Wisconsin okays new utility for Michigan; without a coal plant included

The Public Service Commission of Wisconsin on Dec. 22 issued a final decision allowing the creation of a new transmission-owning utility in Michigan’s Upper Peninsula, but leaving the coal-fired Presque Isle Power Plant (PIPP) in the Upper Peninsula in its current hands until the plant is retired.

This application was filed by Wisconsin Electric Power Co. (WEPCO) and Wisconsin Public Service Corp. for approval to transfer certain electric and natural gas distribution assets located in Michigan to a new affiliated Michigan jurisdictional utility. The new Michigan utility will be called Upper Michigan Energy Resources Corp. (UMERC).

WEPCO is an investor-owned electric, steam, and natural gas public utility that serves approximately 1,100,000 electric customers in Wisconsin and the Upper Peninsula (UP) of Michigan, approximately 450,000 natural gas customers in Wisconsin, and about 500 steam customers in metropolitan Milwaukee, Wisconsin.

In the UP of Michigan, WEPCO has approximately 27,500 retail electric customers, 50 distribution-only electric customers, and approximately 2,500 miles of electric distribution lines. Distribution-only customers are customers who purchase capacity and energy from an alternate energy provider other than WEPCO or WPSC.

These UP electric distribution assets will be transferred to UMERC. WEPCO, however, will retain ownership of the Presque Isle Power Plant. WEPCO’s UP customers, with the exception of the Empire and Tilden mines, will initially remain full requirements customers of WEPCO, but will later be transferred to UMERC.

WPSC is an investor-owned electric and natural gas public utility that serves approximately 445,000 electric customers and 323,000 natural gas customers in northeastern and north central Wisconsin and an adjacent portion of the UP. In the UP of Michigan, WPSC has approximately 9,000 retail electric customers, 16 distribution-only electric customers, approximately 619 miles of electric distribution lines, 5,300 retail natural gas customers, and 17 natural gas transport customers. These UP assets and customers will be transferred to UMERC.

In 2015, the Wisconsin commission authorized the acquisition of WPSC’s parent, Integrys Energy Group Inc., by WEC Energy Group (WEC). WEC is a Wisconsin holding company with a number of wholly-owned subsidiaries, including WEPCO.

Creation of this Michigan-only utility was mandated by Michigan PSC

The formation of UMERC is a requirement of a settlement agreement that was filed with the Michigan Public Service Commission and was executed in connection with the Michigan approval of the acquisition of Integrys by WEC. The applicants stated that the formation of UMERC would lead to greater operational and regulatory efficiency for the Wisconsin commission, the applicants, and their Wisconsin customers, help facilitate the construction of future electric generation in the UP of Michigan, and ensure that the cost of any electric generation is properly allocated to UMERC’s ratepayers in the UP of Michigan.

The transactions in this Wisconsin docket required this approval since they represent a transfer of distribution assets from public utility affiliates in a holding company system, WEPCO and WPSC, to UMERC, a non-utility affiliate that will be in the same holding company system.UMERC will serve no customers in Wisconsin.

The Wisconsin commission noted in the Dec. 22 order: "Under the terms of agreements between WEC and the owners of the Empire and Tilden mines, WEPCO has agreed to continue operating PIPP and to not seek to retire the plant until new electric generation resources are constructed by UMERC. In return, the mines would enter into a long-term purchase power agreement with UMERC to help defray the cost of construction of new UP electric generation. The timing of when such generation resources would be constructed and placed in operation is not known and would be subject to approval by MPSC during a Certificate of Need proceeding. At that time, WEPCO may seek to retire PIPP.

"The retirement of PIPP will likely result in the need to recover any unrecovered book value and decommissioning costs from both WEPCO’s and UMERC’s customers. The applicants proposed to assign the Michigan jurisdictional portion of these costs to UMERC based on a historical slice of system basis, calculated as of the date that PIPP is retired. The applicants contend this methodology will result in Wisconsin customers being in the same position they are now with respect to the unrecovered book value and decommissioning costs for PIPP. Based on this contention, the Commission understands that the UMERC slice of system allocation is assumed to come from the non-wholesale portion of the unrecovered book value and decommissioning costs."

On Dec. 9, 2016, the Michigan PSC issued its order addressing the formation of UMERC. Condition A of that order approves the settlement agreement proposed in the Michigan proceeding. The settlement agreement sets the slice of system allocation of PIPP retirement and decommissioning costs at 6.595%. It also establishes a regulatory asset through which the PIPP retirement and decommissioning costs will be recovered from UMERC customers.

Said the Wisconsin commission’s Dec. 22 order: "At this time, it appears likely that new electric generation resources will be constructed in the UP; however, it is unknown if additional infrastructure, including transmission facilities, would be needed to provide safe, reliable and adequate services in the UP. A portion of the cost of any additional transmission facilities required by these new generation resources would be recovered from Wisconsin customers under American Transmission Company LLC’s FERC tariffs.

"In addition to other conditions imposed in this Final Decision, the Commission finds that it is reasonable to impose conditions related to PIPP and any new generation resources or transmission alternatives in the UP. First, the applicants shall work with UMERC to ensure that any new generation resources or transmission alternatives in the UP are economical for both Michigan and Wisconsin ratepayers. Second, WEPCO shall submit any request to retire PIPP concurrently with any generator interconnection request filed by UMERC, to ensure that facilities studies prepared by the Midcontinent Independent System Operator, Inc. (MISO), consider both actions concurrently, thereby minimizing the need for new transmission facilities. Third, WEC shall notify the Commission when it files the Certificate of Need application with the MPSC for any new generation resources located in the UP that are owned, operated, or leased by UMERC. Fourth, WEPCO shall concurrently file with MISO and the Commission its request to MISO to retire PIPP. Fifth, WEC shall concurrently file with MISO and the Commission any generator interconnection request filed with MISO by UMERC."

Michigan Gov. Rick Snyder had announced on Aug. 15 that an agreement providing for a long-term, clean power solution for the state’s Upper Peninsula had been reached between iron ore producer Cliffs Natural Resources and WEC Energy Group. This new agreement would result in 170 MW of new natural gas-fired generation across two sites in the Upper Peninsula. These plans will allow for the retirement of PIPP by 2020.

PIPP includes five major generating units that provide about 344 MW of capacity in total. It has coal-fired steam boilers that were installed in the 1974-1979 period.

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.