The state of Michigan and its power supply situation is a good example why the the year 2020 interim goal under the U.S. Environmental Protection Agency’s proposed Clean Power Plan needs to go, said Gerry Anderson, Chairman and CEO of DTE Energy (NYSE: DTE).
Testimony from Anderson was filed on March 9 at the Federal Energy Regulatory Commission as part of FERC’s review of the Clean Power Plan under a proceeding called “Technical Conference on Environmental Regulations and Electric Reliability, Wholesale Electricity Markets, and Energy Infrastructure.” Anderson was testifying for both DTE and the Edison Electric Institute (EEI). The Clean Power Plan calls for 30% CO2 reductions from existing power plants by 2030, with certain interim goals to be met in 2020.
“The example of my home state, Michigan, illustrates the conflict between the proposed guidelines and reliability that the Commission needs to help EPA address,” Anderson wrote. “EPA did not consider the time required to implement compliance plans when setting Michigan’s goals and the related deadlines. The guidelines envision that reductions can be achieved through heat rate improvements at coal-based units, increased dispatch of existing natural gas combined cycle units (NGCCs) to a 70-percent utilization rate, increased deployment of renewable generation, and expansion of energy efficiency (collectively, the ‘building blocks’).
“However, practically speaking, the only way for Michigan to achieve more than 70 percent of the 2030 goals by 2020, is to retire additional coal-based units (beyond those slated to comply with other environmental regulations, including the Mercury and Air Toxics Standards). In theory, it is relatively quick and easy to close coal-based units by 2020; however, replacing those plants with new generation is not a simple or fast task. Michigan, which currently generates more than 50 percent of its electricity with coal-based EGUs, currently faces a near-term electric capacity shortfall of approximately 2 gigaWatts (GW).
“In addition, to meet the interim goal, we estimate that Michigan will need to add as much as 3 GW of new NGCC and other gas-based capacity and a significant amount of new renewable generating capacity by 2020. In order to achieve an online date of 2020 for new NGCC units, all development activity, including siting and permitting, would have to have been completed by 2017. However, Michigan will likely not submit its plan for EPA approval until 2017 or 2018. And the process for seeking state approval of the large scale investments associated with the approved plan will be time consuming as well.
“EPA’s basic ‘resource adequacy’ assessment, which focuses on generating capacity, assumed that replacement generation capacity is all that is needed to maintain reliability. But, this ignores other critical infrastructure issues. For example, in order to get the natural gas needed to fuel this new generating capacity, major pipelines are required to be built. Natural gas pipelines often require five years—or longer—from conception to completion. And as we have seen recently, even when there is general agreement that new pipeline capacity is needed, it is far easier said than done. Moving on large-scale generation replacement could create gas deliverability concerns, particularly in winter, when there is increased demand for natural gas for power generation and home heating.
“If gas infrastructure projects have not already been initiated, these needed pipeline expansions are unlikely to be completed by 2020. As the Commission—which has authority for siting interstate natural gas pipelines under the Natural Gas Act—knows, planning, permitting, and constructing new gas infrastructure can take many years to complete. Interstate pipelines that require additional approvals because they cross federal lands require even longer timeframes. These gas pipeline development timeframes are inconsistent with the proposed 2020 interim compliance deadlines.
“Similarly, transmission system investments will be needed to interconnect the new NGCC capacity to the system and to accommodate potentially sharply different power flows. Michigan is part of MISO, which will have to analyze any system impacts that result from these capacity retirements and additions, and determine what modifications are required to ensure the continued reliable operation of the system. MISO also will assess whether the closure of coal units has implications for essential reliability services, such as reactive power, inertia, and voltage control, among others. Additional system changes may be required to ensure the provision of these services. EPA’s ‘reliability assessment’ did not take these critical services into account. MISO has a stakeholder process to develop regional transmission plans, which take time and require due process.
“These required assessments and processes, and the response they may require, all take far more time than EPA recognizes. Transmission system planning, siting, permitting, and construction can take 10-15 years, as recently noted by NERC. Unlike interstate natural gas pipelines, electric transmission lines are sited and permitted under state authority. Local opposition to new power lines can significantly increase the time it takes to get permits and approvals and, ultimately, rate recovery, which is an essential prerequisite for investments; and, as with gas infrastructure, getting federal approvals when needed can add even more time to the process. The transmission expansions necessitated by either plant closures or the addition of new plants cannot realistically be completed by 2020.
“Failing to deliver power to customers is a fundamental reliability problem. It is important to note that bringing on new generating capacity and natural gas and electric transmission infrastructure are all highly dependent on functioning supply chains. When all states and companies move to retire generation and construct new pipelines and transmission lines simultaneously, it is likely that these supply chains will be stressed and slowed, as will all required approvals. A regulatory program, such as the one proposed by EPA, cannot be divorced from a consideration of costs. A high degree of reliability can be achieved and maintained, given enough time and money. That there is not enough time by 2020 is clear.
“The cost implications also are clear and cannot be ignored. Affordable, reliable electricity is the backbone of our economy and our standard of living. Closing coal-based units prematurely or suddenly will impact communities’ ability to plan for and adjust to job losses and decreased tax revenue. Compressing compliance into a short timeframe also will result in potentially sharp increases in retail rates. Investments to rapidly transform DTE’s fleet to help Michigan achieve the proposed interim and final goals may cost upwards of $7 billion. Exact impacts on retail rates are hard to predict, but it is clear that achieving more than 70 percent of the Michigan’s reduction goal by 2020 will result in significant increases in costs to consumers in the near-term, even in the face of increased end-use efficiency.
“In Michigan, we are particularly concerned about the impacts of significant rate increases on the competitiveness of our still-recovering manufacturing sector. The case of Michigan is not unique. EPA’s proposed interim goals and the compliance schedule that flows from these goals threaten the reliability and affordability of electric service across the United States. EEI identified these reliability concerns in comments to EPA filed in December. EEI also identified a solution. Eliminating or substantially modifying the interim compliance goals and allowing states to determine their own glide paths and milestones to achieve the 2030 goals as part of their compliance plans would provide states with real flexibility to preserve reliability and minimize costs to customers.”