For Immediate Release
Contact: Selma Tucker, Director of Marketing and Communications
Public Sector Consultants
LANSING, Mich.—A new report released by Public Sector Consultants Inc. (PSC), a Lansing-based public policy research firm, highlights the challenges facing Michigan’s ability to ensure residents and businesses a reliable supply of electricity.
The problem is being created by the retirement of coal-fired power plants in Michigan, brought on in part by environmental regulations and the aging of plants. By 2016, plant retirements will cause Michigan’s supply of electricity to fall below established standards for reliability.
In total, Michigan is projected to lose 1.3 GW of electricity production—enough energy to serve approximately one million people, which is equivalent to the combined populations of Detroit, Grand Rapids, and Lansing. The state’s two largest utility providers, Consumers Energy and DTE Energy, have announced the retirement of nine coal generation units by 2016, accounting for more than 90 percent (1.2 GW) of the shortfall.
Energy providers across the county are responding to Environmental Protection Agency (EPA) regulations to reduce air pollution from plants that rely on fossil fuels to produce electricity. Michigan is among the most heavily affected states.
“Coal accounts for 39 percent of the nation’s electricity, but in Michigan, that number is north of 50 percent,” says PSC Senior Vice President Julie Metty Bennett, who leads the firm’s energy and environment practices. “Given the age of our coal plants, upgrading them to comply with the new EPA regulations is not economically viable. Because we are so reliant on these old coal plants, we are going to lose a significant amount of our energy supply, and it takes years to replace that capacity.”
Although greater reliance on energy efficiency and renewable energy generation can help bridge the supply gap, even aggressive efforts in those areas will not eliminate the need for new base load power plants in the next three to five years. Unfortunately, current state policy impedes the development of new base load electric supplies.
“Michigan’s current energy market structure severely handicaps the state’s ability to ensure reliability,” says Bennett. “Some customers, primarily large business customers, are able to bypass their utility and purchase power independently, but can come back whenever they want. This revolving door creates major reliability and affordability problems for everyone else. Uncertainty about a utility’s customer base creates a disincentive to invest in additional base load generation. In addition, cost shifting occurs from customers that bypassed the utility to those who remain. The challenges have gone undetected because Michigan’s economy was struggling and there was a surplus of electricity supply, but now those challenge are staring us directly in the face. Michigan needs to revise this law and address this impending reliability problem.”
Solutions will narrow as time goes on, because construction of new base load generation can take as long as six years.
“This is a complex problem that needs to be addressed in a methodical and systematic way,” says PSC Senior Policy Fellow Ken Sikkema. “At the end of the day, the state is responsible for making sure Michigan has a supply of affordable and reliable energy to power its future, and time is not on our side.”
The issues with the state’s energy policy are already materializing for many Michiganders, but these challenges are most evident and severe for residents of the Upper Peninsula. In the report, PSC explores a developing problem over the Presque Isle Power Plant near Marquette. This problems has the potential to cause skyrocketing energy bills for the entire Upper Peninsula in order to support the plant which lost a major business customer to an out-of-state energy provider. That customer accounted for 80 percent of the plant’s electricity production.
“Closing that plant means serious reliability and cost concerns for the remaining customers, mostly residents and small businesses,” says Sikkema. “In the short term, there’s no good option to address this kind of instability and uncertainty for residents in the Upper Peninsula. The longer Michigan waits to fix this, the worse it gets for them and the rest of the state.”
PSC’s research on electric reliability in Michigan is composed of two major works: a full report and analysis titled “Electric Reliability in Michigan: The Challenge Ahead” and “Electric Reliability in Michigan: A Policy Brief,” which is intended to highlight the important elements of the full report.
This study follows a history of PSC publications on electric market structures and state energy policy:
- Analysis of Electric Deregulation Policies in Four States (2014)
- Michigan’s Current Energy Plan: Research-based, Comprehensive, Flexible, Certain, Accountable, Reliable, and Affordable (2012)
- Market Structures and the 21st Century Energy Plan (2007)
- Electricity Restructuring in Michigan: The Effects to Date of Public Act 141 and Potential Future Challenges (2006)
This PSC study was commissioned by DTE Energy and Consumers Energy to help inform the discussion over electric market policies.
Public Sector Consultants is Michigan’s most respected, connected, and dedicated research and program management firm, with specialties in governance and regulation, health care, education, energy, and environmental policy. PSC is committed to providing objective research and sound solutions to the public and private sector.