Coal plant self-commitments saddled Midwest electricity customers with $350 million in unnecessary costs in 2018, according to a new analysis from the Union of Concerned Scientists, which is calling on regulators to rein in the practice through investigations.

“Used, But How Useful?” concludes that individual ratepayers could have saved an average of $60 if the most efficient existing resources in MISO were deployed instead of coal self-scheduling in 2018.

“We found that not every coal plant in the Midwest operated uneconomically, but the utilities that did it the most drove down market prices, effectively squeezing out cleaner, cheaper sources such as wind and solar power,” Sandra Sattler, senior energy modeler at UCS, said in a press release.

UCS said savings from eliminating the self-dispatches could have more than doubled the amount MISO claimed it saved its members that year through efficient centralized dispatch. The RTO’s 2018 value proposition estimated its efficient energy dispatch saved members anywhere from $282 million to $312 million during the year.

“We decided that having a published report on which utilities were not acting in the public interest would be useful to regulators. We hope this will be a helpful tool for commissioners trying to tackle this problem,” UCS Climate and Energy Senior Energy Analyst Joe Daniel told RTO Insider.

This isn’t the first time UCS has publicly questioned the practice of vertically integrated utilities being allowed to operate units out of merit at times when their production costs exceed the wholesale market price. UCS pressed the issue last year at the National Association of Regulatory Utility Commissioners’ annual meeting. (See Enviros, States Question Coal Self-commitments.)

Daniel said the solution isn’t as simple as just abolishing must-run designations in MISO.

“There are plenty of power plants that use the must-run designation economically,” he said. “The uneconomic commitments will continue in another loophole unless state regulators come in and stop it.”

Daniel said a good first step for regulators is to open investigatory dockets into utilities that exhibit high costs.

“That way there’s a frank discussion between regulators, utilities and intervenors,” Daniel said. “The regulators have an obligation to disallow imprudent costs. … Running power plants that are expensive when there’s lower-cost energy available on the open market is imprudent. … If a commission would scrutinize and disallow tens of millions in imprudent costs, I am confident that the utility’s reaction would be to figure out how to solve the problem themselves. Smart utilities won’t let it get to that point. Smart utilities will see that commissions are taking things seriously and be proactive.”

When the Minnesota Public Utilities Commission opened a docket last year to investigate Xcel Energy’s self-scheduling of coal plants, Daniel said, the utility quickly proposed converting its coal plants to seasonal and economic use. Missouri and Indiana have also opened investigatory dockets into utility self-commitments. (See Ind. Regulators Scrutinize Duke Self-commitments.)

Biggest Offenders

According to the UCS report, Xcel subsidiary Northern States Power uneconomically ran its Allen S. King and Sherburne Country coal plants at a $56.9 million loss in 2018. If the utility had opted for more efficient generation in the MISO market, the average residential ratepayer could have saved $54 that year, UCS said.

UCS named Cleco Power the worst offender, saying it uneconomically generated electricity from its Dolet Hills and Brame Energy Center coal plants at a $123.3 million loss in 2018, costing Louisiana ratepayers an average of $184 over the year compared with more economic electricity available in the market.

Dolet Hills co-owners Cleco and Southwestern Electric Power Co. have indicated they may retire the plant as early as 2021. Earlier this year, the utilities agreed to retire the plant by 2026 as part of a deal reached with the Sierra Club. The conservation group has claimed that closing the plant would save ratepayers more than $60 million per year.

Cleco spokesperson Jennifer Cahill pointed out that the company and SWEPCO pledged beginning last year to only operate Dolet Hills in the demand-heavy summer months, or when requested by MISO.

“Furthermore, Cleco Power intends to seek regulatory approval to retire the Dolet Hills Power Station and the nearby mine that supplies the plant with coal. The closing dates for the power station and mine will be subject to discussions with stakeholders, including the Louisiana Public Service Commission and regional transmission organizations,” Cahill said in an email to RTO Insider.

DTE Energy’s five coal plants uneconomically generated power at a $94.7 million loss in 2018, costing individual ratepayers an extra $61, UCS also reported.

UCS said MISO’s greatest potential for savings “generally appear where the worst actors operated: Xcel Energy in Zone 1, Cleco in Zone 9, and DTE and Consumers Energy in Zone 7.”

The report also said coal self-commitments in MISO suppressed market clearing prices by 2.4% — or 63 cents/MWh — in 2018. The group also noted the self-commitments suppress independent power producers’ revenue in “all MISO transmission zones.”

“By exploiting gaps in regulatory oversight and loopholes in wholesale market rules, rate-regulated utilities are cutting ahead in the merit-order line. Rate regulation, coupled with a lack of scrutiny when it comes to cost recovery, has enabled these utilities to lose money in the market without incurring actual losses on their balance sheets,” UCS wrote, adding that in many parts of the U.S., the cost to buy and burn coal “exceeds the market price in most hours of the year.”

Self-commitment ‘Loopholes’

UCS said it makes economic sense for coal plants to respond to market price signals and begin operating more infrequently, allowing lower-cost natural gas and renewables to fill the gap. But the group characterized existing state regulatory frameworks and rate cases as “loopholes” that allow unchecked self-commitment decisions to persist.

“It is doubtful that changes to this practice will materialize if regulated utilities are continually allowed to recover fuel costs, without scrutiny or incentives to improve operations,” UCS said. “Utilities will throw up strawman excuses for why their coal plants are so uneconomic, but it is not incumbent on the regulator to innovate on behalf of the utility. Rather, utility companies are obligated to come up with a solution, and regulators should either approve or disapprove of the companies’ proposals.”

Daniel said residential ratepayer costs are more important than ever, with many staying at home more often because of the ongoing coronavirus pandemic.

And he said new resource additions to achieve UCS’ saving estimates are unnecessary.

“You could safely operate the grid with lower-cost existing resources that already exist. You should use what you have as efficiently as possible. And that’s not what happening. Utilities are preferentially selecting coal-powered plants at the expense of customers,” Daniel said.

To arrive at the millions in potential savings, UCS used modeling software that accounts for MISO system limitations, transmission constraints and power plants’ ramping times and capabilities, Daniel said.

He acknowledged that MISO aggregates the number of uneconomic coal commitments in its footprint but doesn’t call out specific generators or utilities like UCS’ latest analysis.

“What really differentiates this research is we used a production cost model and the same software MISO does to come up with these numbers,” Daniel said.