Wind power money and politics

August 1, 2011
| By Pete Daly |
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Renewable energy, money and national politics have converged in Michigan’s attempt to get the federal government to reconsider a plan that would have electricity customers in Michigan help pay for new and upgraded high-voltage transmission lines in other states.

State Rep. Amanda Price, R-Park Township, recently sponsored a resolution that was approved by both chambers of the Michigan Legislature and sent to Congress, calling upon the Federal Energy Regulatory Commission to reconsider its December recommendation that Michigan ratepayers share in the cost of proposed upgrades to transmission lines in the Midwest Independent Transmission System Operator region.

“Michigan residents will be unfairly and disproportionately charged for improvements from which they won’t benefit,” said Price on her website.

The Federal Energy Regulatory Commission said the cost of necessary improvements to the aging transmission grid — plus construction of proposed new lines to connect the grid to wind turbine generating sites on the Great Plains — should be spread evenly across all the ratepayers in the MISO region. Because about 20 percent of MISO customers are in Michigan, Michigan would pay 20 percent of the cost of new/upgraded transmission infrastructure.

MISO is a Regional Transmission Operator, a term used by FERC to describe nonprofit independent organizations around the country that operate multi-state transmission systems to ensure efficient and reliable delivery of electrical power supplies. MISO, organized in 2001, includes Michigan on its eastern end, plus all or parts of about a dozen other states and the Canadian province of Manitoba. Indiana, Illinois, Iowa, Wisconsin and Minnesota are in MISO, plus parts of North and South Dakota, Montana, Missouri, Kentucky and Ohio.

Members of the MISO board represent transmission companies, power marketers/brokers, independent power producers, state regulatory agencies (including the Michigan Public Service Commission) and others.

Price told the Business Journal that Michigan has a Renewable Portfolio Standard that requires Michigan’s electricity distribution companies to buy a minimum amount of their supply from renewable sources within the state.

“We can’t go outside the state to buy renewable energy, but (would) have to bear the cost of other states” connecting with renewable energy in other parts of the MISO, said Price.

Gov. Rick Snyder sent a letter to the commission in late April, stating that if the tariff it proposed is not modified, it “could result in Michigan’s transmission rates increasing by hundreds of millions of dollars annually.”

“In essence, Michigan customers could end up subsidizing other states’ initiatives to develop renewable energy projects that would otherwise be too costly to become viable,” said Snyder.

Meanwhile, ITC Holdings of Novi is leading a statewide campaign in the opposite direction, including full-page newspaper advertisements, in support of FERC’s recommendation that major upgrades and expansion of the MISO grid infrastructure are required.

ITC, a publicly held company, was formed in 2003 as the result of a 2000 Michigan law that led to DTE Energy and Consumers Energy divesting themselves of their high-voltage transmission lines. ITC owns and operates almost 15,000 miles of transmission in the Lower Peninsula and parts of Iowa, Minnesota, Illinois and Missouri. A spokesman for the company told the Business Journal last year that ITC is the second largest fully independent transmission company in the U.S.

ITC executive vice president and CFO Cameron Bready appeared on Fox Broadcasting July 22 in defense of FERC, according to the ITC’s campaign website: Bready said in the TV interview that “building more regional systems will make sure we are accommodating the reliability and interconnection needs for wide-scale generation across multiple markets and allow power to move more freely across markets.”

Greg White, a Grand Rapids-area resident who is one of three commissioners on the Michigan Public Service Commission, said ITC’s business plan “is to build transmission; they get a very, very handsome return (on their investment) from the Federal Energy Regulatory Commission.”

“They can earn 13.88 percent return on equity for building transmission,” said White, adding that it is an investment incentive offered by the government to independent transmission companies. The investments are recovered through additions to utility bills paid by customers.

White said the opposite end of the debate has Michigan’s utility companies favoring construction of more base-load generating plants in the state. Supporters say it would be welcome capital investment in Michigan, and also gives the state’s utilities greater control of the energy supply here.

“Also, it’s an investment opportunity” for the utilities, said White. “For a traditional investor-owned utility in Michigan, there are not a lot of growth opportunities at the moment.”

However, a capital investment in a new generating plant, which is very expensive, would entail a return on that investment, “and that’s the kind of thing that gets Wall Street excited” about those publicly held utilities, said White.

White stressed that his comments reflect his own views and are not made on behalf of the MPSC. However, he noted that the MPSC has formally asked FERC for a re-hearing, which reflects MPSC opposition to “certain parts” of FERC’s proposed cost-sharing formula for additions and upgrades to the MISO grid.

White said he does believe that there is an element of politics in the current MISO controversy. He said it appears to him that the Obama administration apparently wants as much renewable energy added to the grid as possible.

“There are some good public policy objectives there, but it also runs the risk — my words — of building renewable energy at any cost. And that isn’t necessarily good for customers, particularly in a state like Michigan,” said White.

On the other hand, he said, the renewable energy “that we’re building in Michigan is remarkably cost-effective — much more so than we’d ever anticipated.” It does require some new transmission infrastructure within Michigan, he said, but the attitude is “we will pay for our own cost.”

The proposed investment in MISO transmission would ostensibly bring wind-generated electricity from the Great Plains and the Dakotas through the MISO grid to interconnections with the East Coast, according to White.

Due to Michigan being a peninsula, he said, “We have very limited interconnection into and out of our state” with the rest of MISO. “We do not see how all of the transmission that’s being proposed — somewhere in the range of $16 (billion) to $20 billion dollars of investment — would accrue a commensurate level of benefits to the state, when you consider we would probably be on the hook for maybe 4 billion (dollars) of the cost.”

White said he does believe there needs to be a cost-allocation scenario for investments in the grid. “We just think that this one goes too far. We have asked for certain limitations.”

He said the MISO cost allocation proposal would also cover the cost of new distribution lines, as well as the major transmission lines.

“That just doesn’t make any sense,” he said. “Why would we pay for a distribution system in another state? We certainly would never ask anybody to pay for our distribution system.”

Indeed, the proposed investment in the grid is still just a proposal.

“There is the possibility this could be much ado about nothing,” he said, because it would be a complicated and long-term project, probably 15 to 20 years, which might ultimately never come to fruition.

“But the indications are that this current federal administration is going forward on this with the idea that this would get built. They clearly have an agenda to build as much renewable energy as possible,” said White.

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