In a quick and quiet decision, Michigan environmental regulators have given Wolverine Power Cooperative another 18 months to break ground on its long-delayed, highly controversial Rogers City coal plant.

Opponents of the plant objected to the move in a letter to the regulators last week; today they took legal action as well.

Environmental regulators have given Wolverine Power Cooperative another year to break ground on its highly controversial Rogers City coal plant. (Photo Clean Water Action)

But stricter coal plant emission limits, soaring coal-power costs, cheap natural gas, and falling demand for electricity could still doom the 600-megawatt project, whose 18-month-old Permit to Install from the Michigan Department of Environmental Quality was set to expire on Dec. 29.

The agency extended the permit two weeks ago, just four days after Wolverine requested it. There was no public notice or opportunity for public comment.

The plant has been on hold ever since Wolverine received its permit in June 2011. At the time, the company said it would likely be a year before groundbreaking began for the coal-, pet coke-, and wood-burning power plant in the big limestone quarry next to Rogers City and Lake Huron.

But as that year grew into 18 months, prospects for old and new coal plants alike in the United States, already at risk, continued to fade.

Wolverine is bucking the anti-coal trend sweeping the energy industry, albeit with its plant on hold and no clear indication of when the co-op will get to work on it.

Same Challenges, New Regulations

One reason for Wolverine’s delay is the ongoing legal challenge to the plant’s permit by the Natural Resources Defense Fund and the Sierra Club. The two groups are appealing an earlier court decision upholding the permit; last week the groups and their allies, including the Michigan Land Use Institute, sent a letter to MDEQ objecting to the permit extension, calling it “unlawful, arbitrary, and capricious.”

Attorneys for Sierra and NRDC have now filed an appeal in Ingham County District Court to quash the extension, for the same reasons.

But also slowing down Wolverine—and playing an important role in the current court appeal—are proposed federal Mercury and Air Toxics Standards for new coal plants. Wolverine officials placed their plant on indefinite hold in late 2011 after the U.S. Environmental Protection Agency unveiled the rules, known as MATS, because its vendors were unable to meet them using their MDEQ-approved plant design.

When Wolverine announced the delay, some observers speculated the company was hoping the national election would yield a coal-friendly Republican administration that would roll back the proposed MATS.

Now, under the Obama administration, MATS are evolving. In response to petitions from coal-power providers, the EPA said in November that it is updating the standards before issuing a “final reconsideration” this March. Whether Wolverine could meet the updated MATS is unknown; clearly, the co-op hopes so.

But even if Wolverine’s vendors can work with the updated standards and NRDC and Sierra Club lose their permit appeal, it is not clear how the project would survive coal’s flailing economics.

Costly Coal

The biggest threat to the plant is its construction and fuel costs.

In 2007, Wolverine estimated its plant would cost $1.2 billion, a number that raised critics’ eyebrows and was challenged a year later by a study by Tom Sanzillo of TR Rose & Assoc. of New York City commissioned by the Michigan Energy Alternatives Project. It said the cost projection was unrealistically low, and predicted the plant’s electricity would cost about twice what Wolverine was then paying for electricity.

Two years later the Michigan Public Service Commission warned that the plant would raise Wolverine customers’ average electric bill by more than $70 per month.

But even as Wolverine flatly rejected those estimates—without revealing its own cost calculations—the price of coal continued to soar, particularly in Michigan.

In fact, as the U.S. average price of coal rose 80 percent between 2004 and 2011, Michigan’s average price more than doubled.

Then in 2008, another blow to coal arrived in the form of tumbling natural gas prices. Prices initially fell by more than 75 percent, thanks to the new drilling technique known as deep-well horizontal hydraulic fracturing, or fracking. Gas instantly became a better bargain than coal: much cleaner, half as many greenhouse gases, and, combined with the lower construction costs for gas plants, significantly cheaper.

Industry experts predict gas prices will rise over the next few years but remain a better bargain than coal, particularly as EPA regulations for existing coal persuade generators to switch to gas.

Big Slowdown

In fact, power companies are already doing that. In June 2012, a survey by Black and Veatch, a top utility industry engineering and consulting firm, confirmed that in one year, the percentage of executives saying coal had a future in the U.S. fell from 82 percent to 58 percent.

The study predicted 450 U.S. coal plants would shut down by 2020, due to age and tighter emission rules.

Sierra Club’s Beyond Coal Campaign paints an even starker picture: Not a single new coal plant broke ground in the U.S. in 2012, companies cancelled 13 proposed coal plants and listed 54 old plants for retirement.

Over the past five years, the campaign noted, coal’s share of America’s electricity generation fell from 52 to 38 percent—an unprecedented, historic drop.

The report also listed coal-burning companies that went bankrupt in 2012, including Midwest Generation in Illinois, Patriot in West Virginia, and Dynegy in Texas. It added: “The poor economics of coal were epitomized by the news that the Great River Energy Spiritwood coal plant in North Dakota has sat idle since it was completed at a cost of $440 million earlier this year.”

Construction cost overruns, a cancelled power purchase contract, and generally falling energy demand doomed Spiritwood—a scenario some Wolverine opponents warn against, since the Rogers City plant would generate much more power than its customers use on a typical day.

In fact, Wolverine would find itself with far too much power on its hands if it does build its so-called “Clean Energy Venture.”

That is because the firm purchased shares of several operating gas and coal-fired plants that, together, almost match the output of their proposed Rogers City plant. 

Too Much Power

Most recently, in late November, Wolverine agreed to pay $120 million to $140 million for a share of WE Energies’ coal plant in Marquette, Mich. The money will help WE Energies meet EPA emission standards to keep the plant open.

With its purchasing spree, Wolverine—which refuses to speak with MLUI reporters—is taking full advantage of the court decision now under appeal that won them their permit. That decision said MDEQ could not base permitting decisions on whether a utility actually needs the power from a proposed plant. So the company sees no legal problem with having too much generating capacity.

But some observers believe that overbuilding capacity is a risky move anywhere in the country given current electricity consumption patterns. Economic doldrums aside, Washington and many states are accelerating energy efficiency programs that cut electricity demand.

For example, the Obama administration has launched efficiency-based Better Buildings programs for businesses and similar programs for homes (which MLUI promotes locally as TCSaves), increased funding for the EPA’s power-saving Energy Star program, and promoted financing that would allow homeowners to make major efficiency improvements.

In Michigan, most utilities are exceeding the state’s yearly mandates for helping customers save energy. Holland is embracing a community energy plan that will cut all buildings’ energy use by 30 to 64 percent—even as it drops plans for a new coal plant in favor of a new gas-fired plant. And Michigan Gov. Rick Snyder indicated he wants a statewide discussion this year about increasing the state’s modest efficiency goals.

The result, according to the U.S. Energy Information Agency, is that electricity demand nationwide is either flat or slowly declining. An EIA summary overview showed that between 2007 and 2011, national electric retail sales actually fell by more than 1 percent.

And in early January, industry analysis firm Bernstein Research said it expected demand growth to remain flat in the United States through at least 2015 due to the spread of efficiency measures, particularly in homes, as well as the slowed economy.

Jim Dulzo is the Michigan Land Use Institute’s senior energy policy specialist. Reach him at 231-941-6584 x 18.