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

1. Rethinking Local Energy
Choices & Costs
Abhilash “Abhi” Kantamneni| Engineer,
Michigan Tech Keweenaw Research Center.

2. Overview
Present Context
• Costs
• Consumption
• Sources
How did we get here?
• Legislative Acts and Impacts
Looking Forwards
• Policy Perspectives
Rethinking
• Individual
• Community

3. 8 Investor-Owned
Utility Companies
9 Rural Electric
Cooperatives
41 Municipal Electric
Utilities

4. Source: http://www.michigan.gov/mpsc
4 Investor-Owned
Utility Companies
3 Rural Electric
Cooperatives
19 Municipal Electric
Utilities

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. 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. 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. 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. 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. 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. Present Context Review
Local > Region
> Country
Local < Region <
Country
Local = Region >
Country

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. 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. 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. 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. 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. MI Public Act 296 (2008) Impact: Negative

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. 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. 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. Problem: Electric Utility Markets
are a “Zero-Sum Game”
Rates = Generation + Transmission + Distribution +
Administration + Return on Equity

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. High
Utility
Costs
Businesses
defect/downsize
Unemployment
increases
Households
can’t pay
bills
Electric sales
decrease
Utility
increases
rates
Grid Death Spiral

24. State & Federal Legislation
Unforeseen Impacts
Local communities
disadvantaged
Top Down Approach Pitfalls

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. 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. 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. 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. 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. Aug 2014
•MISO completes ‘load-shedding’ study
Nov* 2014
•FERC schedules final settlement call

31. Rethinking: The Bottom Up Approach
Drive Legislative
change
Prototype and
replicate
Community self determination

32. Georgetown University Energy Prize
Quarterfinalist: Houghton County

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. Category Points
Competition
Performance
25
Innovation 15
Replication 15
Future Performance 10
Equitable 10
Education 10
Overall Quality 10

36. Goals
Efficiency Alternatives Education Equitable

37. Residential
Gas: 10%
Electricity:
10%
Municipal
Gas: 10%
Electricity:
10%
Efficiency Goals: 2016

38. Energy Goals
2016
•Meet Net Metering Capacity
•Self Generation up by 500%
2025
•25% Renewables
•50% Regional Generation
2040
•50% Renewables
•100% Regional Generation

39. Education Goals: 2016
100% School Districts
Energy Plan
Develop Energy
Curriculum
Community
Reached
Service Orgs
Churches

40. Equal
Access
Income
Age
Location
Gender
Veteran
Status
Ethnicity
Housing

41. 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.

42. Georgetown University Energy Prize
Quarterfinalist: Houghton County

43. Thank You!
www.facebook.com/Houghton
EnergyEfficiencyTeam /
www.HoughtonEnergyEfficiency
.com

44. Contact Information
Abhilash Kantamneni
221 Rekhi Hall
MichiganTech
1400Townsend Drive
Houghton MI
akantamn@mtu.edu
www.SolarizeHoughton.org