New Gas Generation to Replace Michigan's Presque Isle Power Plant

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--The Presque Isle Power Plant, a 61-year-old, 344-megawatt (MW), coal-fired power plant in Michigan's Upper Peninsula (UP), will be closed by yearend 2020 and its generation will be replaced by two planned, gas-powered power plants.

So ends the unusual saga of Presque Isle, located in Marquette, Michigan, which was slated for closure several years ago. WEC Energy Group Incorporated (NYSE:WEC) (Milwaukee, Wisconsin), the plant's owner, had estimated it would cost between $325 million and $900 million to install pollution-control equipment at Presque Isle to bring it into compliance with federal environmental rules. Converting the plant to burn natural gas also didn't pencil out, as new gas infrastructure would need to be built to supply the plant. For more on WEC's options for Presque Isle, see February 15, 2012, article - Scrubbers for Michigan's Presque Isle Power Plant? Decision Expected by Summer.

Then, in 2013, an unusual asset transfer agreement between WEC and Wolverine Power Cooperative (Cadillac, Michigan) called for Wolverine to invest between $130 million and $140 million to bring the plant into compliance with environmental regulations. In return, Wolverine would own 33% of Presque Isle. For more on that proposed transaction, see July 3, 2013, article - Innovative Asset Transfer to Save Presque Isle Coal-Fired Generator in Wisconsin. Unfortunately for WEC, that deal fell through, and Presque Isle was back on track to be closed.

Closing Presque Isle without replacement generation could cause reliability problems in Michigan's Upper Peninsula. WEPco, a subsidiary of WEC Energy Group, provides retail electric service to approximately 27,500 customers and approximately 50 choice customers in the Upper Peninsula. WPS Corp, also a subsidiary of WEC Energy Group, has approximately 9,000 full service electric customers, 5,300 gas customers, 16 electric choice customers and 17 gas transportation customers in the UP. Presque Isle Power Plant is the only large coal fueled plant in the Upper Peninsula.

If it closed, WEC's options would be either to build another power plant in the area or to build transmission lines to continue serving customers there. Two transmission lines connect the Upper Peninsula with other parts of Michigan and the Upper Midwest, but a widespread outage took place on the peninsula a few years ago when a thunderstorm knocked one line out of service, which caused a power plant to trip offline. The other transmission line was out of service at the time. The outage lasted most of a day.

The plants will be owned by Upper Michigan Energy Resources Corporation (Ishpeming, Michigan), a unit of WEC. The utility reportedly will spend about $255 million to build the two gas-burning reciprocating internal combustion engine (RICE) generators, totaling 170-180 MW, on the Upper Peninsula. Construction is expected to begin in early 2018, and the generators are expected to be operating by early 2020, assuming the utility receives all necessary regulatory approvals. Presque Isle is scheduled for closure by yearend 2020.

WEC has not yet selected an engineering, procurement & construction (EPC) firm, a general contractor or a generator supplier for the two new power projects, but Burns & McDonnell (Kansas City, Missouri) is providing engineering services for both projects, a WEC spokesperson said.

The decision to build the new generators was made easier when Cliffs Natural Resources Incorporated (NYSE:CLF) (Cleveland, Ohio), one of WEC's largest customers, signed a 20-year power-purchase agreement for a portion of the proposed plants' output. That power is earmarked for Cliffs' Tilden Mine, an iron ore mine located in Ishpeming, Michigan.

At an August press conference announcing the agreement, Michigan Governor Rick Snyder said, "We're going to have something new that will be more reliable, more affordable long term and really environmentally sensitive." Valerie Brader, executive director of the Michigan Agency for Energy, said the new plants would make electric service to the Upper Peninsula more reliable.

"If Presque Isle were to close and there was nothing built in its place, we expect that hundreds and hundreds of millions of dollars of transmission would have to be constructed to keep the lights on in the (Upper Peninsula) and the cost for that would be determined in Washington, D.C.," Brader continued. "What we have seen is that when costs are determined here in Michigan, we think they're much more competitive." Building the new RICE power plants will reduce the amount of money the utility and its customers would have to pay to continue providing reliable electric service to the Upper Peninsula, she added.

"Cliffs views this agreement as critical to sustaining and enhancing the long-term competitiveness of our Tilden Mine, and we look forward to working with the state of Michigan and WEC Energy Group to ensure timely regulatory review and approval," said Cliffs Chief Executive Officer Lourenco Goncalves said.

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