Michigan governor sees more gas and renewables, and less coal, in state’s future

Michigan Gov. Rick Snyder released on March 13 an “energy message” for state residents and lawmakers that calls in part for more renewable energy generation and a sharp reduction in the state’s coal use.

Said the message. “In the last two years, we have laid the groundwork for a bright energy future for Michigan. We have gathered key information and met with residents all over the state to learn about our options. We set clear goals for Michigan’s energy future. We knew our energy must be affordable for our homes and businesses – for instance, residential bills for heat and electricity should not be higher than the national average. We looked to ensure that people could rest easily, knowing there would be dependable heat and electricity to power their homes. Specifically, we said that we should not have widespread outages due to a lack of supply, and that our residents should endure less than one outage a year on average, and that our outages should averages less than two hours and 15 minutes. We sought to make sure we had options so our state could draw energy from a variety of sources, able to adapt as technology developed reliable and efficient alternatives. We said that the newest technological advances that will be right for Michigan are in natural gas and renewable generation. And we made it a priority to protect our environment for the generations to come, reducing mercury, acid rain, and particles in the air.

“We’ve made real progress since 2012. We met the 11th most aggressive renewable portfolio standard in the nation, and we did so under budget – in some cases, at no additional cost compared to other energy sources. We were able to do that for a lot of reasons. Our standard encouraged collaboration, so we had access to people familiar with the newest technologies. We saw huge price reductions in even the last five years as we took advantage of those new technologies – better towers, better blades, and better electronics all meant better prices for Michiganders in the wind space, which has been our least expensive resource to date.

“In another success story, we established both utility and non-utility programs to reduce energy waste that are delivering measureable and very cost-effective results. In fact, our energy waste elimination is coming in at about a third the cost of what we would pay to generate that power. There is an awful lot of coal and natural gas we never had to burn, and that is only one way we managed to save so much money.

“Now it is time to propose a plan that will see Michigan through at least the next 10 years of energy decision-making. During those next 10 years, Michigan will have to solve a shortage of electric generation. It will likely have to do that while complying with new federal regulations on carbon emissions. Our economy is expected to grow, and our infrastructure and natural assets will become even more important to our future. Ten years is near enough to have a good idea of the challenges we will face, and long enough to take concrete steps to secure our energy future.”

Snyder says Presque Isle coal plant issue an example of creative response

Snyder pointed to an issue with a shutdown of the Presque Isle coal plant in Michigan’s Upper Peninsula, a shutdown that was staved off until late this decade under a deal brokered by Snyder, as an example of how Michigan’s electric supply can be endangered under certain cirumstances.

“When the utility that owned a coal plant announced it didn’t need it anymore, the people who run our interstate electrical grid for most of Michigan, a group called MISO, said the plant had to be kept operating for reliability,” said the Synder message. “MISO doesn’t normally get into the economics of running actual plants; that is usually done at the state level. But when there is a potential for the grid to collapse and leave everyone without electricity, it can step in. MISO entered into a private agreement with the utility that meant Michigan ratepayers were now going to have to pay almost $100 million a year until new electric lines could be built – something that takes at least 5 years, even if done expediently. Michigan’s Public Service Commission said that amount was way too high – it meant as much as an overnight 20 percent increase in some bills. That’s approximately $120 a year extra for the hardest-hit residential customers, many of whom are on fixed incomes. That’s the kind of rate hike businesses can’t plan for and absorb.

“The Federal Energy Regulatory Commission imposed the rate hike anyway, saying that even though those rates might be unjust and unreasonable, it would be sorted out later. Let’s think about the ‘solution’ we were buying for all that money – keeping an old coal plant limping along while we spent more than a half a billion dollars on upgrading the system to bring out-of-state energy – mostly coal-generated – into Michigan. It would leave our reliability in a worse position than building a plant, it would be less affordable than building a plant, and it would be worse for the environment than building a new, natural gas plant that is designed to reduce energy waste by selling steam. That’s just not what Michiganders call a solution. So in January, we were able to announce a series of likely transactions that would provide for an orderly retirement – without millions of additional dollars in MISO-imposed payments – of the Presque Isle Power Plant (PIPP) and construction of a combined heat and power plant.”

Invenergy’s new gas-fired plant is still in the works

In the March 13 message, Snyder announced that the Presque Isle deal has been altered somewhat since January. The deal includes the construction by Invenergy of a new gas-fired combined-cycle plant at a Cliffs Natural Resources iron ore facility to help replace Presque Isle.

“Today, I am announcing that the transactions have changed slightly, but overall, the outcome is still very positive for U.P. residents,” he said. “Despite the best efforts of the Upper Peninsula Power Company and Cliffs Natural Resources, they were unable to come to terms on a contract for service. However, WE Energies has now agreed to provide service without seeking extra system support revenues, and Cliffs has agreed to remain with WE Energies until the new plant can be built.

“Just as before, the new plant to replace PIPP will be constructed no later than 2020, and will be supported by a series of business agreements. We look forward to working with legislative partners and the utilities to further cement Michigan’s energy independence, by enabling the creation of Michigan-only utilities when that is in the ratepayers’ best interest.”

The “call to action” in the energy message related to this was to finalize the transactions that will solve the U.P. power crisis.

Snyder, a Republican, again accuses FERC of meddling in Michigan

The message added: “The same day FERC issued orders that imposed unreasonable costs in the Upper Peninsula; it issued another order to one of Michigan’s biggest utilities, Consumers Energy. Consumers Energy plans to retire at least seven coal plants [actually that is seven coal units] next year. It doesn’t just plan to – it has a court order requiring it to do so for environmental compliance. But when Consumers Energy asked the FERC for permission to retire those plants, FERC didn’t simply approve their request. Instead, FERC demanded more information on the impact those closings would have on others, suggesting the company could be placed in an impossible position: conflicting federal orders both to keep the plants running and to close them. This time, after a lot of additional information, the FERC agreed the plants could be closed. But what happens next time, when the Lower Peninsula has a plant that the grid needs but the utility wants to close because it doesn’t make economic sense to run it? If we don’t have the ability to make some good decisions now, our future will be decided in years of Washington bureaucratic wrangling and court cases.”

The “call to action” in this case is to prevent the Lower Peninsula from developing the same crisis the Upper Peninsular is living through by reforming the electrical market to require every electric provider to protect its customers.

The message said: “We are facing a crisis because of a shortage of plants once coal plants begin retiring next year. These plants are being retired for two main reasons. First, our coal fleet is on average more than 50 years old, so many of the facilities just aren’t efficient to run anymore. Second, there are some EPA regulations that are going to come into effect in the near future that will mean at least nine coal plants in lower Michigan, plus PIPP, will need to retire because they are too expensive to upgrade to meet the new standards. This projected shortfall does not take into account any additional federal requirements that are currently proposed; it is the result of regulations that have already survived years of court challenges and are undoubtedly coming. We know at least 10 plants in Michigan will retire in the coming years. It could be more. We cannot fix this without changing the way we structure our market. We need to give our regulators the power to determine when we may face a shortage, and tools to address it when we do. Without that, we cannot be adaptable. We also need to make sure that every company that sells energy in Michigan is protecting its customers from unpredictable price spikes due to a lack of generation or import ability.”

Snyder wants changes to retail choice program

The message added: “We can solve this problem without getting rid of retail open access – sometimes called choice – for those businesses that have already made plans and commitments to get their power from an alternative electric supplier. But we can only solve this problem if that choice is a fair choice. In Michigan, any company that sells you life insurance has to show the state that they have enough reserves to make good on the policy they are selling. It’s only fair to make sure that everyone who sells power is also required to buy the insurance policy that protects us all from big risks if there is not enough power available. Right now, our incumbent utilities are required to be ready to take 100 percent of customers back – but those utilities will not receive approval to build plants their current customers don’t need. When there were plenty of plants, that system worked without causing a reliability problem. But that is not going to be the case in the coming years. Instead, we face the question of how to pay for plants that may only need to run a few weeks a year, if no utility can be authorized to build them, and no investor thinks they can make their money back.

“In Michigan, we believe in the principle of cost of service – users should not be subsidizing each other. That principle needs to apply to our market design too, and make sure everyone is fairly sharing in the costs of those plants we may only need a few times a year, or the lines we need to bring in the power that keeps our grid running. This must be a top priority. While we need to change our market structure, we need to recognize the fact that in much of Michigan, 10 percent of businesses have relationships with other electric providers. When we change our system, we can respect those business decisions and allow those relationships to continue, if those providers can be part of the solution to our current problems. Reorganizing and redesigning electric markets, and giving our electric companies and their customers time to respond to those changes, is crucial. We also need to have a defined universe of megawatts we are addressing, so we need to keep the 10 percent limit.

“It takes 3-5 years to build a new generating plant, including all regulatory approvals and permit requirements. So we need to know electric customers are protected now and 5 years into the future. That will give us time to construct a new, efficient plant if needed. All electric companies should be required to show the MPSC they have the capacity to serve their customers for the next five years in order to do business in Michigan. I am calling on the legislature to help us reform this system before the summer break, so that we can give ourselves as much time as possible to make a smooth transition.

“Michigan must set a reasonable, achievable and efficient goal for 2025: a minimum of 30 percent clean energy – and potentially much more. 2025 is 10 years away. And in those 10 years, Michigan is going to need to build new plants for electric generation and make sure our natural gas infrastructure is able to handle increased demand. We need to make sure our decisions keep Michigan adaptable, while making sure our energy is reliable, affordable, and protective of the environment. We’ve been talking about energy for some time, and that time has given us clarity on some key challenges facing Michigan.

“Michigan has historically been one of the top 10 states most dependent on coal. We will have fewer coal plants in the near future. Now is the time when we will make energy decisions that shape our future and our children’s energy future. That energy future can be one where our system is adaptable, reliable, affordable, and protects our environment – but only if we are smart about how we make those decisions and take advantage of our strengths. Michigan is well-positioned to make those decisions. We’ve been working during the last few years and have a pretty good idea of the range of the best solutions for Michigan. First, we know that Michigan will benefit most by eliminating energy waste as our first priority. Then we can look at what plants will be shutting down and what will be replacing those to determine what our future mix of electric plants will look like. We will have less coal and more natural gas and renewables. We will have more natural gas plants for baseload generation as well as for intermittent generation when power from renewables may not be available – and more renewable energy to help us contain costs.

“We are now hearing firm 20-year price quotes for wind that are less expensive than coal or natural gas. These least-expensive renewables can’t provide baseload power – because they only work when the sun is shining or the wind is blowing. That said, we have a unique asset that helps us store power in Ludington, Mich. so we can get more benefit from intermittent power than most states do. We know that our nuclear production is likely to hold steady until the federal government figures out what do to with the waste, and until we figure out a way to make sure nuclear plant construction can be done cost-effectively. Our new source of baseload power will likely come from natural gas. We know that natural gas prices at more stable lows than we have seen for decades. We know Michigan has the best natural gas storage in the country. We know Michigan has the ability to produce natural gas – with a safety record to be proud of. And we know natural gas prices are very competitive in Michigan – the eighth-lowest in the country.”

The Ludington reference is to a pumped storage hydro facility jointly owned by Consumers Energy and DTE Electric.

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.