Study finds uneconomic coal-fired generation cost MISO consumers $350M in 2018

New York — US ratepayers in the Midcontinent ISO region could have saved $350 million in 2018 if coal plants in the region were dispatched that year only when economical to do so, according to a new study from the Union of Concerned Scientists.

The study, released May 28, found that the uneconomic dispatch of coal units cost the average residential customer in MISO an additional $60 in 2018.

In addition, the study determined that market rules that allow the self-commitment of coal units, where plant operators choose when to run a facility instead of allowing a merit-based algorithm to select the least-cost units first, suppressed market-clearing prices in the MISO region by $0.63 per MWh, or 2.4%.

Self-commitment is permitted for a host of reasons under various grid operators' rulebooks, including long lead times, high startup costs, and the desire to avoid thermal damage to generating units. However, the union, or UCS, study found that coal-fired units in MISO could be operated less frequently without sacrificing grid reliability while saving consumers hundreds of millions of dollars.

"Our analysis found that coal-fired power plants that are owned by vertically-integrated investor-owned utilities were operating for long periods of time when market prices didn't justify it," Joe Daniel, senior energy analyst and co-author of the report, said in an interview.

UCS is a member-funded nonprofit advocacy group that promotes clean energy and often participates in public utility dockets at the state level.

Daniel has been researching the economics of coal plants for years. In September 2018, he published a report that estimated consumers in four wholesale power markets overseen by the Federal Energy Regulatory Commission — MISO, the PJM Interconnection, Southwest Power Pool and Electric Reliability Council Of Texas Inc. — were overpaying for uneconomic coal-fired generation by more than $1 billion per year.

"You have to read the thousands of pages of market manuals and tariff sheets to realize that there are these little opportunities to skip [ahead] in line," Daniel said.

As a follow-up to the September 2018 report, UCS employed the same modeling software used by MISO to replicate the grid operator's system in 2018 to reflect the assumption that all units were dispatched based purely on economics alone.

COAL HAD 45% MARKET SHARE

In 2018, coal-fired generation produced about 45.3% of MISO's energy, followed by natural gas at 28.3%, nuclear at 14.3%, wind at 7.1%, and all other resources at 4.9%. In contrast, natural gas accounted for 39.5% and coal just 34.8% of MISO's installed capacity at the end of 2018, according to a 2018 MISO State of the Market Report produced by the grid operator's market monitor Potomac Analytics.

In arriving at the $350 million in cost savings figure, Daniel noted that the model accounted for overall grid reliability, transmission constraints that limit MISO zones' import and export capabilities, and unit-specific factors such as a plant's ramp rate, or how quickly a generator's output can change.

The upshot of the study is that many investor-owned utilities have been showing preferential treatment to the coal plants they own instead of serving their customers with cheaper electricity procured on the open market, Daniel said.

Former FERC Chairman Jon Wellinghoff agreed with that assessment and called the issue "ripe" for further investigation by the commission.

"They're ultimately running their plants to try to demonstrate to their state regulators that these plants are used and useful so that they can continue to collect cost of service rates from ratepayers to prop up these plants, but quite clearly these plants are not economic," Wellinghoff said an interview.

The UCS study assumed that utilities were still paying off the debt on the coal-fired facilities. All of the savings came from reduced fuel costs and a drop in operation and maintenance costs, Daniel said. He also acknowledged that 2018 represents one model year and 2020 will reflect different grid conditions.

One way to remedy the problem could be for state regulators to take a closer look at how utilities choose to operate their generating resources, Daniel suggested. "If a utility continues to operate a coal-fired power plant when lower-cost resources are available on the open market, that to me is imprudent and would justify a commission disallowing those costs," he said.

When asked for comment, MISO spokesperson Allison Bermudez pointed to the grid operator's own analysis of MISO self-commitment trends. Released in April, the analysis found that 88% of the region's coal-fired generators were dispatched economically in some manner over the past three years.

In February 2019, MISO released a study estimating that in 2018 the grid operator delivered between $3.2 billion and $3.9 billion in benefits to consumers as a result of systemwide integration across its footprint. Overall, the study found that MISO delivered an estimated $24.3 billion in benefits to the region it serves from 2007 to 2018.

MISO operates the power grid in 15 central U.S. states and the Canadian province of Manitoba.