The Midcontinent Independent System Operator has increased its forecast for a capacity shortfall in lower Michigan in 2016 by one-third to 3,000 MW, the Carmel, Indiana-based independent system operator said Wednesday. MISO officials said during a board of directors' system planning committee meeting the new projection is based on Tenaska Capital Management's recent decision to connect its 1,100-MW New Covert Generating natural gas-fired plant near South Haven, Michigan, which is within MISO, with the PJM Interconnection grid.
The transfer is expected to be completed by June 2016.
Lower Michigan, known as Zone 7, has the highest projected capacity shortfall in MISO. Zone 6, including Indiana, Kentucky and Ohio, has a 1,200 MW capacity deficit, while Iowa's Zone 6 has a 500-MW shortfall both in 2016.
"Michigan is where there is the most turbulence in terms of generation committed to the MISO market," Clair Moeller, MISO executive vice president of transmission and technology, said during the meeting.
To address that shortfall, Moeller stressed, does not necessarily mean a fresh spate of generation construction is necessary in the next couple of years.
"At this point, it's not a lack of physical capacity but a lack of commercial deals to contract for that capacity," he said. "In the short run, the notion that Michigan has to build 3,000 MW of capacity is not the impression I want to leave you with."
Instead, commercial transactions, such as bringing more nuclear power into the region, or a greater emphasis on demand-side management, "have to occur," he said.
A Midwest industry source said the lower Michigan capacity deficit is likely to stir market activity, causing capacity prices to increase in the next couple of years.
And that, he suggested, could prompt some customers currently purchasing power from alternative suppliers to return to their incumbent utilities, DTE Electric and Consumers Energy.
It also could have an impact on what is expected to be a heated debate over energy in the Michigan Legislature in 2015, including whether to scrap or expand the state's controversial 10% cap on electric choice. The cap became law in 2008.
DTE and Consumers want to eliminate the cap while a pro-choice group is working to increase it, perhaps to 25% or more.
Moeller added that capacity margins are expected to remain tight in MISO "for quite some time."
That is largely a result of the planned retirement of older coal plants to comply with new US Environmental Protection Agency rules. About 15% of coal capacity in MISO is projected to close by 2016 to comply with the federal agency's new Mercury and Air Toxics Standards rule.
EPA's proposed carbon rule, meanwhile, could place an additional 11,000 MW of coal capacity at risk for retirement in 2020, according to MISO.
The New Covert Generating plant, built in 2004, has been pursuing offtake agreements. Last year, the company intervened at the Michigan Public Service Commission in an attempt to have Consumers consider buying the plant or its power in lieu of constructing the proposed 700-MW Thetford natural gas plant in Genessee County, Michigan.
In January, Consumers, a CMS Energy subsidiary, placed the $700 million project on hold and, instead, agreed to acquire an approximately 500-MW existing gas plant in Jackson, Michigan, its home city, for $155 million.
