Michigan to Set Stricter Rules for Building Coal-Fired Plants

CHICAGO - Michigan Gov. Jennifer Granholm this week announced tougher regulations for companies that want to build coal-fired power generation plants in the state.

The move, which follows in the footsteps of several other states' efforts, is part of Granholm's broader goal of making Michigan a hub for the burgeoning renewable energy industry.

As a state heavily dependent on coal-based power, Michigan currently has 19 coal-fired plants and state officials are reviewing proposals for five more. The governor's announcement means the Michigan Department of Environmental Quality will impose stricter environmental evaluations on proposed plants.

Granholm made renewable energy a chief focus of her state of the state address Tuesday night, telling lawmakers she would push to reduce the state's reliance on coal- and natural gas-generated electricity by 45% by 2020.

The announcement quickly sparked controversy among some lawmakers and utility and business advocates, who said it would affect billions of dollars in construction projects and job creation.

It is uncertain whether any of the proposed projects include tax-exempt financing, according to Robert McCann, a spokesman for the Michigan Department of Environmental Quality.

McCann said the state typically had approved all proposals for coal-based projects, and the governor's order would likely change that.

"Before, we weren't allowed to look at something like whether we had a real need for them or not," he said. "This allows us to see if there is a real need, and what alternatives we have."

Under the plan, companies proposing coal-fired plants will need to include an analysis to prove the state's actual need for a new power plant as well as an analysis of alternatives to building a pure coal-based plant, McCann said.

Granholm's move is part of a growing state and federal trend toward tougher regulations for coal-based power generation - a trend that has put the brakes on a number of proposed projects across the country. In light of the increased regulations, tax-exempt bond issues financing such projects is likely to dip, credit analysts said.

"The process for getting coal-fired generation projects approved in this country has gotten far more difficult over the last year," said Standard & Poor's analyst Jeffrey Panger. "There are rather significant plans that have been on the drawing board that are being put on hold in many states."

Florida, California, Wisconsin, and Kansas have all recently postponed or cancelled coal-fired projects.

At the same time, a number of such projects are still being built and many states - with aging power generation infrastructure - continue to be highly dependent on coal-generated power, according to Panger.

Coal-fired plants that are in the process of being built in Ohio, Illinois, Nebraska, and Missouri are all moving forward, noted Dan Aschenbach, an analyst at Moody's Investors Service.

But those plants that are still trying to secure permits and financing, like the five in Michigan, will likely enter a wait-and-see mode as officials on both sides of the issue wait to see whether the 111th Congress will enact federal legislation that affects these kinds of facilities, Aschenbach said.

"The expectation is that there will be legislation in Congress to create national carbon regulation," he said. "There's a big debate in the Midwest, where some of the projects are still planning to go ahead, but there's also a move to the sideline to wait and see."

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