The Presque Isle power plant near Marquette, Michigan.

Superior Watershed Partnership

The Presque Isle power plant near Marquette, Michigan.

Plan would ease reliability concerns for Upper Peninsula

Michigan officials on Tuesday announced a proposed accord among multiple electric entities and private businesses to solve what some fear could turn into an energy crisis in the Upper Peninsula.

The governor’s office says the deal, which was months in the making, will provide short-term relief for ratepayers by this summer in avoiding indefinite and costly “System Support Resources” payments to keep the aging Presque Isle Power Plant online. The plan also achieves long-term goals of reliability and eliminating out-state utilities from the state’s energy future, Michigan officials said.

Also as part of the deal, a major mining company and energy consumer would discontinue its electric choice contract with an out-of-state supplier while the region would get a new natural gas cogeneration facility, tentatively planned to generate 280 MW, to partially displace Presque Isle.

Under the proposal, the Upper Peninsula Power Co. — a stand-alone, regulated utility with roughly 52,000 customers in 10 U.P. counties — would grow by 28,000 customers by acquiring Wisconsin-based We Energies customers and assets that include Presque Isle and distribution lines. It’s uncertain how much UPPCO will pay to acquire We’s assets in the U.P.

We Energies would still maintain roughly 10 hydroelectric facilities in the U.P. that sell electricity back to the grid, said spokesman Brian Manthey.

The plan, which Manthey said could be finalized by mid-year or perhaps sooner, involves four moving parts:
• UPPCO agrees in principal to buy Presque Isle and “step into” existing electricity rates;
• UPPCO would terminate System Support Resource (SSR) payments no later than July that are keeping Presque Isle open while Cliffs Natural Resources — a major mining company in the U.P. — would get a “significant majority” of its power from UPPCO until Presque Isle is retired, anticipated in 2020;
• Cliffs agrees in principle to partner with Invenergy, which would build and own a cogeneration plant on Cliffs’ site and provide heat and power to the mining operation;
• and finally, Cliffs and Michigan officials would withdraw formal opposition to a proposed merger between We Energies and Integrys Energy Group.

Cliffs — which went from a We Energies to an Integrys customer in 2013 by exercising electric choice and setting off the SSR payments — has agreed to go back to We Energies on Feb. 1, Cliffs spokeswoman Patricia Persico said. Once the deal is finalized by this summer, Cliffs would become an UPPCO customer for the remainder of Presque Isle’s operation, she said.

In a statement, Gov. Rick Snyder called it a “critical development for the Upper Peninsula and the entire state.”

To ensure reliability — which has been the main driver behind Presque Isle staying open and rate increases for U.P. customers — the goal is to transition Cliffs and other U.P. customers off of coal in favor of the new cogeneration natural gas plant owned by Invenergy. Cliffs would be the plant’s primary customer, while excess energy would be provided to other utilities. Persico said the natural gas plant is tentatively planned to have a 280 MW capacity.

Another goal that would be met is protecting U.P. customers from costly, indefinite SSR payments that were expected to hit families and businesses hard. Reductions in bills, which will vary widely by customer, will likely happen in July once the SSR payments stop. Under the agreement, Cliffs would buy a majority of its power from UPPCO.

Also, any customers of We Energies, Integrys or UPPCO would not be asked for a rate increase on the day the deal goes through, said Valerie Brader, Snyder’s deputy legal counsel and senior policy advisor.

UPPCO would grow, merger hurdle removed

UPPCO — which covers rural areas of the U.P. with approximately 12 customers per square mile — is poised for a large expansion under the plan, gaining what Manthey said would be 28,000 We Energies customers. The company generates 80 MW of capacity now with seven hydroelectric facilities and two combustion turbines. The Presque Isle plant has a generating capacity of 431 MW.

“Expansion of UPPCO is consistent with our business strategy and with our commitment to the U.P. and Michigan in general,” UPPCO CEO Barbara Siehr said in a statement. “While substantial work remains and the issues we need to tackle are complex, we look forward to working in good faith with Cliffs and Wisconsin Energy Corporation to engineer a solution that works for all parties.”

UPPCO spokesman Dave Forsberg declined to discuss specifics about the acquisition, saying “substantial work remains” on the deal.

While We Energies has said that it would be willing to invest in a new U.P. power plant as part of the solution, the company would pack up most of its U.P. operations under the plan.

However, the company would get Michigan officials’ blessing to move ahead with a planned merger with Integrys. Those officials — including Gov. Snyder and Attorney General Bill Schuette — have formally opposed that merger before the Federal Energy Regulatory Commission because they say it would have given the company too much market share in Michigan. The two companies would exit Michigan’s retail and wholesale electricity market.

Manthey, of We Energies, said the state removing opposition “would be very helpful,” though final merger approval also involves Wisconsin, Minnesota, Illinois and FERC.

“I believe that our opposition was of significant concern to the company,” Brader said. “I do know this [plan] resolves our concerns.”

And ultimately, turning over a large source of business to UPPCO “ensures Michigan decisions are made in Michigan, not Washington. D.C., and makes sure a major source of generation is near the load in the U.P.,” Brader said. “Both of those give us a very optimistic picture of how the energy future in the U.P. will develop.”

Jennifer Hill, program manager for the Superior Watershed Partnership and Land Trust, said the announcement provides an opportunity to explore other options for the U.P.’s energy future.

“We are glad the utilities and mines have found a way to work together and avoid the burden of costly payments for outmoded power plants,” Hill said in a statement. “It’s now time to discuss a truly self-reliant future for the U.P. with its residents and businesses.

“The U.P. is fortunate to have many viable renewable options, from community solar and community wind to biomass and geothermal, that would bring local control and investment to our region. The SWP will be working closely with many partners on these opportunities.”

The Superior Watershed Partnership and Land Trust is a member of RE-AMP, which also publishes Midwest Energy News.

2 thoughts on “Plan would ease reliability concerns for Upper Peninsula

  1. Not more than a couple of months ago, we were staring down the bottom of a ‘$117 million per year in SSR payments’ barrel.

    What a quick turnaround! I’d like to thank the Governor’s Office, UPPCO and all the stakeholders involved for their hard-work and commitment to resolving this issue. PiPP gets to gradually progress towards a natural retirement, Cliffs gets enough time to build a co-gen plant, UP begins the process of distancing itself from WI utility companies by consolidating distribution and generation assets under UPPCO, WE + Integrys get to have their merger, UP residents avoid near term exorbitant rate increases.

    If UPPCO is ‘stepping’ into current WE rates, in the long term, it will be really interesting to see how UPPCO deals with rate differentials across its many regions.

  2. “Methane (CH4) is the second most prevalent greenhouse gas emitted in the United States from human activities. In 2012, CH4 accounted for about 9% of all U.S. greenhouse gas emissions from human activities. Methane’s lifetime in the atmosphere is much shorter than carbon dioxide (CO2), but CH4 is more efficient at trapping radiation than CO2. Pound for pound, the comparative impact of CH4 on climate change is over 20 times greater than CO2 over a 100-year period.”

    Worse than that, we don’t have any natural gas in the Upper Peninsula. Once again, the proposed electricity paradigm will rely on out-of-region fuel sources subject to market price volatility. Residents and businesses will still pay the highest prices on the U.S. mainland while enriching people elsewhere.