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"Solution" to Upper Michigan Power Costs Would See Large Customer Currently Shopping Instead Take "Significant Majority" of Supply From Utility

January 14, 2015

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Copyright 2010-15 EnergyChoiceMatters.com
Reporting by Karen Abbott • kabbott@energychoicematters.com

Michigan Gov. Rick Snyder on behalf of various parties announced a series of agreements meant to address higher electric costs in the Upper Peninsula, and under which Cliffs Natural Resources Inc. would take a "significant majority" of its power supply from Upper Peninsula Power Company (the to-be new owner of the Presque Isle Power Plant), instead of taking competitive supply as Cliffs Natural Resources does currently.

The agreements would also transfer to Upper Peninsula Power Company the Michigan territories of Wisconsin Electric Power Company and Wisconsin Public Service.

Upper Peninsula customers have been compelled to pay costs of the Presque Isle Power Plant under a System Support Resource agreement. The plant's current owner, Wisconsin Electric Power Company (We Energies), sought the RMR-type contract for the plant after Cliffs Natural Resources exercised its ability to take competitive supply for its load, which makes up over 80% of Wisconsin Electric's Michigan load.

According to the governor's office, "The proposed solutions meet two key goals for policymakers: 1) protecting U.P. ratepayers from years of costly System Support Resource (SSR) payments for the Presque Isle Power Plant in Marquette, and 2) providing replacement electric generation in the U.P. to avoid a likely federal mandate to pay half a billion dollars or more to remain dependent on out-of-state coal plants."

While the effect on different U.P. electric customers will vary widely, they will see a reduction on their bills after the SSR payments cease, which likely will be in July.

Without protection from SSR payments, residents could be asked to pay approximately $150 more a year, and businesses could pay tens of thousands of dollars – or even millions of dollars – a year, depending on their location and energy usage, the governor's office said.

The four agreements in principle announced by the governor's office are as follows:

• Agreement in principle between Upper Peninsula Power Company (UPPCO) and We Energies. The electric utility businesses now owned by We Energies and Integrys (doing business as Wisconsin Public Service Corp.), including the Presque Isle Power Plant, would be sold to UPPCO, meaning a single U.P.-based corporation would provide electric service to a majority of the U.P. UPPCO indicated that it will "step into" existing rates, except that the SSR will be terminated.

• Agreement in principle between UPPCO and Cliffs. Upon acquisition of the Presque Isle Power Plant, which is expected no later than July, the SSR payments would be terminated and UPPCO would not seek an SSR. Cliffs would purchase a significant majority of its power from UPPCO until the Presque Isle Power Plant's retirement, anticipated in 2020 due to new federal air emission requirements impacting coal generators statewide.

• Agreement in principle between Cliffs and Invenergy. Invenergy would build, own and operate a new natural gas-powered, combined heat and power facility, located on Cliffs' site to supply electricity and steam to Cliffs and excess energy to other local utilities. Initially dubbed the "U.P. Cogen Project," the proposed facility is planned to commence operation in advance of the retirement of the Presque Isle Power Plant, and is expected to resolve long-term reliability concerns by providing clean, cost-effective and highly efficient generating capacity serving the energy needs of Cliffs and having some excess power available for other utilities.

• Agreement regarding settlement between We Energies, Gov. Snyder, Attorney General Schuette, the Michigan Public Service Commission (MPSC) staff, and Cliffs Natural Resources. The parties have agreed to notify both the Federal Energy Regulatory Commission and the MPSC of their position of no objection to the merger of Wisconsin Energy and Integrys Energy Group, conditional upon the above agreements being approved.

The agreements have a number of contingencies and will be subject to further discussion and refinement.

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