Indiana regulators are collecting information from both sides of the argument over whether Duke Energy is prudently handling the self-commitments of its coal units in the state.

The Indiana Utility Regulatory Commission opened a docket in March to investigate Duke’s self-scheduling practices after the company applied to increase its fuel adjustment charge, the amount billed to ratepayers based on fluctuating fuel prices. The IURC has scheduled a Sept. 21 hearing in the matter (38707).

The Sierra Club and Citizens Action Coalition of Indiana (CAC) have said there are “serious issues related to Duke’s commitment decisions,” pointing to the company’s coal-fired Cayuga Generating Facility, Gibson Generating Station and Edwardsport Integrated Gasification Combined Cycle plant.

In testimony to the commission, Sierra Club attorney Kathryn Watson said the organization isn’t sure if Duke is meeting its responsibility of providing electricity to retail customers at “the lowest fuel cost reasonably possible because those costs may include periods of unreasonable commitment for its Cayuga, Gibson and Edwardsport coal-burning plants into the MISO energy markets.”

Jennifer Washburn, an attorney with CAC, also said Duke may be purchasing and storing “excessive amounts of coal” for some units.

Devi Glick, a senior associate at Synapse Energy Economics who testified on behalf of Sierra Club, said Duke’s own analysis showed that Edwardsport could have earned $3 million if it ran on natural gas alone, compared with the $3.1 million in losses the company had projected based on the plant running on a synthetic gas-and-coal combination from Sept. 1 to Nov. 30, 2019.

Glick herself estimated that over the same three-month period, Duke’s operational losses totaled $3.3 million at Edwardsport and $3.56 million at Cayuga.

“Duke should be electing to operate its units on a forward-looking basis only if it expects to make money, and the company should keep the units offline if they are projected to operate at a loss,” Glick told the IURC. “While there are reasons why inflexible units with longer start-up and shutdown times, such as coal-fired units, may choose to self-commit, the company’s process for deciding how and when to self-commit should result in reasonable decisions that do not bring or keep units online when they are projected to lose money over a multiday, weeklong or longer time horizon.

“Based on my review of the company’s internal commitment-decision process … I see no indication that the company’s internal processes are aligned with, or guaranteed to serve, the best interest of ratepayers,” Glick added.

Shannon Fisk, managing attorney for the Earthjustice coal program who represents the CAC, said that while there potentially may be “a day here and there” where coal units operate uneconomically for other reasons, it shouldn’t be nearly as often as occurs with Duke.

“They’re incurring substantial losses running Edwardsport on coal, when the more logical approach is to shut the thing down, which would be cheaper for customers or, at worst, run it on gas,” he told RTO Insider.

Duke: Must-run Statuses Justified

Duke spokesperson Angeline Protogere said the utility’s goal is “always economic operation of our plants for customers.”

“Each business day, we do an economic review of a number of factors as we make a decision for each unit,” Protogere said in an email to RTO Insider.

In April 29 testimony, Duke Managing Director of Trading and Dispatch John Swez said the company commits its generating units “on an economic basis, except as required for unit testing, operational requirements or other infrequent reasons.”

“Units are dispatched on an economic basis between their minimum and maximum capability when not required to run at a specific output as would be necessary for unit testing, an operational requirement or other reasons. Utilizing a commitment status offer of must-run in the MISO energy markets does not necessarily mean that a generating unit was not economically committed,” Swez said.

He said must-run designations are sometimes necessary for facility testing, to ensure that a unit meets its minimum run-time to prevent wear or avoid damage from freezing temperatures. He also said the designation is needed because of the Indiana Municipal Power Agency’s nearly 25% ownership interest in the 625-MW Gibson Unit 5 and the Cayuga station’s arrangement that one unit remain at or above 300 MW to supply steam to nearby industrial customer International Paper.

“Used properly, as we do, the use of a must-run offer reduces the overall cost to supply energy to our customers by reducing the additional costs and risk associated with the unnecessary and uneconomic cycling of longer lead-time generating units,” Swez said.

But Fisk questioned “whether the proceeds from International Paper justify the costs to ratepayers” to keep the unit always switched on.

“The issue we’ve queued up in the commission is whether this is beneficial to customers. It’s clear that sometimes they’re dispatching the unit uneconomically,” Fisk said.

Swez said the minimum run-time of a unit at the Gibson station is 72 hours, and a restart of Edwardsport’s gasification systems can take up to 14 days. He also noted that MISO’s day-ahead market “was never designed to forecast economic commitments beyond the next day.”

Beyond that, Duke makes purchases of lower-cost energy from the MISO markets, Swez said, noting that the company last year purchased a little more than 30% of energy served to customers from the RTO. “The MISO energy markets are a resource that is used to the customers’ advantage when power prices are below the cost of the company’s generation cost,” he said.

Protogere also noted that a unit under must-run designation in MISO is only required to be online for its minimum load.

“It’s still MISO … that directs dispatch of a unit anywhere between a unit’s minimum and maximum capability,” she said. “If there is lower-cost power available, we make every attempt to turn down/off our units and purchase from the market. We manage our units as economically as possible for our customers. The ability to self-commit a generating unit is critical to avoid start-up expenses and operational risks incurred by cycling a unit offline and then back online during short periods.”

Duke Vice President of Midwest Generation Cecil Gurganus also defended his company’s practice of maintaining a coal pile at Edwardsport even though the plant can run on natural gas.

“We must acknowledge the reliability and resiliency value in fuel inventory maintained at coal plants, relative to natural gas. Even having contracted firm transportation agreements with natural gas suppliers is no guarantee of service when the commodity is curtailed,” he said.

Gurganus said Edwardsport’s fuel flexibility allows it to be available when other resources may not be. He also said the plant’s permitting dictates it run on coal as a primary fuel source and natural gas as a secondary fuel.

But Fisk said Edwardsport is approved to run on either fuel.

“Duke has substantial over-inventories of coal,” Fisk said, adding that utility-wide, it appears that Duke keeps about 60-plus days of inventory at units in addition to up to 1.4 million tons of coal in off-site storage. He said Duke should rethink coal-supply contracts and set aside any possible loyalties to keeping coal mines afloat. Duke officials pointed out in testimony that the plants use locally sourced Indiana coal.

“It should not be on Indiana ratepayers to keep a struggling coal mine is business,” he said. “A more prudent approach would be to ask: How can we stop buying more coal?”

While Fisk said his organization has yet to evaluate a MISO multiday market, he argued it wouldn’t change much about Duke’s commitment behavior.

“The argument here isn’t whether Duke on a daily basis is turning the unit on and off. The argument is: Duke has analysis over the coming weeks that the unit will be uneconomic, and it’s committing it anyways. If their own projection is showing the unit won’t make money, then it should be taken offline,” he said.

MISO’s Perspective

MISO itself continues to maintain that uneconomic coal must-run designations are uncommon.

The RTO said that from early 2017 to late 2019, self-committed coal units economically dispatched above their economic minimum level represented about 76% of its total coal-fired generation. MISO said it economically committed and dispatched another 12%.

“Added together, that means 88% of the region’s coal-fired energy in the last three years was economically dispatched in some manner,” MISO said.

But Fisk said that uneconomic commitments even 12% of the time represents “still quite a bit of money lost.”

“Commissions should be carefully evaluating how to shrink that number,” Fisk said.

MISO also points out that self-commitment is “used by all types of resources, not just coal.” During March, coal represented just 2 out of the 12 TWh in self-committed and uneconomically dispatched generation, the RTO said.

It also reported that coal self-commitments are on the decline. In 2009, 64% of its total energy was from self-committed coal resources. By 2019, that share fell to 36%.

Despite the drop, MISO states Minnesota and Missouri have also opened similar investigations into utilities’ coal plant self-scheduling.

Fisk acknowledged that coal self-commitments are on the decline even as they garner more attention. He said increasingly economic renewable resources have likely contributed to the emphasis on the issue.

“Certainly, the rise of renewables has contributed to lower-cost generation. The question is whether these utilities have properly adjusted to this new reality. It doesn’t appear that Duke has attempted this transition,” he said.