Economic Development and Sustainability

Small power producers predict desolate future

Filings made by Consumers Energy shows utility wants to decrease payments for renewable energy, according to IPPC.

October 28, 2016
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In 1982, Victor Leabu restored a dam on the Flat River in Lowell, which had been abandoned for over a decade, and began generating power for up to 500 homes.

Today, Leabu said the dam is once again in danger of being abandoned if he can’t afford to operate it anymore.

Leabu owns White’s Bridge Hydro, a member of the Independent Power Producers Coalition of Michigan.

IPPC is a coalition of small renewable power producers that say their businesses are being threatened by recent filings Consumers Energy has made with the Michigan Public Service Commission.

The IPPC said filings by Consumers Energy show the utility, which provides power to 1.8 million customers in Michigan, wants to decrease payments for renewable energy produced by IPPC businesses by more than half and limit contracts with suppliers to one-year commitments.

Collectively, IPPC is spending tens of thousands of dollars in legal bills to fight the proposed changes, which it alleges are unfair.

IPPC’s members include Viking Energy of McBain, Viking Energy of Lincoln, Hillman Power Co. (biomass), Granger Energy Services (landfill gas), Kent County (waste-to-energy) and numerous hydroelectric facilities: Boyce Hydro; White’s Bridge Hydro; Michiana Hydro Electric Co.; Tower Kleber LP/Black River LP; city of Beaverton; and Elk Rapids Electric Power.

Under the Public Utility Regulatory Policies Act of 1978, known as PURPA, regulated utilities are required to purchase power from small renewable power generators producing 20 megawatts of power or less at the utility’s avoided cost, which is the cost the utility would pay to produce the energy itself.

Michigan’s small renewable power facilities produce about 275 megawatts of base load power, but they say with reduced payments and truncated contracts, they will no longer be able to operate.

“The numbers we’ve been seeing, 4.5 cents, would put us all out of business,” Leabu said.

He said White’s Bridge Hydro is regulated by the Federal Energy Commission and must undergo regular and costly refurbishing to continue to meet safety and operation requirements.

“Without an economic reason to do this, the dam gets abandoned,” he said.

Dar Baas, director of Kent County Department of Public Works, said Kent County’s $70 million waste-to-energy facility also is in jeopardy if Consumers’ payments are reduced.

The facility produces approximately 15 megawatts of power, enough to support over 10,000 homes, according to Baas.

Baas said based on filings by Consumers Energy with the MPSC and recent meetings, the utility is suggesting payments to small renewable power producers should be “equivalent to the costs Consumers pays to buy electricity off of the MISO wholesale market,” which he said does not account for the true avoided costs.

“That is 3 to 4 cents versus the 8.4 cents we are being paid now, so less than half,” Baas said.

IPPC businesses have been receiving avoided costs for the past three decades based on coal production, but as Consumers retires coal plants and moves to more combined cycle natural gas, calls for updates to avoided costs calculations have been made.

The MPSC noted last year that the current method used to determine a utility's avoided cost rate under PURPA has been in place since the early 1980s and changes should be considered.

The MPSC initiated proceedings (Case No. U-18089 et al) to establish updated avoided costs for rate-regulated electric utilities earlier this year.

Baas said he disagrees Consumers move from coal to combined cycle natural gas accounts for the large reduction in payments being considered.

“We are moving to most likely combined cycle natural gas, which is still about 8 cents a megawatt hour to generate electricity when you think about the cost of transmission lines and the cost of the plant and your fuel source, all that combined,” he said.

He said the county’s 32-year contract with Consumers expires in February 2022, leaving him unsure how to move forward with investments the plant needs to continue operating efficiently.

“Kent County invests $2 million a year to refurbish the plant,” he said. “Do I spend $6 million in the next three years for the plant if we are going to moth ball it?”

Baas said Kent County has contracts with six cities that bring their trash to the facility, and those contracts are in jeopardy, as well.

“We charge a ‘tip’ fee, and about half of our revenue comes from the ‘tip’ fee and half from electrical sales,” he explained. “If they cut our electrical rates by half, then our ‘tip’ fee will go from $45 to $70 a ton.”

He added, if Consumers were to cancel its contract all together, it would no longer make sense for the waste-to-energy facility to operate, but if it did, the “tip” rate would need to be increased to $90 per ton.

He also said shuttering the facility would mean the loss of 40 jobs at the plant.

“That’s $4.5 million in annual payroll,” he said.

“For Kent County, as a municipality whose county residents backed the bonds that paid for the waste-to-energy facility, to have a stranded asset, because Consumers is indicating to us they want to put us out of business, that is not right,” Baas said. “We are a very viable operator. We meet the federal clean air act, we’ve been recognized by the DEQ as a clean corporate citizen and we have 26 years of operating background.”

Baas said important environmental gains also are at stake.

He said during its 26 years of operation, the waste-to-energy facility would have filled 150 acres of landfill versus the 90 percent reduction it achieved instead. It also recovered 124 thousand tons of scrap steel, “enough to build the Mackinac Bridge,” according to Baas.

Avoided costs calculation methods do not take into account environmental savings.

IPPC said if Consumers Energy succeeds in achieving the changes it is seeking, Michigan could lose up to 25 percent of the state’s renewable power generation.

The IPPC added at the same time Consumers is saying the state is in danger of brownouts or blackouts due to inadequate capacity, it is proposing changes that could lead to decreased capacity.

“That’s base-load electricity,” Baas said. “That means it is always available, it’s not like sun and wind, which is off and on depending on weather conditions.

“Pay us what it costs you to generate electricity, and we can decide if we can operate under those circumstances. We choose to be in the market, because we are allowed to under federal law. If we are paid the true avoided cost rate, then we can decide if we can make it or not.”

Consumers Energy provided the following statement in response to requests for information about its filing with the MPSC:

“Consumers Energy is committed to providing reliable and affordable electricity to our 1.8 million customers in Michigan and complies with all applicable state and federal laws. We appreciate the long-term relationships we have maintained with the members of the IPPC, with whom we have ongoing contracts. Consumers Energy looks forward to the continuation of those relationships consistent with the requirements of the federal regulation, PURPA.  We know that we are obligated to offer them a new contract, but at our current avoided cost, which the MPSC is reviewing.

“Meanwhile, renewable energy is growing — not decreasing — in Michigan, as Consumers Energy and other electric providers invest in an increasing number of wind farms, solar gardens, bio digester projects and other clean energy sources. Consumers Energy has developed new wind farms in Mason and Tuscola counties, created solar gardens in partnership with Grand Valley State University and Western Michigan University and has numerous power purchase agreements with affordable sources of Michigan-based clean energy.  These agreements are routinely reviewed and examined by the MPSC to ensure that customers are paying power costs that are affordable and competitive.”

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