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  • Current Issues

    The Situation

     

    On September 1, 2013, Cliffs Natural Resources, a mining company with operations in the Upper Peninsula, decided to cease purchasing its energy from Wisconsin-based We Energies. The switch was apparently made due to significant electrical costs, which saw increases of nearly 110% since 2008, according to a Cliffs spokesperson. Thanks to an exemption in Michigan’s electric choice law, Cliffs was able to begin buying its power from Integrys Energy Services Inc., based in Chicago. However, what started as a simple business decision has since become a crisis for citizens of the Upper Peninsula.
    .
    The Problem

     

    Under normal circumstances, one would not think that a single power provider losing one client would make too much of a difference. However, energy in Michigan’s Upper Peninsula has historically been very centralized. We Energies owns and operates the Presque Isle Power Plant in Marquette, a 60-year old coal-based plant which generates up to 431 megawatts and a resounding majority of the U.P.’s electricity. Since Cliffs was We Energies’ biggest client, the switch hit the energy company fairly hard. If the mining company’s withdrawal was not enough of a financial blow, the Presque Isle plant faces imminent closure with increasing Environmental Protection Agency regulations. We Energies made the decision last year to search for a buyer to take over the plant, but the plant is designated a System Support Resource (SSR), and is not allowed to close in the meantime. SSR payments have been building up since December 1st, though We Energies customers have not yet had to pay them. If a solution is not realized soon, U.P. residents could have to pay as much as $150 more each year to keep the plant open, and certain businesses may see their energy bills increase by thousands, or even millions yearly.

    The Solution

     

    Fortunately, this dilemma has not been ignored by the State of Michigan or the involved parties in the Upper Peninsula. A promising solution has been proposed, and efforts are still underway to refine the parameters of the deal. The agreement as of January 13th, 2015 can be summarized in four parts. First, all utility businesses in the U.P. that were owned by Wisconsin-based companies, including the Presque Isle Power Plant, would be sold to the Upper Peninsula Power Company (UPPCO). SSR payments were originally expected to end after the completion of the sale, but a press release issued on February 18th stated that a new agreement had been reached between We Energies and Cliffs, which retroactively ended SSR payments as of February 1st. Second, Cliffs would agree to return as a customer to We Energies, which it did on February 1st, and will remain a customer until the Presque Isle plant closes, slated for 2020. Third, the company Invenergy would agree to construct and run a new natural gas-powered plant, which would supply power to Cliffs Natural Resources and other nearby utilities. Finally, assuming these proposals were fulfilled, Governor Snyder, Attorney General Schuette, and the Michigan Public Service Commission would rescind their objection to the merger of Integrys and Wisconsin Energy.

     

    The broader components of this agreement appeared to be set in stone, but a recent development proved otherwise. On March 12 of this year, Wisconsin Energy decided not to sell the Presque Isle plant as long as Cliffs Natural Resources remained a customer. Cliffs has agreed to buy its power from We Energies until either a new plant is built in the U.P., or until their new contract expires at the end of 2019. Michigan objections to the merger between Integrys and Wisconsin Energy are still expected to be retracted under this new agreement. Though it would have been ideal for a Michigan-based company to take control of the Presque Isle plant, the fact that the plant is slated for closure by 2020 makes this development less of an overall setback. Michigan still has the opportunity to build new plants and upgrade existing ones, taking control of its own energy future.

    The Future

     

    Though this potential energy crisis has U.P. citizens concerned, the crisis has done some good. A major flaw in the centralized U.P. energy infrastructure was revealed, as one client switching energy providers was enough to shake the system. The environmentally-unfriendly Presque Isle coal plant will close in five years, and new cleaner energy alternatives will arise in both peninsulas. These may be good things for Michigan, but it is important that the weaknesses of the current system are corrected. This crisis came about because one power plant run by one utility was responsible for powering most of the Upper Peninsula. If the prospective new gas plant built by Invenergy takes on the same role as the Presque Isle plant, then this process may begin all over again. Cliffs could shut down one if its mines and new federal mandates may eventually require gas-powered plants to cease operations. The logical response to this problem is downsizing and decentralization. A healthy dispersion of smaller power plants would be cheaper to upgrade if new mandates are enacted, and not being reliant on one large client will help ensure fiscal security for utility companies. I believe it would be wise for UPPCO or another utility to build a system of smaller, clean energy power plants to meet reliability standards without the existence of the new Invenergy plant. That way, U.P. residents will not be forced to make expensive SSR payments if anything ever happens to Cliffs or the new gas plant built on their site.

    Sources:
    BizTimes: Milwaukee business news. (2015, March 16). “Wisconsin Energy Spikes planned
    UP power plant sale”. Retrieved from http://www.biztimes.com/article/20150316/ENEWSLETT
    ERS02/150319831/-1/daily_enews

    Governor Rick Snyder. (2015, January 13). “Gov. Snyder, Attorney General Schuette announce that progress has been made on U.P. energy solution”. http://www.michigan.gov/snyder/0,4668
    ,7-277-57577_57657-345214--,00.html

    Governor Rick Snyder. (2015, February 18). “Gov. Rick Snyder commends agreement that ends costly payments for Upper Peninsula electric customers”. http://www.michigan.gov/snyder/0,466
    8,7-277--347807--S,00.html

    We Energies. (2013, February 1). “Presque Isle Power Plant”. Retrieved from http://www.we-energies.com/home/PresqueIsle.pdf

    Whitney, K. (2013). “Cliffs pulls plug on We Energies: Deal to buy power for mines from Integrys”. The Mining Journal. Retrieved from http://www.miningjournal.net/page/content.detail
    /id/589363/Cliffs-pulls-plug-on-We-Energies--Deal-to-buy-power-for-mines-from-Integrys.html?nav=5006

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