Keith Matheny

Detroit Free Press

Michigan's entire Upper Peninsula is facing an energy crisis.

To ensure a stable power supply, a regional electrical power grid authority has ordered Wisconsin-based We Energies to keep running the nearly 60-year-old, coal-fired Presque Isle Power Plant it operates — but wants to close — near Marquette. And that's causing chaos.

It has triggered a more than $8-million-per-month cost to keep the coal-belching plant running that, as of Dec. 1, would be passed on to all energy customers in the U.P. — We Energy customers or not. And with U.S. Environmental Protection Agency rules on the level of toxins being released by the plant set to stiffen, the costs will likely continue to rise.

"This is the biggest crisis that the U.P. faces right now," said state Rep. Scott Dianda, D-Calumet.

The spike in electricity bills for residents already paying some of the highest rates in the country could be staggering — up to $600 more per year. And energy-intensive businesses, such as paper mills operating in the U.P., could see thousands of dollars in increase in their monthly bills.

"We have high unemployment and low wages already in the U.P.," said Dan Dasho, president and CEO of Dafter-based Cloverland Electric Cooperative, which serves 44,000 members in five eastern Upper Peninsula counties who would help bear the costs to keep the Presque Isle plant operating.

"For our residential customers, the cost increase is between $30 and $50 a month — $600 extra per year. Our small commercial customers could be $6,000 more a year. And our big customers are looking at hundreds of thousands more per month."

As all of Michigan — and the entire U.S. — thinks about its energy future and the best way forward, Upper Peninsula residents are forced to hold the same debate with potentially catastrophic deadlines looming. Many in the region would like a local, cleaner, more efficient and more diverse energy solution, but the short term is about dodging bullets.

Craig Reiter is a resident of Gulliver and a Schoolcraft County Commissioner. He said residents are "stuck between a rock and a hard spot" — ordered to keep the Presque Isle plant operating, but required by the EPA to install retrofits to the old coal plant by 2016, when newer, cleaner solutions would probably make more sense.

His is a community where young people often go away to school, then take jobs elsewhere. It means many in the area are retirees on fixed incomes, and good-paying jobs are scarce, Reiter said.

"We've got people already deciding on whether to buy a certain prescription, buy certain kinds of food, or pay their utility bills," he said. "We have a lot of factors running against us to begin with, and people aren't making a lot of money. This will seriously impact them."

The dominoes leading to this crisis began toppling in 2008. That's when the Michigan Legislature exempted two iron ore mines owned by Cliffs Natural Resources from state law limiting customer choice on power providers to 10% of retail loads. No one interviewed by the Free Press could recall what lawmaker in particular was behind the exemption, but it was resoundingly passed by the Legislature.

Dasho noted it was in a law helping shape the state's renewable energy portfolios.

"There were other issues people were worried about," he said. "And when somebody slipped in there that mines could change their provider, nobody really cared about that in 2008. In 2013, the mines make that change and everybody goes, 'Uh-oh.' "

It was last year when Cliffs opted to change energy providers to Integrys Energy Services Inc. of Chicago. The loss of the mines meant We Energies lost about 85% of its Upper Peninsula load demand. With that in mind, and with impending U.S. Environmental Protection Agency regulations on mercury and other air toxics requiring millions of dollars of retrofits on the Presque Isle plant by 2016, the utility first proposed to suspend operation of the plant — later to shut it down altogether.

That's when the region's electricity grid authority stepped in. The Midcontinent Independent System Operator, or MISO, monitors the electricity transmission system for all or parts of 15 U.S. states and the Canadian province of Manitoba. MISO informed the utility the plant needed to stay open to maintain power reliability in the Upper Peninsula. That led to a "system support resource" agreement for MISO to compensate the utility for the costs associated with keeping the plant running.

Next onto the stage was the Wisconsin Public Services Commission, that state's utility regulator. Last spring it protested the MISO-We Energies agreement because the costs to keep Presque Isle running were divided across all customers on the entire transmission grid of the company whose lines carry the U.P. plant's power — American Transmission Co. — through the U.P. and most of Wisconsin. Wisconsin's far denser populations meant it picked up 92% of the costs, compared with just 8% being borne in the Upper Peninsula. The Wisconsin Public Utilities Commission protested to the Federal Energy Regulatory Commission, saying the state's ratepayers were paying fees to keep the Presque Isle plant operating that were "unjust, unreasonable, and unduly discriminatory." In July, FERC agreed.

The plot thickened from there. Citing system reliability, We Energies appealed to yet another federal energy transmission regulation body, the North American Electric Reliability Corp., to create two "local balancing authorities" for Wisconsin and the Upper Peninsula rather than the one that existed for both. In December, the corporation approved the move. The net effect of the change would push all of the costs for keeping the Presque Isle plant open onto U.P. grid members.

Cloverland expects $22 million in additional costs, Dasho said.

"Even though we don't benefit, we're part of the U.P. area, and they are going to give us the costs on a pro-rata basis," he said.

The changes were slated to take effect Sept. 1, but that was pushed to Dec. 1. On Oct. 9, We Energies made a new filing with FERC, asking it to hold the changes in abeyance while more discussions take place.

"We think it will provide an opportunity for all of the parties involved to have some constructive dialogue on the issues," utility spokesman Brian Manthey said.

The Marquette Mining Journal newspaper in October 2013 quoted Valerie Brader, deputy legal counsel and senior policy adviser to Gov. Rick Snyder, as saying the governor supports any solution that keeps the Presque Isle plant open and does not result in unaffordable rates for customers.

Reiter said some other companies have expressed interest in a natural gas power plant in the region, but nothing could be put in place in time for the mandates coming down on them.

"If we could get some type of reprieve for a couple of years from the EPA on the regulations for that plant, that would be phenomenal," he said.

And the U.P. can reinvent itself from an energy perspective. Melissa Davis, president of the nonprofit Keweenaw Renewable Energy Coalition, said in a letter to Snyder that the region can take advantage of abundant solar resources because of its long, high-latitude summer days; its abundant wind potentials; low-grade geothermal energy from vast, flooded copper and iron mine reservoirs, and woody biomass from its forestry operations.

"The Upper Peninsula has a rich, nearly untapped mix of renewable energy," she said.

But the solutions for the U.P.'s energy future have to be local, Dianda said.

"We cannot grow our businesses up here, or look at heavy manufacturing, unless we have a very substantial amount of power," he said. "It needs to be very reliable, and at an average of the cost throughout the country.

"If this is going to take two years, we've got to get on it now. We've got so many people here in the U.P. on fixed incomes; they're just not going to be able to afford that additional hit every month."

Contact Keith Matheny: 313-222-5021 or kmatheny@freepress.com. Follow him on Twitter @keithmatheny.