Indiana utilities will have to answer tough questions about their coal operations this year, as scrutiny over the practice of self-scheduling and its environmental and economic costs mounts.
Duke Energy and Indianapolis Power & Light (IPL) Company are both facing heightened inquiries from the Indiana Utilities Regulatory Commission (IURC) over how often their coal plants are running uneconomically at a high cost to customers.
IPL spent about $1.55 million more than it should have through November and December of 2019 by running its 1,720 MW Petersburg coal plant continuously during a time of depressed energy prices, according to Tuesday testimony of Sierra Club Senior Strategy and Technical Advisor Jeremy Fisher in front of the IURC. And evidence that Duke lost $6.9 million over three months in 2019 through similar practices was strong enough that regulators agreed to open a subdocket in March examining the utility's "unit commitment decisions."
The move in Indiana follows similar dockets opened in Minnesota and Missouri to more closely examine these practices and their impacts across wholesale power markets. Research from the Union of Concerned Scientists and Sierra Club has found utilities across the country are costing ratepayers billions of dollars by running these plants uneconomically, with previously little to no regulatory oversight.
"There is a lot that's just being rubber stamped, essentially, in these dockets, and it's not necessarily all prudent behavior," Devi Glick, senior associate at Synapse Energy Economics, who testified on behalf of Sierra Club regarding Duke's fuel practices, told Utility Dive.
Utilities defend these practices in a number of ways. "Our goal is always economic operation of our plants for customers, and each business day we do an economic review of a number of factors as we make a decision for each unit," Duke spokesperson Angeline Protogere told Utility Dive in an email. For instance, sometimes units are dispatched on a "must-run" status for environmental testing, and turning off and on the units can be inefficient, she said.
Duke's 'worst kept secret'
Duke argued to regulators in February its fuel mix was not relevant to its docket on fuel adjustment costs, arguing such discussions were better held during deliberations over its long-term resource plan.
"The intervention Sierra Club seeks to pursue exceeds the scope of this proceeding, as it seeks to 'advance its clean energy, environmental, and climate-focused interests' and would unduly broaden the issues or result in unreasonable delay of this proceeding," the utility wrote in its objection.
But arguments being raised nationwide that coal plants are costing consumers money by operating even when prices in the wholesale energy market are lower than the cost of running the plant are pushing regulators to examine the practice.
After Duke in January filed with Indiana regulators to adjust its fuel costs, Glick in her testimony said Duke is self-committing its coal-fired units the majority of the time, and noted "numerous instances where the Company kept or brought a unit online even when its own internal commitment analysis projected that doing so would lose money."
Exactly how much of its coal generation is self-committed, and how much money the company has lost through these practices versus how much it could have made is unknown to the public, because the underlying data provided to Glick to make such calculations was deemed proprietary by Duke, said Protogere.
But rebuttal testimony of John Swez, director of generation dispatch at Duke, reveals Glick estimated the company had operational losses of $6.9 million from September through November, with $3.56 million of that loss attributed to its 1,104 MW Cayuga coal plant, and $3.3 million attributable to its Edwardsport coal and natural gas hybrid plant.
Swez argues that Glick's estimates fail to take into account required unit testing for environmental compliance, and notes that freezing weather meant turning off the plant fully would risk freezing components of the plant needed for operation. And the Cayuga Station has one unit that needs to remain at or above 300 MW at all times for the utility's industrial customers.
On the Edwardsport plant, Swez argues the facility must be designated "must-run" because it's difficult to cycle off and on, and it doesn't want to lose its specialized work force. And although its own analysis has found the plant would save a net $6.1 million by running the plant only through its gas units, Swez says the "volatility" of natural gas has them wanting to maintain "the diversity value of coal."
"Although the Company isn't predicting a fundamental return to higher gas prices, external risks to natural gas still exist, and retirement or moth balling of the Edwardsport gasifiers eliminates any option to burn coal in the event that natural gas prices increase," he said in his testimony. Protogere said the utility would have more detail to provide in its testimony on the docket.
But Glick says while these technical barriers may exist, they don't justify continuously operating these plants at a loss at the expense of ratepayers. The Edwardsport plant is a particular problem, she said.
Freshly renovated to its hybrid status in 2013, Duke boasts the facility "is one of the cleanest and most efficient coal-fired power plants in the world." The $3.4 billion project was first approved in 2007 and faced a two year construction delay, sending it $1.5 billion over budget.
"Every single argument that they make around why it makes sense to continue to operate this plant has nothing to do with economics and is totally them just basically trying to grasp at straws," said Glick.
"It's like the worst kept secret. Everybody knows this plant is losing a huge amount of money and they don't know what to do with it."
Ultimately, Glick's evidence was compelling enough to state regulators that they elected to open a subdocket on the issue after further intervention from the Indiana Citizens Action Coalition. Indiana has never opened a specific sub-docket to review the utility's "unit commitment decisions," per the knowledge of CAC Executive Director Kerwin Olson.
"This is an issue we've been raising for a couple years … that [utilities] can ignore marketplace economics, label their plants as 'must run' and dispatch those plants, and effectively ignore marketplace signals related to how much it costs to generate that energy and send it to the grid," Olson told Utility Dive. "When you partner that with Indiana code, which really obligates the utility to deliver least cost resource to their customers, then clearly there's a contradiction there."
IPL 'theoretical' mechanism doesn't prevent market distortion
The issue extends beyond just Duke in Indiana. Sierra Club on Tuesday intervened in another docket as well to protest IPL's fuel cost request, arguing the company "seeks to recover more than is reasonable from ratepayers," having spent $1.55 million more than was necessary last winter.
The main culprit of this overspending was the utility's Petersburg plant, according to Fisher, who in October released a report that found inefficient coal plant scheduling cost U.S. ratepayers over $3.5 billion from 2015 to 2017.
The Petersburg plant isn't particularly unique from a general cost basis, and is actually likely more economic than many other coal-fired plants across the U.S. The issue, Fisher told Utility Dive, is part of a larger question: Do utilities have mechanisms in place to prevent this kind of uneconomic scheduling, and if so, are they utilizing those mechanisms?
In this case, IPL had mechanisms in place to avoid running its units when they were not economic, said Fisher, but elected not to use them last fall, when market prices were depressed for a several-week period.
"For us what sticks out is coal plants that did operate during this time," said Fisher. "IPL continued operating where it was pretty clear there were net losses."
In total, the company's forecast overestimated fuel costs by 6.89% during the November/December period, despite market forecasts that indicated market prices for electricity would be well below the cost of operating the plant for an extended period of time.
IPL has a "theoretical" mechanism in place for mitigating such losses, noted Fisher — a week-ahead assessment intended to help the company decide whether to commit a unit to dispatch.
But "while the Company appears to have a reasonable process in place to forecast its net margins at Petersburg, it does not appear to actually use those forecasted net margins in a prudent or reasonable manner to inform its commitment decisions," Fisher said in his testimony.
The utility disputes Sierra Club's argument.
"In this proceeding, IPL proposes to reduce fuel costs reflected in customer rates. IPL operates its units in alignment with market prices and customers' interest in reliability and price stability," spokesperson Courtney Arango told Utility Dive in an email.
IPL "will present rebuttal on May 11 demonstrating that the Sierra Club analysis is fundamentally flawed and should be rejected," she said.