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New Questions as State Mulls Wolverine Coal Permit

Co-op sees big demand drop, ignores a cheaper, cleaner power plant

January 18, 2010 | By Glenn Puit
Great Lakes Bulletin News Service

Mitsubishi Heavy Industries Ltd.
  The New Covert natural gas plant near South Haven uses highly efficient combined cycle energy technology.
As a rural electric co-op awaits a state decision on its push to build a controversial new coal-fired power plant in Rogers City, evidence continues to accumulate that the firm does not need the plant and, instead, could buy cheaper electricity from a significantly cleaner-burning facility in southwestern Michigan.

According to documents reviewed by the Great Lakes Bulletin News Service, Wolverine Power Supply Cooperative Inc.’s peak power demand has dropped dramatically over the past two years. In 2008, the firm’s peak demand dropped a remarkable 12.6 percent, and internal documents show evidence of a significant demand drop in 2009, as well.

Meanwhile, another document reviewed by the news service shows that while the Cadillac-based cooperative is pushing its proposed coal plant, which could sharply increase its customers’ electricity rates, it is ignoring an opportunity to meet its long-term power demand and save its customers money. That opportunity is a less-costly, less-polluting, combined cycle, natural gas-fired “base load” power plant near South Haven.

Both facts—and the recently revealed purchase of another natural gas plant by Wolverine that is not capable of supplying continuous, base load power—could weigh heavily on the state’s pending decision about the Wolverine proposal. State and federal laws require that, before a new coal plant can be built, a company must demonstrate that it needs the new electricity and that burning coal is the most “prudent and feasible” way to provide it.

Wolverine’s demand drop, according to both the company’s 2008 annual report and an internal document obtained by GLBNS, is dramatic. The company’s report says that its peak demand numbers fell 12.6 percent from 2007 levels during 2008. And the internal document—minutes of a recent company board of directors meeting that the news service reported on last month—indicate that the fall may have accelerated in 2009. The minutes show peak demand 14.6 percent lower in September 2009 than September 2008.

Two weeks ago, after the double-digit drops came to light, the news service received a copy of a letter to state regulators written by an attorney for the New Covert Generating Company L.L.C. The letter says that Wolverine could have signed long-term power supply contracts with New Covert, which operates a six-year-old gas-fired power plant in Covert Township,near South Haven, or perhaps purchased the facility outright. The attorney said it is the cleanest-burning and most energy-efficient base-load power plant in the state.

According to the attorney, Rodger Kershner, of Howard & Howard Attorneys PLLC, in Royal Oak, new coal plants are now old hat—and financially risky.

“At one time, a decision by an electric utility to build a coal-fired power plant rather than a natural gas-fired plant must have seemed like a natural and obvious choice,” Mr. Kershner wrote to Michigan’s Public Service Commission and Department of Environmental Quality.

Wolverine, which has refused to speak with Great Lakes Bulletin News Service since July of 2007, started planning to build the coal plant as early as 2000. But, Mr. Kershner wrote, in recent years coal prices and financing costs have soared while natural gas prices have fallen, making new coal plants a bad financial bet.

“Wolverine’s plans have apparently remained unchanged while the world changed around them,” he observed.

Clean energy advocates add that the coop could lower or significantly slow the rise of its customers energy costs, better protect the environment, and bring more jobs to Michigan by investing more heavily in customers' energy efficiency, windpower and other renewable sourcess, and signing agreements like the one Mr. Kershner is touting.

A strong turn by Wolverine toward efficiency and renewables, they say, would assist Michigan’s push to become a global center in the rapidly spreading, worldwide revolution in clean-energy production. That is a key part of Michigan Governor Jennifer Granholm’s drive to revive the state’s collapsed manufacturing base.

As part of that drive, Governor Granholm invoked state and federal laws to require companies proposing new coal plants to perform a “needs” and “alternatives” study. The Michigan Department of Natural Resources and Environment, the newly established successors to MDEQ, says its decision on the Wolverine permit is imminent.

Meanwhile, statewide and national declines in electricity demand continue. For example, DTE Energy has told MPSC that it expects its electricity sales to decline by slightly more than 1 percent a year between now and 2014. And the Wall Street Journal reported on Jan 14 that national electric sales declined by 3.7 percent in 2009, the steepest drop in 71 years. The drop followed a 1 percent fall in 2008.

Covert’s Operation
Attorney Kershner presented his client’s views to MPSC and MDEQ as part of the state permitting process for new coal plants.

Mr. Kershner wrote that, because Covert burns natural gas, it emits far fewer pollutants than coal, including roughly half as many climate-changing CO2 emissions. He asked why Wolverine, a power distribution co-op owned by four northern Michigan retail co-ops, is pursuing new coal when Covert is able to sign long-term power-purchase agreements. Wolverine has long argued that because its current power purchase agreements with other companies are expiring soon, it needs to build its own coal plant.

The co-op current gets virtually all of its power from downstate sources and redistributes it to its reatail co-ops; it also draws some power from Michigan's first wind farm, located in The Thumb.

At 1,100 MW, the New Covert plant has almost twice the power capacity of Wolverine’s proposed 600 MW coal plant. Yet, according to a U.S. EPA Clean Air Market data base quoted on page 28 of another comment filed with Michigan regulators about Wolverine’s plant application, Covert operated at only 8 percent of its annual generating potential in 2008. Although Covert’s power prices are difficult to ascertain, Mr. Kershner’s letter indicates that they are significantly lower than the wholesale price that Wolverine would have to charge for power from its new plant—almost 11 cents per kWh. That is about twice the current average wholesale rate for coal power in Michigan.

According to one rough rule of thumb, the current, historically low price of natural gas means that many gas-fired plants’ rates are around 6 cents per kWh.

Attorney Kershner also pointed out that, since the Covert facility was already built, Wolverine could eliminate the multi-billion-dollar financial risk of building a coal plant—something that over the past several years has helped convince companies to drop plans for more than 100 other, similar facilities. Wolverine estimated in May 2006 that its new plant would cost $1.3 billion, and has not publicly updated that estimate since then.

Meanwhile, costs for building new coal plants have skyrocketed. For example, estimates for the 930 MW coal plant Consumers Energy wants to build near Bay City range from $2.3 billion to $ 3.58 billion.

Tax records for the New Covert plant indicate that its cash value is $433 million; Mr. Kershner’s comment letter hinted that his client’s plant could be purchased outright at a favorable price, given the sharp fall in power demand both in Michigan and nationally.

Dollars and Environmental Sense
Joseph Romm, a senior fellow at the Center for American Progress, a non-profit progressive think tank, pointed out that moving to natural gas instead of coal also makes environmental sense. Mr. Romm told the news service that natural gas has half the carbon emissions of coal, making it especially attractive as America seeks to take steps to address climate change.

“For a very small extra cost, perhaps half a cent to a penny per kilowatt-hour,” Mr. Romm said, comparing the price of gas power to existing coal power, “you could dramatically reduce U.S greenhouse gas emissions. That is one key role for natural gas in the next 10 to 15 years in replacing coal.”

Mr. Romm sees natural gas as a very important “bridge fuel” to get off coal. Increasingly, other utility executives are agreeing with that assessment.

InvestorPlace.com, a financial advice Web site, notes that there is currently a lot of discussion on the national level about replacing coal-fired electricity with natural gas.

According to the online publication, the natural gas industry now argues that an innovative extraction technology called “fracking”—injecting water and chemicals deep underground to free up gas that previously was out of reach—is lowering the price of that fuel. Prices had soared in previous decades as more natural gas power plants came on line, pushed up demand, and shrank supplies.

Gas industry officials also point out that because gas plants can start up so much more quickly than coal plants, they are ideal for providing power in league with renewable energy sources like wind and solar power, which are not continuously available.

“A gas-fired plant could be sited near a wind or solar farm to generate electricity when the wind is calm and the sky is dark,” according to InvestorPlace.

Efficiency First?
While many clean-energy advocates and coal plant opponents agree that a deal between Wolverine and New Covert makes a great deal of economic and environmental sense, some caution that the price of natural gas could remain quite volatile and that the fuel is best seen as a lower-CO2 “bridge” to a fossil fuel-free energy future.

They point out that, dollar for dollar, Wolverine could free up many more megawatts of “base load” or continuous electricity supply by investing in its customers’ efficiency, rather than in coal plants or agreements with companies like New Covert.

They argue that the co-op would help its members save both electricity and heating costs by doing so, and quickly put a large number of construction and other trade workers to work in Wolverines northern Lower Michign service area to work retrofitting Michigan’s many highly inefficient houses, office buildings, stores, and factories.

Currently, the Granhom administration is using funds from last year’s federal American Recovery and Reinvestment Act to “weatherize” more than 30,000 heat-leaking homes around the state.

Meanwhile, MPSC is working on a “pay as you save” program that would encourage electric utilities to help their customers finance cuts to their overall energy use through weatherization, extensive building efficiency retrofits, and purchases of much more efficient Energy Star appliances, air conditioners, and furnaces.

MPSC is also planning to allow utilities to “decouple” their profits from the amount of electricity they sell and, instead, make money by helping their customers reduce their demand for electricity. That innovative business model, some point out, would actually help the bottom lines of utilities when their sales decline due to the economy, the weather, or enhanced customer efficiency.

And a group of non-profit organizations, faith-based groups, and Lansing lawmakers pushing the ReEnergize Michigan campaign are currently working on proposals that would require utilities to accelerate the installation of energy efficiency measures and renewable energy sources. The coalition is also pushing for feed-in tariffs, which require utilities to pay profitable rates to customers who install wind turbines or solar panels and feed their clean, renewable energy into the grid.

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

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