Feds Step In, Things Get Much Worse

Part II

Things may have quieted down in Michigan after Proposal 3’s demise in 2012, but President Obama’s EPA were furiously developing their ‘War on Coal’ to dramatically increase the cost reduce pollution of electricity generation. The Mercury and Air Toxics (MATs, also known as MACT) rule requires scrubbers on all coal-fired power plants nationally, costing something north of $ 1 million per steam boiler. The Cross State Air Pollution Rule (CSAPR) requires Michigan coal-fired power plants to reduce their thermal efficiency during peak summertime generating periods to reduce oxides of nitrogen at a yet to be determined cost.

In 2014, EPA’s ‘Cooling Water Intake Structures’ rule finally went into effect after a decade of legal wrangling, requiring that Michigan’s electrical utilities take some very expensive steps over 8 years to protect the Great Lakes’ beloved zebra mussel and round goby populations.

At the end of 2014, EPA imposed newly restrictive rules on the disposal of coal combustion residuals (CCRs), commonly known as coal ash, from coal-fired power plants. Almost unique in the history of Federal regulation, EPA admitted in their final CCR rule that it had a negative cost-benefit ratio. Fly ash, the most abundant CCR, is actually a remedy for the alkali-silica reaction (ASR) which causes premature failure of many MDoT concrete structures. So EPA managed to simultaneously increase Michigan’s cost of electricity generation and reduce the lifespan of our roads and bridges. An Obama ‘two fer’.

EPA expects to finalize its ‘Effluent Limitations Guidelines and Standards for the Steam Electric Power Generating Point Source Category’ in September 2015. Known by the acronyms SEEG or ELG, these rules will change the way all electrical power stations handle cooling, process, and steam condensate water. These rules cover all steam powered turbine operations, but will most severely affect coal-fired power stations whose MATs required scrubbers and CCR required ash handling systems will generate a lot of waste water.

Finally, the Obama Administration’s EPA put forth the twin centerpieces of their ‘War on Coal’: New Source Performance Standards (NSPS) and the Clean Power Plan (CPP). These proposed rules establish and enforce ‘greenhouse gas’ limitations on electricity generation to the delight of environmental wackos, requiring very expensive retrofitting – or more likely, retirement – of all U.S. coal-fired electrical power stations. Wisconsin Energy is now threatening to retire their Presque Isle power station in the Upper Peninsula unless they can charge Yooper homeowners $ 600 more each year to retrofit this power station. Eventually those same eye popping rate increases will spread across our state and the entire country unless NSPS and CPP are stopped.

Thanks to RPS, the 90% reregulation, and the Obama Administration’s devious ‘War on Coal’, Michigan homeowners enjoyed the 12th highest electricity rates in the U.S. during 2014. Our rates are growing at a 5% per annum rate, the 5th fastest rate in the U.S. It won’t be long until we enjoy the third highest electricity rates in the U.S., behind only Hawaii and Massachusetts. Cumulative electricity costs paid by Michigan homeowners are now rising at a rate of $ 575 million per year. At least $ 3 billion dollars since PA 295 was passed in 2008.

Over the 2009 – 2012 four year hybrid regulation period for which the U.S. Energy Information Agency has aggregated data, regulated Michigan residential electricity rates rose 31% while the far less regulated large consumer price only rose 13%. Quite a difference. Under hybrid deregulation, residential consumers experienced an electricity price increase 2.4 times larger than large consumers did. During the seven year deregulation period 2001 – 2007, from the same U.S. Energy Information Agency data series, Michigan residential electricity rates rose 24% while the large consumer price rose 27%. Essentially, parity between the two categories of customers on a percentage basis. Going back into the previous seven year period under full regulation, 1994 – 2000, from the same U.S. Energy Information Agency data, Michigan residential electricity rates rose 3% while the large consumer price decreased 3%. Again, very little difference between customer classes.

Note that no one is suggesting residential electricity consumers should get the same rate as the large consumers, just that the percentage change in their rates should be approximately the same over any time period.  Someone purchasing gigawatts of electricity over dedicated lines is going to get, and deserves, lower rates than a residential consumer purchasing kilowatts.  But the percentage change in all rates should be closely coupled in a properly functioning market where no class of ratepayer is being exploited.  Not the situation in Michigan today under PA 295.

Michigan’s electricity cost was 18th highest in the nation during 2007, before RPS and 90% reregulation became law. Our rates were competitive in the Midwest region across the board in 2007. By 2012 we moved up to 12th nationwide and our regulated rates are no longer competitive in the Midwest, causing a real loss in economic competitiveness in the small and medium business sectors as well. Preliminary data from several sources suggest that Michigan cracked the top ten in 2014.  Michigan homeowners are now stuck with the worst possible regulation scheme, one that allows the largest – and most politically potent – electricity consumers to escape the price ratcheting mechanism imposed on the rest of us. This was the very deliberate intent of PA 295’s authors when it was passed in 2008. It was the ‘grand bargain’ which allowed PA 295 to become law.

In Part III tomorrow, we’ll lay out the opening positions and actions of the ‘Titans’ as they determine your future electric bills.

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