|An artist rendering of Consumers’ proposed power plant in Thetford Township.|
State utility regulators are considering a historic case that could help determine how much clean energy Michigan’s second-largest electric utility develops over the next 25 years.
The case, managed by Ingham County Administrative Law Judge Sharon Feldman on behalf of the Michigan Public Service Commission, will decide whether Consumers Energy can build a large, natural gas-fired power plant to replace most of the generation it will lose when it shuts down seven old, highly polluting coal plants in April 2016.
This marks the first time the state has required a Michigan utility to submit a 25-year Integrated Resource Plan (IRP) and obtain a Certificate of Necessity (CON) before building a brand-new, fossil-fueled power plant.
Like dozens of other American utilities, Consumers is moving steadily away from coal power, driven by rising coal extraction, transportation, and emission control costs and plummeting natural gas prices. The utility hopes to take advantage of the trend by building a 700-megawatt gas plant in Thetford Township, near Flint.
If the CON is denied, the utility will need to find another way to meet customer demand that could involve using more efficiency and renewable energy and purchasing a smaller, existing gas-fired plant.
The case is currently on hold as Consumers reconsiders several existing gas plants that are for sale—an option it initially rejected, drawing complaints from a number of gas plant owners in the state. Such a purchase would likely restart the entire IRP process.
Meanwhile, citizen groups and a business council intervening in the case say, regardless of whether the company finds a good deal on a used plant, Consumers’ IRP should include more clean energy and less fossil-fueled generation because it would save money—claims backed by findings from two state-sponsored energy policy studies released last month.
“Since this is the first time, it’s critically important that we get this CON process right,” said Dan Scripps, president of the Michigan Energy Innovation Business Council. “As we go through it, and have other options considered, such as purchasing instead of building a gas plant—that’s exactly how this is supposed to work. It gives everyone a chance to step back and review whether there’s a more cost effective way to meet demand.”
Big Changes for Big Utilities
Consumers declined a request for an interview regarding its 284-page integrated resource plan (click here for the executive summary), citing the ongoing MPSC proceedings. But, clearly, profound changes are rocking the American power industry. The state’s two studies reflect that and challenge some basic assumptions of the utility’s IRP.
The studies were requested by Governor Rick Snyder as part of his yearlong, public process dubbed Readying Michigan to Make Good Energy Decisions.
The energy efficiency report says mandated efficiency investments are producing better than three-to-one cost savings, provide the least expensive way to meet future energy demand, and could be significantly stepped up for at least a decade. The renewables report says that, in Michigan, new wind power costs about the same as new gas power, and renewables generation, largely from wind, could triple, to 30 percent, by 2035 without technical problems or significantly higher rates.
Consumers’ IRP does not reflect those findings, however. It was submitted three months before the state issued the two reports.
The intervening citizen groups—the Natural Resources Defense Council, Sierra Club, and the Michigan Environmental Council—are urging the MPSC to reject Consumers’ plan because, they say, it did not present the most “prudent and reasonable” approach that the CON requires.
On Nov. 12, Consumers and the interveners—which also include owners of gas plants Consumers is eyeing, a utility workers organization, the state attorney general, a natural gas supplier, and a business association favoring utility competition—agreed to slow the IRP process so the utility could evaluate new bids on existing plants.
The utility originally rejected a plant purchase, saying sale dates didn’t jibe with its timeline, prices were too high, and plants would not be able to stay in service long enough.
However, Rebecca Stanfield, of the NRDC, says purchasing an existing plant, rather than building a new one, would produce a better deal for ratepayers.
“But the important part is that Consumers uses the opportunity of the IRP to ramp up energy efficiency and renewables, which clearly lowers the cost of any of the scenarios the company has considered.”
Scripps agreed that a smaller gas plant could work well with more efficiency and renewables.
“When you look at wind versus natural gas, both make the other stronger,” he said. “Wind is a hedge against the volatility of gas prices, and gas can balance out wind’s intermittency. They complement each other nicely in a very cost effective manner.”
Plenty of Homework
Consumers’ IRP evaluates the cost to its customers of five possible scenarios.
Its “business as usual” scenario, which it favors, assumes modest growth in energy demand, no additional renewables development, current efficiency gains declining by half after a decade, moderate natural gas prices, rising coal prices, and pricier power on the grid. The company says its BAU scenario was most likely, and so evaluated it more thoroughly than other scenarios.
The others include “distributed generation,” which envisions home grown renewables like solar and farm methane digesters; “legislative,” which boosts renewables and efficiency mandates far less than the governor’s reports find feasible; “abundant gas, ” which posits continued very low natural gas prices; and “deregulated,” which considers more utility competition.
The company modeled scenarios using different prices, laws, and economic conditions. Most proved cheaper than bringing the seven old coal plants into compliance with new federal pollution limits. It found that building the new gas plant and buying power on the open market would be $450 million cheaper than maintaining the coal plants.
Consumers says efficiency measures will become more expensive over time and that when the state’s windiest locales, which produce cheaper wind power, are used up, new wind will be more expensive. It adds that using power purchases to fill its entire generation gap—the proposed Thetford plant would fill about 70 percent of it—is too expensive and unpredictable.
The company also said building Thetford would provide more jobs than purchasing an existing plant or depending entirely on purchased power, a consideration it did not include when evaluating more efficiency or Michigan-based renewables. The Snyder reports note that renewables and efficiency are providing thousands of engineering, manufacturing, and installation jobs in the state.
Pushing for Best Deal
The citizen groups assert that Consumers is greatly underestimating efficiency and renewables’ ability to erase most of the need for a large power plant, new or old.
In his deposition, Chris Neme, an efficiency consultant who’s helped utilities, states and provinces develop efficiency plans, pointed out that Michigan’s “energy optimization” requirement for 1-percent annual savings through utility-sponsored programs is modest compared to some other states.
Consumers says it will have to drop to .5 percent in 10 years because the least expensive, most effective measures will be used up.
But Neme testified that 20 other states’ experiences show Consumers could double its rate of efficiency gains, use that to fill half the coal plant power gap by 2017, and the rest by 2023. The key, he said, is for Consumers to spend more on efficiency programs. Even with higher spending, he said, the power produced would be far cheaper than power from a new or used gas plant.
“Simply put,” he testified, “the [Snyder efficiency] study results are much more consistent with my estimate of 2 percent achievable annual savings than with the company’s 1 percent [falling to .5 percent in 2023.]
“In other words, there is much more ‘low hanging [efficiency] fruit’ in Michigan… [than] Consumers has suggested is possible.”
Another witness, Jonathan Wallach, who’s consulted for utilities for more than 30 years, said Consumers’ wind power cost projections were too high, based on real-world market experiences in Michigan. He said combining power purchase contracts with new wind power development and purchase of a smaller, used plants would delay need for a Thetford-sized plant to 2030, lead to an additional 1,200 MW of wind power, and save customers money.
Scripps sees both immediate and long-term savings from adding more wind power and efficiency.
“The ability to lock in energy costs and give customers, particularly businesses, some definite numbers on energy costs today and 20 years from now is a huge advantage, because there are no fuel costs,” he said.
Consumers has already dropped its renewable energy surcharge, which it established to pay for its wind farm development, from $2.50 to $.52, and will soon eliminate it entirely because the turbines are producing significantly more power, at less cost, than the firm first estimated, in 2009.
Meanwhile, the interveners are waiting for Consumers to determine whether any of the bids for existing plants make economic sense. If it decides it wants to purchase an existing plant, and would pay more than $500 million for it, the utility would have to prepare a new IRP.
A hearing including all parties is now scheduled for Feb. 20, 2014.
“We have not seen the bids Consumers is receiving for selling those plants,” NRDC’s Stanfield said, “so we don’t know the specifics. But incorporating more energy efficiency into any scenario lowers the whole price of energy. That is why our main thrust is that energy efficiency should be a big part of Consumers’ IRP going forward.”
Jim Dulzo is the Michigan Land Use Institute’s senior energy policy specialist. Reach him at [email protected].