 MW of nameplate capacity at its Lake Winds Energy Park.

Consumers expects to meet the balance of the renewable capacity requirement through the completion of its Cross Winds Energy Park, a 105-MW development in Tuscola County, Mich. Consumers began construction of Cross Winds in October 2013 and expects to begin operations in late 2014. Cross Winds will qualify for certain federal production tax credits that should reduce significantly the cost of meeting the renewable requirements of the 2008 Energy Law. Consumers expects to qualify for $100m to $120m of federal production tax credits, which will be based on the project’s production over its first ten years of operation.

The long-term Consumers Energy plan is to bring more generation in-house. Right now it has about 8,600 MW of total capacity, with 2,600 MW of that under power purchase agreements (PPA) and 6,000 MW of it owned by the utility. The coal and gas retirements will take about 950 MW out of the owned side of the capacity equation, with that only partially made up for with the 540 MW added with the Jackson plant purchase.

Then in 2022, a 780-MW PPA for capacity out of the Palisades nuclear plant expires, followed by a 2025 expiration of a 1,240-MW PPA for power out of the gas-fired Midland Cogeneration Venture facility. These expirations will create more chances for Consumers to secure replacement capacity that it owns.

The three gas-fueled units to be retired, B.C. Cobb Units 1-3, were mothballed in April 2009. The seven coal units to be retired in 2016, and their combined net summer capacities in 2013, are:

  • B.C. Cobb Units 4-5, 312 MW;
  • J.C. Weadock Units 7-8, 290 MW; and
  • J.R. Whiting Units 1-3, 324 MW.

The coal units that would survive after those retirements, and their combined net summer 2013 ratings, are:

  • J.H. Campbell Units 1-2, 607 MW;
  • J.H. Campbell Unit 3, 751 MW (Consumers share, with others owning 6.7% of the unit); and
  • D.E. Karn Units 1-2, 515 MW.
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.