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Upper Peninsula Electric Rates Expected to Rise 30 Percent By December 1

The Presque Isle Power Plant near Marquette, Mich., is at the center of a contentious federal legal battle about power & the costs associated with it.

The Presque Isle Power Plant (PIPP) near Marquette, Michigan, is at the center of a contentious federal legal battle about power and the costs associated with it — who benefits from it, who should be paying for it and what can the Upper Peninsula do to decrease reliability on energy transmission and increase energy generation, instead of relying on a 1950s era coal fired power plant that soon won’t meet EPA regulations.

The Federal Energy Regulatory Commission (FERC) recently handed down a proposed increase to the Upper Peninsula’s cost of electricity. The increase is to cover the $52 million annual cost of running the Presque Isle Power Plant, plus $64 million in needed upgrades to meet current EPA standards for a total of $116 million, of which the Upper Peninsula would have to pay 99 percent if the hike goes through. It could take effect as soon as December 1 and would mean an increase of about 30 percent, which for residential customers means they could see their bills jump up to an extra $30 a month beginning with their January 2015 bill. Commercial accounts could pay an additional $500 a month or more, forcing large industrial accounts to potentially close.

The Midcontinent Independent System Operator (MISO), one of the regulatory bodies overseeing electricity transmission in the Upper Peninsula, determined the percentage (99 percent) by using the geographic boundaries of what is called a Load Balancing Authority (LBA). By using the LBA, MISO designated the Upper Peninsula. as a 99 percent beneficiary of the continued running of the plant.

Some history

October 2008, Public Act 286 passes, allowing iron ore mining or processing facilities to choose their electricity supplier. The same law limits choice for other consumers to only 10 percent of their utility’s electric sales.

Summer of 2013, Cliffs, the largest electric consumer in the Upper Peninsula, switches electric supplies from Wisconsin Electric Energies (WE Energies) to Integrys Energy Group. In August 2013, WE Energies notifies the MISO of the intended closure of PIPP, as continual operation was no longer profitable with Cliff’s switch of suppliers representing an 85 percent loss of Michigan load.

October 2013, the MISO determines PIPP must be forced to stay open to maintain grid reliability in the area.

February 2014, the MISO agrees to pay WE Energies over $52 million annually to keep PIPP open, with costs distributed based on a previous agreement that is being called a “historical accident.”

March 2014, the Wisconsin Public Service Commission sues MISO at FERC for a more equitable distribution of costs associated with the continued operation of the plant.

Who does it affect?

There is no doubt the hike would be felt by everyone who lives and works in the Upper Peninsula — about 166,000 electric customers.

The Sault St. Marie Tribe of Chippewa Indians opposes the energy increase. According to Sault Tribe Attorney Aaron Schlehuber, who recently attended a public panel discussion of Upper Peninsulas energy future in Marquette, the system implemented by FERC is “very stringent” and Michigan’s elected officials are focusing their efforts to convince FERC the solution is either new power generation or improved transmission capabilities.

He said, “The state is framing this as an issue of D.C. not knowing what is best for Michigan – rather then letting Michigan decide for itself.” Schlehuber added the state is focusing a lot of effort on stalling the implementation of the already imposed liabilities.

A letter sent to tribal households on October 30 by Chairperson Aaron Payment and the Sault Tribe Board of Directors, said the rate hike would see the Sault Tribe paying an additional $718,000 a year for electricity to its tribal buildings.

The tribe has filed legal papers joining various parties working to stop FERC from issuing an order allowing the rate increases to take effect. Payment said tribal lawyers and leaders are continuing to pressure FERC, the Michigan Public Service Commission and Michigan’s elected leaders in Lansing and Washington to stop the rate increases and reach a more equitable solution.

Sault Tribe Planning and Development Specialist Jeff Holt, said, “Any rate increase would be difficult, but the 30 percent increase for residential and commercial customers would be devastating. With seasonal unemployment at a high mark, and a struggling economy, the December 1 date comes at a terrible time. Northern Michigan has historically enjoyed utility rates that were manageable, but this issue negates that. As chairman of the Sault Ste. Marie Economic Development Commission, I fear this will hinder our efforts to continue to bring new jobs into the area, and will place a tremendous burden on the existing businesses.”

Communications Manager for Cloverland Electric Cooperative, Todd Chapman, said, “Cloverland Electric does not get any benefit from PIPP. So as Wisconsin took the argument to FERC that they don’t benefit from it since the two ore mines left to purchase their electricity elsewhere, and FERC agreed, Cloverland is taking the exact same argument to FERC – we don’t benefit from that plant, therefore, Cloverland Electric members, our 42,000 meters, should not be paying any portion of the $116 million dollars.”

Chapman said if nothing changes before December 1, Cloverland Electric members would be paying about 22 percent of the $116 million to keep the plant operational. The new charge, he said, is called a Power Supply Recovery Cost (PSRC) and is a line item on each electric bill. The typical PSRC cost in 2013 was anywhere from zero to $.004, he said. If this goes through, that amount will increase to $.034. “That is the maximum PSCR factor that can be charged,” he said. “Typically what happens is that PSCR factor has to be filed with the Michigan Public Service Commission (MPSC) each year and they look at it and decide if its high or low, and in this case we don’t think they can do much with it other then approve it because this $22 million is a straight pass through for Cloverland Electric Company; we do not see a penny of that money – it passes straight through and goes to the MISO and WE Energies, owner of the plant.”

He said PIPP is valuable and that the mid- and western- Upper Peninsula benefit from the electricity it generates. “If they benefit from it, they should pay for it,” Chapman said.

Brian Manthey, spokesperson for WE Energies, which owns and operates the power generation plant, said it’s an energy reliability issue. Wisconsin has enough reliable energy generation available that they don’t need the Presque Isle Power Plant and would like to close it. That’s not the case in the Upper Peninsula. Without Presque Isle, a great portion of the Upper Peninsula would be without power.

Manthey said the Presque Isle Power Plant and others have requested a study on energy use by the MISO. The study would determine who benefits from the power generated by the Presque Isle Power Plant to find a more equitable way to cost-share the millions associated with keeping it operational. He said those who benefit from it should share more of the costs associated with it. It’s the MISO that has the authority and made the determination that the plant must be kept open for the near future until another plan is put into place to ensure the reliability of the electric grid in the Upper Peninsula.

According to Manthey, if the Presque Isle Power Plant were to close, it would probably not have any impact on Edison Sault Electric customers as far as availability of energy generation and usage. It would however impact a great many other residents of the Upper Peninsula.

“It’s not only Wisconsin that has an adequate power supply. Lower Michigan is also in a good position to meet power needs,” Manthey said. “That is why the proximity of Cloverland Electric to power from lower Michigan through transmission lines makes them much less dependent on the running of Presque Isle Power Plant. I did some checking regarding the transmission options for Cloverland, and found that they still need to have any power from the Lower Peninsula routed through Wisconsin. That doesn’t change the fact that Cloverland seems to be outside of the area that benefits from the continued running of the Presque Isle Power Plant, which is the main reason we feel FERC should direct MISO to reconsider the cost allocation to more accurately identify the entities that benefit the most from the continued running of the plant.”

What happens now?

The bottom line is that a large part of the Upper Peninsula does not have enough energy infrastructure in place to be able to live without the Presque Isle Power Plant. Wisconsin does. So until the Upper Peninsula can generate more of its own power and not have to rely as heavily on transmission, it seems a large part of the Upper Peninsula is reliant on a plant that its owners, WE Energies, would like to close.

The Federal Energy Regulatory Commission sided with Wisconsin earlier this year when the Wisconsin Public Service Commission made its case to them, so the Michigan Public Service Commission (MPSC) is fighting their decision. The Regulatory Commission will ultimately determine whether to overturn their decision to increase rates.

Federal regulators could grant a one-time exemption until local replacement energy sources become available. Michigan and Wisconsin can still come together and compromise by keeping the Marquette plant open until an alternative plant is built within the next few years at a greatly reduced cost to consumers.

According to an online search, there are a few energy companies interested in helping fill the energy gap. Keweenaw Renewable Energy Coalition recently announced it has a plan to provide two Upper Peninsula counties with electricity using renewable energy – burning biomass for baseline energy and using solar and wind for peaking power.

At the request of the Michigan Public Service Commission, the MISO conducted a study explaining how much power must be produced to replace the output of the plant – how much electricity should be produced and where, to have a reliable grid in the Upper Peninsula.

Crisis mode – FERC needs to act

With Upper Peninsula residents in crisis mode, the energy debate is generating lots of attention from state and federal lawmakers and other players in the energy realm. U.S. Rep. Dan Benishek (R-Crystal Falls) announced he will be introducing legislation that will work to address the pending electric rate increases, while also protecting ratepayers in the future from extreme changes in their energy bills that are the result of government mandates. U.S. senators Debbie Stabenow (D-Lansing) and Carl Levin (D-Detroit) also weighed in and urged the FERC to delay electric rate increases and act on the complaint filed by the Michigan Public Service Commission.

A press release from Lake Superior State University stated that, “If the hike goes through, LSSU’s power bill could jump $400,000 annually. Students could see $200 in additional charges or a corresponding reduction in services.” LSSU President Tom Pleger said that many area businesses and municipalities have gone on record opposing the proposed increases. He said that a dramatic increase in power costs in the Upper Peninsula would stifle economic development and increase the cost of doing business.

Pleger said this crisis demonstrates that the Upper Peninsula needs to develop a long-term sustainable energy plan that allows for growth while preserving environmental resources and natural landscapes.

In their letter to FERC Chairwoman Cheryl A. LaFleur, Senators Stabenow and Levin wrote, “Residents and businesses in the region already pay extremely high energy costs because of the region’s significant power transmission and supply challenges. When coupled with the Upper Peninsula’s high unemployment, growing number of retirees, and an average median household income of only $39,400 – more than $13,000 lower than the national median – we are deeply concerned about the negative impact that these dramatic rate increases will have on seniors, the unemployed, small businesses and others.”

Added Levin, “Federal law requires that rate increases be reasonable and justifiable, and this proposed increase is neither. FERC should act promptly on Michigan’s request to protect Upper Peninsula consumers and businesses from the damage this unjustified rate hike would cause.”

How this will affect ratepayers will remain unclear until FERC finalizes their decision this month. However, keeping PIPP open for grid reliability will likely contribute to an increase in Upper Peninsula electric rates.

This story was written for Win Awenen Nisitotung, Vol. 35, No.11, November 14, 2014.