One of the Upper Peninsula’s largest utilities claims that compliance with state renewable energy standards would necessitate decisions that would lead to drastic bill increases for ratepayers. In its request to the Michigan Public Service Commission (MPSC) for approval of its Amended Renewable Energy Plan (Case U-21813), Upper Michigan Energy Resources (UMERC), argued that to comply with a 2023 act, which establishes a renewable energy standard of 50% by 2030 and 60% by 2035, as well as a clean energy standard of 80% by 2035 and 100% by 2040, it would need to prematurely close two natural gas-burning power plants. These plants would be replaced with pricey new infrastructure, the costs of which would be passed on to ratepayers. Based on the same assumptions, GOP lawmakers have pushed legislation that would amend renewable and clean energy standards to reclassify natural gas as a clean and renewable power source, arguing that this is necessary to keep costs down.
Recent testimony filed by CUB and Michigan Attorney General Dana Nessel in the UMERC case shows how these fears are based on false premises. The testimony, which was authored by Douglas Jester of 5 Lakes Energy, shows how the utility can keep the plants in question in operation while meeting renewable energy standards as they are currently defined, thereby avoiding the supposedly inevitable rate increases. This is because of the precise way that renewable energy standards are defined, as well as the functioning of the wholesale electricity market that UMERC is a part of, the Midcontinent Independent System Operator (MISO).
As a brief sidenote, the difference between the renewable energy standard and the clean energy standard is that “renewable energy” is defined under the law as solar, wind, geothermal, existing hydroelectric and many biomass sources, while “clean energy” is defined as any source that does not emit greenhouse gases, including nuclear generation and also combined-cycle natural gas plants that capture at least 90% of their greenhouse gas emissions.
The Mihm and Kuester plants, owned and operated by UMERC, came into service in 2019 and provide approximately 180 megawatts of nameplate power generation capacity. According to the Michigan House GOP, if the plants are retired early, U.P. ratepayers face monthly bill increases of $80 for residential customers and more than $470,000 for large industrial facilities. The Tilden Iron Mine, UMERC’s largest customer, would face monthly payments of more than $15 million.
But as CUB’s testimony explains, meeting the clean or renewable energy standard doesn’t prohibit the operation of power plants in Michigan not defined as clean. Instead, it requires electric providers to supply clean energy representing a certain percentage of retail sales by the deadlines specified in the legislation. As a member of MISO, UMERC does not produce power to sell directly to customers. Instead, it sells electricity to customers which it purchases from MISO’s power pool. Conversely, UMERC sells the electricity it generates to the power pool. In fact, as specified in its MPSC-approved Power Supply Cost Recovery Plan (Case U-21600), UMERC-owned generation will supply only about 41% of its energy requirements for 2025, with the rest coming from purchases from MISO.
To comply with clean energy legislation, UMERC is obligated to sell to the MISO power pool at least as much clean energy as the portion of retail sales required in the clean energy standard. For example, it could sell clean energy equivalent to 80% of retail sales by 2035. It can continue to operate Mihm and Kuester, selling their generation to the MISO power pool, and stay in compliance with the clean energy legislation as long as it also sells enough clean energy as well. The utility has several options by which it can acquire the clean energy it sells to the power pool: it can be produced by clean resources it owns or purchased as Renewable Energy Credits (RECs) or through entering into long-term Power Purchase Agreement (PPA) contracts with third party owners.
In addition to the issue of the premature retirement of the two plants, the Amended Renewable Energy Plan (AREP) contains other distortions related to proposed renewable energy resources that would lead to unnecessary costs for ratepayers if the plan was approved by the commission. For example, UMERC proposes to acquire 275 megawatts of Battery Energy Storage Systems (BESS) by 2040 in its plan, at a capital cost of $856.9 million. Although the utility’s witness declared that UMERC considers it to be a renewable energy system, it is not considered to be categorized as one according to state legislation. Therefore, CUB’s testimony argues that BESS should not be included as part of the utility’s AREP, as their costs cannot be recovered through the plan. Further supporting this point, UMERC’s witnesses presented modeling results which showed that in the scenario where the Mihm and Kuester plants were not retired, no BESS would be built. As CUB’s testimony shows that these plants don’t need to be retired, it seems that investments in BESS are unnecessary according to the utility’s planning approach.
Another area of concern in the AREP was its proposed strategy for supplying clean energy to the Tilden Mine. The mine is UMERC’s largest customer and makes up a large share of its current sales. However, Tilden Mine’s owners stated that they expect the mine to reach the end of its life around 2045. The utility’s exhibits make it clear that UMERC assumes that the mine will operate past 2045, and in the AREP it proposes to build and own several renewable generation facilities that are designed to supply 100% of Tilden’s sales by 2040. Given the expected lifetime of wind and solar facilities is around 35 years, the AREP risks overbuilding renewable energy generation to meet temporary load, which could end up saddling consumers with the costs of paying for unnecessary infrastructure. Given the temporary nature of Tilden’s load, CUB’s testimony argues that a better approach would be to meet Tilden’s expected renewable energy needs through REC purchases. Although the cost of acquiring renewable energy through REC purchases can be more expensive per unit of electricity than through owned renewables, the shorter-term flexibility of the approach of meeting Tilden’s needs through REC purchases makes it prudent.
In conclusion, UMERC grossly overstates the incremental cost of compliance with the Renewable Energy Standard. Due to the costs imposed by the unnecessary premature retirements of the Mihm and Kuester plants, the building of BESS, the approach to the Tilden Mine, and more, the AREP is neither prudent nor reasonable, and CUB argues that the Commission recommend revisions to the plan or else disapprove it. The U.P. can meet its renewable energy needs at much lower cost to ratepayers than UMERC’s plan and without redefining natural gas as a clean or renewable energy source.