LANSING – The only way to implement the recommendations of Michigan?s 21st Century Energy Plan is to re-regulate the state’s electric market, Public Sector Consultants said in a report to be presented Wednesday to the House Energy and Technology Committee.
For the plan, developed by former Public Service Commission Chair Peter Lark, to work, all of its elements need to be implemented, and that requires the certainty of state regulation, said Jeff Williams, author of the report, which was officially released Monday. Particularly the report, commissioned by the Michigan Municipal Electric Association and Protect Michigan, said the stability of revenue from regulated rates was needed to obtain financing for needed new power plants.
But competition advocates countered that new power plants, one of the elements, are being built now by independent power producers, contradicting one of the findings of the report.
The plan includes building at least one new 500 megawatt base load power plant as well as implementing energy conservation and renewable energy programs sufficient to produce another 1,000 MW.
“We strongly believe the 21st Century Energy Plan is not an a la carte plan,” Williams said. “You need to do all three.”
He said the current market scheme of partial regulation does not provide enough certainty for either utilities or independent producers to build a new power plant.
“The best risk reduction plan is to return to a regulated market,” he said. “A regulated environment gets you the goals of the 21st Century Energy Plan better, faster, cheaper and with more certainty,” he said.
Former Senate Majority Leader Ken Sikkema, who contributed to the PSC report, would not characterize the state’s current electric market scheme as a failure, but he said on many points the law missed its target. “Looking back, PA 141 was really a philosophical attempt to trick economic reality,” he said. It was largely competition for competition’s sake, he said.
Jim Weeks with the MMEA said the law exempted his members from having to offer choice, but did leave them stuck without the base load power they need. “Municipal utilities are out in a very unstable wholesale market,” he said. “We cannot continue to go down this road.”
Paul Beckhusen with Coldwater’s municipal utility said customers there have seen rates increase at least 10 percent annually the last four years because of the increases in wholesale rates.
Weeks also said the base load plants required in the 21st Century Plan account only for the expected increase in demand, not for the current power plants that need to be replaced. “We have the second oldest fleet of base load plants in the nation,” he said.
And Williams said the move to re-regulation needs to be made quickly. A new plant would take at least seven years to build and, under the 21st Century plan, needs to be operating by 2015 to meet projected need.
Rep. Frank Accavitti (D-Eastpointe), chair of the House Energy and Technology Committee, said he agrees getting a base load plant up and running will take time, but he doesn’t think getting to a groundbreaking by the end of the calendar year is a “drop dead date.”
Accavitti said officials are working to make sure the permitting process goes smoother and that citing issues are worked out in advance, which should cut down the time to get a plant operational. He hopes by the end of the year to see legislation in place that makes it more advantageous and easier to understand the reasons behind building a new plant.
Barry Cargill with the Customer Choice Coalition questioned why anything needed to be done to get new generation built. “There are companies right now planning new base load plants,” he said, noting a new coal-fired plant being built in Midland.
In the past seven years there has been 4,000 MW of new capacity built in the state, Cargill said. “And it was because of the passage of PA 141 of 2000 that that new investment in generation occurred.”
Cargill said Michigan has also seen slower growth in price than neighboring states because of electric choice, leaving it still with higher rates than some neighboring states, but growing more competitive. He said the utilities are still profitable under the current plan.
But Williams said the market is more unstable than in neighboring states because Michigan relies more on the wholesale market. While in Ohio, 90 percent of the power comes from base load plants, in Michigan, only 85 percent does, he said.
“If you don’t do anything, you become more dependent on this wholesale market, which is a high-priced market,” Sikkema said.
Rodger Kershner, an attorney representing independent power producers in the state, said there are at least three new base load plants under construction under the current regulatory scheme.
While he acknowledged Sikkema’s point that LS Power, owner of one of the plants, is able to build it because it has some long-term contracts to sell the power, he disagreed that all of the power from the plant needed to be under contract to gain financing.
Kershner could not disclose how much if the LS plant in Midland, a 750 MW plant, is already under contract, but he said LS built a plant in Arkansas where less than half of the power was under contract when construction began.
He also argued that, should the utilities build a plant and lose some of the customers that plant was intended to serve, they would be able to sell that power on the wholesale market. “All those customers are somewhere. That power is needed,” he said.
He did admit that, in some markets, that could mean selling the power at a loss. But he said the markets have not been that low for many years.
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