Michigan PSC supports waiver for ‘Classic Seven’ coal units

The Michigan Public Service Commission told the Federal Energy Regulatory Commission on Aug. 28 that it supports a recent Consumers Energy request for a waiver related to the planned retirement of the “Classic Seven” coal units.

Consumers Energy on Aug. 7 asked the federal commission for a limited, one-time waiver of certain provisions of the Open Access Transmission, Energy and Operating Reserve Markets Tariff of the Midcontinent Independent System Operator (MISO).

The CMS Energy (NYSE: CMS) subsidiary said this waiver is needed to promote reliability and prevent unjust and unreasonable costs to customers that, absent relief, will occur due to the interplay of the U.S. Environmental Protection Agency’s Mercury and Air Toxics Standards (MATS) and the MISO Tariff Resource Adequacy Requirements as they pertain to seven of Consumers Energy’s coal units with a combined nameplate capacity of 940.7 MW, collectively known as the “Classic Seven,” during the 2015-2016 Planning Year.

The EPA’s MATS rule imposes emissions limitations that the Classic Seven would be required to meet as of April 16, 2016. The initial MATS deadline is April 16, 2015, but these units have gotten allowed one-year extensions of that deadline.

“The cost of bringing the Classic Seven into compliance with MATS cannot be justified and, as a result, Consumers Energy will be suspending the operations of the Classic Seven no later than that date,” Consumers added. “The MISO Tariff, on the other hand, has requirements that run over a Planning Year from June 1 through May 31 of the subsequent year. If the Classic Seven are to be considered Capacity Resources by MISO during the 2015-2016 Planning Year, the current MISO rules would require the Classic Seven to be available for service for the entire Planning Year through Mary 31, 2016, even while the EPA MATS compliance is the incentive for suspending operations 6.5 weeks earlier. Absent a waiver of certain MISO rules as they apply to the Classic Seven or modification to those rules pursuant to a complaint, there are no economically reasonable alternatives for Consumers Energy to pursue. Consumers Energy may not withhold the Classic Seven from offering into the MISO Planning Reserve Auction for the 2015-2016 Planning Year.”

According to MISO’s interpretation of its Tariff, Consumers Energy said it is not permitted to declare a forced or scheduled outage for the 6.5-week period even though it is obvious that the MATS rule is the cause of the suspension of operations. There is no mechanism within the MISO Tariff that ensures that Consumers Energy will be able to buy replacement capacity through the auction to cover the 6.5-week period. Instead, Consumers Energy could have to purchase replacement capacity for the Planning Year at a cost of $5.8m to $84.8m.

As a result, Consumers Energy would have far more capacity in its own generation fleet and under contract than it needs for 45.5 weeks of the Planning Year prior to the date operation of the Classic Seven is suspended including both summer and winter peak periods, just so that it can cover the fixed capacity obligation during the 6.5 weeks of spring when the need for capacity is far lower.

Consumers Energy offers FERC four options to pick from

In its request for waiver, Consumer Energy proposes four alternative approaches to address this 6.5-week gap.

  • Planned Outage – FERC should waive the portion of the MISO Tariff that would bar Consumers Energy from declaring the Classic Seven to be in outages for the 6.5-week period at the end of the 2015-2016 Planning Year. Consumers Energy said this is the best option available to obtain the benefits of the Classic Seven’s continued operations until forced to suspend operations by the MATS rule.
  • Waiver of Must-offer and Requirement to Purchase Replacement ZRCs – If the commission determines it is not appropriate to consider the 6.5-week period as an outage, Consumers Energy asked that it waive, for the 6.5-week period only, the must-offer requirement for the Classic Seven relative to the energy and ancillary services market under Section 69A.5 and further waive for the same 6.5-week period the requirement to purchase replacement Zonal Resource Credits (ZRCs) under Section 69A.3.1.h.
  • Replacement ZRCs for Period in Question Only – As a variant of the second option, if the commission were to waive the must-offer requirement for the 6.5-week period, but find it necessary and appropriate for Consumers Energy to replace the Classic Seven ZRCs for the 6.5-week period, the commission should condition any such requirement on the availability of replacement ZRCs to be purchased bilaterally at a just and reasonable cost and recognizes the limited, 6.5-week duration only.
  • Financial Payment – Consumers Energy proposed that any fee or penalty associated with failing to have replacement capacity under contract for the 6.5-week period be capped by: limiting the fee to 6.5 weeks and not the full 12 months of the Planning Year; and capping it at the annual auction clearing price.

The Michigan PSC said in its brief Aug. 28 comments in support of the Consumer Energy request: “The Michigan PSC asserts that the instant waiver request (and any other related waiver requests) should be managed in a manner that is practical, to both ensure reliability concerns and to minimize the cost implications for ratepayers. The unusual mismatch between the two relatively unrelated deadlines (i.e., EPA MATS compliance and the MISO 2015-2016 Planning Year) have prompted Consumer’ filing and created the potential for unnecessary cost increases. Therefore, the Michigan PSC believes that Consumers Energy’s waiver request, in this particular instance, is reasonable and should be approved.”

The Michigan PSC also noted that since new EPA regulations are forcing the shutdown of many coal plants, there is a good reason for FERC to move quickly in such cases to avoid unnecessary and costly outcomes for ratepayers.

The “Classic Seven” coal units in question consist of:

  • J.C. Weadock Unit 7 (151 MW nameplate);
  • J.C. Weadock Unit 8 (151 MW nameplate);
  • B.C. Cobb Unit 4 (156 MW nameplate);
  • B.C. Cobb Unit 5 (156 MW nameplate);
  • J.R. Whiting Unit 1 (101.2 MW nameplate);
  • J.R. Whiting Unit 2 (101.5 MW nameplate); and
  • J.R. Whiting Unit 3 (124 MW nameplate).
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.