In Indiana, Fighting the Secret Bailout for Coal Plants: ‘Self-Scheduling’

Posted by Sarah Steinberg and Robert Stoddard on Sep 22, 2020 2:00:00 PM

Indiana Coal Self-Schedule border-745

The decline of coal has been well documented over the last decade, as it has gone from the majority electricity resource in the United States to less than a third of current power generation. At the same time, there have been many policy attempts to stop the retirement of uneconomic coal. For the first two years of the Trump Administration, several attempts were made – including use of the now-famous Defense Production Act – to bail out coal plants across the country. And some state legislatures – most notably in Indiana – have tried to keep utilities from transitioning from coal to advanced energy solutions. Now, the practice of “self-scheduling” coal plants – i.e., running them even when they are not the cheapest resource available for customers – is emerging as a coal-protection mechanism, especially in the MISO and SPP markets. In the first half of 2020, several state commissions, including the Indiana Utility Regulatory Commission, have begun to more closely review whether utilities under their jurisdiction engage in this practice. In July, Advanced Energy Economy intervened in an Indiana proceeding to argue against Duke Energy Indiana’s self-scheduling practice and teamed up with Berkeley Research Group to show how advanced energy resources can replace these coal plants and save Indiana ratepayers hundreds of millions of dollars.  

The Indiana self-scheduling case is one of the first regulatory proceedings in the country on this matter, so it’s important to put the issue in context. Self-scheduling refers to wholesale market rules that allow market participants to choose to operate a resource (such as a power plant) regardless of market clearing prices. Under these rules, a market participant may designate that its resource “must run” even if the market price it will receive is below its cost of operation. This practice can be used when market operators do not adequately model a plant’s operations, such as very long start times for some coal units or as a mechanism for resources like energy storage to manage their unique operations (e.g., state of charge). However, in states where vertically integrated utilities are able to receive full cost-recovery through bundled retail rates and fuel cost adjustments, some utilities have taken advantage of self-scheduling rules to run their uneconomic coal units in the absence of reliability needs. Such uneconomic dispatch doesn’t hurt the utility’s bottom line because it charges captive ratepayers for the difference between the market value of the energy and the actual cost of running the plant. Across these regions, ratepayers are on the hook for billions of dollars to keep uneconomic coal resources online, which harms consumers at the same time it crowds out resources like wind, solar, storage, and demand-side management from entering the market. 

In the past year, several states have opened dockets to review utility self-scheduling practices. In Missouri, the commission has ordered all utilities to provide information during fuel adjustment and cost-recovery dockets to get more transparency into utility self-scheduling practices. Going one step further, in Minnesota, Xcel filed a plan at the end of 2019 to limit the use of its remaining two coal plants by moving to seasonal operations instead of relying on year-round self-scheduling. In July, the Minnesota commission gave its approval for coal plants to sit idle for six months out of the year and only be used June to August and December to February to meet seasonal demand peaks. Xcel expects to save $8.5 million to $28.5 million on fuel costs annually and $18.4 million in total operation and maintenance costs over the remaining lifespans of the plants. In addition, the utility expects to save over $27 million in capital costs at one of the coal units.

Back in Indiana, self-scheduling appeared before the Indiana Utility Regulatory Commission twice this year. In May, the IURC decided not to review the self-scheduling practices of Indianapolis Power & Light (IPL), but did agree to review Duke Energy Indiana’s practices through a fuel adjustment clause proceeding. That’s when AEE intervened and worked with BRG to estimate the total cost to Duke ratepayers for keeping these uneconomic coal plants afloat. 

Estimates show that Duke is running approximately 5 GW of self-scheduled coal, at a loss of over $20 million in a three-month period alone in 2019 (representing 8% of Duke’s total costs during this period). Analysis we submitted as testimony on behalf of AEE shows that by rapidly transitioning to advanced energy resources and away from coal generation can provide between $105 million and $423 million in savings to Duke ratepayers by 2025.  Importantly, because this proceeding is limited to a three-month Fuel Adjustment Clause reconciliation period in 2019, this analysis only looked at losses incurred during those three months, rather than at the broader practice of self-scheduling. IURC is expected to take final action by the end of the year.

Regardless of the decision of the IURC, it is clear that uneconomic coal staying online because of self-scheduling is raising costs to consumers, preventing cleaner air by keeping dirty coal plants online, and restricting investment in more affordable and cleaner advanced energy resources across numerous states. Looking forward, there is a clear opportunity for the advanced energy industry to engage in state self-scheduling proceedings to accelerate the closure of uneconomic coal plants, increase investment in advanced energy, and lower costs to consumers.

Robert Stoddard is a managing director of Berkeley Research Group, where he co-leads its power and renewables team. He frequently writes and testifies about energy markets and the role of markets in the transition to advanced energy resources.

Follow the IURC docket on Duke's self-scheduling and download all the testimony submitted by AEE on PowerSuite, AEE's online policy tracking tool. Sign up for a free trial by clicking below. 

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Topics: PUCs, Regulatory, Wholesale Markets