The Great Electric Debate

Plant shutdowns, energy choice, renewables – What does the future hold for Michigan energy?

Few issues are more complex – and more important to northern Michigan businesses – than the generation and delivery of electric energy.

Lawmakers periodically have enacted sweeping changes in state energy policy, and they’re about to tackle it again this fall. The outcome will determine who gets to provide electric service, what sources it will be produced from and at what price to Michigan businesses and residents.

A number of conflicting bills updating state energy laws have been introduced in the Legislature. One package of bills would open electric generation to full competition. Another would eliminate current choice plans, giving utilities complete control over the state’s electric market. Yet another would maintain the current 10 percent cap on energy choice.

The Legislature is also grappling over whether to continue requiring utilities to obtain 10 percent of their energy from renewable sources and meet energy savings goals.

There is little agreement among lawmakers, electric utilities, alternative energy providers and competition advocates about what Michigan’s energy policy should look like. Many involved in crafting an energy plan say the debate will be contentious, although they expect action to be completed by the end of the year.

Here’s what local business leaders are saying is important to them in maintaining a bright energy future:

Doug Luciani, CEO, TraverseCONNECT

LucianiBusinesses and economic developers in the region have a variety of priorities they want to see incorporated in an energy policy, Doug Luciani said. At the top of that list is electric power that is affordable and reliable.

“Our interest in energy policy is layered,” said Luciani, whose organization is the parent of the Traverse City Area Chamber of Commerce, Venture North Funding & Development and several other entities. “We have a diverse economy and a real thirst for energy. Affordability is a big piece because we’re a high cost-of-living area.”

But Traverse City also has become a magnet for young professionals who value clean water, alternative energy and smart-growth policies.

“We’re competing for talent, and these are the kind of things the best and the brightest expect to see in the community,” Luciani said. “Young talent expects to be in a community that is behaving in the kind of energy policy the governor outlined.”

Governor Rick Snyder issued a special energy message earlier this year in which he said he thought the state could replace energy produced from coal-fired plants by as much as 40 percent in 10 years by using natural gas and renewable sources, such as wind and solar, and cutting energy waste.

Snyder did not propose specific mandates on renewables or on electric choice. Likewise, Luciani said TraverseCONNECT does not have a formal policy regarding the renewables mandate percentage or on electric choice.

“But we’re concerned that expanding choice will give the utilities a disincentive to invest in the energy we’ll need in the future,” he said.

Nine coal-fired power plants in the state are expected to close next year because they’re becoming outdated and will run afoul of more stringent federal air quality regulations.

Mike Novik, CEO, Clark Manufacturing

Mike Novik said reliability is the number one energy issue for his Traverse City company, which provides precision machining services for a variety of industries.

“When the lights go out, you’re not making money,” he said.

But the growing cost of electricity is a major concern to Novik. Clark Manufacturing pays about $250,000 a year for electricity to Traverse City Light & Power.

The company’s cost per kilowatt hour has jumped from eight cents in 2010 to 11.2 cents at the end of last year, a 40 percent increase.

“We certainly can’t pass on 40 percent to our customers,” he said. “That pace is not sustainable.”

Novik said Michigan might benefit from more competition in the electric market if reliability of the current system can be maintained.

“If reliability is constant, you would hope and expect competition would promote cost competitiveness,” he said. “But it’s such a complicated market.”

Don Coe, Managing Partner, Black Star Farms

CoeDon Coe, whose sprawling operation includes wineries, a retail outlet and an inn, worries that Michigan is not prepared to deal with an electric energy future that must rely far less on aging, polluting coal-fired power plants.

“From our standpoint, we’re at the end of a very long extension cord,” he said.

“We’re removing coal plants without much agreement on how we move forward. . . . My end-of-the day position is that I’m not confident we have a clear path forward in replacing the power we’re losing and I don’t think alternative energy gets us there.”

The cost of producing electricity from wind and solar sources has dropped considerably in recent years. But there is a ‘not-in-my-backyard’ mentality in many communities toward massive installations of solar panels and wind turbines. And nuclear power remains highly controversial.

Coe said he believes that giving Michigan’s traditional utilities the right to provide most, if not all, of the state’s electricity to residents and businesses is the best policy path.

“I think the utility companies have every right to be concerned about the creation of an unregulated environment,” he said. “They won’t be able to go to the capital markets to finance investments in new plants. I’m sympathetic with them.”

But Coe said he’s also looking at making major investments in solar energy to help meet his company’s energy needs and sell back the excess to his utility.

Currently, customers also can get a credit from their utility for the value of power generated from rooftop solar panels. One bill in the Legislature would eliminate that choice, called net metering.

“I trust we can work through these issues and find a balance,” Coe said.

D.J. Oleson, Vice President, Oleson Foods

Oleson is a member of Energy Choice Now, a statewide organization calling for the cap on alternative energy suppliers to be lifted. As of now, utilities are required to allow consumer choice on 10 percent of their electric sales. That cap was reached shortly after it was enacted in 2008.

“We were in the queue to receive electric choice when the cap was reached,” Oleson said. “We have choice on gas where we locked in the rate for several years. I’d liked to be able to do it with electricity. A lot of my competitors have.”

In the summer months, Oleson said he spends as much as $20,000 per store a month on electricity for the five-store grocery chain.

“As a percentage of total expenses, it’s huge,” he said. “It’s second only to labor costs.”

And he said electric costs are rising despite his investments in energy-saving devices.

“I’ve put in LED lighting and am using more efficient motors (in food cases),” he said. “We are using less energy, but unfortunately (the utilities) keep raising the prices.”

Oleson said he believes more competition would benefit businesses like his without leading to higher prices or energy shortages, as the major utilities – Consumers Energy and DTE Energy – claim.

“They opened the door to choice and people are using it,” he said. “It doesn’t seem to be hurting the utilities. There are no shortages now.”

David Mengebier, Senior Vice President for Governmental and Public Affairs, Consumers Energy

MengebierJackson-based Consumers Energy is the major electric supplier in northern Michigan. It and Detroit-based DTE Energy are pushing for legislation that would end electric choice in the state.

“We think what makes the most sense is to go back to a fully-regulated market,” said David Mengebier, who also is on the board of directors of TraverseCONNECT. “It’s a system used in 36 other states.”

Consumers Energy and DTE Energy are the major backers of a group called Citizens for Michigan’s Energy Future, which claims deregulation in other states has led to skyrocketing electric prices and reliability problems. The group has been running a series of television ads making those claims.

“Everybody wants affordability, but they also want stability and reliability,” Mengebier said. “There has to be certainty that energy companies can recoup their investment (in replacing older power plants). There is no certainty in a deregulated environment.”

Wayne Kuipers, Executive Director, Energy Choice Now

KuipersWayne Kuipers, a former state senator from Holland, leads an organization of 1,200 businesses, school districts, local governments and other groups pushing to allow customers to have broad choice in selecting an electric energy provider.

For years, Energy Choice Now has been engaged in a war of words with the state’s major electric utilities over the implications of expanding choice. Kuipers disagrees with utility executives on virtually every aspect of what Michigan’s electric energy policy should look like.

Kuipers said Michigan needs the kind of competition choice would allow, citing a U.S. Energy Information Administration report showing electric rates in Michigan jumped an average of 26.4 percent between 2008 and 2013, the highest of surrounding states.

“We’re paying higher rates across the board,” he said. “Michigan has some of the highest electric rates in the country and there has been a steady increase.”

Conversely, Michigan’s electric rates were below the national average from 2001 to 2008, when the state had full choice, according to Kuiper’s group.

He also said the utilities’ claims of potential energy shortages if the state again deregulates its electric market are overblown.

“That’s like crying fire in a crowded theater,” Kuipers said. “The utilities are painting a dire picture that doesn’t exist.”

One thing appears certain when the Legislature takes up the electric policy debate this fall: the sparks are going to fly.

Powering Michigan

– In 2013, Michigan had more underground natural gas storage capacity – 1.1 trillion cubic feet – than any other state in the nation.

– The Antrim Gas Field, located in Michigan’s Lower Peninsula, is one of the nation’s top 100 natural gas fields and produced an estimated 108 billion cubic feet of natural gas in 2012.

– In 2014, Michigan’s three nuclear power plants, with four reactor units, provided 30 percent of the state’s net electricity generation.

– Michigan used coal for 50 percent of its net electricity generation in 2014.  Much of Michigan’s coal is brought by rail from Wyoming and Montana.

– Much of Michigan’s biomass energy comes from the state’s almost 19 million acres of forest land. Biomass provided fuel for 35 percent of Michigan’s renewable net electricity generation in 2014.

Source: U.S. Energy Information Administration