WASHINGTON (May 28, 2020)—Regulated monopoly utilities overcharged millions of U.S. ratepayers in the Midwest at least $350 million in 2018 by selling them power from coal plants instead of from lower-cost, cleaner sources, according to a study released today by the Union of Concerned Scientists (UCS).
Consumers paid an average of $5 a month and as much as $184 a year in increased electricity costs that pay for monopoly utility practices that clog up the grid with dirty, expensive coal power and deprive less polluting resources grid access and revenues.
“Our analysis shows millions of customers are forced to subsidize utilities’ coal-fired power plants without even realizing it,” said Joe Daniel, senior energy analyst at UCS and co-author of the report “Used, But How Useful? How Electric Utilities Exploit Loopholes, Forcing Customers to Bail Out Uneconomic Coal-Fired Power Plants.” “Utilities have been hoodwinking regulators and ripping off their customers to prop up their uneconomic coal plants when lower-cost resources are readily available,” added Daniel.
Power markets are set up so that the lowest-cost resources should operate when they are available. But monopoly utilities, which build and operate power plants that directly serve retail customers, are able to exploit loopholes in the market rules at the expense of consumers. One example is “self-committing,” which allows the company to sell power from its own, uncompetitive coal plants at a loss instead of from cheaper, cleaner energy sources.
If the energy resources in the Midcontinent Independent System Operator (MISO) market were dispatched economically, consumers would have saved approximately $350 million dollars in annual electricity bill costs in 2018. Furthermore, the coal fleet across MISO would run 19 percent less and allow cheaper, cleaner generation access to the market. These consumer savings stem from a reduction in regulated utilities’ fuel and operations costs.
“Power from coal plants is expensive because the fuel isn’t cheap and the plants cost a lot to operate compared to other resources available in the market,” said Daniel. “But some utilities will sell power from coal plants at a loss, banking on being able to recoup those losses on the backs of captive customers.”
Utilities and regulators are supposed to check to make sure they are truly putting the least expensive power on the grid, but in MISO, they often don’t spot the problem. The report notes that public utility commissions, which regulate monopoly utilities and determine what costs they are allowed to recover from ratepayers, also are usually unaware that they are greenlighting a utility bailout.
“Allowing uneconomic self-commitment of coal-fired power plants in those markets diverts precious consumer dollars away from improving market efficiency and wastes dollars that could otherwise reduce greenhouse gas emissions,” said Jon Wellinghoff, former chair of the Federal Energy Regulatory Commission and CEO of GridPolicy, Inc. “If we are going to move rapidly to the low-carbon future necessary to avert climate disaster we need to be as efficient as possible in the operation of wholesale electric markets.”
Daniel and his co-authors analyzed the MISO market, which provides power to 15 states. The report explored a most efficient way to use existing energy resources in the area, using the same modeling tool that MISO operators and many utility companies use when making their own market forecasts.
According to the analysis, the following utilities sold the most coal-powered electricity when less expensive electricity was available from market sources in 2018:
- Cleco Power LLC, which provides power to more than 240,000 families in Louisiana, uneconomically generated electricity from its Dolet Hills and Brame Energy Center coal plants, at a $123.3 million loss in 2018. If utilities in MISO ran their power plants more efficiently, the average family in Louisiana could have saved $15 a month in electricity bills, or a total of $184 that year.
- DTE Electric Company, which also provides power to nearly 2 million families in Michigan, uneconomically generated power from its five coal plants—Belle River, Monroe, River Rouge, St. Clair and Trenton Channel—at a $94.7 million loss in 2018. If utilities in MISO ran their power plants more efficiently, the average family in Michigan could have saved $5 a month in electricity bills, or a total of $61 that year.
- Xcel Energy, which provides power to more than 1.1 million families in Minnesota under the name Northern States Power, uneconomically operated Allen S. King and Sherburne Country (Sherco) coal plants, at a $56.9 million loss in 2018. If utilities in MISO ran their power plants more efficiently, the average family in Minnesota could have saved $5 a month in electricity bills, or a total of $54 that year.
- Duke Energy Indiana, LLC, which provides power to more than 720,000 families in Indiana, generated power uneconomically from its four coal plants—Cayuga, Edwardsport, Gibson and R. Gallgher—at a $54 million loss in 2018. If utilities in MISO ran their power plants more efficiently, the average family in Indiana could have saved a total of $10 in electricity bills that year.
- Ameren, which provides power to more than 1 million families in Missouri, uneconomically-committed power from its four coal plants—Labadie, Meramec, Rush Island and Sioux—at a $43.8 million loss in 2018. If utilities in MISO ran their power plants more efficiently, the average family in Missouri could have saved a total of $27 in electricity bills that year.
(To see the findings for all utilities in the 15 Midwest states served by MISO, go to page 24 of the report.)
Data presented in the study stems from public datasets from the U.S. Energy Information Administration based on 2018 fuel costs, available energy sources and MISO market prices, as well as commercially available datasets and software.
“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,” said Sandra Sattler, senior energy modeler at UCS and co-author of the report.
Since UCS began analyzing self-committing, a few states—including Minnesota, Missouri, and Indiana—have opened investigations into the practice. For example, public utility commissioners for Minnesota became the first to open an investigation to find and fix this issue. In response to the commission proceeding, Xcel Energy announced plans to change to seasonal operations at its Minnesota-based coal power plants, Allen S. King and Sherco, effectively ending the practice of self-committing at these facilities.
MISO has proposed revamping its system to add new, lower-cost renewable and natural gas generation to its resource mix. More than 100 gigawatts of new solar, wind and natural gas generation sources have vied for access to MISO’s grid since last September alone.
The practice is not limited to the 15 states served by monopoly utilities in the MISO area. In a 2018 study, Daniel analyzed coal plant electricity output on an hourly basis from 2015 through 2017 in four energy markets. The coal plants in these markets, which combined span about half of the United States, provided power from more expensive coal plants rather than cheaper sources that were available, resulting in $4.6 billion in excess costs to customers.