Why the BWL Should Exercise Caution Going Forward

We are all aware of rising and volatile fuel prices, the likelihood of carbon restrictions, and the potential for newer technologies to reshape utility planning and operations. Each of these poses great uncertainty for all utility customers. Given that BWL customers own their utility, we face even greater downside risk from premature investment decisions.

Consider the following reasons for the Board of Water and Light to exercise caution going forward:

• Rising construction costs. Increased global demand for copper, steel and other commodities as well as specialized engineering and installation services are behind the skyrocketing price of new generating plants. Since 2005, new coal projects have gone from $1,500-$1,800/ kW to a staggering $2,500-$3,800/ kW, with prices continuing to rise.¹


• Rising and volatile fuel prices. Pain at the gas pump has overshadowed an unprecedented increase in the price of coal. Within the past year, coal supplies from the Powder River Basin, the Illinois Basin and the Appalachian region have all risen by 39%, 106% and 162% respectively.² One factor is certainly the cost of shipping this coal. Diesel-dependent rail service suffered a fuel hike of more than 60% since last summer, and the long-term oil price trend is worrisome.³


• Federal climate legislation. The Lieberman-Warner Climate Security Act and other cap-and-trade bills are being considered by Congress. Some jurisdictions are already taking action. British Columbia has implemented a carbon tax of $10/tonne rising to $30/tonne by 2012.⁴ Meanwhile Michigan is engaged in both state and regional efforts to limit carbon emissions. At this time, committing to a new coal plant of any kind is unwise for Lansing ratepayers.


• Energy demand is decreasing throughout the state. The BWL's IRP suggest in its IRP that energy demand from its costumers will increase at a rate of 1.4% a year (1.6% for peak load). This is, however, contrary to the decrease in energy demand that utilities are experiencing throughout the state. Michigan's two largest utilities, "DTE and CMS reported electricity sales down about 4 percent from the same quarter a year ago." The current economic climate in the state has subsequently lead to Michigan "using less electricity than we were in 2000, when our needs were being met adequately."⁵


• Banks are backing out of investments in coal. Citigroup Inc., J.P. Morgan Chase & Co., and Morgan Stanley agree that a federal carbon cap in the next few years would make "conventional coal-fired power plants riskier investments".⁶ Even the U.S. government has suspended a major loan program for new coal plants in rural communities citing uncertainties related to climate change and rising construction costs.⁷ These worries are evident in the delay or cancellation of nearly sixty⁸ proposed coal plants in 2007.


• Lansing residents recognize the need for their city to go green. A growing number of Lansing citizens understand that maximizing our use of clean energy alternatives would create high-quality jobs and attract young professionals to the area. This excitement has been fostered in part by Mayor Bernero's Greater Lansing Go Green! Initiative that includes his commitment to reduce local greenhouse gas emissions through the U.S. Mayors Climate Protection Agreement.⁹


• Time is on our side. A major BWL decision about building new generation is not urgent. Eckert Station can operate for at least another decade. Even if the need for a replacement facility is determined, building it on available land near Erickson Station would eliminate any siting delays. This affords enough time for BWL to conduct a comprehensive integrated resource plan with full public input.


• Lansing can do better. With the implementation of aggressive energy efficiency coupled with the use of existing technologies such as natural gas and wind turbines, cogeneration and biomass, we can meet our future energy demands. Other advanced energy generation technologies, such as concentrated solar and fuel cells, are also becoming more cost competitive with coal and may be commercially available in the next several years. Lastly, the development of energy storage technologies, such as supercapacitors, flywheels and advanced batterie will soon revolutionize the grid. These storage technologies will also greatly increase the feasibility of renewable energy options like wind and solar, by eliminating many issues that currently limit these resources.