Opinion: Consumers Energy's plan costly to Michigan residents

Jason Hayes

In June, Consumers Energy submitted its 2018 Integrated Resource Plan — the planning document that will guide its business decisions well into the future — to the Michigan Public Service Commission. That plan commits the utility to closing its most reliable electricity generation plants and moving toward less diverse and less reliable options by 2040. State government regulators should reject the plan as unreasonable and overly risky.

An August 2017 U.S. Department of Energy study described how plans to replace always-on, baseload generation plants could lead to electric grid disruptions and higher energy costs. But Consumers Energy appears eager to test the validity of the federal agency's claim that maintaining “a diverse portfolio of generation resources and well-planned transmission investments” is “critical to meeting regional reliability objectives.”

In this photo from May 11, 2015, Gregg Baustian, plant manager at the Zeeland Generating Station owned by Consumers Energy, points out parts of the combustion turbine used to produce energy from natural gas in Zeeland, Mich. With at least nine coal plants in the state slated to shut down in the next 10 years, natural gas is the likely replacement as the primary source for generating energy in Michigan, experts say.

Consumers Energy currently makes use of a diverse portfolio of generation assets. It owns or purchases electricity from a mix of sources, including coal, nuclear, natural gas and renewables. But its 2018 plan sets out to deliberately divest from those reliable sources by eliminating about half of its natural gas generation and closing or ceasing purchases of all nuclear and coal-fueled electricity over the next two decades.

That idea should cause concern around the state because the company’s annual reports, its resource planning document, and industry and official data indicate the sources to be shuttered make up about 84 percent of the company’s total system capacity. Despite that fact, Consumers actually plans to trust its overall system stability to far more renewables (with a smattering of battery storage) and a lot less natural gas. Shortfalls in production will need to be made up with purchases from electricity markets.

Consumers will also markedly ramp up its programs to reduce customer demand through efficiency programs that replace older appliances and light fixtures. It also plans to reduce consumption using demand response measures like cutting the output of residential air conditioning units on warm days.

In reality, the company’s plan to divest from most of its current generation capacity creates the exact opposite of a balanced and diverse system. By moving away from reliable nuclear, natural gas, and coal, it is creating a system that is far more likely to suffer from temporary and sudden outages or price spikes. Unfortunately, its new system will also be at the mercy of extended periods of inclement weather, as happened in the U.K. earlier this year when wind speeds dropped to near zero for a week.

Here Consumers should pay heed to the DOE study, which stresses the difference between long- and short-term reliability. Long-term reliability is ensured by building or maintaining enough generation capacity — “plus a reserve margin (typically 15 percent)” — to meet customer demands years into the future. Short-term reliability means a utility has the ability to meet customer “demand over the next few hours.”

According to its plan, Consumers Energy clearly believes it has addressed long-term reliability. In fact, it promises to “[invest] more than $6 billion” in energy efficiency, environmental programs and renewable energy generation “over the next 5 years” to do so. An unspecified amount of that spending, plus a great deal more, will need to go toward building up 6.35 GW of solar generation — more than triple the size of the Ludington hydroelectric plant — over the next two decades.

But the plan makes a big assumption that new renewables, less natural gas, and constrained use would be sufficient to handle short-term reliability concerns. It boldly states that the utility will “meet about 65 percent of Michigan’s needs with renewable energy, energy efficiency and demand response by 2040.” That leaves Michigan residents in the position of doing less with less, and expecting that less-reliable generation sources can meet our needs.

By shuttering most of its reliable generation resources and moving to a highly renewable-focused generation system, Consumers Energy will almost inevitably struggle to keep the lights on, or to keep prices down, when it comes to short-term reliability. Additionally, its Integrated Resource Plan will lead to less reliable, and more expensive electricity for Michigan residents in the long run. The state utility commission should expect more of its regulated utilities.

Jason Hayes is the director of environmental policy at the Mackinac Center for Public Policy.