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As a utility in Michigan’s Upper Peninsula plans for future generation to replace aging coal infrastructure, some critics say the process is moving too fast.
And they are pointing to the municipal utility serving the state’s capital as an example of what they say could be a more prudent approach.
In the U.P, the Marquette Board of Light and Power is on track to displace some of its coal generation with new 50 megawatt natural-gas and fuel oil generators.
The municipal utility has already invested about $3.5 million on the project known as the Marquette Energy Center.
But following a narrow vote to raise rates 30 percent to pay for the project by the city commission in late October, critics are still questioning whether the utility is making the most cost-effective decision going forward.
In a region already dealing with complex generation issues such as transmission constraints, aging coal plants and federal emission regulations, Marquette is moving expeditiously to maintain reliability and keep its generation assets.
And not everyone is happy about that.
“I voted no not because I necessarily opposed it, but rather because I didn’t think I knew enough about it,” said Marquette City Commission Tom Baldini. “The formal proposal came out in the first part of October. They wanted us to approve later in the month. I thought the community should have had more time to evaluate the proposal.
“It’s an investment in the community. It’s an investment in a natural resource and how to develop power and with everything changing so dramatically across the country and state, I just thought it would be prudent to pause,” Baldini added. “Not years, but five or six months could provide us with an opportunity and maybe come up with an answer.”
Meanwhile, 400 miles to the south, the Lansing Board of Water and Light faces a similar situation as its 290-megawatt Eckert coal plant is scheduled to retire by 2020. But the utility has assembled a nine-member community advisory panel to make recommendations moving forward. The group has public meetings scheduled into 2016 and will make recommendations to the utility board of directors before a plan is adopted.
“They’re being very open about this process,” said Jeffrey Pillon, a representative on the advisory committee who also works separately for the National Association of State Energy Officials. “There are many ways this will shake down, and cost will not be a minor consideration.”
Lansing’s efforts have not gone unnoticed by some in Marquette.
“Lansing was going to move forward, but put it on a stop and said they’re going to look closely at it,” Baldini said. “(BLP officials) didn’t want to do that.”
‘Reliability, reliability, reliability’
Paul Kitti, executive director of the Marquette BLP, disputes claims that the project is being rushed through.
“We’ve been working on this process in open meetings and we’ve been working on this plan for over three years,” he said. “When someone says we rushed the project, we say, Wait a second. We have $500,000 in multiple studies out there already, over the course of three years. We’ve had a number of community forums, open houses, met with a lot of leaders in the community and explained the process on reliability.”
The BLP is moving forward with plans to install three “reciprocating internal combustion engines” with a total of 50 megawatts of capacity. They would run primarily on natural gas and switch to fuel oil when necessary during the winter. The utility says the engines provide a segue for future renewable wind and solar projects.
The engines would displace generation from an aging coal-fired unit that will run at limited capacity. The BLP has one more coal-fired unit with about 25 years left of operation.
Utility officials dispute claims that other options weren’t explored, citing a review period that dated back to 2012. A website dedicated to the project explains why transmission and/or other fuel sources — such as coal, nuclear and utility-scale renewables — would be too expensive to pursue.
“The big issue is: reliability, reliability, reliability,” Kitti said. “The plan is the best of both worlds. We’re moving away from coal, embracing renewables and using natural gas. It’s a win-win-win for everybody.”
The utility’s plan comes down to being able to manage its own generation and maintain reliability.
“BLP customers will continue being independent of the outside world for their power supply and reliability,” the utility’s website says. “BLP customers will retain local control and local ownership of their utility. Jobs, dollars, and taxes will be kept local for reinvestment into the community.”
Other options?
Instead of buying new generators, critics in Marquette say other options include buying power from a planned natural gas plant at a nearby mining operation. That project is being developed by Chicago-based Invenergy is in response to the planned closing of the Presque Isle Power Plant, also in Marquette, by 2020. The Presque Isle plant’s closing is widely expected to strain the region’s transmission system.
Kitti said the BLP talked with Invenergy, but there was too much uncertainty over whether the plant will actually get built. The utility also has a non-disclosure agreement with Invenergy, he said.
An Invenergy spokesperson said the plan for that 280-megawatt natural gas plant in Marquette County is “advancing quickly and is on track for commercial operation in 2019.”
In general, critics are wondering why the cost of buying power from a third-party developer was not explored as an alternative to the gas and oil generators.
Rich Vander Veen, a developer based in Marquette, sent a letter to city and BLP officials suggesting they “really ought to be bidding this out.”
“Why would you focus in on reliability at the expense of the community when you could have bid this out and had a taxpayer put the capital and equipment together and provide a very well vetted, thoughtful power-purchase agreement that measures risks and manages risks and sell power over time to the BLP?” Vander Veen asked. “That way you don’t strap on $120 million in debt to the city.”
Keeping money local
Kitti said the idea of a third party building a plant and the BLP buying power from them wasn’t explored, partly because he felt it wasn’t the utility’s duty to do that, even if a cheaper option existed.
“Is that our job to bid it out? I don’t know that it would cost less,” Kitti said. “We want to stay in the generation business.”
The Michigan Municipal Electric Association, a trade group representing municipal utilities, also backs the BLP’s plan, and warned against it getting into agreements with third parties, particularly for renewable energy.
“Be careful of entering in power purchase agreements with renewable energy suppliers,” says an October 26 letter from the association’s executive director, Jim Weeks, to the city commission. “Some of our member municipalities have done this and it has been a more costly option.”
The BLP is seeking a 20-year $77 million bond to finance the project. In October 2016, the BLP will increase rates by 30 percent to pay for the project, with possible additional 4.5 percent rate hikes in 2017 and 2018.
The Marquette City Commission approved the rate hike on a 4-3 vote on October 26. Baldini, who voted against the rate increase, believes it will be closer to a $110 million depending on the type of bond it gets.
Members who voted against the plan said it may be the right option, but they wanted to delay a decision for a few months to study it further.
“We’re really investing a lot of money for us. It concerns me that we really don’t know what were the other alternatives,” he said, referring to potentially buying power from a third party that would build new generation.
The rate increase is so steep, BLP officials say, because the utility hadn’t raised rates for decades and lacked the cash reserves to pay for the new investment.
“If I deserve a punch in the nose for that, I’ll take it,” Kitti said. “What we didn’t do for 20 to 25 years is raise rates. Consequently, we didn’t put ourselves in a very good position. If I accept any blame, it’s that we didn’t keep up with the times.”
The BLP says simply importing power is not a viable option.
Marquette — the largest city in the U.P. and a regional economic hub — is located in a “load pocket,” which includes insufficient transmission system capacity to serve the area’s load during an emergency. The utility reportedly buys about 10 percent of its power supply from the grid.
The utility also notes that in October 2014, the Midcontinent Independent System Operator denied requests for any amount of firm point-to-point transmission service, which the utility says further supports the case to build its own generation. Also, joining a “network integrated transmission services” system would cost more than $3 million a year.
“If there’s another solution of buying power from the grid, that’s saying: ‘It’s OK to send all of our jobs, revenue and taxes out to, say, Chicago,’” Kitti said.
A lesson from Lansing
In response to its similar situation, the Lansing Board of Water and Light has set up a nine-member community advisory board made up of local experts and advocates to find the best, most cost effective option going forward.
Pillon, who serves on the community advisory panel, said the group is considering several generation and demand-side options, including possibly buying power from a third party. No final recommendations have been made yet.
“Clearly you’re focusing on what’s the next thing you need to do,” Pillon said. “Flexibility in the planning process is certainly important.”
Pillon said detailed planning approaches like Lansing’s are similar to the way utilities planned for the future in the late 1980s and early ’90s. Dillon was the head of forecasting for the Michigan Public Service Commission at that time.
“We’re seeing a resurgence in the return to Integrated Resource Planning,” he said.
The BLP is still seeking an air permit for the state. Some, like Baldini, are unsure whether there still might be recourse to put the plan on hold.
“I think the BLP would be wise to pause and a have a real community dialog,” Baldini said. “We might come out in the same place, but I still think there re a lot of questions.”
But for Kitti, the process is essentially over.
“I’m not sure why anyone is still talking about it,” he said. “We’re moving ahead.”