UTILITIES

Coal-dependent Mich. ready to make the switch

If there is a "war on coal" being waged in the United States, then there's a new and somewhat surprising recruit in Michigan Gov. Rick Snyder.

The moderate Republican and former venture capitalist stunned some observers last month when he unveiled a four-part energy strategy for the state through 2025, the first tenet of which is to replace coal-fired power plants with natural gas and renewables. He cited both economic and environmental benefits.

"There's an opportunity to really reduce the amount of coal we use in terms of energy generated in Michigan. I'm very excited to see that percentage going down very significantly over this next 10-year horizon because coal is not a preferred fuel for a variety of reasons," Snyder said Dec. 19.

Coal is responsible for the production of about 56 percent of Michigan's electricity, according to the Energy Information Administration. Nuclear is second, providing 28 percent of the state's power, while natural gas accounts for 11 percent.

"Pragmatic" is the term often used to describe Snyder. On his website, he touts his direct approach to difficult issues: "Solve a problem with no credit or blame and then move on to the next one."

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The coal lobby in Washington has another word to describe Snyder.

"The governor is misguided in his thinking if he believes he can meet his goals of ensuring reliable, affordable energy for Michiganders without significant baseload power from coal. This has been demonstrated in spades [last] week, where freezing temperatures have driven the price of natural gas up," said Laura Sheehan, senior vice president for communications at the American Coalition for Clean Coal Electricity.

"Shifting to increased power generation from natural gas is a major strategy in Gov. Snyder's plan," she said.

Sheehan's got that right. Snyder touts his state as "a good natural gas producer," with more than "10,000 wells fracked in our state without a problem. We're a role model for fracking done right."

Michigan production accounts for less than 20 percent of the natural gas consumed in the state, but one advantage the state has is that its underground gas storage is significant. With about 649 billion cubic feet of working gas capacity, Michigan has more storage than any other state, according to EIA.

Just how much the move away from coal will require action by the Legislature or the Public Service Commission remains unclear. The competitive price of natural gas as a fuel source and looming federal rules to control greenhouse gas emissions may be all that is necessary to accelerate change in the generation mix.

But some of what Snyder wants will require legislation, such as increasing the state mandate that utilities obtain 10 percent of their power from renewable sources by 2015. That was set in a 2008 energy law that also established energy efficiency mandates and put a cap of 10 percent on the amount of utility customers who could shop competitive suppliers for electricity.

The 10 percent renewable mandate, which the state says it is well on the way to meeting, is among the lowest in the country. A report Snyder sought in 2013 said the state could achieve 30 percent of its power from renewables by 2035. For now, the governor won't be tied down to a specific number; he says legislation needs to set a new renewable mandate within a "reasonable range."

Other aspects of Snyder's energy plan include improving electric reliability and cutting the number of outages and their length. Snyder's goal is to have Michigan rank in the top 25 percent nationwide in terms of the fewest outages and the top 50 percent for the duration of outages.

Snyder would like to see the Legislature act in 2015 or before, although he acknowledges that since this is an election year, getting a bill passed could be problematic.

Utilities express support

DTE Energy is "supportive of Gov. Snyder's approach to developing a comprehensive plan for Michigan's energy future," said spokeswoman Randi Berris. But the utility cautioned that the state has to maintain its historically "responsible regulatory environment" as the governor's plans are implemented.

While DTE has "not made any decisions about our various plants," Berris said, the company is "looking at what makes sense with new [federal] environmental controls coming online."

U.S. EPA is slated to release its proposed rules to control greenhouse gas emissions from existing power plants in June. "That'll play a significant role in determining" what DTE will do, Berris said.

Consumers Energy, Michigan's other large utility, also "fully supports" Snyder's energy vision, said spokesman Dan Bishop.

An updated analysis by the Union of Concerned Scientists factors in proposed and forthcoming EPA rules and concludes that nationwide, there are 329 coal generators "ripe for retirement." That's because they do not pass the group's stress test designed to look at each unit's competitiveness compared with alternatives such as new or existing natural-gas-fired, combined-cycle plants or new wind farms.

Michigan tops the UCS list of states, with 43 generating units with a capacity of 6,719 megawatts. That amounts to roughly 55 percent of Michigan's existing coal-fired generation fleet of 12,100 MW, according to Jeff Deyette, assistant director of research and analysis at UCS.

Of that amount, DTE has 13 generating units with 2,985 MW of capacity in the ripe-for-retirement category, while Consumers Energy, Michigan's other large utility, has 10 units, or 1,780 MW, UCS said.

Consumers has already announced the closure of seven older coal plants with a total of 953 MW by 2016, Bishop said.

"It's certainly encouraging," said Deyette of Snyder's plan, and even though the "statement wasn't specific to what's going to happen to that coal fleet, it does give an indication that some major announcements may be forthcoming in the next year or so."

Deyette is among a group of clean energy advocates pushing for a significant jump in the renewable mandate. They like to point out that Michigan has the manufacturing history, workforce and infrastructure to support making clean energy products, such as wind turbines. With Michigan spending close to $1.2 billion a year to import coal from other states to generate electricity, Deyette said, "that's a lot of money leaving the state that could be invested internally on homegrown resources."

Price of electricity also a driver

Michigan has much higher retail electricity prices than most of the United States, and the highest of any state that gets more than half its power from coal. The average residential electricity price was 14.99 cents per kilowatt-hour in September, EIA data showed, above the 12.52-cent-per-kWh national average.

Those rates "have gone up a lot," about 28 percent, since the passage of the 2008 law, "while rates nationally are if anything down slightly," said Ted Bolema, an adjunct scholar at the Mackinac Center for Public Policy.

The cap was a trade-off in 2008 for the utilities' support of the 10 percent renewable mandate, Bolema said. It reversed a 1999 law that opened the state's electricity market to 100 percent competition.

Snyder admits there is a "high level of interest" in raising the 10 percent cap on retail electricity competition, but he has been unwilling to stake out a position on raising the cap, something the utilities adamantly oppose. On the other side, he is being pressed to raise it by the business community, which recalls the years before 2008 when "rates fell below the national average," Bolema said.

State lawmakers seem to be more inclined to expand competition with the utilities, and a bill is pending to do just that. "A lot of the legislators have been saying raise the cap. In the Legislature, there's been some interest among the more conservative Republicans, tea party-type Republicans in raising the cap," Bolema noted.

The cap on electric choice was met years ago, and about 10,000 Michigan customers are enjoying being able to shop for less expensive power. A waiting list of customers who want the same choice is at 12,000 and growing every month.

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