State nears decision on UMERC plants

Opponents criticize $277M cost, plan’s lack of renewables

Pictured, is a computer rendering of the proposed natural gas power generating station, which will be located in the Eagle Mills area of Negaunee Township. The project is pending Michigan Public Service Commission approval, but several groups have criticized the plan, saying it didn't adequately consider less expensive alternatives or using renewable energy sources. (UMERC courtesy)

MARQUETTE — As the Michigan Public Service Commission approaches its Friday deadline to decide whether to approve construction of two new power plants in the central Upper Peninsula, several groups have stated their opposition to the utility company’s plan saying it didn’t fully consider renewable energy sources due to a prearranged agreement with a large industrial customer, and that it will unfairly impact residential ratepayers.

At a cost of roughly $277 million, the Upper Michigan Energy Resources Corp. plans to construct two natural gas-fueled generating stations expected to produce about 183 megawatts, slightly more than half of the 359 megawatts provided by the Presque Isle Power Plant in Marquette, according to owner We Energies.

UMERC officials say their plan for the two facilities is the most reasonable and cost-effective option, and state officials tend to agree. But critics say UMERC didn’t seek competitive bids, and that cheaper, cleaner alternatives weren’t adequately considered, driving the cost of construction up which will ultimately be recouped from customers.

Predictions vary as to how residential ratepayers will be affected in the long-term, with UMERC estimating a savings of $161 million in “net present value” over 30 years as compared to the “business as usual” option, which would include purchasing power from elsewhere and the continued operation of the Presque Isle plant. Meanwhile, another analysis commissioned by a private developer claims UMERC’s customers will actually pay $372 million over 30 years.

BACKGROUND

UMERC was created as a Michigan-only utility in December as a subsidiary of Milwaukee-based WEC Energy Group, which also controls We Energies, owner and operator of the Presque Isle plant. UMERC provides electric and natural gas service to 36,500 and 5,300 customers, respectively, according to MPSC documents.

Under UMERC’s proposal, a 130-megawatt facility would be built in Negaunee Township with a second, smaller facility in Baraga Township.

Should the commission approve UMERC’s certificate of need, the two new facilities are expected to go online summer 2019, allowing for the subsequent retirement of the Presque Isle plant.

We Energies’ largest customer, Cleveland-Cliffs Inc.’s Tilden Mine in Marquette County, would be transferred to UMERC once the facilities are operational. The mine would pay for 50 percent of the plants’ capital cost under a deal announced in August 2016. That deal included a 20-year “Tilden Special Contract” establishing an energy supply agreement between UMERC and the mine, which is also subject to MPSC approval.

In the commission case, UMERC officials testified the project isn’t feasible without the mine’s participation. But critics have said UMERC’s contract with Tilden “predetermined” the type of generating technology to be used, and that the utility’s plan to recoup expenses disproportionately favors the mine over other customers — considering Tilden is expected to consume about 70 percent of the facilities’ generating capacity, but pay only half the construction cost. Michigan requires utilities to charge by “cost of service” principles, and, according to the U.S. Energy Information Administration, providing electricity to larger industrial customers is typically more efficient and less expensive than residential ratepayers.

Also tied to the establishment of the two new plants is a project by SEMCO Energy Gas Company to build a 42-mile natural gas pipeline through Marquette County, which officials said will improve natural gas service reliability and capacity in the area. That roughly $135 million project, called the Marquette Connector Pipeline, which the MPSC essentially green-lighted in late August, will connect Great Lakes Gas Transmission’s system near Arnold with the Northern Natural Gas system to the north in Marquette. SEMCO, the local gas provider, is also being tapped to build connector pipelines from Northern Natural Gas’s system in Negaunee and Baraga townships that will supply the UMERC facilities with fuel.

RECOMMENDED ACTION

On Aug. 25, Martin Snider, an MPSC administrative law judge responsible for reviewing UMERC’s case, recommended conditioned approval of the proposal.

Under one of the conditions, UMERC would not be able to operate the facilities until SEMCO receives state approval to build and operate the pipelines in Negaunee and Baraga townships.

Other conditions include crediting proceeds from the sale of any excess energy to non-Tilden customers; and for UMERC to not enter into a system support resource, or SSR, agreement for 20 years, which would financially subsidize plant operations by charging other electric customers benefitting from that generation.

UMERC witnesses testified in commission filings that if UMERC cannot collect some capital costs from Tilden, the utility would not seek that funding from its non-Tilden customers.

MPSC staff indicated it “supports approval of the Tilden Special Contract because it would benefit UMERC by saving UMERC’s non-Tilden customers $161 million in net present value over 30 years compared to the next best alternative,” and that the contract would reduce non-Tilden customers’ risk of future UMERC SSR payments.

However, the ratemaking treatment requested by UMERC in the contract should be rejected, MPSC staff said, because the utility didn’t provide a study showing projected costs of serving different customer classes, due largely to its status as a new utility.

“No evidence was presented which shows that commission approval of UMERC’s requested cost recovery relief, the allocation of costs between Tilden and non-Tilden customers consistent with the terms of the Tilden Special Contract, would harm non-Tilden customers or would shift costs from Tilden to non-Tilden customers,” the commission judge’s filing states. “However, the evidence presented does show that UMERC has not satisfied the … COSS (or cost of service study) requirement. … It should be noted that there is no statute or administrative rule which requires the commission to require a special contract be supported by a COSS nor that a COSS is the only means to support cost allocations.”

OPPOSING VIEWPOINTS

UMERC officials have pointed to the unique characteristics of the U.P., such as a need for firm reliable energy and lack of a comprehensive transmission system as reasons for why the new generation is needed.

“The U.P. is located between two Great Lakes and there are limited connections to other sources of transmission due to its location,” UMERC spokesperson Amy Jahns said. “The (commission judge’s) recommendation — with which MPSC staff agreed — showed that the U.P. needs to have 183 (megawatts) of reliable baseload generation to allow Presque Isle Power Plant to retire, avoid future (SSR) payments, and create a base for which renewables could be added in the future.”

Cleaner than the coal-fired Presque Isle plant, UMERC’s two new facilities will use natural gas-fueled reciprocating internal combustion engines. But critics, including the non-profit Environmental Law & Policy Center, contend the utility didn’t fully consider a mixed generation approach by incorporating renewable sources, in part, because the Tilden Special Contract required the natural gas-fueled generators.

“UMERCS’s IRP (or Integrated Resource Plan) indicates that UMERC determined that there was a need of 183 (megawatts) and then evaluated solutions which would fill 100 percent of the identified 183(-megawatt) need,” MPSC documents state.

Dan Foley — CEO and founder of GlidePath Development, a Chicago-based private developer of electric energy facilities — is another critic of UMERC’s IRP.

In an interview earlier this year, Foley said UMERC chose not to issue a request for proposals, which he said could have increased competition among developers and lowered costs. Under new laws enacted in April, utilities must issue a request for proposals for generation resources they expect to include in their IRPs, but aren’t required to select any of those proposals, state officials said.

Foley said his company had discussed multiple options with UMERC, but the efforts were fruitless.

He agreed with the ELPC’s viewpoint that UMERC had predetermined its project to use only natural gas generators, meaning the utility’s IRP was essentially a farce.

“What we see in the industry is there are tremendous technology advances going on in wind, in solar, in batteries and in gas technology, and we see that the industry is evolving into using microgrids and diverse distributed technologies, … and the proposal that UMERC has put on the table really hasn’t done that,” he said.

GlidePath commissioned an analysis of UMERC’s proposal claiming the project will actually cost customers $372 million over the next 30 years, though Foley said it wasn’t completed in time to be submitted as evidence officially on the record in the case. Additionally, the study indicated GlidePath could have built a 60-megawatt natural gas-fueled facility — roughly one-third of UMERC’s electrical need — that would have cost ratepayers about 70 percent of what UMERC’s plan will cost for the same 60 megawatts.

“With a combination of wind, solar, the new gas technology that we proposed and batteries, I think you come up with a more robust solution that’s more reliable, that has fuel diversity, which takes a lot of volatility out of pricing, and also, we believe, an all encompassing proposal would be a lower cost to the folks in the U.P.,” Foley said. He later added, “We didn’t really think it was our responsibility to tell the commission or to tell UMERC what all the possibilities out there were. We had part of a solution (to address the 183-megawatt need), and we thought that that was good enough.”

At least one UMERC official admitted in testimony that the utility’s IRP didn’t consider renewable sources to displace a portion of the projected load, according to MPSC documents. However, UMERC witnesses also said that even if some renewables were used, the natural gas-fueled plants would still be needed in whole because renewables aren’t able to supply steady power every hour of the year. State officials agreed and said the utility’s evaluation of renewable energy sources was appropriate at this time.

“Staff concluded that UMERC complied with (state laws) by assessing the renewable energy and capacity that it currently owns, or plans to own, as part of its overall supply portfolio but UMERC should engage in a more robust evaluation of renewable-energy resources in the future,” the commission judge’s filing states.

UMERC officials also testified that spreading the generation among two sites will meet the requirements of the Tilden Special Contract; eliminate the expense of $373 million for major transmission network upgrades; minimize costs to interconnect the facilities to the electrical grid; and allow for retirement of the Presque Isle plant.

“When considering generation supply options, cost to our customers and reliability of the power source were the two critical factors in our decision to use the proposed technology,” Jahns said. “Our customers need and deserve a reliable source of power that is not intermittent. A mixed generation approach would still need a reliable source of power that can run 24/7.”

TRACK RECORD

On Thursday, the Federal Energy Regulatory Commission ruled that We Energies and WEC Energy Group had overcharged ratepayers nearly $23 million in SSR payments to keep the Presque Isle plant operating after the utility sought to close the plant when its largest customer, Cliffs’ Empire and Tilden mines, switched to another electric provider in 2013.

FERC officials also said the utility company altered a date on an invoice related to those charges, but made no findings as to whether We Energies committed fraud. The issue was referred to FERC’s Office of Enforcement for further examination.

Jahns said FERC’s action “does not change UMERC’s position on a long-term, reliable, affordable, clean energy solution for Michigan’s Upper Peninsula.”

But Foley and others say the MPSC should subject the WEC subsidiary’s plan to closer scrutiny.

“This wasn’t a very transparent process, and if you think they’re acting in the genuine interest of the people in the U.P., their track record speaks for itself,” Foley said.

Under existing deadlines, the MPSC has 270 days to make a decision following UMERC’s request for a certificate of need. That date is Friday, and the commission’s next meeting is scheduled for 1:30 p.m. Wednesday in Lansing.

More information can be found online at www.michigan.gov/mpsc, then clicking on the “E-Dockets” link and searching by case number “18224.”

The MPSC office can be reached at 517-284-8100, or by emailing mpsc_commissioners@michigan.gov.

Ryan Jarvi can be reached at 906-228-2500, ext. 270. His email address is rjarvi@miningjournal.net.