There is no question – energy rates throughout the Upper Peninsula have increased dramatically over the last decade. Numerous items to contribute to rising costs; the very rural-ness of the U.P., low populations to support capital projects, transportation costs, economics (mining), etc. The list is extensive. The situation in the U.P. is a difficult one, and no one or two solutions will solve the issues at hand. It will take numerous initiatives, tied with supporting legislation, to alleviate the high energy costs. Businesses should look at investments in energy efficiencies to help lower energy costs, while local units of government should educate themselves on technologies and adjust zoning regulations and local policies to provide more flexibly for alternative energy.
Western Upper Peninsula
Energy in the Western U.P is a study of contrasts. The high cost of electricity at the Houghton County Airport Industrial Park is a serious issue, placing barriers on current tenants and future economic growth. Locating a business in the Houghton Industrial Park can cost anywhere between 25% -125% more in energy expenses compared to any other industrial park included in this study. The last Cost of Service Study (COSS) for OCREA showed that industrial/commercial customers are over paying and subsidizing the seasonal residential customers. Businesses have no defined representation on OCREA Board of Directors and OCREA’s rates are not subject to regulatory oversight from the Michigan Public Service Commission.
At a time when utilities around Michigan and the country are working with their large energy consumers to reduce peak demand, lower energy consumption and increase customer owned self-generation, OCREA offers limited opportunities for commercial businesses to reduce their energy costs. A limited state-mandated energy optimization program offers energy efficiency retrofits like LED lighting. However, customers receive no respite from OCREA’s demand rates, which are the highest in the state of Michigan. As a small rural utility with less than 5000 customers and supplying less than 0.03% of all electricity in Michigan, OCREA might be ill equipped to serve the needs of commercial and industrial customers.
While natural gas from SEMCO is available, reliable and currently affordable year round, long supply is term capacity limited by infrastructure, as the Western UP region is serviced by a narrow gas pipeline. The next manufacturing business that might require very large natural gas generator for its operations is unlikely to be guaranteed uninterrupted service during peak winter months.
The Ironwood Industrial Park is in a good position relative to its energy with affordable rates from their service provider – Xcel. With a large multi-state utility and only a small footprint in Michigan, the Ironwood area reaps the benefits. With such low rates, most alternative energy options are likely to remain a low priority for most businesses. The Ironwood Industrial Development Corporation (IIDC) represents an active business community, with a Board of Directors that includes park tenants and utility representatives. Such a proactive business community presents unique opportunities for alternative energy adoption at the scale of the entire industrial park. Overall, the Ironwood industrial park community can serve as a role model for proactive governance of an industrial park in the UP.
Central Upper Peninsula
The Delta County Industrial AirPark enjoys the lowest electric rates in the region through its city utility, Escanaba Power and Light. City of Escanaba is a Midcontinent Independent Systems Operator (MISO) market participant, and has historically offered very low rates. As a municipal utility Escanaba Power and Light has greater flexibility in offering custom and competitive rate structures to industry park businesses in support of the city’s economic development goals. Municipal utilities in Michigan can also offer on-bill financing for alternative energy upgrades on their customer’s facilities. Escanaba Power and Light is also studying the feasibility of a community solar project, allowing for greater solar adoption for businesses that might not have adequate rooftop solar potential on their own facilities.
From a purely energy perspective, the Delta County Industrial AirPark is among the best destinations for businesses moving to the U.P., with a robust energy infrastructure and cheap electric rates.
Menominee County Industrial Park is in an envious position with very affordable energy rates, offered through Wisconsin Public Service (WPS) for both natural gas and electricity. WPS has a large service territory in Wisconsin, but covers only half of Menominee county in Michigan. Despite such a small footprint, WPS is the third largest utility in the UP by total electric energy supplied. The greatest issues facing Menominee Industrial Park is an aging infrastructure in the original Park and the lack of any infrastructure in the area available for expansion. With the City of Menominee owning the infrastructure, there may be unique opportunities for upgrading infrastructure in support of economic and community development. Currently, the hard numbers on Menominee’s energy infrastructure are not available, impeding further expansion.
In the Norway-Vulcan Industrial Park, an old railway line separates the service territories Wisconsin Electric (WE) and City of Norway Power and Light for electricity. At present, all businesses are located on one side of this line and are serviced by WE, which has the second highest electric rates of all industrial parks included in this study. All business customers expressed a dissatisfaction with their rates. Additionally, they remain frustrated at their inability to choose service from their own city utility, which produces nearly 80% of its energy locally using clean hydropower. Businesses moving into the park are advised to incorporate these dynamics into their choice of location within the industrial park. Natural gas is not available at all park locations
Eastern Upper Peninsula
Luce-County and Sault St. Marie industrial parks are serviced by Cloverland Electric Cooperative. Effective January 2016, Cloverland returned to being member-regulated in an effort to reduce costs of MPSC fees and to have greater flexibility in establishing policies and rates to benefit their customers. Cloverland has a large contiguous service area in the Eastern UP with reasonable electric rates.
The largest energy consumers in both industrial parks are proactive and clearly demonstrate the vitality of U.P. businesses. All companies have taken actions to make their operations as efficient as possible, and continue to look for additional opportunities.
The biggest issue at these parks was the unknown infrastructure capacity. With three currently large electric consumers at Luce-County industrial park, remaining capacity could be a limiting factor for growth. As a Park nears its capacity, expansion to additional capacity is expensive and could be the primary deterrent to future development.
For most businesses in this study, we find that access to transportation, communication infrastructure, operational supply-chain efficiency and availability of skilled workforce take precedence over energy costs as barriers for economic development and job growth. With the exception of businesses in Houghton-County and Norway-Vulcan industrial parks, customers in other industrial parks expressed a general satisfaction with the electric rates and service of their utility service provider.
That is not to say that businesses are not concerned about energy costs. Indeed, monthly electric and gas bills form a significant portion of operational expenses for most businesses. Most businesses interviewed for this study recognize the value of energy savings, but few have made efforts to curb energy spending.
From a purely technical and economic standpoint, we find that alternative energy technologies are viable in most industrial parks in the U.P. However, systems large enough to provide significant energy savings requires a significant investment is required not only in equipment but also in trained personnel. Businesses question where they will find these qualified people and how much it will cost and how much they will save in energy costs; versus paying for the high reliability utilities companies offer today.
We observe that a massive barrier to alternative technology adoption is the uncertainty in policy and legislative landscape. All businesses expressed strong reluctance in assuming the risk of making any capacity investments in alternative solutions in the face of unpredictable and rapid changes in energy policy. Indeed, just within the timeline of this study, changes to Michigan’s energy policy and dangers of pending legislation necessitated redaction of early findings and recommendations.
The future of the electric utility industry is unknown with all the federal and state regulatory proposals and plans currently on the table. Any specific recommendations made here are likely to be outdated in as early as six months.
With this background, identifying, targeting and capitalizing on opportunities for energy cost reduction can only be championed by visionary leadership in this region. All regional stakeholders – industrial park businesses, local EDCs, planning and development agencies, and in many cases, utilities share common goals of reducing energy expenditure. Yet, achieving widespread reduction of energy expenditure might beyond the capability of any individual stakeholders.
This report presents a simple, elegant and long term solution for UP stakeholders to disrupt this market failure –put in place a single qualified professional or organization to serve as an Energy Manager for the entire Upper Peninsula region. Key responsibilities would include, but not be limited to:
- Continuously monitor the policy landscape, and align regional objectives with state and federal goals.
- Helping businesses understand their energy bills and costs.
- Keep up with advances in alternative energy technologies, and identify opportunities for adoption.
- Help businesses access energy optimization programs offered through utilities.
- Organize routine and periodic energy audits.
- Consolidate economies of scale, and create opportunities for affordable energy adoption at an industrial park scale. For example, partnering with an alternative energy supplier to build community solar or wind projects to benefit all businesses in the park.
- Create a business case for affordable energy options for businesses in industrial parks. For example, partner with energy efficiency contractors to offer performance-guaranteed upgrades to equipment.
- Work with local units of government to create funding tools like PACE financing to facilitate alternative and affordable energy adoption.
- Help industrial park managers understand the capacity limits of their energy infrastructure.
- Assist businesses in securing representation on boards of utilities that lack regulatory oversight from MPSC.
With commercial customers in the UP spending roughly $81 million every year in electricity costs, and with risk of volatility in long term price of natural gas, the benefits of saving at least 0.1% of energy expenditure will far outweigh the payroll costs of UP’s own Energy Manager.