Consumers Energy describes changing mix of power generation sources

Consumers Energy will have some incremental new capacity coming on-line in 2016 with the completed rebuild of one unit of the Ludington pumped storage hydro facility, and has other capacity coming off-line in 2016, mainly due to the retirement in April of seven coal units due to the federal Mercury and Air Toxics Standards.

Various officials of Consumers Energy, a subsidiary of CMS Energy (NYSE: CMS), touched in power capacity issues in Sept. 30 testimony filed at the Michigan Public Service Commission in support of the utility’s annual Power Supply Cost Recovery plan. This version of the plan covers expected costs in 2016.

Jim K. Chilson II, he Fuels Transportation & Planning Director in the utility’s Energy Supply Operations Department, supplied the oil- and gas-fuel cost projections for the company’s oil- and gas-fired generating units, those being the Zeeland plant,  Karn Units 3 and 4, the BC Cobb plant, the to-be-acquired Jackson plant, and all of the combustion turbine units.

The Zeeland and Jackson plants burn natural gas. BC Cobb burns natural gas for start-up and over-firing. Karn 3 and 4 can burn natural gas and No. 6 fuel oil. The combustion turbines burn either natural gas or No. 2 fuel oil.

The No. 6 oil burned at Karn 3 and 4 will be purchased on a spot basis. A portion of the gas for Karn 3 and 4 will be purchased on a spot basis, and the remainder under third party contract, but with spot pricing terms. Gas for the Cobb plant will be purchased on a spot basis. Any No. 2 fuel oil for the combustion turbines will also be purchased on a spot basis. Any gas used for any of the remaining combustion turbines will come from the Consumers Energy natural gas utility or DTE Gas Co.

The ability of the Karn Units 3 and 4 to burn either oil or gas or a blend of the two offers the ability to operationally hedge the price of either fuel against the other. Unlike gas, which because of storage limitations is generally purchased on a spot basis near the time it is consumed; spot purchases of oil are made over time as needed to maintain inventory. Oil can be purchased in varying qualities and prices and stored in tanks at the plant to provide gas and oil blending flexibility. Additionally, the units may also burn 100% gas, though not at full capacity.

The Jackson plant is a natural gas-fired facility that is connected to the Vector pipeline system through a lateral pipeline owned by Consumers Energy. The company expects to begin managing fuel for the Jackson plant in January 2016. Similar to the gas management services agreement for its Zeeland plant, the company will enter into a competitively bid contract with a third party agent to manage the gas supply for the Jackson plant, Chilson noted. The company has completed the bid evaluations for this service and is in the process of negotiating contract terms for the gas management services agreement for the Jackson plant.

David F. Ronk Jr., the utility’s Executive Director for Electric Transactions and Wholesale Settlements, said the company expects to finalize the purchase of the Jackson Plant from DPC Juniper in January 2016. The Jackson Plant is an existing 542 MW (nameplate) combined cycle, natural gas-fueled facility located in Jackson, Michigan.

Asked if the the company will have any generation resources designated for Black Start service in 2016, Ronk answered: “Yes. On July 1, 2013, the Company entered into an Agreement with Michigan Electric Transmission Company, LLC (‘METC’) to maintain Ludington Units 2, 3, and 5 and Thetford Units 1, 2, 3, and 4 to be available for Black Start service. Subsequently, METC and the Company agreed to remove Thetford Unit 1 from the Agreement.”

Several units to be returned to available status in February 2016

Consumers Energy has recently restored Campbell Unit A to available status but has purchased zonal resource credits (ZRCs) to avoid the expense of maintaining the unit in a must offer condition. The company anticipates returning Straits Unit 1B and Gaylord Units 1, 2, and 3 to available status on Feb. 16, 2016. Thetford Unit 1, Whiting Unit A, Weadock Unit A, and Cobb Units 1, 2, and 3 are retired.

Ronk also addressed power purchase agreements that may end in 2016.

  • The company’s contract with Hillman Power Co. was eligible to terminate effective Dec. 31, 2015. On Dec. 18, 2014, Consumers Energy provided the appropriate notice to Hillman electing to terminate the agreement. At this point in time, the company and Hillman have not reached a new agreement.
  • The company’s Public Act 295 contract with Zeeland Farms Services Plant No. 2 expires on Oct. 12, 2016. In 2014, the company paid approximately $109/MWh (approximately $88/MWh charged to PSCR) for the output from this facility. The Zeeland Plant will be available to bid into future solicitations.
  • The company’s contract with Thornapple Association is eligible to terminate on Dec. 31, 2016. In 2014, the company paid about $64/MWh for the output from that facility during a period when the capacity and energy had a value of about $35/MWh. While Consumers Energy expects the value to be greater in the future, it does not anticipate the value reaching the $64 level for several years and, as a result, it is anticipated that the company will provide notice to terminate the 600-kW contract.
  • The company’s contract with White’s Bridge Hydro is eligible to terminate on Dec. 31, 2016. In 2014, the company paid approximately $73/MWh for the output from that facility for capacity and energy that had a value of about $35/MWh. The company anticipates that it will provide notice to terminate this 300-kW contract.

Ronk said the company anticipates offering both Thornapple and White’s Bridge new five-year contracts for the energy and capacity of the respective facilities. The new contract offers will be based on the actual market price of energy (locational marginal price), as well as a forecasted capacity expense, based on the company’s recent purchase of capacity for the next five years.

Ludington upgrades to be phased in over the next several years

Sara T. Walz, a General Engineering Technical Analyst in the Energy Supply Operations Department, wrote in her testimony: “Included in this PSCR Plan case is an upgrade to the Ludington 4 Unit resulting in an increase in generating capacity of 25.5 MW, assumed to be in-service beginning March 2016; an upgrade to the Ludington 5 Unit resulting in an increase in generating capacity of 25.5 MW, assumed to be in-service beginning January 2017; an upgrade to the Ludington 1 Unit resulting in an increase in generating capacity of 25.5 MW, assumed to be in-service beginning August 2017; an upgrade to the Ludington 3 Unit resulting in an increase in generating capacity of 25.5 MW, assumed to be in-service beginning August 2018; and an upgrade to the Ludington 6 Unit resulting in an increase in generating capacity of 25.5 MW, assumed to be in-service beginning August 2019.”

She added: “These upgrades are part of the major unit overhaul project at the Ludington Pumped Storage Plant which began in 2013. Additionally, there is the addition of 6 MW of nameplate capacity at the Company-owned solar generating facility assumed to be phased in beginning May 2016.”

As for the coal unit retirements, Walz wrote: “Consumers Energy is planning to retire seven of the Company’s coal units (Cobb 4 and 5; Weadock 7 and 8; and Whiting 1, 2, and 3) in lieu of retrofitting the units to comply with the Mercury and Air Toxics Standard rule that would otherwise be effective for these 6 units on April 16, 2016. Additionally, this case reflects the Company’s continued decision to mothball or place in extended reserve shutdown status several combustion turbine (‘CT’) units. Additionally, the Company is securing 542 MW of capacity with the Jackson Plant, a natural gas-fueled generating unit, assumed to be in the Company’s service January 2016.”

Asked to describe the Jackson facility, Walz responded: “The Jackson Plant is a 542 MW natural gas-fueled combined cycle generating plant built by the Kinder Morgan Power Company that went into commercial operation in 2002. The plant has six General Electric LM6000 CT and one General Electric 7EA CT. Each CT’s hot turbine exhaust flow is connected to its own Heat Recovery Steam Generator (‘HRSG’) that produces steam. Steam from the seven HRSGs feeds two Steam Turbine Generators.”

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.