The Michigan Public Service Commission on July 23 closed a docket looking into the state's future electricity supply picture and found no issues with 2016 supply, despite factors like the planned retirement in April 2016 of seven coal units by the Consumers Energy subsidiary of CMS Energy (NYSE: CMS).
The commission concluded that the state must continue working to ensure that adequate electric resources are available to meet demand beyond 2016, but determined that the projected shortfall in 2016 is likely not to be as big as previously implied by a regional survey. The commission noted that uncertainty exists beyond 2016 related to the impact of new federal environmental regulations on generation resources in Michigan and surrounding states. The seven Consumers Energy coal units are being retired, for example, due to the federal Mercury and Air Toxics Standards.
"Michigan's focus on making sure there is an adequate reserve of capacity revealed that efforts have been taken to shore up supplies," MPSC Chairman John D. Quackenbush said. "However, as more plants are closed and new resources are not available to replace them, Michigan may have to rely more heavily on out-of-state resources, if available, and Michigan customers may be confronted with higher rates or potential outages due to a lack of adequate supply."
Quackenbush said it is encouraging that there currently appears to be adequate capacity in the region as a whole to make up Michigan’s shortfall, and efficiencies could be gained through other actions in 2016. But the commission acknowledges the significance of the projected shortfall in the Lower Peninsula, where the bulk of the state's population resides, in major cities like Detroit and Ann Arbor.
The MPSC in December 2014 directed all regulated electric utilities, alternative electric suppliers, and certain power supply cooperatives and associations to file assessments of their abilities to meet their customers' expected electric requirements for the years 2015 through 2019. The filings from rate-regulated utilities, electric cooperatives (or their associations), and some alternative electric suppliers indicate that they have commitments in place through contracts or ownership of capacity to meet all or nearly all of their customers’ needs plus reserve margin requirements in Zone 7 of the Lower Peninsula for the 2016 planning year.
Some of the alternative electric suppliers indicated that they intend to acquire the necessary capacity in the future through the Midcontinent Independent System Operator’s annual capacity auction or other means. The July 23 order summarizes that investigation, noting that an electric shortfall in 2016 is not as likely as once believed in the Lower Peninsula for several reasons. Both Consumers Energy and the DTE Electric unit of DTE Energy (NYSE: DTE) have indicated they have solid plans to purchase gas-fired generating units that will be added to their fleets. Consumers Energy has also purchased capacity through a competitive bidding process.
In addition, Wolverine Power Supply Cooperative is in the process of adding its natural gas-fired Alpine Plant 1 and 2 units for 2016. The area served by the Indiana Michigan Power unit of American Electric Power (NYSE: AEP) in southwest Michigan, and also the lightly-populated Upper Peninsula as a whole, are projected to have adequate supplies in 2016.
While the purchase of existing facilities and the use of power purchase agreements are important, the commission notes that other measures may impact the capacity outlook: demand response measures, the elimination of energy waste, efforts to keep certain units operational in the near term, and the use of a lower reserve requirement by using up-to-date load forecast and reserve margin calculations.
The MPSC concluded that all stakeholders in this process need to remain vigilant by aggressively monitoring and planning for future supplies in terms of reliability and affordability.
Future of Presque Isle coal plant is a key unknown
The July 23 order noted that MISO’s Zone 2 includes the entire Upper Peninsula of Michigan as well as the eastern and northern portions of Wisconsin. According to the PSC staff, the primary cause of the uncertainty surrounding resource adequacy and operational reliability in the Upper Peninsula has more to do with the future of the coal-fired Presque Isle Power Plant (PIPP) than any other issue. While Wisconsin Electric Power Co. (WEPCo) announced its intention to retire PIPP in 2014, it was required to operate the plant under a System Support Resource (SSR) agreement under MISO’s tariff because PIPP is needed for operational reliability of the bulk power system in the Upper Peninsula. "Currently, PIPP is no longer operating under a SSR agreement, and is assumed to remain in service through the entire study horizon examined in this proceeding," the order said. The PSC staff adds that plans exist for a new 280-MW natural gas-fired cogeneration plant to be built in the Upper Peninsula to replace a portion of the capacity to be lost with the eventual retirement of PIPP in 2020.
The staff said that a 2015 OMS/MISO survey results indicate a capacity surplus of approximately 1,000 MW in the 2016/17 planning year for LRZ 2. Notwithstanding the localized reliability issues in the Upper Peninsular, the results of the OMS/MISO survey indicate that LRZ 2 is projected to have an adequate supply of capacity resources to meet its PRMR in the 2016/17 planning year.
OMS, by the way, is the Organization of MISO States. MISO’s Local Resource Zone (LRZ) 7 covers the majority of Michigan’s Lower Peninsula with the exception of its southwest corner.
Said the order about plant closures due to emissions regulations: "Michigan will experience the next of these closures in 2016 with the retirement of Consumers’ 'classic seven' coal-fired plants totaling 900 zonal resource credits of capacity on April 16, 2016. DTE Electric’s Trenton Channel 7 is also scheduled to retire by April 2016. How these closures will affect resource adequacy – i.e., ensuring that there is enough available generation to meet anticipated customer load, plus a safety margin (known as 'planning reserve margin') – is a topic of concern for policymakers, regulators, and customers alike. The Commission opened Case No. U-17751 to gauge the impact of the coal-fired plant retirements and other developments that will affect resource adequacy issues in this state over the next 5 years. MISO and OMS are also actively studying the anticipated resource adequacy in the entire 15-state MISO footprint, as well as individual resource adequacy zones within MISO. Both MISO Zone 2 and Indiana Michigan have consistently been projected to have adequate resources to cover demand and planning reserve margins. The same cannot be said of MISO Zone 7, which has been the focus of much attention.
"In 2014, OMS/MISO released the results of their analysis that showed a 3,000 MW capacity shortfall. Over the course of 2014, the shortfall numbers were revised several times, but Zone 7 was consistently forecast to have a shortfall, settling at as much as 3,100 MW as of October 2014. But, the 2015 OMS/MISO survey results released in June 2015, project a 1,200 MW shortfall in Zone 7 for planning year 2016/2017, with a surplus of 1,700 MW in the entire MISO footprint. The survey showed the MISO footprint is expected to experience a shortfall beginning 2020. The Commission’s investigation in Case No. U-17751 revealed additional evidence to corroborate the 2015 OMS/MISO survey results, which suggest that a 3,000 MW capacity shortfall in Zone 7 is not as likely to occur as previously implied. Several factors are at work."
First, said the order, both Consumers and DTE Electric have indicated that there are solid plans to purchase gas-fired generating units that will be added to their fleets.
- DTE Electric’s comments reported the addition of the Renaissance Power Plant, which has a 560 MW (UCAP) for Planning Year 2015/2016. And, DTE Electric issued another request for proposals on Jan. 30, 2015, soliciting MISO-qualified natural gas simple cycle generating asset(s) or asset portfolio(s) that meets the company’s capacity need of 150 MW to 350 MW.
- In addition to purchasing capacity through a competitive bidding process, Consumers also has plans to purchase a 542-MW natural gas-fired power plant in Jackson, Michigan, in the 3rd or 4th quarter of 2015.
- Further, Wolverine is in the process of constructing its 385 MW (UCAP) Alpine natural gas plant for Planning Year 2016/2017.
With the exception of the Alpine plant, these assets are all existing generation resources; however, through the acquisitions, there is certainty that these plants will be committed to MISO Zone 7 instead of serving the PJM market, the PSC order noted. "While plant additions via purchases of existing facilities from other producers and use of power purchase agreements are important, there are other measures that may impact the capacity outlook. These include demand response measures, the elimination of energy waste, efforts to keep certain units operational in the near term, and use of a lower reserve requirement due to the use of up-to-date load forecast and reserve margin calculations. Still, the Staff’s comments found that Zone 7 is facing a shortfall of 520 MW in the 2016/2017 planning year, and faces anticipated shortfalls of between 620-690 MW in the planning years 2017-2020.
"However, the Staff noted that the additional needed capacity may be imported from elsewhere in MISO (or PJM) to satisfy the planning reserve margin requirements. While there is an apparent difference between MISO’s latest results for the 2016/2017 planning year (1,200 MW projected shortfall in Zone 7) and the Staff’s analysis (a 520 MW shortfall), these differences are attributable to some extent to the units used in calculating generation resources ('unforced capacity' or 'UCAP', in Staff’s analysis, and 'installed capacity,' or 'ICAP', in MISO’s analysis) and the inclusion of Wolverine’s planned 385 MW (UCAP) Alpine natural gas plant in the Staff’s analysis and not in MISO’s. When those differences are reconciled, the Staff and OMS/MISO essentially come to the same conclusion: Zone 7 is anticipated to experience a shortfall of approximately 520-565 MW in planning year 2016/2017 on a UCAP basis, relative to anticipated load plus a planning reserve margin, but should be able to cover the shortfall through importation of power from other regions."
The seven Consumers Energy coal units to be shut in April 2016, after one-year compliance extensions under the federal Mercury and Air Toxics Standards expire, are: Cobb Units 4 and 5; Weadock Units 7 and 8; and Whiting Units 1, 2 and 3. Notable is that some parties often refer to them as seven coal "plants," but they are actually seven units at three plants.