Upper Peninsula Power expects imminent revival of long-shut hydro facility

Upper Peninsula Power Co. (UPPCO) expects to begin taking power again in October under a power purchase agreement from a long-shut hydroelectric facility that it sold in 2011.

The utility on Sept. 30 applied with the Michigan Public Service Commission for authority to implement its 2016 Power Supply Cost Recovery (PSCR) plan. UPPCO is a Michigan corporation with principal offices located in Marquette, Michigan, and is engaged as a public utility in the generation, purchase, distribution and sale of electric energy in its service territory in the Upper Peninsula of Michigan.

Aaron L. Wallin, the utility’s Manager of Power Supply and Resource Planning, said in supporting testimony that the decision to sell the Cataract hydroelectric facility that it sold in 2011 was discussed in prior cases. The sale agreement included a 10-year obligation for UPPCO to purchase power from U.P. Hydro LLC, the new owner of the facility. Cataract was not in operation at the time of the sale due to the need for a penstock replacement and the facility continues to be under repair and out of service, but will return in October of this year, whereupon the 10-year purchase power agreement will commence, Wallin noted.

In July 2010, UPPCO closed on the sale of its Au Train hydroelectric project with U.P. Hydro. Additionally, in February 2011, UPPCO closed on the sale of Cataract with U.P. Hydro. UPPCO signed the power purchase agreements (called the “Hydro PPAs”) with U.P. Hydro for all output of the Au Train and Cataract facilities, for a term of 10 years from the commencement of commercial operation for each facility. Under the terms of these agreements, UPPCO retained the rights to the renewable energy credits, credits UPPCO will use to meet its renewable energy standard needs. Energy and the renewable attributes are priced at $62.00 per MWh, which escalates by at least 3% each year.

Wallin wrote that the longer term Hydro PPA agreements with U.P. Hydro are reasonable and prudent because: the Hydro PPAs enabled the Au Train and Cataract Sales Agreements to be completed, avoiding other higher cost options to upgrade or abandon the two facilities; the Hydro PPA purchase price for renewable energy was reasonable at the time it was signed relative to market prices for renewable energy and the related renewable energy credits (RECS) that help meet UPPCO’s renewable energy requirements over the lives of the contracts; and the Hydro PPAs add price certainty to a portion of UPPCO’s power supply resources on a longer term basis.

UPPCO is forecasting the purchase of 3,385 MWh from Cataract in 2016, and 5,148 MWh from Au Train.

Wallin also reported on the status of System Support Resources (SSR) agreements that the Midcontinent ISO has imposed over the last couple of years, where market participants like UPPCO have to pay to keep power plants open while grid fixes are made that would allow the plants to shut. The agreements were approved by the Federal Energy Regulatory Commission and are in the American Transmission Co. LLC (ATCLLC) region.

Wallin wrote: “FERC had approved four SSR agreements filed by MISO, which were for generation resources located in Michigan’s Upper Peninsula and within the ATCLLC footprint. The four SSR agreements are for the Escanaba power plant, the Presque Isle Power Plant, White Pine Unit 1, and White Pine Unit 2. Escanaba’s power plant suffered a fire in February, 2015 and will subsequently not be repaired. Its SSR agreement expired on June 14, 2015. Wisconsin Electric withdrew the request to retire Presque Isle Power Plant and that SSR agreement ended effective February 1, 2015. White Pine Unit 2 had an SSR agreement in place for the 3.5 month period from January 1, 2015 through April 15, 2015. This agreement was not extended because UPPCO made the Portage generator available for non-emergency dispatch by MISO. There is one SSR agreement currently approved by FERC and in force in the Upper Peninsula. This is for White Pine Unit 1 and has an annual cost of $7.3 million.”

He added: “In order for the SSR to be terminated, transmission reinforcements, additional generation resources, or some combination of both would be needed in the western Upper Peninsula. UPPCO is exploring a generation solution that would obviate the need for the White Pine SSR and transmission reinforcements.”

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.