Manufacturing Growth, Environmental Regulation Drives Need for New Michigan Generator

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Natural gas has been good for the Midland Cogeneration Venture (MCV), and now the owners want more of it. MCV is a 1,630-megawatt (MW), gas-fired cogenerator built on the site of an abandoned nuclear plant in Midland, Michigan. Last month, the owners asked Michigan's Department of Environmental Quality for an air permit to add a 640-MW, combined-cycle, gas-fired generator at the MCV site.

The planned premature retirements of coal-fired generators in the Midwest creates an opening for the gas-fired unit addition. "We're looking to execute power purchase agreements with utilities in Michigan, mainly Detroit Edison and Consumers Power, because those utilities have announced they will close a lot of coal-fired generation," Gary Pasek, vice president, general counsel and secretary at MCV, told Industrial Info in an interview.

Consumers Energy Company (Jackson, Michigan), a unit of CMS Energy Corporation (NYSE:CMS) (Jackson, Michigan), announced it will retire three coal-fired units in 2009, Pasek noted. Last year, that utility also cancelled plans to build an 830-MW coal plant, and it said it will mothball seven coal-fired generators totaling 858 MW by January 2015. Detroit Edison (Detroit, Michigan), a subsidiary of DTE Energy Company (NYSE:DTE) (Detroit, Michigan), announced plans late last year to retire two coal-fired generators totaling 490 MW, Pasek added. That utility plans to retire 4% of coal-heavy generating fleet starting in 2015.

Another factor making the $420 million unit addition at MCV economically viable is the cancellation of a planned 750-MW coal-fired generator, the Mid-Michigan Energy Station, which was slated to be built by a unit of LS Power Group (New York, New York) in Midland. That cancelled coal plant had a total investment value of $1.5 billion.

These retirements and cancellations are one response from the U.S. Power Industry to tougher environmental regulations from the U.S. Environmental Protection Agency (EPA) (Washington, D.C.). Two rules in particular--the Cross-State Air Pollution Rule and the Mercury and Air Toxics Standard --have led to dozens of shutdown announcements for older, smaller, and less-efficient coal-fired power plants. A third rule, still in the draft stage, would effectively rule out construction of new coal-fired power plants, as the allowable emission level for carbon dioxide for new fossil-fueled plants is tied to a high-efficiency, gas-fired plant. For more on these rules, see October 13, 2011, article - EPA Proposes Technical Changes to Finalized Cross-State Air Pollution Rule; December 27, 2011, article - Environmental Protection Agency Finalizes Mercury and Air Toxics Standards; and March 30, 2012, article - EPA Strikes Again With 'New Source Performance Standard'.

If granted an air permit by the Michigan regulators, construction of the unit addition at MCV could begin as early as year-end 2012, and the unit could be operating by 2015. Up to 500 construction jobs could be created during peak construction of this project, the owners estimate.

"This is a very important project for Midland, mid-Michigan and the Midwest, creating needed jobs, stimulating economic development and solidifying Midland as a key energy center in the region," said MCV President and Chief Executive Roger Kelley in a statement.

Demand for electricity in Michigan is rising as manufacturers add shifts, expand existing facilities and plan new ones. Last month, Consumers Energy Company reported peak electric demand shot up by 150 MW from the previous peak last year. John Russell, president and chief executive officer at Consumers Energy, acknowledged recent hot and humid weather helped increase peak demand at the utility. But he also noted Michigan's manufacturers have added shifts recently and limited their traditional summer shutdown practices, which also adds to electric demand.

"The Michigan economy is rebounding," said Gary Pasek, MCV's vice president, general counsel and secretary. Kelley said the proposed unit addition at MCV will help ensure that electricity in Michigan remains reliable and affordable. The existing MCV, plus the proposed unit addition, are owned by units of EQT Infrastructure Limited (Stockholm, Sweden) and Fortistar LLC (White Plains, New York).

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