History of UP Energy CrisisAbhilash Kantamneni

Source: http://www.michigan.gov/mpsc

4 Investor-Owned Utility Companies

3 Rural Electric Cooperatives

19 Municipal Electric Utilities

OCREA

UPPCO

WEPCO

DTE ELECTRIC

CONSUMERS

CHERRYLAND

THUMBXCEL

AEP

$0.24

$0.21$0.21

$0.16$0.16

$0.15$0.15$0.15$0.14

$0.14$0.14$0.13

$0.11$0.11$0.11

$0.10$0.10

MI Average Residential Electric Rates 2013[$/kWh]

MI Average: $0.14/kWhSource: MPSC Utility Company Annual Reports 2013

Residential Electric Rates

Residential Electric Rate Increases

OCREA

UPPCO

WEPCO

DTE ELECTRIC

CONSUMERS

CHERRYLAND

THUMBXCEL

AEP

116%

94%107%

48%

86%

49%73%72%79%

40%42%

76%

29%39%43%61%73%

MI Average Residential Electric Rate Increase 2001-2013

MI Average: 74%Source: MPSC Utility Rates Summary

Average Residential Electricity Retail Rates

by State (2013)State Average Price

[$/kWh]Hawaii $0.37

Houghton $0.21-$0.24New York $0.19

Alaska $0.19Connecticut $0.18

Vermont $0.18New Hampshire $0.17

California $0.16New England $0.16

Middle Atlantic $0.16Massachusetts $0.16

New Jersey $0.16Michigan $0.15

Source: www.eia.gov

MI Average: $0.11/kWhSource: MPSC Utility Company Annual Reports 2013

Commercial Electric Rates

OCREA

UPPCO

WEPCO

DTE ELECTRIC

CONSUMERS

CHERRYLAND

THUMBXCEL

AEP

$0.19

$0.15$0.15

$0.12$0.14

$0.13

$0.11$0.13

$0.12$0.13

$0.12

$0.11$0.11

$0.10$0.10$0.10

$0.09

Michigan COmmercial Utility Rates 2013 [$/kWh]

Commercial Electric Rate Increases

OCREA

UPPCO

WEPCO

DTE ELECTRIC

CONSUMERS

CHERRYLAND

THUMBXCEL

AEP

98%100%

61%

89%

41%37%38%44%

80%

65%

95%

33%

21%

53%76%

33%49%

Michigan COmmercial Utility Rate increases 2001- 2013 [%]Source:

MPSC Utility Company Annual Reports 2013

1955

• Presque Isle Power Plant (PiPP) built by Cliffs

1980

• PiPP sold to WEC.

• Iron Ore Mining CompanyCliffs:• Generation Utility based in WisconsinWEC:• Coal fired Power Plant in Marquette,

MI. Net Generation: 431MWPiPP:

Source: WNMU Public Broadcasting

Source: www.geo.msu.edu

2000

• ATC is formed

2001

• MISO is formed.

• Independent System Operator (ISO)• Maintains Reliability in Midwest

RegionMISO:• Nation’s first transmission only utility• Builds and maintains Transmission in

WI, UPATC:

2004

• MISO and ATC create SSR Tarrifs

2008

• MI PA 296 passes

• System Support Resource• Gen. Units that HAVE to run to ensure

grid reliability (92%/8% - WI/UP)SSR:

• Regulates MI Electric Utility Markets• Electric Choice limited to 10% of retail

sales and iron ore mining Facilities

MI PA 296:

Source: http://www.michigan.gov/mpsc

May

2013

• Cliffs move from WEC to Integrys

Aug 201

3

• WEC notifies MISO of PiPP Closure

Oct 201

3

• MISO designates PiPP as SSR

Feb 201

4

• MISO agrees to pay WEC $52,230,000/year

Mar

2014

• PSCW sues MISO at FERC

July 201

4

• FERC orders MISO to do ‘load shedding’ study

• Wisconsin Regulatory Authority• Oversees public utilities, serves public interest PSCW:• Federal Energy Regulatory Commission • Regulates interstate transmission of electricity, gas and oil.FERC:

Aug 201

4

• MISO completes ‘load-shedding’ study

Nov*

2014

• FERC schedules final settlement call

May

2014

• WE applies for ‘WEC’ LBA split into MIUP and WEC

Nov 201

4

• NERC approves split

(PiPP)

• PiPP to remain open till 2020.

Cliffs

• Cliffs to continue purchasing power from PiPP till retirement in 2020.

UPPCO

• UPPCO to purchase the generation and distribution assets, including PiPP, from Wisconsin based utilities We Energies and Integrys.

UPPCO

• UPPCO to ‘step into’ existing rate structures of We Energies and WPS (part of Integrys) customers.

Invenergy

• Invenergy to build a gas-fired replacement to PiPP on Cliffs’ property in Marquette.

(MPSC

• MPSC to remove objections to the merger of Wisconsin Energy and the Integrys Energy Group.

(SSR)

• Protecting residents and businesses in the UP against SSR subsidies to keep PiPP open for reliability reasons.

Reliability

• Replacement gas-fired generation in the UP reducing dependence on out-of state coal plants while also maintaining long term reliability.

Independence

• A single U.P.-based corporation (UPPCO) providing electric service to a majority of the U.P..

‘Global Settlement Benefits’

• SSR costs from Jan – July 2015. Who Pays?

Feb 9

• Cliffs returned to PiPP. Why still SSR?

• White Pine and Escanaba?

Problem 1: Existing SSR Costs

Problem 2: Long term Reliability?

Source: International Monetary Fund

Source: NYSE

•No upgrades to UP infrastructure

•MI PA 296 still exists.

•Replacing PiPP with PiPP

Problem 2: Long term Reliability?

• New gas plant for mines + some additional

• New generation after 2020?

• Transmission from WI?

Problem 3: Energy Independence?