By Chris O’Malley

Electric customers in Michigan’s Upper Peninsula would receive a rate cut and Michigan regulators would drop their objections to Wisconsin Energy’s acquisition of Integrys Energy Group under an agreement announced by company officials and Michigan Gov. Rick Snyder last week.

Under the deal, Integrys’ Wisconsin Public Service Corp. and Wisconsin Energy’s We Energies subsidiary would sell their electric distribution assets serving 28,000 U.P. customers to Upper Peninsula Power Co. for an undisclosed price.

The sale also would include We’s 400-MW coal-fired Presque Isle generator, which is operating under a costly system support reliability agreement (SSR) to prevent its retirement. UPPCO said it would “step into” the utilities’ existing rates, except that the SSR would be eliminated, likely in July.

If the deal is approved, it would relieve U.P. ratepayers from the estimated $97 million annual cost of the SSR. UPPCO’s current customers were to pay for nearly 6% of that amount.

The deal would also relieve Wisconsin ratepayers from their share of the Presque Isle SSR costs. Last year the Public Service Commission of Wisconsin complained to the Federal Energy Regulatory Commission that Wisconsin ratepayers would pay a disproportionate share of SSR costs.

FERC agreed and shifted SSR costs more heavily to Michigan (ER14-2860, ER14-2862). Residential ratepayers were furious, saying they could pay up to $150 more a year. U.P. businesses said their annual costs could rise by thousands or millions of dollars.

“This is a critical development for the Upper Peninsula and our entire state,” Snyder said in a press release announcing the sale Tuesday. The announcement cautioned that “all of the agreements have a number of contingencies and will be subject to further discussion and refinement.”

Cliffs to Purchase Presque Isle Power

UPPCO would run Presque Isle, in Marquette, Mich., until 2020, when the Environmental Protection Agency’s proposed carbon rules take effect. Cliffs Natural Resources, whose Empire and Tilden mines make it the largest electricity consumer in the U.P., would purchase “a significant majority” of its power from UPPCO until the retirement, according to the agreement.

Before then, Chicago-based Invenergy plans to build a natural gas-fueled combined heat and power plant on Cliffs’ site that would serve the mines and other local utilities. Invenergy told Crain’s Chicago Business the plant will be between 200 and 280 MW.

Previously, faced with soaring power costs from Presque Isle due to the SSR, Cliffs had lined up an alternative electric supplier.

Integrys Acquisition

Snyder, Michigan Attorney General Bill Schuette, the Michigan Public Service Commission and Cliffs also agreed not to object before FERC to Wisconsin Energy’s acquisition of Integrys.

The $9 billion deal could have been derailed or at least delayed as a result of the SSR dispute.

So roiled were Michigan leaders that the state’s House of Representatives on Nov. 6 passed a resolution calling on FERC to reverse its acceptance of MISO’s cost allocation it said would saddle U.P. residents with 99.5% of Presque Isle’s costs.

The uproar also triggered bipartisan legislation from Michigan lawmakers in Congress that would require FERC to overrule decisions by the North American Electric Reliability Corp. if a review found it resulted in “unjust and unreasonable” rate increases.

One Provider for UP

UPPCO, which serves about 52,000 customers in the U.P., currently owns seven hydroelectric generators and two combustion turbines with total capacity of 80 MW.

Formed in 1947 from the merger of three utilities, UPPCO was later acquired by Integrys, which agreed in January 2014 to sell the company to an infrastructure equity investment fund, Balfour Beatty Infrastructure Partners, for about $300 million.

If the deal announced last week is completed, UPPCO, based in Ishpeming, Mich., would serve a majority of the U.P.