Impending federal clean air regulations and old age are forcing nine Michigan power plants to be mothballed in 2016, meaning DTE Energy and Consumers Energy will need to buy more power off the "grid."
Tim SPARKS, vice president of energy supply operations for Consumers Energy, and Irene DIMITRY, vice president of business planning and development, compared the situation in the Lower Peninsula to the energy concerns facing the Upper Peninsula. From their standpoint, Consumers and DTE are planning to have capacity for its existing companies.
But the 10 percent of Michigan electricity users who purchase power from one of the roughly six or seven choice providers are on their own if the price of power purchased off the regional pool (called the Midcontinent Independent System Operator or MISO) spikes from lower production and higher demand, they said.
As it stands now, MISO is trying to encourage operators to provide electricity for the grid to prevent potential spikes, Sparks said.
"These issues are real. They are urgent. And the time to address them is now." Dimitry said.
Wednesday's comments in front of the House Energy Policy Committee kicked off discussion about a likely rewrite in the state's electricity policy in 2015 that will center around the future of the 10 percent cap on electric choice providers.
As in prior energy policy discussions in 2008 and 2000, the two incumbent utilities claim the more the electricity market is opened up to competitors, the less certainty they have in the market and the less likely they'll invest in more electricity generation.
The choices, as the incumbents see it, is either getting rid of the state's electric choice program or create a mechanism where choice customers -- startled by the spiked rates from their provider -- could return to the incumbent at a cost or not be allowed to return at all.
"We'll have resource issues because we're not planning for them to come back," Sparks said.
Wayne KUIPERS of Energy Choice Now and former vice chair of the Senate Technology and Energy Committee, said the "scare tactics" the incumbent utilities are using are not new. If they truly are not preparing themselves for different alternatives in regards to the future of energy production, the aforementioned attitude is "dumb in every sense of the word."
The fact Michigan had one of the country's oldest generation fleets is not a big secret to anyone, and if federal Environmental Protection Agency (EPA) regulations didn't shut down these aged plants in 2016, they would have gone away soon due to old age, Kuipers said.
"It's like crying fire in a crowded theater multiple times," Kuipers said. "At some point, people don't listen. The unfortunate thing is that with term limits you have some lawmakers who haven't heard this before . . . there's nothing new here."
The truth is monopolies don't react well to change, Kuipers added. What needs to happen is if the Michigan Public Service Commission believes more electricity generation is needed, all companies should be allowed to put in electric generation bids. If Consumers and DTE can produce electricity at the best price, they should have nothing to worry about.
"We need to explore our options here and try to provide the citizens of Michigan with the cheapest energy we can in a reliable fashion," he said.
Dimitry said the power shortfall coming in 2016 is significant. The three-gigawatt shortfall projected for 2016 is enough to provide power for 2.1 million homes for a year. That's about three times the size of the city of Detroit.
The shortfall will come through the estimated retirement of about 100 coal-fired generation units by Spring 2016.
Alternative energy is an option, they said, but in a limited way. For example, all of the utility's wind turbines were at full capacity Tuesday due to the gusting winds. But that doesn't help anyone in July and August when the wind is still and something needs to power the air conditioners.
The future is not coal-powered production, but natural gas.
House Majority Floor Leader Aric NESBITT (R-Lawton), the chair of the House Energy Policy Committee, said he believes that as a peninsula state, Michigan should be energy independent. The best way to make that happen is to go back to a completely regulated market, he said.
"I think that will provide the long-term investment that is needed here in Michigan to make sure we have the right energy capacity," Nesbitt said.
The House energy chair pointed to Great Britain, which went to 100 percent retail choice in the late '90s and are now in a situation where they only have a 2 to 3 percent reserve market because no one is building new generation. The ideal reserve market is between 14 and 17 percent.
But Rep. Gary GLENN (R-Midland), the vice chair of House Energy, said he isn't going to presume the two incumbent utilities have the exclusive right to address the upcoming energy capacity shortfall. Rather, he asked about a competitive bidding process for all electric providers and let the market decide what is a "competitive" electric rate, not what is an "affordable" rate, which is determined by what they "believe it costs them to do business."
"Both utilities insist they would win these competitive bid processes," Glenn said. "If that's true, then why would they not support an open competitive bid process?"
As it stands, Michigan has the highest residential electric rates in the Midwest and the country's 11th highest, Glenn said. That's why he'd like to explore opening up the market to multiple providers to compete and whether that process would be better for ratepayers.
"You can not fault the utilities for wanting to maintain the system or go to a completely regulated market," he said. "Who can blame a business for wanting to have the government guarantee them a customer base for the next half century?"
The minority vice chair of the energy committee, Rep. Bill LaVOY (D-Monroe), said he's always supported Michigan generating its own electricity as opposed to MISO bringing it in from other states.
When it comes to electric choice, LaVoy said choice customers are not necessarily contributing to in-state production and "is open to a lot of different options," such as keeping the 10 percent cap and grandfathering them in. There's also talk about whether those companies that leave the choice market for an alternative supplier can come back, and, if so, what fee should be charged.
"Another possibility is to get rid of (choice) completely," LaVoy said. "I don't know if that fair to the people who are on choice because they're on it when the Legislature passed the measure to allow it."
Another possibility is to close off the choice market customer by customer as they drop off, he said.