CMS considers new needs after coal plant retirement,
possible Michigan project revival
Louisville, Kentucky
(Platts)--24Apr2014/458 pm EDT/2058 GMT
CMS Energy expects to need at least
1,000 MW and, possibly as much as 2,500 MW, of new capacity over the next
decade to replace retiring coal-fired generation and expiring power purchase
agreements, company officials said Thursday in a conference call to discuss
first-quarter results.
These needs most likely will result in the revival of plans for the dormant Thetford natural gas-fired project in Michigan.
John Russell, president and CEO of CMS -- the parent company of Consumers Energy, the state's second-largest electric utility behind DTE Electric -- told analysts during a conference call that he believes the legislature may eliminate Michigan's controversial retail-open-access program while expanding the renewable portfolio standard in 2015.
These needs most likely will result in the revival of plans for the dormant Thetford natural gas-fired project in Michigan.
John Russell, president and CEO of CMS -- the parent company of Consumers Energy, the state's second-largest electric utility behind DTE Electric -- told analysts during a conference call that he believes the legislature may eliminate Michigan's controversial retail-open-access program while expanding the renewable portfolio standard in 2015.
In 2008, lawmakers passed P.A. 295, comprehensive energy
legislation that rolled back electric choice. It imposed a 10% shopping cap on
the total load of CMS and DTE, while ushering in a 10% by 2015 renewable energy
requirement.
CMS and DTE opposed the choice proposal then, and continue to do so six years later.
"In 2015, we see the possibility of an increase in the RPS, continuation of energy efficiency goals, regulatory improvements and the potential elimination of retail open access," Russell said.
New capacity will be needed, both he and CFO Tom Webb said, to offset the retirement of older coal plants and replace existing PPAs with Entergy's Palisades nuclear plant and Midland Cogeneration Venture that are scheduled to expire early next decade. Both Palisades and MCV are located in Michigan.
If electric choice goes away, CMS' capacity needs may increase. "With the possibility of customers returning to bundled service, the capacity needs may be even larger," Webb said. "If we build 1,000 MW of new capacity, we likely will need to build or secure 2,500 MW just to replace EPA-related plant closures," he added.
Webb was referring to US Environmental Protection Agency pollution rules that are causing many utilities to retire at least some of their older coal generation. Consumers would gain about 780 MW of demand if its roughly 400 shopping customers returned to the fold.
CMS already has announced plans to shut more than 900 MW at its "classic seven" coal units in April 2016. Altogether, the company has about 8,000 MW of generation capacity, mostly coal fired.
While Jackson-based CMS has started to think about possible capacity moves, no firm additions are in its overall business plan yet, Webb said. But Russell, in response to a question from analyst Dan Eggers of Credit Suisse, suggested reviving the 700-MW Thetford combined-cycle project in the Flint area is a strong possibility.
"The Thetford site is ready to go," he noted. "We do have expandability. We have gas and electric transmission. We have older units on site."
Earlier this year, CMS placed the $700 million project on hold after it agreed to buy a 540-MW gas-fired generator in Jackson for $155 million. AlphaGen currently owns the combined-cycle/peaker and is operating it on a merchant basis.
Russell added that, over the next few years, CMS probably will rely on market purchases of perhaps 400 MW to meet growing load requirements.
Consumers Energy's electric sales rose 1.7% in first-quarter 2014, with the utility taking advantage of an expanding economy in Michigan. According to Webb, building permits rose 25% in Michigan, and a whopping 39% in Grand Rapids, for the 12-month period through February.
CMS anticipates similar growth rate in terms of electric sales for the remainder of the year. CMS, which prefers to take a conservative approach in forecasts, foresees sales growth of slightly over a half-percent annually over the next several years.
Changes in the choice cap are expected to garner fierce debate in the state legislature next year as pro-competition groups say they will push to raise or eliminate the cap altogether, pointing to the more than 10,000 customers currently in the queue for both CMS and DTE.
But Russell argues that competition's day is done and the tide is clearly turning in favor of re-regulation. "There are some people who believe that competition is the right thing to do. The message we'll continue to tell them is we're a pretty unique industry. We make electricity. It moves at the speed of light. You can't store it. Therefore, it is the most volatile commodity in the world," Russell said.
During the recent bitterly cold winter, "people found out how volatile that commodity can be," he added. "Our large customers, in particular, want to have competitive rates and predictability. They don't want volatility."
CMS and DTE opposed the choice proposal then, and continue to do so six years later.
"In 2015, we see the possibility of an increase in the RPS, continuation of energy efficiency goals, regulatory improvements and the potential elimination of retail open access," Russell said.
New capacity will be needed, both he and CFO Tom Webb said, to offset the retirement of older coal plants and replace existing PPAs with Entergy's Palisades nuclear plant and Midland Cogeneration Venture that are scheduled to expire early next decade. Both Palisades and MCV are located in Michigan.
If electric choice goes away, CMS' capacity needs may increase. "With the possibility of customers returning to bundled service, the capacity needs may be even larger," Webb said. "If we build 1,000 MW of new capacity, we likely will need to build or secure 2,500 MW just to replace EPA-related plant closures," he added.
Webb was referring to US Environmental Protection Agency pollution rules that are causing many utilities to retire at least some of their older coal generation. Consumers would gain about 780 MW of demand if its roughly 400 shopping customers returned to the fold.
CMS already has announced plans to shut more than 900 MW at its "classic seven" coal units in April 2016. Altogether, the company has about 8,000 MW of generation capacity, mostly coal fired.
While Jackson-based CMS has started to think about possible capacity moves, no firm additions are in its overall business plan yet, Webb said. But Russell, in response to a question from analyst Dan Eggers of Credit Suisse, suggested reviving the 700-MW Thetford combined-cycle project in the Flint area is a strong possibility.
"The Thetford site is ready to go," he noted. "We do have expandability. We have gas and electric transmission. We have older units on site."
Earlier this year, CMS placed the $700 million project on hold after it agreed to buy a 540-MW gas-fired generator in Jackson for $155 million. AlphaGen currently owns the combined-cycle/peaker and is operating it on a merchant basis.
Russell added that, over the next few years, CMS probably will rely on market purchases of perhaps 400 MW to meet growing load requirements.
Consumers Energy's electric sales rose 1.7% in first-quarter 2014, with the utility taking advantage of an expanding economy in Michigan. According to Webb, building permits rose 25% in Michigan, and a whopping 39% in Grand Rapids, for the 12-month period through February.
CMS anticipates similar growth rate in terms of electric sales for the remainder of the year. CMS, which prefers to take a conservative approach in forecasts, foresees sales growth of slightly over a half-percent annually over the next several years.
Changes in the choice cap are expected to garner fierce debate in the state legislature next year as pro-competition groups say they will push to raise or eliminate the cap altogether, pointing to the more than 10,000 customers currently in the queue for both CMS and DTE.
But Russell argues that competition's day is done and the tide is clearly turning in favor of re-regulation. "There are some people who believe that competition is the right thing to do. The message we'll continue to tell them is we're a pretty unique industry. We make electricity. It moves at the speed of light. You can't store it. Therefore, it is the most volatile commodity in the world," Russell said.
During the recent bitterly cold winter, "people found out how volatile that commodity can be," he added. "Our large customers, in particular, want to have competitive rates and predictability. They don't want volatility."
No comments:
Post a Comment