We Energies operates this coal power plant in Presque Isle, Mich. Credit: Journal Sentinel files

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The energy bill that Wisconsin utilities and customer groups fought hard to avoid is now coming due.

For Michigan's Upper Peninsula, that is.

Starting this week, the cost to operate the Presque Isle power plant in Marquette, Mich., will be borne almost entirely by ratepayers in the sparsely populated region.

While that may seem fair to utility customers in Middleton or Racine, it's about to cause a lot of pain in Manistique and St. Ignace.

"Some of us have businesses that serve tourists — many are primarily seasonal, and a great many exist on a wing and a prayer," Ginger Stark of Manistique wrote in a longhand cursive note filed with federal energy regulators. "Unless there is some diabolical reason to shut down the U.P. economy, it seems otherwise to be a myopic, totally out-of-touch decision by government bureaucrats who are cutting off their noses to spite their faces!"

Similar notes have come from customers across the peninsula whose average bills will increase by hundreds of dollars a year.

The customer pleas are one element of a campaign to resolve a crisis over a power plant nobody wants to pay for but the U.P. needs operating to keep the lights on.

The power plant, built by the operator of big iron ore mines in the Upper Peninsula, has been owned by Milwaukee-based We Energies since the late 1980s.

But after back-to-back rate increases from We Energies in recent years, the mining company, Cliffs Natural Resources, took advantage of Michigan's energy deregulation laws last year to dump We Energies as its power supplier.

The mines account for half the power demand in the U.P. and for more than 80% of We Energies' Michigan power demand.

Who will pay?

The mines' departure set off a series of actions in Wisconsin and Michigan involving state and federal energy regulators.

At issue is who foots the bill to run the Presque Isle coal-fired power plant. After the mines left, the bill was first pushed to Wisconsin utility customers but is now hitting the U.P.

The reason: Federal energy regulators ruled this summer that Wisconsin customers shouldn't pay to keep the Presque Isle plant going.

Come Monday, that cost shift will start to hurt even more. We Energies has won approval to increase the amount it's collecting from the operator of the Midwest power grid to $97 million a year. Almost all of that will come from customers in the U.P.

At Cloverland Electric Cooperative in the eastern part of the U.P., the utility will have to pay $2 million a month starting this week and it will need to collect that from its customers, said Dan Dasho, the utility's chief executive.

"I don't have $2 million sitting around here," he said from his office in Dafter, Mich.

"We're not getting a benefit from the operation of that plant, but we're going to end up paying 25% of the costs associated with it, and we feel that's very unfair," he said. "We need to come up with a better solution than what's looking at us in the face right now."

Wary in Wisconsin

The involvement of politicians led by Michigan Gov. Rick Snyder and a letter-writing campaign by mom-and-pop business owners has generated attention. The operator of the Midwest power grid dispatched an executive to Upper Michigan to discuss the issue, and federal regulators are being pressured to act.

Wisconsin customer groups are watching closely to see how the situation will be resolved. They're concerned Wisconsin customers could wind up paying for the plant again.

"The best case scenario is for Michigan customers to pay for Michigan's needs," said Kira Loehr, executive director of the Wisconsin Citizens' Utility Board. "Any situation that involves Wisconsin customers continuing to subsidize Michigan is a bad deal."

Several possible outcomes are on the horizon:

■ A solution that focuses only on power lines means Wisconsin customers will pay most of the bill.

In a letter this month, John Procario of American Transmission Co. in Pewaukee said the utility would have to spend about $314 million on projects in the Upper Peninsula to help resolve power reliability concerns.

Wisconsin customers pay the lion's share of power line projects built by ATC, and the transmission company has two other projects already in the works to shore up the U.P. grid at a cost of nearly $450 million.

■ A new power plant could be built on a fast-track permitting schedule by Cliffs Natural Resources and Invenergy, a Chicago energy project developer.

That project presumably would have Michigan customers paying a substantial amount, but that's still an open question.

Milwaukee-based Wisconsin Energy Corp., which owns We Energies, has indicated it would be an investor in a new power plant if it can secure long-term contracts with key customers, notably the mines.

Snyder has been pushing for construction of the natural gas plant being considered by the mines and has been in discussions with Wisconsin Energy.

"Our experts working on these issues are a part of ongoing discussions about a regional energy future based on the foundation of adaptability and regional solutions that will help everyone with their long-term energy needs," said Snyder spokesman Dave Murray. "We are optimistic that we are working, together, toward a solution."

Consequence of choice

Having the mines return as a We Energies customer would solve a lot of problems, said Cloverland Electric executive Dasho, who added that the experience should be instructive for Wisconsin should it ever consider opening its power markets to competition again.

During a recent investor conference call, Wisconsin Energy Chairman Gale Klappa said the exemption that allowed 85% of its Michigan customer base to choose an alternate power supplier should be addressed.

"This all started with Michigan's choice law," agreed Loehr of the Wisconsin customer group. "That is definitely what kicked this whole thing off and sent us down the path that we've been on for more than year."

But residents in the U.P. who have followed the issue say the mines are such an economic force that Cliffs Natural Resources deserved the chance to save millions of dollars by choosing another power company.

"Cliffs' service to the local economy in terms of job creation and tax base was recognized and rewarded" when the Legislature gave the company the choice to move to a different energy supplier, said Abhilash Kantamneni, a research engineer and energy efficiency advocate who has been following the issue closely.

Moves to change the Michigan customer choice law aren't expected overnight. With the highest electric rates in the Midwest, Michigan is home to vocal factions on both sides of deregulation — with one side seeking to expand customer choice and another seeking to repeal it.

Customers in the Upper Peninsula can't wait years for a long-term fix, such as construction of a new power plant, because the tab to compensate We Energies for running the plant kicks in this week.

"If we're going to wait to build a power plant. I tell you what, we're not going to be here," Dasho said. "There will be many people who will be out of business by the time that comes into play."

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