Michigan brokers deal to replace coal plant with new gas-fired generation

Michigan Gov. Rick Snyder said Aug. 15 that an agreement providing for a potential long-term, clean power solution for the state’s Upper Peninsula has been reached between iron ore producer Cliffs Natural Resources and WEC Energy Group.

The proposed solution is expected to be cost-competitive for Cliffs and save money for residential customers of the Upper Peninsula. This new agreement, if approved, would result in 170 MW of new natural gas-fired generation across two sites in the Upper Peninsula. In addition, these plans will allow for the retirement of WEC Energy Group’s coal-fired Presque Isle Power Plant (PIPP) in Marquette by 2020 as provided for in a 2015 merger settlement agreement. 

“Many parties worked together to develop alternatives to provide the U.P. an affordable, reliable, and environmentally protective solution,” Snyder said. “The solution being proposed today is extremely promising, especially given the ability to easily adapt to changing demands.”

The establishment and operation of new generating facilities is expected to resolve long-term reliability concerns associated with the planned retirement of PIPP in the transmission- and generation-constained Upper Peninsula and will preclude any need for additional and unnecessary transmission costs borne by Michigan ratepayers.  

The agreement will be reviewed by the Michigan Public Service Commission in a Certificate of Need process. Pending regulatory approvals, commercial operation of the new gas facilities is expected to commence in 2019.

“Cliffs Natural Resources is pleased to continue our partnership with Governor Snyder’s administration toward providing long-term resolution of the Upper Peninsula’s electric reliability concerns,” said Lourenco Goncalves, chairman, president and chief executive officer of Cliffs. “This agreement with WEC Energy Group will provide Cliffs’ Tilden Mine and the ratepayers of the Upper Peninsula with a clean, stable and cost-effective source of electric power.”

“WEC Energy Group is delighted to have successfully collaborated with Cliffs and the state of Michigan to arrive at this cost effective, clean-fueled, long-term viable solution for the electricity issues facing the Upper Peninsula,” said Allen Leverett, chief executive officer of WEC Energy Group.

The agreement between Cliffs and WEC Energy Group was the result of a settlement reached with the state in early 2015 to resolve issues arising from the closure of PIPP and other challenges to the Upper Peninsula’s electricity supply. As the settlement agreement provided, Michigan ratepayers will continue to be protected from additional System Support Resource (SSR) costs levied by the Midcontinent ISO arising from the operation of PIPP until the facility is retired.

WEC said in a brief Aug. 15 SEC filing about this deal: “On August 12, 2016, WEC Energy Group, Inc. (‘WEC Energy’) entered into an agreement with Tilden Mining Company L.C. (‘Tilden’), an affiliate of Cliffs Natural Resources Inc., pursuant to which Tilden will purchase electric power from a Michigan subsidiary of WEC Energy for 20 years. Under the terms of the agreement, the Michigan subsidiary of WEC Energy will construct natural gas-fired reciprocating internal combustion engines in the Upper Peninsula of Michigan capable of generating an aggregate of approximately 170 megawatts. The estimated cost of this project is approximately $255 million, 50% of which is expected to be recovered from Tilden under the terms of the agreement with the remaining 50% expected to be recovered from utility customers located in the Upper Peninsula of Michigan. Subject to the receipt of all necessary regulatory approvals, the new units are expected to achieve commercial operation in 2019.”

Governor wants MISO to look at transmission issues

Gov. Snyder then announced on Aug. 17 that he has asked MISO to study the near and long-term benefits of electric transmission and generation expansion in MISO’s northern footprint to determine if there is an opportunity to lower costs while increasing reliability in the future. 

“Since Michigan has some of the highest prices for transmission in the MISO footprint, it makes sense to ask whether, in the long term, we can all spend less while increasing reliability by strengthening our ties to each other and our neighbors,” Snyder said.

“Michigan is in the middle of a transformation of our energy infrastructure in both peninsulas, and Ontario’s generation has changed a great deal, including the area just across the Soo,” added Valerie Brader, executive director of the Michigan Agency for Energy, who joined in the request. “This study will help us identify whether, due to all these changes, there are new opportunities for infrastructure that will make Michigan more adaptable.”

In the request, the governor is asking for MISO to study connecting Michigan’s eastern Upper Peninsula (part of MISO’s Zone 2) up to Sault Ste. Marie, Ontario, and also strengthening the connection between the Upper Peninsula (U.P.) and the northern Lower Peninsula (Zone 7) at the Straits of Mackinac down to the northernmost part of the existing 345 kV transmission line near Gaylord.

In addition, the study request asks MISO to assume a large natural gas-fired power plant is constructed in Otsego or Kalkaska counties, which are located in the northern Lower Peninsula somewhat near Gaylord and Traverse City, which have availability of natural gas pipelines with available capacity, large electrical transmission, and natural gas storage in a small geographical area. 

Snyder called for such a study in his 2012 Energy and the Environment Special Message. Although MISO completed a northern area study studying stronger ties between the upper and lower peninsulas of Michigan, no ties to Canada were studied and there have been significant infrastructure changes since that time and more are expected in the future.

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.