Jiayu Liang
MILWAUKEE, Wisconsin (June 22, 2022)—Gas plants in the Midwest operated at a loss for the equivalent of three months during 2019. This forced captive utility customers to pay an additional $117 million collectively in electricity costs, according to “The Shaky Economics of Gas-Fired Power,” a report released today from the Union of Concerned Scientists (UCS).
“We found that on average, gas plants spent the equivalent of three months in 2019 running while it wasn’t economic to do so,” said Ashtin Massie, an energy analyst at UCS and lead author of the report. “Even when operating costs exceeded market revenues or when lower cost alternatives were available, gas plants ran. This left consumers on the hook for $117 million in losses.”
“Our report used numbers from 2019, when methane gas prices were at record lows. Now as gas prices rise and renewable energy becomes more available, the economic feasibility of gas will only continue to be challenged. This serves as a warning against constructing new gas-fired power plants and is a compelling reason to re-evaluate our current overdependence on gas.”
The analysis focused on gas plants located within the Midwest’s two wholesale electricity markets—the Midcontinent Independent System Operator (MISO) and Southwest Power Pool (SPP). As wholesale electricity markets, MISO and SPP are tasked with meeting energy demand at every hour of every day, using the lowest cost resources available. Any power provider running its generators and selling electricity to the grid in these markets should be recovering its fuel and variable operating expenses, and should not be operating while losing money.
Instead, some monopoly utilities, which build and operate power plants that directly serve retail customers, have been selling power from their own, uncompetitive gas plants at a loss instead of utilizing cheaper, cleaner energy sources connected to the grid. A previous UCS report, “Used, but How Useful?,” discusses this practice in coal plants. This new analysis, however, is the first public report looking specifically at this phenomenon among gas plants. Monopoly utilities are prevalent in the MISO and SPP regions, meaning many Midwest consumers are captive ratepayers.
“With this information in hand, I hope regulators are inspired to proactively ensure that ratepayers aren’t footing the bill for uneconomic fossil fuel power plants,” said Massie. “Regulators also need to do more to scrutinize utilities’ operating and investment decisions. Operating and investing in cleaner energy resources is a better choice for ratepayers than relying on new and existing gas plants. Clean energy resources—including renewable energy, battery storage, energy efficiency, and increased transmission—increase the flexibility of the grid, create widespread economic benefits, and reduce heat-trapping emissions and harmful air pollution.
“MISO and SPP are taking some measures to mitigate the problem, but so long as these power plants have captive customers, there’s only so much the market can do. That being said, one thing these markets could do is identify and reform current market rules that erroneously incentivize inflexibility.”
Burning fossil fuels contributes to climate change and creates localized air pollution, both of which disproportionately impact communities of color and low-income communities. An inefficient and expensive grid also contributes to higher energy burdens—the percentage of income spent on electricity and gas—especially for low-income households.
“It's time for the Midwest energy market to shift its priorities towards saving ratepayers money, protecting the health of our communities, and fighting climate change,” said Massie.
To learn more, see Massie’s blog post “The Start of the Unraveling of Cheap Gas Fired Power.”