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New Rules for Bay City Coal Battle

Utility must prove plant's needed, prudent, and feasible

April 10, 2009 | By Glenn Puit
Great Lakes Bulletin News Service

Hampton Charter Township
  Consumers Energy wants to build a new, less-polluting, coal-fired power plant next to its current facility along the Saginaw River, near Bay City.
The battle over building new coal-fired power plants in Michigan heats up again next week when the state conducts three public hearings about the big facility that Consumers Energy wants to erect near Bay City.

The hearings, scheduled for Tuesday and Wednesday, April 14 and 15, will focus on the company’s plan for a 930 MW coal-fired power plant, which would be built next to the plant Consumers operates at its Karn-Weadock complex, near the mouth of the Saginaw River.

But a directive issued two months ago by Governor Jennifer Granholm will put a new twist to the hearings.

For the first time, the state agency that processes permits for new coal plants will have to consider more than the project’s air emissions when it makes its final decision. The agency, the Michigan Department of Environmental Quality, will work in tandem with the Michigan Public Service Commission to evaluate whether the plant’s additional electricity is actually needed, and whether burning coal to provide it is the most “prudent and feasible” approach.

In the past, a firm proposing a new coal plant only had to demonstrate that its project’s nitrous oxides, sulfur dioxide, mercury, and particulate emissions were within limits established by the U.S. Environmental Protection Agency. U.S. EPA regulates those emissions because they are known to cause smog, acid rain, neurological damage to fetuses and infants, and pulmonary and lung damage to the elderly.

But as it became clear over the past several years that utilities wanted to build as many as eight new coal plants in Michigan, clean-energy advocates began raising a new question in addition to environmental and health concerns: Does the state, which is undergoing an historic downsizing and restructuring of its energy-hungry manufacturing sector, actually need any of the proposed plants’ additional electricity?

Now, due to the governor’s directive, Consumers—and the three other utilities that have also received draft permits for their projects from the Michigan Department of Environmental Quality but have already faced public hearings—must answer that question.

Clean energy advocates say that governor’s recent, related energy efficiency initiatives, combined with the modest efficiency goals recently approved by the state Legislature, will make it difficult for utilities to prove that they need more power—no matter which way Michigan’s savaged economy heads.

They add that those efficiency measures will save ratepayer dollars, while building new, multi-billion-dollar coal plants will significantly boost electric rates.

Consumers: Cleaner, More Efficient
In an interview, Consumers spokesman Dan Bishop defended his company’s proposed new plant on both environmental and energy-demand grounds.

Mr. Bishop said that, given the plant’s design, which according to the company’s air permit application uses “advanced supercritical pulverized coal” technology, the proposed facility would emit significantly less pollution than other, older plants.

That, he said, means the plant could actually improve the environment when his company retires one of its older, much dirtier plants. Those plants were built well before the federal Clean Air Act tightened air emission limits in the 1970s, and were “grandfathered” at their established emission levels when the Act was signed into law.

“The new unit we are proposing at the existing site in Bay City will be much more efficient in terms of emission reductions,” he explained. “Currently we have the second-oldest generating fleet in Michigan. They date to back to when Harry Truman was president.”

He added that the new plant would also aid in the battle against global warming, because it would burn less coal, a heavy emitter of CO2 and other greenhouse gases, to provide the same amount of power.

“As a result of the introduction of this new, highly efficient unit,” he pointed out, “Consumers’ carbon footprint will be reduced...and that’s something the environmental community would support.”

Mr. Bishop confirmed that Consumers, as his opponents have long insisted, is seeing a drop in energy demand. But he said the company anticipates that demand will recover by the time the new plant is online in the middle of the next decade.

“Over the past decade, customer demand has grown by about 2 percent per year,” he said. “It was off a little bit in ‘08, flat to slightly off in ‘09. We anticipate demand growth resuming at a less robust rate, but still 0.3 percent, and that could change depending on the recovery of Michigan economy.”

Save Money, Cut CO2
But Anne Woiwode, director the Michigan Chapter of the Sierra Club, said there is no support for the coal plant in the environmental community because, arguments about emissions and carbon footprints aside, it is simply not needed.

She and other clean-energy advocates argue that, instead of building the plant, Consumers and other Michigan utilities could actually accelerate the declining demand for coal power and save their customers money by redirecting dollars earmarked for new coal plants to energy efficiency measures.

Advocates argue that this would cost less than the traditional approach—simply generating new electricity. And installing efficiency measures—from retrofitting buildings with better insulation to purchasing more efficient appliances—quickly generates a wide variety of new jobs.

They add that several of the governor’s efficiency initiatives would soon bring those advantages to Michigan.

For example, according to the governor, the Michigan Public Service Commission is now writing rules that will allow utilities to turn a profit by helping their customers use less electricity—a key to prodding them to take bigger, faster steps toward energy efficiency.

The governor also indicated that MPSC is designing a new way to help homeowners and businesses invest in energy efficiency while avoiding large, upfront investments. Known as PAYS, or Pay As You Save, the program provides loans for “weatherizing” older, inefficient buildings and replacing old, inefficient appliances with highly efficient new ones. Homeowners and businesses repay the loans with savings on their energy bills.

The governor also indicated that money headed toward the state from Washington as part of the Obama administration’s economic recovery package also targets energy efficiency. She said that she hopes federal officials will allow the state to invest some of the federal stimulus money into the state’s PAYS program.

Ms. Woiwode emphasized that increased investment in renewable energy sources like solar and wind power, which emit no global warming pollution, would also make far more sense than building new coal plants.

Last fall’s state legislation requires all utilities in the state to obtain 10 percent of their power from renewable sources by 2015; Consumers has obtained easements on 28,000 acres of land in two Michigan counties that it hopes are windy enough to put up big wind turbines. While clean-energy advocates applaud such activity, they think utilities should stop investing in coal.

“We believe, frankly, that there should be no more new coal plants anywhere,” Ms. Woiwode said. “People should let the MDEQ know that they are concerned about the health risks from additional coal, that they are concerned about the impact on global warming, that they are concerned about emissions of mercury, and that there are better alternatives.

“The coal plant is not worth the costs,” she concluded, pointing out that Consumers is also asking the state for permission to raise its rates by 16 percent, an increase that does not encompass the costs of building Bay City plant, estimated to be more than $2 billion. The company said the increases would fund improvements to its power grid and related distribution equipment, software, and other costs, according to a local news outlet, Channel 12 News.

Reading the Fine Print
One of the people Ms. Woiwode depends on for information about energy demand in Michigan is another Sierra Club member, Frank Zaski. The retired Detroit auto executive, a member of Governor Granholm’s Michigan Climate Action Council, has tracked energy demand in the state for several years.

In an interview, Mr. Zaski said that his work focuses primarily on Consumers and DTE Energy, which together dominate the state’s electrical market. He digs through stacks of utility rate cases and other documents that utilities are required to make public. He said he’s convinced that electricity demand is declining in Michigan, and will continue to do so for at least a decade, even when discounting anticipated efficiency measures.

“Michigan continues to lose population, jobs, and economic vitality,” he explained. “And, our major electric consumers appear vulnerable. GM plans to close assembly plants as part of their restructuring plan. And with bankruptcy looming for them and Chrysler, many more Michigan assembly, engine, stamping, component, supplier plants and offices are vulnerable statewide.”

In his research, Mr. Zaski discovered that Consumers’ own forecasts for future energy use indicate a 5 percent fall in “peak demand”—a basic benchmark for energy forecasting—between 2008 and 2018.

He pointed out that the decline in demand he sees in Michigan is occurring in other parts of the country, too. For example, he said the Energy Information Administration predicts electric sales in the region, including Michigan and surrounding states, will increase by just .3 percent over the next 22 years.

Mr. Zaski and the federal government are not alone in their thinking. A November 21, 2008 article in The Wall Street Journalreported that utilities across the country were seeing declines in electric consumption that began before the sub-prime mortgage and financial crisis hit and cannot be explained by weather changes.

While the article treats the decline as a “mystery,” some clean energy advocates say it is almost certainly the result of a gradual shift by consumers to more efficient appliances and better insulated buildings.

In the article Michael Morris, the chief executive of AEP, one of the country's largest utilities, says he thinks the electric industry should to be wary about breaking ground on expensive new power generating projects.

"The message is: be cautious about what you build,” he told the Journal, “because you may not have the demand" to justify the expense.

Glenn Puit is a policy specialist for the Michigan Land Use Institute. Reach him at glenn@mlui.org.

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