Electricity from coal - pricey Should consumers have to pay?

The New York Times carries an article about environmental groups which are making a new economic argument against coal, Caliber.Az reprints the article.

Environmental groups are making a new economic argument against coal, the heaviest polluting fossil fuel. Some regulators are listening.

For decades, environmentalists fought power plants that burn coal, the dirtiest fossil fuel, by highlighting their pollution: soot, mercury and the carbon dioxide that is dangerously heating the planet.

But increasingly, opponents have been making an economic argument, telling regulators that electricity produced by coal is more expensive for consumers than power generated by solar, wind and other renewable sources.

And that’s been a winning strategy recently in two states where regulators forbade utilities from recouping their losses from coal-fired plants by passing those costs to ratepayers. The Sierra Club and the Natural Resources Defense Council, two leading environmental groups, are hoping that if utilities are forced to absorb all the costs of burning coal, it could speed the closures of uneconomical plants.

The groups are focused on utilities that generate electricity from coal and also distribute it. Those utilities have historically been allowed to pass their operating losses to customers, leaving them with costly electric bills while the plants emitted carbon dioxide that could have been avoided with a different fuel source, according to the environmental groups.

About 75 per cent of the nation’s roughly 200 coal-fired power plants are owned by utilities that control both generation and distribution.

In 2023, utilities across the United States incurred about $3 billion in losses by running coal-fired power plants when it was cheaper to buy power from lower-cost, less polluting sources, according to RMI, a nonprofit research organization focused on clean energy. About 96 per cent of those losses were incurred by plants that controlled both power generation and distribution, the organization said.

“We have all this coal that’s running when it shouldn’t be,” said Dana Ammann, a policy analyst at N.R.D.C.

The coal industry says its value comes from reliability.

Steam turbines that run on coal can produce electricity around the clock, unlike solar or wind power, said Michelle Bloodworth, president and chief executive of America’s Power, an industry trade group. “Utilities and grid operators across the country have seen first hand how valuable it has been for them to have access to coal units to help keep the lights on at all hours of the day and night,” she said.

Still, regulators in at least two states have been persuaded by the economic arguments against coal.

In April, the public utility commission in Michigan denied a request from an owner of three coal-fired power plants to recover nearly $12 million in costs from its customers. The regulators said that the utility, Indiana Michigan Power, sold electricity from coal-fired plants instead of cheaper, cleaner options available through electricity markets.

Michigan’s attorney general, Dana Nessel, a Democrat, joined environmental groups in arguing that Indiana Michigan Power should pay for its costly coal operation. A spokeswoman for the attorney general’s office, Kimberly Bush, credited Sierra Club’s economic arguments, saying that Ms. Nessel was able to build on them.

In Louisiana in February, an administrative law judge recommended that state regulators reject a request from two utilities that wanted to recover more than $180 million in fuel costs from ratepayers stemming from a coal-fired power plant that was shut down in 2021. The judge found that the utilities fed their customers high-cost power by burning coal sourced from a mine that they also owned. The utilities quadrupled the price of coal to recover an investment made to the mine, a practice that tripled the cost of electricity from their power plant, Dolet Hills Power Station.

After the judge’s recommendation, the utilities, Cleco Power and Southwestern Electric Power Company, agreed to refund $60 million to their customers and to abandon efforts to collect costs incurred from what the judge said was running the coal power plant “imprudently.”

Mark Kleehammer, the chief regulatory officer at Cleco, said the coal-fired plant had saved ratepayers $2.3 billion over the three decades that it operated between 1986 and 2021, compared with what electricity customers would have paid if Dolet Hills had not been running.

American Electric Power, which owns both Indiana Michigan Power and Southwestern Electric Power Company, declined to comment, citing ongoing litigation. The company is appealing a related case involving one of the Michigan coal plants to the state Supreme Court, after losing its initial appeal at a lower court in January.

Environmental groups hope that the recent victories could speed up the retirement of coal-fired power plants, which account for more than half of the carbon emissions from the power sector in the United States. but generate less than 20 per cent of nation’s electricity.

Joshua Smith, a lawyer at the Sierra Club, said decisions to burn coal at the expense of ratepayers “are going to be examined more carefully going forward” by state regulators.

Over the past six years, the Sierra Club has used nearly identical arguments about costs to challenge requests from coal-fired power plants in at least 12 states that sought reimbursement of their expenses. “Economics are a central piece of all our arguments,” said David Rogers, a deputy director at the organization.

As recently as the early 2010s, coal was the cheapest source of reliable power in many regions. But as the fracking boom that began around 2005 started to produce large quantities of cheap, natural gas, the economics of coal changed. In the last few years, the cost of power generated by wind turbines and solar farms plunged, replacing natural gas as the cheapest source of electricity. Last year, power generated from onshore wind turbines and solar farms cost about one-third of the electricity produced by coal, on average.

New limits on emissions from coal-fired power plants announced in April by the Environmental Protection Agency are likely to make coal plants even more expensive to operate. The regulations say coal plants in the United States must cut 90 per cent of their carbon pollution by 2039, which would require them to install expensive new technology. Plants also face stricter limits on mercury emissions as well as toxic ash and wastewater from the plants.

The restrictions on mercury, toxic ashes and wastewater are likely to result in modest but immediate financial pressure on plant operators, Mr. Smith said. That could deliver a critical blow to plants that have operated for nearly half a century but now struggle to break even, he said. The average age of the country’s coal-fired power plants hovers above 40 years.

“When you add those costs, it makes those facilities even more uneconomical to operate,” he said. “The end is near for a lot of these older coal power plants.”

Utilities often sell power outside of their domain even when electricity prices are below their costs because their losses are usually covered by ratepayers. The practice, known as “self-commitment,” is most prevalent among coal-fired power plants, according to an annual report from Southwest Power Pool, a consortium that oversees electricity markets and utilities in 14 states.

“These plants operate outside of market factors,” said Timothy Fox, a managing director at ClearView Energy Partners, a consulting firm.

By running regardless of cost, coal power plants increase the power supply and can lower wholesale electricity prices. That drop in prices distorts the market and makes it hard for wind energy, which has a thin profit margin, to compete. It is also discouraging investment in wind, said Michael Goggin, vice president at Grid Strategies LLC, a consulting group.

“People are hesitant to build wind plants in these areas where these coal plants are doing this,” Mr. Goggin said.

Utilities say the self-committing practices are hard to avoid. They point out that coal-fired power plants require dozens of hours to heat up and burn enough coal to produce steam that turns the turbines, making them less responsive to market prices than wind or solar.

Clean energy supporters hope that they can make a similar economic case against utilities that want to build new gas-fired power plants, although that may be tougher.

In the South, where dozens of data centers and factories that manufacture solar panels and batteries are expected to come online in a few years, utilities say new gas plants are required to meet demand. North Carolina-based Duke Energy, for instance, is proposing to build enough new gas capacity to power around eight million homes.

Climate groups are arguing to state regulators that building new gas plants would be more expensive than adding renewable sources like wind energy, increasing battery storage and improving grid connectivity to allow utilities to buy electricity from other regions when needed.

Like existing coal-fired plants, new power plants that burn natural gas are subject to new federal regulations that require them to significantly reduce their emissions.

That means new plants “will expose ratepayers to fuel price volatility and potentially expensive new regulations,” said Devi Glick of Synapse Energy Economics, a consulting firm, who testified in February on behalf of the Sierra Club before regulators in Georgia, where the utility sought approval for three new gas plants. The utility, Georgia Power, should consider building more gas only “to fill the gap it cannot economically meet with clean energy resources,” Ms. Glick said. Regulators decided to allow Georgia Power to move forward.