The 2008 Energy Act • Good for Michigan Rate Payers or Bad for our Health & Environment?

The Editor, Bay Area Review Magazine; 

Recently I became aware that the area around the Saginaw Bay constitutes the largest contiguous freshwater wetland area in the United States.  Wetlands are vital to ensure that our natural water resources remain clean.  Wetlands are vitally important to our environment and in maintaining our health; and it has long been established by law that normally the only justifiable reason for draining them is for agricultural use. 

The Michigan Department of Natural Resources is considering a wetlands development permit (Land and Water Management Division file 09-09-0006-P) for Consumer’s Energy’s Karn-Weadock coal electricity plant.  

CE says they want to fill and develop about 7 acres of valuable wetland while relocating about 5000 feet of drains.  But with the relocation of the drains, many more acres of what is now farmland would normally revert back to wetlands.  But CE will use this land instead as a new location for its toxic ash pit.  The question is: why?

In order to begin the $2.3 billion coal plant expansion approved by the MDNR last year, CE would need to find a new location for the ash dump.  Except for one thing: there are no current plans to build the expansion.  CE’s holding company, Jackson-based CMS, has deferred the project citing excessive costs.  CMS spokesman Jeff Holyfield has admitted recently in the Wall Street Journal “for now, it doesn’t make sense”. 

There are many reasons not to approve this project.  

You can't help but question the wisdom of moving a toxic ash dump from one bad location to another—from next to Lake Huron to the middle of a wetland.  But these are the types of things that happen when the MDNR allows permit data to be provided by the applicant: in this case by Consumers Energy.  The analysis of that data was also largely provided by CE; but destroying wetlands for a project that is not currently being considered?  Who can possibly justify that? Why do it at all? 

Because they can, and CMS will profit by it.

Thanks to misguided legislation passed two years ago, a utility can begin raising rates for a project like an expansion as soon as construction begins.  Also consider that ratepayers are no longer allowed to choose an alternate provider who offers lower rates: the law now requires that 90% of current customers must stay with DTE and CE.  This means that ratepayers will end up paying for the expansion even if it’s never completed. 

And the proposed destruction of the wetlands east of the Karn-Weadock facility is part of the expansion project.  With even CMS recognizing the prohibitive cost of this boondoggle, they still want to go ahead with destroying wetlands for no reason, because by law the Michigan Public Service Commission must allow our rates to rise to pay for it.

The MDNR Wetlands Division once again made a decision to go with CMS investors on October 26th.

Scott Miller
Bay City

Editor’s Reply:

Thanks for your thoughtful letter and the disturbing points within it, Scott. The Review has done numerous investigations on the development of Karn-Weadock, especially in an era when renewable and green technologies are purportedly being advanced in the 2008 Energy Bill.

Sadly, as you note, the 2008 Energy Bill is a piece of legislation that guarantees big utilities a monopoly once again and trades competition in the market place for guarantees that Consumers Energy, DTE, and monopoly energy suppliers will in fact move to a meager 10 percent mix of renewable energy sources by 2014; when in fact, the reality that they may increase rates for development projects such as this, which the Public Service Commission must approve, underlines the notion there is little incentive for Consumers to move away from traditional sources such as natural gas, oil, and coal.

Indeed, the only way rates can be reversed is if the legislature through the Michigan Public Service Commission votes to rescind the rate one year after the fact – kind of like allowing the fox to watch the hen house.

Does it make sense to ban mercury in Children’s toys and then allow it to filter into the Great Lakes and our water sources by the development of mythological ‘clean coal’, which is nothing more than a Madison Avenue fantasy?

State Representative Ken Horn is the ranking member on the Michigan House Energy & Technology Committee, so I forwarded these concerns over to him for response.

Here is what I got back:

Background Leading to the 2008 Energy Act

PA 141 of 2000 opened up the electric supply market to competition by creating a hybrid-regulated utility system in Michigan where the utilities were forced to open up the electric market to competition, while they remained in a position of being the supplier of last resort.

As part of PA 141, the utilities were forced, by law, to reduce residential rates by 5% (termed rate-skewing) and un-bundle their commercial and industrial rate schedules. With this action, electric competitors (often electric wholesalers, not generators) ignored the residential customer and targeted Industrial, commercial and public users of electricity with new contracted rates.

Because the utilities were forced to raise their rates to non-residential customers, it made financial sense for industrial users to look to alternative suppliers for better pricing. In other words, this skewing of rates resulted in a situation whereby utilities were, initially, not as competitive as they could be in the commercial and industrial markets. PA 141, it turned out, was inherently unfair to existing Michigan based power plants.

This set up a scenario, a showdown if you will, whereby neither the utility investors nor the alternative-electric supplier were making significant investment into electric energy infrastructure. Of particular note, no application for power plant building occurred during this time of uncertainty.

Billions of dollars of investment were required to ensure a strong and reliable electric-grid. These expenditures were considered extremely risky; with no assurance that the project will be paid for with skewed rates and an uncertain customer base. This was made very clear; as private suppliers required signed contracts from large electric users, and/or utilities required an assurance of a firm customer base to assure a successful rate-case in front of the Michigan Public Service Commission (MPSC).

Due to unlimited “choice”, for instance, industrial loads varied between the two largest utilities. Consumers Energy and Detroit Edison saw a loss of customer; ranging, over time, 2-9% of their total capacity. The losses were in the range of acceptable business practice, unless they considered new investments; hence, the showdown with Alternative Electric Suppliers (AES).

The first company to make investments into capital equipment would experience significant costs that need to be recovered; driving mobile industrial customers into the competition, meaning less customers to absorb the cost of investment, requiring existing customers to foot more and more of the bill for the investment. This was an untenable situation, and neither Utility nor AES would consider building a new plant with excess capacity, without having the assurance of a solid customer base. 

Considering that Michigan was strapped with an expensive 50-60 year old fleet of power plants; this was a serious government-generated economic problem that demanded innovative solutions.

So Why Allow Consumers to Move a Toxic Ash Pit into Valuable Farm & Wetlands When It’s Uncertain Karn-Weadock Will Be Built?

According to Ken Horn, it is his understanding that they aren’t moving the ash collection pit to a new location, but actually building a new one on the site of the new proposed plant. While the application for the new plant has been deferred, it is still the full intent of the utility to build the new facility. “The ash pit will still be required for the finished product, and CMS owns that property,” he explains. “IN addition Consumers will invest up to $6 billion in Michigan to update existing plants and grow the renewable portion of generation.”

“It isn’t my intent to try and assess how valuable the farmland is, or whether it even would be considered wetland, which is the basis for the DNRE application. The fact is that it is part of their property and was always intended for expansion. It is under full review by the MDNRE and I’ll be kept posted on the progress. If wetland remediation is required, it will be spelled out in the approval.”

But why is Consumers allowed to pass these questionable rate increases on to customers without any PSC review?

“The Public Service Commission reviews each rate case,” states Horn. “The 2008 Energy Act allows for an expedited process, precisely because the legislature wanted to speed up the government slowdown of the process from 2-3 years typically to about 9 months. We also required that no ‘pancaking’ can occur; meaning that utilities cannot offer more than one Rate-Case at a time to purposely clog up the system.”

This method allows privately owned facilities to work at the speed of business, while providing thorough oversight. To date, I’ve not heard of any major snags, but I’m willing to look at any information to the contrary. As far as I know, electric co-ops and municipal electric companies are not subject to MPSC rate reviews.”

But where is the logic in an Energy Bill that basically guarantees major utilities a monopoly once again and allows them to pass on the costs of questionable development to rate payers, all for the sake of mandating they move to 20% green types of energy by 2014?  With things like Dow’s Solar Roofing Tiles coming online in March 2011, and other products on the horizon, won’t these products in essence cut down on usage of traditional energy suppliers and hence cut into their profits?  How is it in their interest to foster and develop them through protection when the competition of a free market place would do that much better?

“I see plenty of logic in the 2008 Energy Act,” states Horn. “I was one of the loudest critics as the process began, and will still look for improvements as they come along. My goal was to create an environment for inexpensive and ‘reliable’ energy.  In a highly charged political world, I think we found some reasonable balances.”

“To answer your question about ‘choice’ specifically, the Energy Act does limit choice to some degree, but does not eliminate it. Without the 10% Cap three percent of DTE’s customers and one percent of CMS’s electric customers chose to be with other suppliers. Not one residential electric customer was on ‘choice’ by their choice, this was always deemed to be for larger industrial and public users.”

“Remembering that Michigan has a 50-60 year old fleet of power plants, we need to refurbish or build new. No alternative supplier made a good faith effort towards putting a shovel in the ground for a new generating plant. In fact, most of the alternative suppliers concerned now about the cap, do not have a physical presence in Michigan at all; they are simply looking to buy cheap wholesale electric and sell to Michigan customers.”

“In order to bring some certainty to the customer base in Michigan, but maintain a level of choice for competitive pricing, we chose to cap the number of customers leaving the regulated system.”

“As to the Renewable Portfolio Standard (RPS), Michigan set a 10% requirement by the year 2015. This RPS includes hydroelectric power, solar, wind, and bio-fuels. The environmental community expressed disappointed at the low 10% mark, and even this modest mandate came with built-in off ramps, to protect the ratepayers from having to foot the bill for fledgling technologies.”

“Even Dow Chemical, Dow Corning and HSC agree that they cannot build their new energy technologies without strong, reliable base-load electric energy, even as they promote their solar products. Dow Chemical was advocating for a Coal Plant in Midland just a couple of years ago (Constellation Energy Company), if you’ll remember.”

“In the Energy Act of 2008, we also dealt with a component of energy efficiency. The theory being that the cheapest form of energy is the energy that isn’t used. A lot of thought went into the process, and will always be second-guessed to some extent.”

“It’s important to remember that it takes many years to site and approve a power plant, and they need to last for decades. Billions of dollars of investment see a very slow return. This gives us the opportunity to continue our research and commitment to alternative energies, including the battery technology that is required to store electric energy produced by unreliable weather forecasts.”