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Houghton Energy Crisis, Costs and Choices.

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Why the PiPP closure means for Houghton, and what our community can do to to protect ourselves against unprecedented rate increases.

Presentation made to Houghton Rotary, 10/9/2014

Published in: Education
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Houghton Energy Crisis, Costs and Choices.

  1. 1. Rethinking Local Energy Choices & Costs Abhilash “Abhi” Kantamneni| Engineer, Michigan Tech Keweenaw Research Center.
  2. 2. Overview Present Context • Costs • Consumption • Sources How did we get here? • Legislative Acts and Impacts Looking Forwards • Policy Perspectives Rethinking • Individual • Community
  3. 3. 8 Investor-Owned Utility Companies 9 Rural Electric Cooperatives 41 Municipal Electric Utilities
  4. 4. Source: http://www.michigan.gov/mpsc 4 Investor-Owned Utility Companies 3 Rural Electric Cooperatives 19 Municipal Electric Utilities
  5. 5. Utility Electric Rates OCREA ALGERDELTA UPPCO PRESQUEISLE WEPCO GREATLAKES DTEELECTRIC ALPENAPOWER CONSUMERS TRI-COUNTY CHERRYLAND MIDWEST… THUMB CLOVERLAND XCEL WPS AEP MI AVERAGE RESIDENTIAL ELECTRIC RATES 2013 [$/KWH] MI Average: $0.14/kWh Source: MPSC Utility Company Annual Reports 2013
  6. 6. Average Residential Electricity Retail Rates by State (2013) State Average Price [$/kWh] Hawaii $0.37 New York $0.19 Alaska $0.19 Connecticut $0.18 Vermont $0.18 New Hampshire $0.17 California $0.16 New England $0.16 Middle Atlantic $0.16 Massachusetts $0.16 New Jersey $0.16 Michigan $0.15 Source: www.eia.gov
  7. 7. Average Residential Electricity Retail Rates by State (2013) State Average Price [$/kWh] Hawaii $0.37 Houghton $0.21-$0.24 New York $0.19 Alaska $0.19 Connecticut $0.18 Vermont $0.18 New Hampshire $0.17 California $0.16 New England $0.16 Middle Atlantic $0.16 Massachusetts $0.16 New Jersey $0.16 Michigan $0.15Source: www.eia.gov
  8. 8. Utility Electric Rate Increases OCREA ALGERDELTA UPPCO PRESQUEISLE WEPCO GREATLAKES DTEELECTRIC ALPENAPOWER CONSUMERS TRI-COUNTY CHERRYLAND MIDWESTENERGY THUMB CLOVERLAND XCEL WPS AEP MI AVERAGE RESIDENTIAL ELECTRIC RATE INCREASE 2001-2013 MI Average: 74% Source: MPSC Utility Rates Summary
  9. 9. Annual Consumption MI Average: 8MWh/Year OCREA ALGERDELTA UPPCO PRESQUEISLE WEPCO GREATLAKES DTEELECTRIC ALPENAPOWER CONSUMERS TRI-COUNTY CHERRYLAND MIDWESTENERGY THUMB CLOVERLAND XCEL WPS AEP MI AVERAGE RESIDENTIAL ELECTRIC CONSUMPTION 2013 [MWH/YEAR]Source: MPSC Utility Company Annual Reports 2013
  10. 10. Utility Fuel Source Summary Fuel Source USA OCREA UPPCO Region Coal 39.10% 63.80% 54.11% 59.43% Nuclear 19.18% 23.10% 23.08% 25.36% Gas 27.57% 5.50% 8.90% 9.77% Oil 0.67% 0.10% 0.50% 0.55% Hydroelectric 7.07% 3.40% 9.55% 0.65% Biofuel 0.00% 0.00% 0.45% 0.49% Biomass 0.92% 0.10% 0.41% 0.45% Wind 4.11% 2.80% 2.50% 2.75% Wood 0.48% 0.10% 0.44% 0.49% Other 0.71% 1.10% 0.50% 0.44% Solar 0.20% 0.00% 0.02% 0.02%
  11. 11. Present Context Review Local > Region > Country Local < Region < Country Local = Region > Country
  12. 12. How did we get here? • Renewable Energy Standard • Energy Optmization • Net Metering MI Public Act 295 • Electric Choice Limitation MI Public Act 296
  13. 13. MI Public Act 295 (2008) Overview Renewable Energy Standard (RES) 10% of all retail electric sales for all utilities in MI to come from renewable sources Energy Optimization Program (EO) Authorizes EO surcharge on monthly bills to finance customer Energy Efficiency upgrades Net Metering Program On site renewable electric generation with credits for monthly excess generation
  14. 14. Renewable Energy Standard (RES) All utilities on track to meet 10% RES by 2015 Cost of Generation from renewables 50% the cost of new coal generation Energy Optimization Program (EO) All utilities met or exceeded near term targets Cost of energy conservation 10% the cost of new coal generation Net Metering Program Total customers self generating increases from 20 to 1500 Total installed self generation increases from 300*kW to 13,300kW MI Public Act 295 (2008) Impact: Positive * estimated
  15. 15. Renewable Energy Standard (RES) MPSC currently makes no recommendation Bill to expand RES to 22% currently pending Energy Optimization Program (EO) MPSC currently makes no recommendation Net Metering Program MPSC Solar Working Group makes 3 recommendation s Expand Net Metering to state wide 50MW Credit on net generation Credit on generation Several bills pending Remove 1% cap Allow community renewable generation Allowing payment in lieu of credit MI Public Act 295 (2008): Moving Forwards * estimated
  16. 16. MI Public Act 296 (2008): Overview Limits Electric Choice Only 10% of utilities retail sales may seek alternative supplier Creates Exception for Mining Iron ore mining or processing not subject to choice limits
  17. 17. MI Public Act 296 (2008) Impact: Negative
  18. 18. • Single line High-voltage transmission and low- voltage distribution are economical. • High-capacity line minimizes capital costs and losses • Transmission and distribution are natural monopolies. Generation: Presque Isle Power Plant (PiPP) owned by WEPCO Transmission: American Transmission Company (ATC) Distribution: Upper Peninsula Power Company (UPPCO) Source: www.econlib.org
  19. 19. State Regulation: Michigan Public Service Commission (MPSC) Regional Regulation: Midwest Independent System Operator(MISO) Federal Regulation: Federal Energy Regulatory Commission (FERC) Source: www.econlib.org • Utility serves ALL customers in the area • Utility maintains reliability and dispatches generation • Utility designs rate structures to distribute costs (Cost of Service Study) * Some coops, like REA have voluntarily chosen to regulate their own rates. • Govt. grants utility monopoly over a service area • State commission approves utility rates* • State guarantees “fair” return on equity and “prudently” incurred expenses • ‘Return on Equity’ high enough to attract capital, but low enough to be economical Government Responsibilities Utility Responsibilities
  20. 20. State Regulation: Michigan Public Service Commission (MPSC) Regional Regulation: Midwest Independent System Operator(MISO) Federal Regulation: Federal Energy Regulatory Commission (FERC) Source: www.econlib.org • Utility serves ALL customers in the area • Utility maintains reliability and dispatches generation • Utility designs rate structures to distribute costs (Cost of Service Study) * Some coops, like REA have voluntarily chosen to regulate their own rates. • Govt. grants utility monopoly over a service area • State commission approves utility rates* • State guarantees “fair” return on equity and “prudently” incurred expenses • ‘Return on Equity’ high enough to attract capital, but low enough to be economical Government Responsibilities Utility Responsibilities
  21. 21. Problem: Electric Utility Markets are a “Zero-Sum Game” Rates = Generation + Transmission + Distribution + Administration + Return on Equity
  22. 22. YEAR UPPCO PRESS STATEMENTS* (emphasis mine) UPPCO REQUEST (Annual) MPSC DECISION ROE [%] 2013 “covering expenses for several improvement projects and inflation” $7,883,410 $5,819,583 (25% less) 5.80% 2011 “Fund safety improvements to McClure, Bond Falls, Victoria, and Prickett dams to comply with federal standards” $7,701,288 $4,200,000 (46% less) 6.27% 2010 “Hydroelectric projects, Reduced electric sales, increased cost for reading meters monthly, General inflation” $15,559,133* $8,868,706 (43% less) 7.12% 2009 “Hydroelectric facility upgrades, Cost of capital, Low sales growth, It's been three years since our last base rate increase” $12,182,239 $6,499,934 (47% less) 7.83% 2006 “inflation, new customer service system, improve system reliability, and increased generator maintenance” $6,230,897 $3,813,000 (42% less) N/A 2005 “recover costs associated with improving service quality and reliability and managing rising employee and retiree benefit costs” $4,547,800 UPPCO withdraws request. N/A 2002 “Our last rate increase was granted in 1993 and was phased in over two years, 1993 and 1994” $9,938,841 $4,868,158 (51% less) N/A
  23. 23. High Utility Costs Businesses defect/downsize Unemployment increases Households can’t pay bills Electric sales decrease Utility increases rates Grid Death Spiral
  24. 24. State & Federal Legislation Unforeseen Impacts Local communities disadvantaged Top Down Approach Pitfalls
  25. 25. 1955 • Presque Isle Power Plant (PiPP) built by Cliffs 1980 • PiPP sold to WEC. • Iron Ore Mining CompanyCliffs: • Generation Utility based in WisconsinWEC: • Coal fired Power Plant in Marquette, MI. Net Generation: 431MWPiPP: Source: WNMU Public Broadcasting Source: www.geo.msu.edu
  26. 26. 2000 •ATC is formed 2001 •MISO is formed. • Independent System Operator (ISO) • Maintains Reliability in Midwest Region MISO: • Nation’s first transmission only utility • Builds and maintains Transmission in WI, UP ATC:
  27. 27. 2004 • MISO and ATC create SSR Tarrifs 2008 • MI PA 296 passes • System Support Resource • Gen. Units that HAVE to run to ensure grid reliability (92%/8% - WI/UP) SSR: • Regulates MI Electric Utility Markets • Electric Choice limited to 10% of retail sales and iron ore mining Facilities MI PA 296: Source: http://www.michigan.gov/mpsc
  28. 28. May 2013 •Cliffs move from WEC to Integrys Aug 2013 •WEC notifies MISO of PiPP Closure Oct 2013 •MISO designates PiPP as SSR Feb 2014 •MISO agrees to pay WEC $52,230,000/year
  29. 29. Mar 2014 •PSCW sues MISO at FERC July 2014 •FERC orders MISO to do ‘load shedding’ study • Wisconsin Regulatory Authority • Oversees public utilities, serves public interestPSCW: • Federal Energy Regulatory Commission • Regulates interstate transmission of electricity, gas and oil.FERC:
  30. 30. Aug 2014 •MISO completes ‘load-shedding’ study Nov* 2014 •FERC schedules final settlement call
  31. 31. Rethinking: The Bottom Up Approach Drive Legislative change Prototype and replicate Community self determination
  32. 32. Georgetown University Energy Prize Quarterfinalist: Houghton County
  33. 33. What is GUEP? ($ 5,000,000) •Quantitative (aggregate gas and electric consumption over 2 years) •Qualitative (community engagement and involvement) •Sustainability (planning for our energy future) The $5 million GUEP challenges small- to medium-size towns, cities, and counties to rethink their energy use and implement creative strategies to increase efficiency.
  34. 34. Category Points Competition Performance 25 Innovation 15 Replication 15 Future Performance 10 Equitable 10 Education 10 Overall Quality 10
  35. 35. Goals Efficiency Alternatives Education Equitable
  36. 36. Residential Gas: 10% Electricity: 10% Municipal Gas: 10% Electricity: 10% Efficiency Goals: 2016
  37. 37. Energy Goals 2016 •Meet Net Metering Capacity •Self Generation up by 500% 2025 •25% Renewables •50% Regional Generation 2040 •50% Renewables •100% Regional Generation
  38. 38. Education Goals: 2016 100% School Districts Energy Plan Develop Energy Curriculum Community Reached Service Orgs Churches
  39. 39. Equal Access Income Age Location Gender Veteran Status Ethnicity Housing
  40. 40. Houghton County will be a model for rural communities in creating an affordable, sustainable, and community- driven energy landscape to support a vibrant regional economy and high quality of life for all its members. Houghton County will be a model for rural communities in creating an affordable, sustainable, and community-driven energy landscape to support a vibrant regional economy and high quality of life for all its members.
  41. 41. Georgetown University Energy Prize Quarterfinalist: Houghton County
  42. 42. Thank You! www.facebook.com/Houghton EnergyEfficiencyTeam / www.HoughtonEnergyEfficiency .com
  43. 43. Contact Information Abhilash Kantamneni 221 Rekhi Hall MichiganTech 1400Townsend Drive Houghton MI akantamn@mtu.edu www.SolarizeHoughton.org

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