These “small” projects are important steps forward to helping modernize the electric grid, so they can be important, but they have to be done right.

Last year, Michigan utility Consumers Energy proposed a pilot project that would allow them to operate batteries located at customers’ homes. The pilot project would cover 2,000 residential homes and would come with a price tag of $15 million of ratepayers monies.

If done right, these types of batteries could help integrate renewables, reduce customer outages, avoid dirty peaker plants, and even help avoid more expensive grid investments—all important things worthy of support.

But rather than try to do any of that, the company wanted to haphazardly deploy the batteries, without regard to potential benefits, like the ones listed above. The Company’s plan was to study the benefits after the fact.

Shoot first, aim later.

UCS objected to this and, along with partners, filed testimony opposing the company’s proposal. Then, in December, the Commission agreed with staff and intervenors’ recommendations and rejected the pilot project. They also ordered the company to initiate a stakeholder process to design a better pilot project.

What exactly was the company proposing?

Essentially, the utility was requesting that the Commission pre-approve $15 million of rate-payer monies so they could buy or rent batteries to be installed at customers’ houses. The company would operate the batteries, and the customers would benefit because they would have battery backup power in case of an outage. The program would be available to any residential customer and the batteries would be deployed without regard to who would adopt it or where it would be located.

At first, that might sound fair, because any and every customer can participate and has equal access to the program. We know from past experience how that would turn out.

Rooftop solar is, hypothetically speaking, available to any and every customer, but adoption tends to skew towards white and wealthy customers. It is also harder if you live in an apartment, or are a renter, or are part of an HOA. Energy efficiency is similarly difficult to deploy equitably, despite it having some of the greatest potential for equitable benefits.

Why would we assume that storage would be different?

Consumers Energy offered no reason to think it would be and relied on a narrow interpretation of regulatory precedents in its application to the commission. The point of pilots, the company argued, is to test things out, and these concerns about access fell outside of the scope.

Therein lay the problem. We let pilot projects get away with things because of the relatively small budgets, but the point is for those pilot projects to serve as the basis for larger rollouts. Mistakes and oversights in the pilot are likely to get magnified. Better to do it right in the first place.

I filed testimony making several recommendations to improve the pilot. My assessment concluded that the pilot would be inaccessible to low-income customers and that the company should carve out a portion of the budget to install batteries at low-income households for free. The company agreed with that recommendation and revised their proposal during rebuttal testimony. But the rest of my suggestions they didn’t feel needed to be incorporated. Including the most important recommendation: where the batteries were to be located.

Location, location, location

Who would be able to benefit from and adopt storage wasn’t the only concern with Consumers’ proposed pilot. The company also failed to put any thought into WHERE the storage would be deployed.

The company’s plan was irresponsible given that there is already enough information about battery storage to know where potential benefits likely exist and so a pilot should target already known benefits to collect data on the true value or potential of those benefits.

Storage is a lot like real estate: finding the greatest value comes down to location, location, and location.

To be sure, there are a multitude of benefits to storage, regardless of where it is located. But when it comes to behind-the-meter storage, many of its additional benefits are location specific.

For example, storage has the potential to help reduce the reliance on polluting peaker plants, but only if the storage is located within the area served by that peaker plant. Behind-the-meter storage can help defer or avoid expensive transmission or distribution upgrades, but only if the storage is located in the right place on the grid.

The company also proposed that the behind-the-meter storage would help serve as a backup if there is a power outage. That benefit isn’t location-specific per se, but the frequency of outages isn’t evenly distributed across Consumers’ territory. Batteries located on the grid with below-average reliability would be more frequently used. These types of benefits will be realized no matter where the battery is located, but the benefits can be maximized if the storage deployment location is optimized.

The company made no effort to target deployment of residential battery storage to maximize benefits let alone target those benefits to people who need it most.

Take the time to get it right

Energy storage is an important part of our clean energy future, and it should be deployed equitably and in ways that maximize its value. While UCS is a strong supporter of energy storage that doesn’t mean we will give storage deployment unconditional support. In fact, UCS has laid out explicit principles for equitable storage policy, principles that we used to write the testimony in this proceeding.

The Michigan Public Service Commission made the right choice when it rejected the battery pilot project and ordered the company to start fresh and engage stakeholders on the design and implementation of the pilot (here is a link to the whole docket).

My dad used to tell me, “Measure twice, cut once.” A common saying, sure, but for good reason— it’s true. And we must approach pilots the same way. We must get them right so when they expand into full-fledged programs they are set up the best possible way.

So, imagine how surprised I was one day to find out that 1 plus 1 doesn’t always equal 2.

Well, that’s the magic math of solar plus storage.

A bit of background

Before we get to the magic math there is a very important concept that you have to understand first: Effective load-carrying capability, or ELCC. My colleague Mark Specht wrote a fantastic blog on the subject that you can read here.

ELCC is a metric used by grid planners to evaluate a resource’s ability to meet demand when outages are most likely to occur. Most frequently these moments are at the time of net peak demand. Meeting net peak demand is an important part of keeping the lights on so when grid planners do long-term resource planning, they use metrics such as ELCC to make sure they will have enough resources to meet net peak demand five, 10, or even 20 years in the future.

For solar, the ELCC might start around 50 percent, that is, 1 megawatt (MW) of installed solar will contribute a half MW of power during net peak demand.

The thing is, the more solar you add to the grid the less the next MW of solar contributes to net peak demand. This declining marginal value effect is well-known and well-understood by grid planners. So, when they do their planning, they take this into account.

Wind, solar, storage—each resource is given an ELCC value that the computer models use to make sure the grid can meet future demand.

The whole is greater than the sum of its parts

The old phrase, “The whole is greater than the sum of its parts,” is the perfect description for the magic math for storage plus solar.

The effective load-carrying capability of solar with storage is actually higher than the ELCC of solar plus the ELCC of storage.

The example below comes from a New Mexico proceeding where the local monopoly utility, Public Service Company of New Mexico (PNM), is already working to replace a coal plant with solar and battery storage. Now the company is asking for approval to do the same for its share of a nuclear plant.

During the PNM proceeding, an expert witness testified that if a service territory with approximately 8 gigawatts (GW) in peak load added 5 GW of solar, its net peak load would only see a 0.6 GW reduction.

Meanwhile, 2.5 GW of storage, on its own, only contributes 1.6 GW of peak load reduction.

But when you pair solar and storage, the combined effectiveness in load reduction is 2.8 GW.

So, 0.6 GW plus 1.6 GW equals 2.8 GW! That’s an extra 0.6 GW!

Not so magic after all

It turns out that the magic math of solar plus storage is a bit like the magic of pulling a rabbit out of a hat. There’s no magic. It’s just, and … spoiler alert…

The rabbit is in the hat the whole time.

It’s not really magic.

And the additive benefits of solar plus storage are also not magic, it’s the value of resource diversity.

For resources such as solar and wind, the ELCC is dependent on other variables, like the hour of the day when net peak demand occurs. But it also depends on the mix of other resources on the grid. As you add more and more solar on the grid, the net peak demand gets shifted over but it also gets shorter, which means that it is easier for storage to do its thing and help meet net peak demand.

Solar plus storage are complementary resources.

Solar plus wind are also complementary resources. So is wind plus storage. And it doesn’t end with pairs. Portland General, for example, is working on a wind plus solar plus storage project.

Ignoring those benefits makes a portfolio of renewables appear to have less value than they really do, and utilities might choose to build more renewables if they accounted for diversity benefits.

Need for better modeling

The ability for utility resource models to account for these dynamics in the system is not the limiting factor.

What is the limiting factor?

A model operator’s willingness to make the changes. Utility companies are the ones running these models in integrated resource plans across the country and sometimes they make bold claims, such as “the model can’t do that.”

First off, if your model can’t account for the variables that are essential to planning for the gird of the future, then get a new model.

And second, and more often the case, the model can account for these changes if it has the right inputs. Sometimes that requires extra work that utilities aren’t always willing to do.

Although some are. Take Xcel Energy. Xcel hired a consultant, E3, to do a separate analysis to account for the dynamics of the ELCC of wind, solar, and storage on a grid with increasing levels of wind, solar, and storage. And while that “exogenous” analysis wasn’t perfect, it did allow the utility company to provide inputs into the model so that its modeling could account for these grid dynamics.

Another option is to model solar plus storage as a single “hybrid resource.” That’s what UCS, and many other groups, have recommended in a number of proceedings. There are pros and cons to this approach, but certainly, one pro is that it is a simple and straightforward option.

And to any utility planners reading my blog, I’d be open to other ideas. You got other ideas, I’m open to alternatives. Just don’t tell me that your model can’t do it because you are too lazy to do it yourself.

Editor’s Note: An earlier version of this post incorrectly suggested that the PNM peak demand is 8GW.

Grid operators curtailing wind power have given rise to the myth that wind curtailment is caused by an “oversupply” of wind. However, a recent analysis shows that wind curtailment is not caused by an oversupply of wind energy. Rather, its main causes include insufficient transmission capacity, the inflexible operation of coal-fired power plants, and a lack of battery storage.

As we continue to add more wind resources, grid operators and others must address these shortcomings in the system. Otherwise, wind curtailment will increase and ultimately hinder the transition to a cleaner, more affordable power system.

Analysis of electricity mix during wind curtailment events

The Union of Concerned Scientists commissioned Synapse Energy Economics to investigate how the Southwest Power Pool (SPP), the grid operator in the Great Plains, handles wind curtailment. SPP has the highest level of wind adoption as a percentage of total load and is consequently the grid most likely to experience “wind oversupply” events.

The results were clear: “A wind oversupply does not exist in SPP.”

Rather, during all of the hours when wind was curtailed, other higher-cost, more-polluting resources were still online. And, because of coal resources’ higher marginal cost and emissions rate, electricity customers would be better off if SPP were able to curtail coal instead of wind. Customers could have saved more than $40 million and avoided nearly 1.2 million short tons of carbon emissions per year.

If wind is available, burning coal is always more expensive, so why waste wind when there is plenty of coal to displace?

These graphs depict two of the largest wind curtailment events in 2018 and 2019 in the SPP footprint. The yellow section represents the portion of coal generation that could have been displaced by available wind energy had there been no operating constraints on the bulk power system, such as power plants with unnecessarily high minimum operating levels or transmission constraints. For the fact sheet, click here.

The solutions to wind curtailment (No. 2 might surprise you)

1: Transmission: Sometimes, all the wind blows at once. If that happens, the amount of energy produced by wind turbines can exceed the amount the transmission system can carry. But the ability for additional transmission investments to reduce wind curtailment is well established. Just take a look at the “CREZ” projects in Texas, or the Midcontinent Independent System Operator’s (MISO) Multi-Value Projects. To blame wind curtailments caused by transmission constraints on “wind oversupply” is wrong. Better to put the focus on solutions and call it a transmission undersupply.

2: Coal: You might be surprised to learn that coal has to play an important role to play in reducing wind curtailment. The fact is that significant portions of the coal fleet are operated inflexibly. And it is true that a coal plant isn’t as flexible as a wind turbine, but many coal plants could be turned down or turned off but aren’t. The reason and intent behind such actions are irrelevant, the effect is a less-competitive, less-flexible, less-clean grid that ends up costing consumers billions of dollars.

3. Storage: Storage seems an obvious solution to the problem of having more energy than needed at any given moment. Before refrigeration, if you had too much food, most of it would go bad. The same is true for electricity. If supply doesn’t match demand, it will be wasted. But with storage, you can keep excess energy and use it for later.

A few caveats

The reason we asked Synapse Energy Economics to focus on SPP was that its data were available, not because SPP isn’t doing a laudable job integrating its record-breaking levels of wind adoption. In fact, SPP has done an incredible job of keeping wind curtailment levels low. Wind adoption is higher in SPP than in MISO, but wind curtailment is lower in SPP than in MISO. SPP also reports its data in highly granular formats, enabling Synapse (and other analysts) to conduct this kind of research. MISO, not so much.

Down the road, when the grid is nearly or fully decarbonized, there may be sufficient wind or solar on the grid to cause actual renewable energy oversupply, at which point curtailment may be a cost-effective choice. The need to build more transmission and storage today is not to say that grid planners should overbuild the system to deliver every single megawatt-hour of wind generation tomorrow. At some point in the future, some amount of wind curtailment might be cost-optimal (i.e., the incremental cost to add storage or transmission may far exceed the benefits of avoided curtailment).

Is a misnomer a problem worth solving?

You may be thinking to yourself, “Okay, so technically there isn’t an oversupply of wind per se, but the wind is still being curtailed. Isn’t the curtailment the problem we should be focusing on?”

Sure, we should focus on reducing wind curtailment. And we must also recognize that misunderstandings about the causes of wind curtailment can prevent effective solutions. There are multiple causes for wind curtailment, but attributing it all to “wind oversupply” gives a false impression that there is too much wind. If anything, the opposite is true. We need more wind energy as part of the clean, affordable, reliable electricity grid of the future.

The bottom line is, if you are an analyst or an advocate, using the term “wind oversupply” is problematic.

For now, at current and near-term levels of wind deployment, a significant amount of wind curtailment could be avoided by building transmission to more effectively move renewable energy across the grid, by ending uneconomic self-commitment so that coal plants can be turned down to a greater degree and renewables can get from the grid to the load, and by building storage to soak up any remaining renewable energy that cannot be used immediately or exported.

There is no good news here. Not even a silver lining. Just scary bad news that will ruin your day.

Why?

Because natural gas prices are high.

Last year, natural gas prices bottomed out at $1.50 per 1 million British Thermal Units (MMBtu), which wasn’t high enough to sustain production. Companies throttled back production and were caught flat-footed when the economy began to recover and demand returned in the United States and abroad. How long natural gas prices are expected to remain elevated is uncertain, but based on commodity futures markets and energy forecasts, it is likely that they will remain high through this winter. When families begin to turn on their gas furnaces to heat their homes, those high gas prices are going to translate into big heating bills.

And even if you don’t have a gas furnace, if your heat source is powered by electricity, then you can still expect higher home energy bills. That’s because natural gas is still a very big part of the electric grid. Gas-fired power plants represent the largest single source of electricity capacity and energy nationwide.

That means that when gas prices go up, the cost to generate electricity goes up. And while how much those increased costs will translate into higher costs on your electric bill remains to be seen, you better believe the utility that provides you with electricity is going to want to recover any increased costs they incur.

According to the US Energy Information Administration (EIA):

• Nearly half of US households that heat primarily with natural gas will spend 30 percent more than they spent last winter on average—50 percent more if the winter is 10 percent colder-than-average and 22 percent more if the winter is 10 percent warmer than average.
• 41 percent of US households that heat primarily with electricity will spend 6 percent more—15 percent more in a colder winter and 4 percent more in a warmer winter.

Higher emissions are scary, too

Higher energy costs are scary enough, but unfortunately, that’s not the only bad news high gas prices bring. Higher gas prices also mean more coal generation, which means more pollution that will lead to increased asthma rates and heart attacks, and exacerbate climate change.

Here’s how. Grid operators are supposed to operate power plants in what is called “merit order,” or from lowest cost to highest cost. This makes sense in purely economic terms: You want to rely on the lowest-cost resources first and most often and only rely on higher-cost resources when necessary. In 2020, when gas prices were at around $2/MMBtu, most gas-fired power plants were less expensive than even the lowest-cost coal plants, which meant grid operators relied on as much gas-fired power as possible. As gas prices increase (they are currently at $5/MMBtu and expected to stay that high through winter) gas-fired power becomes more expensive and the grid relies on other sources of electricity. It’s not that coal got any cheaper; it’s just that gas is more expensive. (And part of that is the fact we don’t internalize the cost of coal pollution—both its direct effects on human health and its contribution to climate change.)

The EIA and others have already observed a recent uptick in coal generation (and corresponding emissions) and the EIA’s short-term energy outlook projects that coal generation will close out 2021 18 percent above where it was in 2020 and remain elevated in 2022.

It’s even worse overseas

These problems don’t stop at the water’s edge. In fact, they are even worse in places such as Europe where high gas prices are forcing some power generators to switch to diesel as a fuel source. High prices have also forced fertilizer plants in the United Kingdom to shut down, which is creating serious concerns about long-term ripple effects. In China, which is suffering from both a coal shortage and gas price spikes, the government has instituted an electricity rationing program that is forcing factories to close. All of this is compounding pre-existing supply chain problems.

A tarnished silver lining

In theory, high gas prices make other alternatives, not just coal, look more economical. So, one might expect that the recent uptick in gas prices has made building gas plants less attractive and building resources like wind or solar (which have no fuel costs) look a lot more attractive. It’s possible we’ve seen some examples of that, such as when Xcel Energy in Minnesota decided to back down from building a gas-fired power plant that would have operated quite often and instead opted for building gas “peaker” plants (that have their own problems, but would presumably be run far less often).

But there seem to be far more examples of doubling down on gas-fired power, despite the recent price spike. For example, the largest utility in Kansas, Evergy, conducted an integrated resource plan (IRP). The IRP had lots of shortcomings related to equity and inclusion, but the technical analysis wasn’t bad, which probably contributed to the company charting a path that included shutting down coal and building lots of renewables. However, sometime after the analysis was complete, but before the IRP process was complete, the company changed course and decided to convert the coal plant to gas and slow down its build-out of renewables.

It doesn’t have to be this way

So, what’s a better way out of situations like these? Well, one way is to get tangled up in all sorts of complex financial tools, such as price hedging, to help insulate against price shocks. But there is an even better, simpler way: invest in fuel-free alternatives. Wind, solar, and energy efficiency don’t need fuel, so they don’t have fuel costs that are subject to price volatility like gas (and oil, and coal, for that matter).

I grew up in Kansas during a time of change. When corn and soybean fields were being replaced by suburban sprawl. And now, some 20 years since I moved away, the landscape has continued to change, with thousands of wind turbines popping up across the state.

Those wind turbines represent significant economic development for Kansas in the form of new jobs and an important secondary source of income for farmers. It has also meant that the state has replaced dirty, expensive power sources with cleaner, more affordable ones.

Sadly, many state residents are still overburdened by pollution and high energy costs. That is why I was so excited when CleanAirNow, a Kansas City-based environmental justice group that advocates on behalf of the local communities, agreed to partner with UCS to try and improve the state’s energy planning. Link to our commments here. What I found was an unnatural disaster.

Engagement? Not even a mention

In 2018, Kansas’s two largest utility companies merged to form Evergy. As a condition of the merger, the state utility regulator, the Kansas Corporation Commission (KCC), ordered the company to file an integrated resource plan, or IRP. The IRP could have been an amazing opportunity for community engagement, but the utility took a different approach.

No doubt, the tone was set early on when the commission denied the Sierra Club’s request to help shape the IRP process, even though the Sierra Club and other groups were granted intervenor status once the IRP began. This initial exclusion was followed up by a total lack of proactive engagement by the utility to reach out to local organizations. Instead, the utility only engaged stakeholders that were also intervenors.

And that is a big problem.

Intervening takes resources. Time and money. It also takes skill and experience. That means the only type of people who tend to be able to engage in intervenor processes are, well, people like me: a professional advocate whose 9 to 5 job is to review utility filings, intervene in proceedings, and advocate for improvements. UCS has the resources to pay for local council. And we had the resources to pay for Synapse Energy Economics to conduct a review of the Evergy IRP (more on that later). But individuals don’t have the resources to do that.

If you are a working mom or a student with a full course load, how can you be expected to engage in this type of process?  

When the floor becomes the ceiling

Evergy seems to be fixated on a narrow scope for the IRP, where the commission’s minimum standards became the de facto maximum boundary. This was true when it came to the key metrics Evergy tracked in the IRP, the analysis the company did (or didn’t) conduct as part of the IRP, and any number of other components of the IRP.

The company’s decision to exclude anything that wasn’t explicitly required by the commission created a situation where the floor became the ceiling.

This type of handwringing is frustratingly common. The only good thing about it is that we know what the solution is: The commission should set the minimum standards to be the best practices. Or, at the very least, elevate the standards to be much much higher.

Already reversing course

What is perhaps most disturbing, and possibly unprecedented, is Evergy’s recent announcement to effectively revise the stated plan as identified in the IRP before the IRP process is even finished. As has been reported by others, Evergy has started backpedaling its plan to shut down coal and build renewables.  

Now, I have seen utilities make modifications during an IRP process (sometimes even in response to stakeholder input) and file an extension and revised plan. If the company wishes to make revisions to its resource plan, it should make those revisions in the IRP proceeding and include notice to all intervenors and the public at large.

But that isn’t what Evergy did.  

Instead, the company proposed these revisions in a separate proceeding. Which means intervenors in the IRP proceeding weren’t notified unless they were closely watching filings at the KCC. Plus, in this new proceeding, the company has proposed altering its plans arguably in the wrong direction. The plan in the IRP was to shut down a coal-fired power plant at Evergy’s Lawrence facility. In the revised plan, the company plans to burn natural gas at the plant once it stops burning coal. The original IRP plan also included a moderate build out of solar (700 megawatts (MW) over two years). Now the company plans to reduce that significantly (to less than 200 MW of solar).

All this at a time when natural gas prices are spiking. If anything, utilities like Evergy should be moving away from gas and doubling down on renewables.

All of this is a tacit admission by Evergy that the IRP plan is not a prudent course of action and raises serious questions about what actions the commission should take in response to the IRP filing. An IRP should represent the company’s most up-to-date resource plan and yet prior to this docket even being completed, the company has already suggested modifications to its plan. These revisions severely undermine the legitimacy of this and future IRPs and simultaneously erode trust with stakeholders.

A learning process

The Evergy Kansas IRP process was problematic. The approach the utility decided to take when it came to equity and inclusion was nonexistent. But, on a personal and professional note, that isn’t how UCS approached the process, and I was really glad to see that.

UCS’s energy team hasn’t really done any work in Kansas up to this point, so we were very glad to be able to work with CleanAirNow, given their local experience and expertise driving for people-driven solutions to improve public health. I’m really grateful that we worked with them because it helped shape the way we approached this IRP and will undoubtedly shape the way we engage in IRPs in the future. Evergy and the Kansas Corporate Commission should also be striving for an inclusive process, that doesn’t shut out important community voices in planning the state’s energy future.

That media coverage piqued the interest of commissioners across the country. As it entered the energy sector zeitgeist, more and more experts, advocates, commissions, and utilities began looking into the issue. Earlier this year, Deloitte identified self-commitment practices as one of two key barriers to transitioning off of coal.

Now, new research from the Union of Concerned Scientists finds that 25 states have taken up substantial discussion of the issue of coal self-commitment in state public utility proceedings.

Consumer advocates, environmental advocates, and commercial customers (like Google, Target, and Facebook) have partnered up across the country to address this issue with lots of progress and some very tangible successes to date. And yet, there is still lots to be done.

25 state utility commissions have heard arguments about why utilities shouldn’t be allowed to run their coal plants as “must-run” or commit them in uneconomic ways. Most of this has taken place at state PUCs where there is also an ISO/RTO but states like Georgia and Colorado show an emerging trend for this argument popping up in non-RTO states.

New Research

The issue of coal plants running when cleaner and cheaper resources are available has now become a far more commonly understood and talked-about issue.

Using Advance Energy Economy’s PowerSuite software, UCS was able to sift through hundreds of public utility dockets across the country and find all the dockets where the issue of uneconomic self-commitment has been raised and substantively discussed by the public and by experts in these proceedings. From public comments in Washington, to expert reports to public utility commissions, this issue is now part of the industry zeitgeist.

Worst actors

In “Used but how Useful?” UCS named some of the worst actors in the MISO region after analyzing 2018 as a test year. We found that much of the problem was being driven by a handful of bad actors. Some of the worst actors, like Cleco in Louisiana, quickly made the switch to seasonal operations and eventually opted to retire their uneconomic coal plants. Others, like Michigan-based DTE, remain intractable despite mounting evidence that they are operating the pool of generation resources sub-optimally and that is costing customers tens of millions of dollars and an indeterminant amount in the form of health costs from increased pollution. They still remain as one of the worst actors, based on UCS data.

Duke

Duke’s sub-optimal coal operations have been called into question many times. In North Carolina, Synapse IRP modeling showed removing the must run designation resulted in significant reduction of coal generation and costs. In Indiana, intervenors have been digging deep on this issue and the evidence of Duke operating its coal plants when lower cost resources were available is very convincing. Yet the commissioners in Indiana sided unanimously in deference to the utility’s decision making. Duke is also the co-owner of a fleet of coal plants operated by “OVEC.” These coal plants, that have been implicated by the recent scandals in Ohio, have been shown in multiple Ohio public utility commission proceedings to be operating when it makes no economic sense to do so.

Xcel

Xcel Energy is perhaps the most interesting case study. In Minnesota, regulators were quick to recognize the problem and firmly pressed the regulated utilities in that state to provide answers and, more importantly, solutions to the problem. It was clear from the onset that the regulators were serious about thoroughly investigating the issue, as they opened up its own dedicated proceeding.

Xcel quickly switched its Minnesota coal units to economic dispatch and conducted its own analysis that found that it could save even more money by turning the units off completely during the ‘shoulder’ seasons when energy was abundant and cheap.

Juxtapose this with Xcel’s coal operations in Colorado, where there has been no such leadership at the commission level. Independent analysis shows the company could save customers money by turning their coal units off during certain months of the year. The independent auditor called for an investigation, but only the commission has the authority to initiate it.

The need for strong leadership and dedicated proceedings

If there is one key takeaway from the previous 25 states where advocates have sought to curb the uneconomic practice of coal self-commitment, it is just how important a scrupulous regulator is for delivering a successful outcome. In most states thus far, our arguments devolve into a game of regulatory whack-a-mole.

• In rate cases, the utility says this is an issue for fuel dockets.
• In fuel dockets, the utility says the issue is about long-term fuel contracts which are signed based on long-term projections of fuel use.
• Those long-term projections are made during integrated resource plans.
• And when we bring it up in those dockets, the utility says that’s about coal plant operations, which there isn’t really a docket to discuss that at all.

UCS is calling on state public commissions to open up dedicated proceedings on how (or if) utilities are optimizing their dispatch decisions

Over the past 10 years, markets have changed dramatically, and the strategies utilities employ to deliver low-cost energy to customers must keep up.

Ten years ago, it made sense to turn on a coal plant and leave it on. That is no longer the case.

Ten years ago, most utilities could serve customer load with company-owned resources at a cost below the market prices, but that isn’t the case anymore either.

Companies need comprehensive strategies on when to rely on company-owned resources and when to rely on the market. And regulators need to ensure that companies are updating their practices to reflect the changing market conditions and operate resources they own in a way that is prudent and keeps the customers’ best interests in mind.

What is even more fascinating is that the numbers are starting to paint a very clear picture: that transitioning away from coal and towards clean energy could save customers money today.

My rough, back-of-the-envelope calculations suggest that it could save customers up to $6.5 billion a year.

The crossover

Energy innovation’s latest research builds on research from last year and the notion of the “coal crossover.” This is the idea that the costs* of coal have continued to rise while the costs of clean have continued to drop. The crossover point for any given coal plant is going to depend on the costs of the coal plant but also the costs of local clean energy that can replace it.

*and in this context, I mean just the private costs, not the social costs of burning coal which includes substantial externalities that, if internalized would make all coal uneconomic to burn.

Apples to oranges and low hanging fruit

Now, trolls on Twitter will be quick to claim that comparing coal costs to renewables is “apples to oranges” because coal fire power plants are “baseload,” and renewables are not. First off, no coal is not baseload.

Second, the grid of the future is going to be a concert orchestra where a medley of resources contributes to maintaining a safe, reliable, and affordable grid. Baseload demand won’t be met with a single type of power plant. And, as we transition to that grid of the future, there are plenty of firm resources on the grid today that can make sure we keep the lights on.

In reality, replacing most of the coal fleet with renewables is easy, in part, because there is so much excess capacity that we can lean on after the coal plant has shuttered its smokestacks.

Rather than focusing on bad faith arguments like “baseload,” I would rather focus on what I find particularly remarkable about EI’s study: that all of this is that this is happening at a time when there has been a wave of coal retirements. Of the 40 percent of coal plants UCS found uneconomic, just about half were slated to retire, and now that a few years have passed, many of them have.

That means the coal fleet EI was analyzing should have been “more economic” than the fleet we analyzed because all the “low hanging fruit (least economic coal plants) had already retired.

But here is the thing about low-hanging fruit. Every year it grows back.

The same is true for the economics of coal vs renewables. Every year more coal gets more expensive while clean energy gets more affordable. And that is why every year one of these studies comes out, more coal looks uneconomic.

A big win for consumers

The most important takeaway of the coal crossover concept is that we are able to save money, today, by replacing coal with clean energy.

Based on the numbers in the appendix of the Coal Crossover 2.0 study, customers could have saved $6.5 billion dollars in just one year had utilities replaced dirty expensive coal with clean, affordable renewable energy.

Yes, that assumes that the energy can be replaced 1:1 and assumes that the whole coal plant can shut down and avoid all sorts of expensive maintenance. An assumption that easily holds true for the first few Gigawatts of shuttered coal plants, but admittedly, gets harder to defend as you approach 80% of the coal fleet retiring…

So, let’s call that $6.5 billion figure an upper limit. It is only an upper limit today. We must remember, the gap between the cost of clean vs coal will continue to widen. New low-hanging fruit will appear, and additional consumer savings could be realized.

A big win for wealth creation

The other opportunity the transition from coal to clean presents it to help you make money. For you and your community to build wealth. Right now, coal-fired power plants create wealth but primarily for the wealthy corporate shareholders and executive suites of electric utilities and coal mining companies. Coal mining companies have literally extracted the wealth out of poor communities in Central Appalachia for more than a century.

Clean energy, on the other hand, is an industry full of start-ups and competition. Its products present a genuine opportunity for families and communities to invest in energy efficiency and clean energy; and hopefully, make a return on their investment.

How much wealth could be created by switching from coal to clean? It is a very hard question to answer.

Here is how I start to think about it:

$29.4 billion per year: That’s the total amount spent on an annualized basis to replace uneconomic, dirty coal, with affordable clean energy.

Spending $29.4 billion a year in clean energy helps avoid $36 billion a year in direct fossil fuel costs (which is how I derived the $6.5 billion in potential savings). Not to mention the public health costs that will be avoided by the reduced pollution.

Now, embedded in that $29.4 billion are profits to developers and manufacturers along with labor costs (think, of the salaries to workers throughout the renewable energy supply chain). This raises important questions like:

• Will the raw materials for solar come from Uyghur slave labor camps?
• Will installation and manufacturing jobs here in the US be good-paying union jobs, as President Biden has promised?
• How do we support the current labor pool of coal miners and coal-fired power plant workers whose jobs are at risk from this transition?

That last question is actually something my colleague Jeremy Richardson has spent a lot of time thinking about. Not just thinking about but working with labor groups to conduct analysis and come up with solutions.

The big question on my mind is who will that money go to?

Will only large monopoly companies be allowed to invest in the energy transition? Or, will local communities and families be able to build wealth by investing directly in clean energy? Afterall, many frontline and disadvantaged communities have been the ones suffering from the economic and health costs associated with an electric grid that has been reliant on fossil fuels.

Time will tell

Who will suffer and who will benefit are hard predictions to make. But who SHOULD be the ones to benefit, who should be the ones to be protected, who should we prioritize? Those are much easier questions.

We should prioritize those communities that have suffered the most in cumulative damages from air and water pollution.

We should make sure that the entire supply chain of renewables is just, equitable, and sustainable. That includes end of life and recycling issues.

We should protect and support coal miners, coal-fired power plant workers, their families, and the communities they call home.

I am not an optimistic person but I do believe that the transition away from fossil fuels is inevitable. My concern is about if it will be done fast enough and will it be done in a just and equitable fashion.

Previous Chairs of the agency balked at funding the office. That all changed when Rich Glick was named Chairman and he directed newly appointed Commissioner Alisson Clement to lead the effort to form the new office. As was noted by UCS at the time, “This truly is a once in a lifetime chance for reform in a very important government agency.”

On April 23, UCS provided a full set of written comments to the Federal Energy Regulatory Commission (FERC) as part of that agency’s request to solicit feedback on the formation of an Office of Public Participation. Earlier in the week, I had the chance to speak at one of FERC’s listening sessions. Here is a transcript of what I said:

Hello, my name is Joseph Daniel, I’m a Sr. Analyst and Manager, Electricity Markets at the Union of Concerned Scientists (UCS). UCS is a science advocacy organization that is comprised of hundreds of experts in topics including the bulk power system. We also house a “Science Network” which is a group of thousands of academics and experts in various fields. Our experts, both in-house and through our science network provide objective, independent, and non-partisan analysis of complicated systems to help better inform public policy and decision making.

UCS has a long-established expertise on technical issues facing FERC and the wholesale markets, and also the stakeholder processes that take place at ISOs and RTOs. For example, UCS has been a voting member of NEPOOL, the FERC sanctioned stakeholder advisory group of ISO-NE for the past 21 years.

UCS has successfully and regularly facilitated Science Network experts in providing public comments at state-level regulatory agencies, like Public Utility Commissions and Air Quality Boards, as well as providing comments to federal agencies like the EPA. However, FERC’s process for providing public comment is more complicated and as a direct result, we haven’t been able to facilitate those connections. For those that are paid to do this work, or provide comments on a regular basis, these few extra steps are not an insurmountable barrier, but for others, it’s everything.

Take these very listening sessions as an example, the short timeline between announcing and holding the OPP workshop and listening sessions did not allow for much time to identify appropriate experts, to reach out to them, and help them prepare oral or written comments.

If an organization as well-resourced and experienced as UCS struggles to make those connections, imagine how it feels for those going it alone. Or groups that don’t have our experience or resources.

UCS has firsthand experience benefiting through meaningful engagement with groups, like consumer advocates, environmental justice communities, and tribal representatives. Our own analysis and priorities have been improved because we managed to create spaces or find spaces where we could listen to those groups.

FERC is charged with establishing “rates, terms, and conditions of service that are just and reasonable and not unduly discriminatory or preferential.”  FERC cannot possibly expect to do that job without all the facts. Without information from local communities. The best possible way for FERC to accomplish its mission is to set up a well-funded office of public participation with ample resources and intervenor funding.

The statutory text of the Federal Power Act (FPA) explicitly grants the Commission discretion to provide intervenor funding and the Commission should do so. The Office of Public Participation could effectively alleviate the barriers faced by traditionally under-represented voices before the Commission by providing intervenor compensation for those parties that would otherwise face financial hardship for their participation. Further, in order to meet the spirit of the OPP to hear from typically under-represented voices in Commission decision-making, intervenor funding must be responsive to several key principles, specifically: Accessibility, Transparency, Certainty, Inclusiveness, Workability, Efficiency, and Adequacy.  

UCS agrees with those other commentators that have called for the primary function and scope of OPP to be to facilitate the participation of individuals and or groups that are representing the public interest and have traditionally been under-represented in FERC decision-making processes. UCS recommends to the commission that one of OPP’s additional functions be to serve as a source of independent information, like fact sheets and “how-to” guides. OPP should be proactive and it should also remain policy-neutral and project neutral. UCS doesn’t believe that the office itself should play the role of a consumer advocate or actively intervene on behalf of the public. Though it should be allowed to provide the commission with information and analysis on how commission rulings/proposals might impact the ability of the public to participate in proceedings. UCS believes that by designing the function and scope of the OPP as we outline above, the Office will help the commission achieve its mission.

UCS recommends that FERC set up OPP in such a way that the newly formed office retains a certain level of autonomy and independence. This should include an advisory board with regular check-ins to ensure that the office is maximizing its effectiveness. To best achieve the functions outlined above, OPP should have field staff. OPP staff should include legal and technical experts and also outreach specialists and multi-lingual staff (or at the very least, resources to produce materials in languages other than English). In our full comments, which we look forward to submitting later this week, UCS offers some specific recommendations on the staffing structure and size of OPP. And recommendations on how to use equity assessment tools. We also further elaborate on many of the topics we’ve touched on here.

Thank you for your time.

Sure, Xcel is making some progress in its “Northern States” territory (which includes Minnesota and some surrounding states) by setting near-term retirement dates for coal plants and committing to running them less until they’re closed. But out West (in Colorado and surrounding states), Xcel’s actions tell another story.

Xcel Energy service territory (in red) encompasses parts of eight states.

In fact, a couple of news stories from the past month illustrate the stark contrast of these two different service territories.

A “state of the art” coal plant fails and reveals it isn’t exactly economic.

In Colorado, Xcel still owns some coal plants that it plans on running well past 2030, with the company’s newest (and most ‘state of the art’) coal plant slated to run until 2050. Xcel says it will rely on that newest plant less use after 2040.

Turns out, it has to start relying on it a lot less right now.

Why?

Because the coal plant keeps breaking down.

Xcel projected that this state-of-the-art plant would run at a 91 percent capacity factor. In reality, on an annual basis, its capacity factor has never exceeded 73 percent and only ran at a 2 percent capacity factor in 2020. Over the past ten years, it averaged less than 60 percent.

One of the reasons for this is that the state-of-the-art plant has been plagued by breakdowns and malfunctions. When it breaks down, the parts are a challenge to replace because they are outdated technologies.

This makes all the times the company refers to it as a state-of-the-art plant a bit ironic.

The situation became so problematic that the Colorado Public Utility Commission hired an independent auditor to investigate. The report is now public, and tucked away in the report is the following observation and conclusion:

“During September, [November,] and December of 2020, having Comanche  3 offline actually saved customers money, suggesting that cycling Comanche 3 for month- or season-specific operation is worth further investigation.”

“Season-specific operations” is interesting because that is how Xcel now operates its Minnesota plants.

Midwestern juxtaposition

In Minnesota, Xcel Energy has already switched coal plants over to seasonal operations. Just this year, it finalized its decision to only operate the third unit at the Sherco coal plant when it is economic to do so and operate the other two units only in the summer. (Aside: promising to only operate a coal plant when it is economic should really be the lowest possible standard to hold companies to, shouldn’t it?)

This is the most recent step in a long process to get Xcel’s Northern States operations to be less reliant on coal. The steps, according to Xcel’s projections when it proposed the switch, would save customers upwards of $30 million a year and about 5 million metric tons of CO2  annually for the remainder of the plants’ operations.

The move was lauded by regulators, consumer advocates, environmental advocates, and the media. So much so, that the company’s CEO said that they’d be considering it for all their coal plants, including those in the Western States territory.

Wait…

A year later, an independent audit shows that over the fall and early winter seasons, market purchases would be cheaper than burning coal at the plant.

So why hasn’t the company already committed to seasonal operations?

The Colorado Commission can catch up

When Xcel did eventually decide to stop operating its remaining Minnesota coal plants for the bulk of the year, it was due to the fact that it was pushed by advocates like UCS, Fresh Energy, and Sierra Club. It was also prodded by a local news outlet. And, Xcel; was asked some hard questions by the regulators who were proactive in investigating the utility’s operations.

If folks in Colorado want Xcel to reduce customer bills while also reducing its pollution, then someone is going to have to make them do it.

And that is where the PUC can come in.

The independent audit makes it clear that operating Comanche 3 seasonally makes financial sense. The PUC needs to open an investigatory docket into this issue, the way Minnesota did. It should press Colorado’s utilities for answers as to why they operate polluting coal plants during months when it would be cheaper to buy electricity from other sources.

UCS has helped commissions set up these types of investigations in other states, and we’d be happy to help out Colorado, or any commission in any state, on how to best initiate a proceeding that will ultimately lead to reduced emissions and consumer savings.

This left some customers on the hook for bills as high as $17,000.

There is a lot of finger-pointing going on in Texas, and there are a lot of wrongs to be righted. But from my vantage point, one critical failure to unpack is the set of circumstances that enabled a subset of everyday people to receive such sky-high bills. And to me…

What happened to these customers in Texas was an utter lack of regulatory oversight and basic consumer protections by the Public Utility Commission of Texas and the state legislature.

A matter of choice

Over 60 percent of people living in the United States are captive to their monopoly electricity provider; others can choose their electricity provider. Having choices sounds great but while other states have made similar retail choice programs optional, in Texas, it is mandatory.

Having a choice in what company provides your electricity is supposed to create competition to help drive down prices. It can also allow customers to pick providers that only supply electricity from sources like wind and solar.

Retail-choice isn’t inherently bad, but it has given rise to predatory marketing, often targeting the elderly, poor, and households where English is a second language. A study of retail choice globally found that both in the United States and abroad, “Less-educated or low-income consumers are more likely than other consumers to make poor retail supplier choices.” This is why other states that have retail-choice, like Illinois, have cracked down on predatory practices.

Retail choice has to be coupled with diligent and scrupulous regulators. More funding to local consumer advocates wouldn’t hurt either.

But when retail-choice was implemented with “free market” ideology, as it was in Texas, the state regulators, whose very job is to protect the public, CHOSE not to provide sufficient regulatory oversight, and even less in the way of consumer protections. It was regulators’ choices that led to Texans’ high electricity bills.

Take, for example, the retail electricity provider Griddy, which offered customers exposure to wholesale rates.

For years the Commission has chosen to allow companies like Griddy to aggressively market their products as a potential way for consumers to save money by selling them the electricity at a “wholesale rate.” Most people think of “wholesale rates” as being below retail rates. And sometimes, they are. However, these rates also expose customers to extremely high prices, for potentially long periods of time—which is exactly what happened last month.

Wait, it sounds like Griddy is to blame?

Griddy isn’t blameless. The Texas Attorney General (AG) certainly thinks Griddy deserves blame and has brought a lawsuit against Griddy for its aggressive and “misleading” marketing. It is also possible that the Texas AG might simply be trying to distract voters, including from the fact that he is currently under investigation by the FBI. It is also worth noting that Griddy also offered cash to customers to prompt them to switch to another provider ahead of the storm in advance of looming price spikes (because at least some of what happened was reasonably predictable even a few days out).

The Texas AG claims that Griddy failed to disclose the risks associate with their rate plan—but I would argue it would be impossible for Griddy to adequately disclose such risks. Energy markets are incredibly complex; I study them for a living and I’m “discovering” new eccentricities and nuances about them all the time.

Large companies that buy electricity on the wholesale market don’t just buy (and/or sell) electricity as a physical commodity, but are also heavily engaged in the financial side of energy markets, taking hedge positions to help insulate them from risky price spikes like the ones that hit Texas.

Griddy doesn’t offer these options to its customers. Instead, Griddy marketed a complex financial product as if it were a coupon.

That’s a problem. It is also a problem that companies would be even allowed to offer such a program in the first place

Is this “wholesale rate plan” at fault?

There are some providers that offer similar programs to Griddy, where customers have exposure to wholesale rates, but there are a couple of notable differences. The largest is the fact that the price caps in other areas are all much, much lower than in Texas. Other providers that offer “wholesale rate” programs, including in Texas, also have additional protections to help insulate customers from the full risk of wholesale prices. Utility regulators that allow such programs to even exist must be very diligent to make sure such consumer protections exist.

The Commission has taken some action

Before I detail why blame lands squarely on the commission, it is worth noting that the Commission has tried to do some things.

The commission decided to press pause on those ultra-high utility bills (in part because some of the digital meters in Texas kept logging energy consumption even after people lost power, as the meter assumed the zero reading was an error).

The commission is also discussing a 10-year payment plan for these customers but will still leave thousands unable to pay their electric bill.  This might help some of those with a shockingly high overnight bill. All customers are likely to see increases in electric bills, and for years to come, as utilities look for a way of paying off the high gas prices.

Not all of their actions protected customers.

Perhaps the most surprising thing I’ve learned in the wake of the Texas winter storm electricity crisis is that the price spike in the wholesale market wasn’t created by the “market,” but rather was administratively set by the regulators.

For all the love of a free market and deregulation, Texas regulators got worried that prices weren’t high enough to incentive more generations to come online or for demand to shrink, so they exercised a protocol that allowed them to set the price even higher.

Then, according to the market monitor, ERCOT let those high prices stay in place for nearly two days too long, resulting in $16 billion in excessive costs. This means that the high prices in Texas produced a mind-bending amount of wealth transfer from people to those positioned to profit with no impact on how long the outages lasted.

The market monitor recommends that refunds be offered—which would be good for customers. But once again the commission has failed to put customers first, and on Friday announced that it would not be offering that price correction, resulting in a windfall to power plants at the expense of customers.

Importantly, this action has cascading cost consequences for all customers, not just those exposed to wholesale rates. Texans could be paying off this one week of sky-high prices for many years to come.

And the commission isn’t the only one who failed customers.

Texas officials were warned 10 years ago, after a similar winter event, that this could happen, and yet they failed to enact even the most basic of weatherization upgrades to the grid.

Public officials must start mandating better preparation for extreme weather.

Could this happen to me?

First, it is worth noting that Griddy has been effectively kicked out of the Texas.

Outside of Texas, customers in retail-choice states have a choice to opt-in to these programs and nowhere is adoption above 50%. Also, the markets in those states have different rules, including caps to the wholesale market rate that are far below what Texas experienced. Plus, some of those programs tout additional safeguards.

Most of us living in the United States are served by a monopoly utility and I’m not aware of a monopoly electricity provider that offers a rate plan to retail customers at wholesale rates.

Source: EPA

The exact situation that happened in Texas is unique to Texas—but if you live in a state where retail choice is available and you opt-in to such a program, be very careful about the type of program you sign up for.

Also remember that a lot of things went wrong when Texas was hit with that winter storm and there is plenty of blame to go around.

Texas Governor Abbot wants you to think the blame sits on the shoulders of wind; wind was definitely not the culprit. Remember, officials were warned that this could happen 10 years ago and it turns out more than 30 of the same power plants that failed then failed again this year.

The important thing to remember is that the customers with these high bills are not to blame. They are the victims in this story. And we aren’t going to fix anything by victim-blaming.

Sadly, electric utilities across the United States seem to have fallen in the same trope: More than willing to set big ambitious goals around climate but unwilling to commit to making good on those goals.

Utilities seem to have offered us a big box of Valentine’s chocolates but when two of my former colleagues looked inside, they found the box mostly empty.

A recent study published by Sierra Club analysts—John Romankiewicz and Cara Bottorff—and co-authored by UCSB Professor Dr. Leah Stokes, details that while many utilities have zero and net-zero emissions goals most aren’t anywhere close to being on a pathway to meeting those goals. The report graded utilities based on utility plans filed with regulators rather than by commitments made to the public. The report gave points to companies for plans to build renewable energy and for retiring coal but took away points from companies with plans to build new natural gas.

One noteworthy observation from the report is that many of the utilities with the most success in getting recognition for big ambitious goals are not always the ones making progress on decarbonization.

Take for example Xcel Energy, which received widespread attention when it announced its decarbonization goal. But while many people focused on the ambition of the goal, advocacy groups like UCS made it clear that these commitments were only as good as the actions that followed. The Sierra Club’s report gave Xcel Energy a grade of C, and it only did that well because the professors were grading on a curve.

Southern Company, a large conglomerate of state utility companies, also has fallen short in making good on its goal to decarbonize, receiving an F after failing to make real commitments to retire coal and build renewables. That failing grade also might have to do with the company’s seeming commitment to investing in clean energy projects that haven’t yielded any clean energy while only spending a small fraction on renewables.

Duke Energy, one of the largest utility holding companies in the United States, also received significant press attention for its ‘net zero’ goal. Duke’s refusal to retire coal and its rush to build gas-fired power plants landed it and many of its subsidiaries F’s.

Some utilities will Say Anything to hold on to old, dirty, fossil fuel power plants.

On the flip side, the only two parent companies to receive an “A” grade don’t even have a 100% clean or a net-zero goal. The top-scoring company, NiSource, owner of Indiana company NIPSCO, has a goal to reduce emissions 90 percent for which it received little fanfare and almost no mainstream media attention. But last year it announced that it would retire all its coal and replace it with renewables, which helped it secure its A grade.

The 2^nd highest grade went to Great River Energy (GRE), whose goal of 50% clean by 2030 goal pales in comparison to the ambition of other companies with far worse grades, but who is making progress on retiring coal.

In the aftermath of the Sierra Club report, the utilities and their trade association got VERY defensive. Unfortunately for them, the defense they offered wasn’t particularly good. The response from the companies was to point back to the ambitious goals, which the Sierra Club had already pointed out they weren’t making real progress on. Affirming their commitment to those goals but without offering any hard data that directly retorts Sierra Club’s critique… just doesn’t cut it.

If utilities were really committed to decarbonization they’d want to the decarbonizing to start as soon as possible.  

At the end of the day, Sierra Club’s report deserves an A. Its findings hold up and so do its conclusions.

My commitment to my partner did not end when we moved in together, or when I proposed, or even when we got married. The very essence of commitment is that it is an ongoing expression of words plus actions, time, and effort.

If a utility wants the public to believe a carbon reduction pledge it has to back it up with actions.

That means ceasing coal, ramping up renewables, and decreasing its reliance on gas.

It means not trying to exploit loopholes to not build a new gas plant by trying to buy an old gas plant.

It means ensuring subsidiaries also follow through with parent company climate goals.

Commitment is more than occasionally bringing home flowers for no apparent reason. For utilities, the occasional proclamation to cut carbon won’t cut it.

People deserve clean energy, and hollow commitments aren’t enough—if the utility won’t commit, then the utility should not stand in the way of people pursuing clean energy for themselves. After all, there is a nearly universal agreement: We need to build as much wind and solar as fast as possible; and, we need to invest in a lot more transmission and distributed resources. If a utility isn’t going to do it, it ought to at least let its customers.

Here is why that is a bad idea.

Other (better) options

Recently, Consumers issued what is known as a request for proposals (RFP). The utility has put forth a narrow set of parameters for energy developers to respond to. Consumers only wants to know about:

• Gas-fired power plants
• That are already operational
• Of a specific size
• In a specified location (MISO Local Resource Zone 7); and
• Willing to sell the asset to Consumers.

Will Kenworthy, Midwest Regulatory Director at Vote Solar, reviewed EIA data and could only find one gas plant that would even be eligible to respond.

One!

That kind of limits Consumers’ options. And, if that respondent has no competition, then do we really expect the utility to get the best possible deal?

(No. No, we do not.)

There are far better options than the restrictive parameters Consumers’ proposes. Options that are more flexible, will probably cost less, and don’t saddle customers with the unnecessary risk associated with investing in gas-fired power plants.

Instead of putting out such a restrictive RFP, the utility should put out an all-source RFP, allowing any and all resources to be considered to meet the specific services the utility needs. It could achieve this by encouraging any and all resources that can provide the needed services to compete. By encouraging competition through an all-source RFP, the utility will be able to procure the actual services it needs at the lowest cost.

The truth is that the utility doesn’t need 1,600 MW of gas

The utility might need 1,600 MW of capacity that can deliver to a specific zone in some future year, and if so, that should be the goal of the RFP. But why limit it to resources that are already operational if the capacity need isn’t for some future year? Why limit it to a certain fuel type when other types of resources might be lower cost? If the utility can procure 1,600 MW of capacity from a diverse suite of smaller resources with a lower overall cost, why not do that?

In other states, when utilities have scraped RFPs for gas plants in exchange for all-source RFPs for specific services, utility customers have seen big savings. It also tends to result in more solar and less gas getting selected by utilities.

In the 2018 report, Soot-to-Solar, UCS used detailed reliability modeling to show how utilities can replace retiring fossil fuel plants in Illinois with a suite of local clean energy investments. Organizations like RMI have shown that these portfolios of clean resources can outperform gas plants across the country.

It is also hard to see a justifiable reason why the utility must own the generation asset. I mean, sure, monopolies are going to want to monopolize, but there are other ways to procure capacity.

Buying a gas plant exposes utility customers to all sorts of unnecessary risks (commodity price risk, market price risk, and regulatory risk). Bi-lateral contracts, on the other hand, can help limit customer exposure to some of those risks. And while signing long-term contracts that lock in customers to polluting resources is a bad idea, shorter-term contracts can be a reasonable course of action. Particularly when paired with ramping up renewables.

Ramping up on other resources will also allow the utility to simultaneously ramp down generation from coal-fired power plants, which means valuable reductions in pollution today.

The lowest cost, lowest risk, lowest emission, and most flexible option is probably some mix of ramping up renewables, building storage, investing in energy efficiency, procuring demand response, and maybe topping off with some short-term contracts for any remaining capacity needs. But the utility is not currently pursuing an all-source RFP that would produce those benefits.

Not a good deal for Consumer’s consumers

One of the purported justifications for buying a gas plant is the ability to control the dispatch. But the whole point of having a market is that utilities can pool resources and rely on the lowest cost resource that is available, as opposed to locking-in customers with the costs of a specific company-owned asset.

UCS and others have thoroughly documented how utilities operate coal-fired power plants even when cleaner and cheaper resources are available and there is nothing preventing them from doing the same with a gas plant.

Right now, any gas plant owned by an independent power producer is only going to run when prices justify it, but a monopoly utility might be tempted to run a rate-based gas plant regardless of price. This means the pollution from that plant might also go up. And, as the build-out of zero-marginal cost renewables continues in MISO, there will be fewer hours in the day that it is economic to run older gas plants. If the plant ends up getting self-committed, it is likely to increase costs and emissions.

UCS has previously warned state regulators about utility proposals to buy or build gas plants in MISO; for example, our experts have pointed out the dangers of monopoly utilities investing in gas plants in Minnesota and Michigan.

The bottom line, this is bad for the bottom line

But this is also a bad deal for the investors of Consumers Energy. Buying an old gas plant will require a little capital and a lot of operating costs (mainly fuel costs). But Consumers Energy doesn’t make a profit off fuel costs. If Consumers invests in lower-cost resources that are capital intensive (like wind, solar, and storage), it can deliver benefits to both customers and investors.

Now is the time to pass on gas

When it comes to decarbonizing the electric grid, there is nearly universal agreement: We need to build as much wind and solar as fast as possible; and, we need invest in a lot more transmission and distributed resources (like rooftop solar, energy efficiency, and demand response) that will help keep downward pressure on customer bills.

Studies might disagree on what technologies are needed for the last 10%-20% of decarbonization, but in the next 5 years, we need to deploy as much capital as we (as a society) can on wind, solar, storage, efficiency, flexible demand, demand response, and transmission.

If a homeowner has money sitting around and wants to put solar on their roof, let’s find a way to do it.

You don’t own a home? Let’s find a way to get access to community solar.

You are a corporation, not a person? Let’s make sure companies have access to markets to buy as much clean energy as they want.

And if a monopoly utility needs to spend capital on capacity, that capital should be investing in resources and technologies that facilitate the necessary transition off fossil fuels, not further entrench us.

Now, after all that, the bank turns around and sells the remainder of the debt to a debt collector and forecloses on the house anyway.

Sounds outrageous, right?

Except that is exactly what electric utilities are doing.

The uncollectables misnomer

Chances are the electric company that sends you a bill each month is regulated by a commission of some sort. That regulator is responsible for deciding how much your utility company is allowed to charge you based on a set of costs that the utility incurs and a target rate of return (profit).

The energy burden is a major problem in the US. In fact, about one in three families living in the United States can’t afford to pay their electric bills. And since not everyone can pay their bill, some of those utility costs would not get recovered.

Utilities and regulators account for this shortage and all those unpaid utility bills become ‘bad debt’ on the utilities’ ledger called “uncollectables”. They’re called uncollectables because the assumption is the utility has taken measures to collect those unpaid bills but was unsuccessful. This customer debt gets bundled up and, in some cases, sold to third party collectors. The balance is collected by charging other ratepayers.

“Uncollectables” do end up getting collected.

Where’s the debt?

I can’t tell how far back the practice of collecting these uncollectables on the back of others has been happening. And getting others to cover the costs for those who can’t isn’t necessarily bad. If you are able to pay your utility bill but your neighbor isn’t, then you get charged just a little bit more to cover their bill. It’s like you chipping in to cover your neighbor’s mortgage.

This means that even though the customer who owes the money may not pay their outstanding bill, their debt is still being paid by the rest of society. Technically, there isn’t a debt to sell. It’s being recovered, just not directly from that customer.

So how are many utilities able to sell this “debt” to a third-party debt collector for pennies on the dollar?

Here is how it works:

A group of customers collectively owes $10 million in unpaid utility bills. The utility tries to collect that money through normal processes but eventually gives up and sells that debt for 5% ($500,000). The utility then turns around and charges the customers that can pay their bills $9,500,000. Then the debt collector goes back to those customers who couldn’t pay their bills to try and collect the full $10 million.

This is how the debt gets paid twice. First by you and me and anyone else able to pay their bill. And then again by the original customer, to the extent the collection agency is successful.

And if you haven’t been on the receiving end of a debt collection agency then (1) you are a lucky duck and (2) you should know the lengths they will go to ruin your life in the name of trying to collect on your debt.

Is there at least a good reason for this madness?

If there is a good reason for this practice, for the life of me I can’t find it.

I’ve talked with luminaries in the field, current and former state commissioners, rate design experts, cost allocation professionals, and a host of consumer and environmental advocates. And yet not a single one can provide a good reason for the practice.

The best reason I’ve heard… The closest thing to an explanation I have found, is that utilities can take the revenue from selling the debt and pass it along to customers as a saving. But is it really worth that savings if it means condemning your neighbors to the horrors of debt collection?

Here is a back of the envelope calculation.

The typical household in the US pays approximately $100 a month in electric utilities (obviously this fluctuates by season and location, but just bear with me). Of that $100 monthly bill, approximately $2-$3 helps cover the cost of other customers unable to pay their electric bill. This is based on anecdotal evidence I’ve collected that says about 2-3 percent of residential customers default on their electric bill and end up in uncollectables.

With COVID-19 and the economic downturn, let’s say that number doubles to 5 percent. That translates to approximately $5 a month other customers will need to pay in their monthly bills to cover customers who have defaulted on their bill.

But utilities sell debt at pennies on the dollar. As far as I can tell, 4 percent is a reasonable estimate. For ease of following this example, let’s round that to 5 percent. That would mean that families save 5 percent of 5 percent on your electric bill from utilities selling customer debt. That’s 25 cents in savings for a typical family spending $100 a month in electric bills. And that is a high-end estimate.

Utilities might think they’re doing us a favor by selling off the debt to collection agencies but is it really a savings to us? By condemning our neighbors to a lifetime of debt collector harassment for less than 25 cents a month?

What makes this all the more senseless is that the existing energy system is unjust and racist. It has no intent to be racist, but the disproportionately negative impact of the energy stem has on BIPOC communities is undeniable. BIPOC communities suffer from higher levels of pollution, higher energy bills, and higher rates of shutoffs. It stands to reason that the practice of selling customer debt also follows those same trends.

A simple solution

With the COVID-19 pandemic still raging, now is the worst possible time to lift utility shut-off moratoriums. A new study estimates that a nationwide moratorium on utility shutoffs could have reduced COVID-19 related-deaths by almost 15%. On health and safety grounds alone, those moratoriums should remain in place. Yet, they are being lifted in some states and will eventually be lifted in most (if not all) states. When that happens commissioners must do everything they can not to make a bad situation worse.

As far as I know, there are no laws requiring utilities to sell their customers’ debt. It seems to be something commissioners started approving years ago, the practice spread and eventually became normalized. Once the previous commissioners approved it, the next generation of commissioners simply didn’t challenge it, assumed it was status quo, and went along with it. The precedent has become policy, but it can be undone.

Utilities should voluntarily agree to not sell utility debt.

Commissioners should discourage utilities from selling debt and create disincentives that prevent it.

And to any extent that some law is being misconstrued and used to ‘mandate’ the sale of debt, then legislators should modify those laws.

That’s it. That’s the post.

Okay. Fine. I guess a one-word blog post isn’t sufficient so allow me to expand on that thought…

What is antiracism?

Growing up I was raised to believe that racism was about what was in your heart. It was about intent. I’ve since learned that having racist intent, while VERY, VERY BAD, is not the end of the line. Over the past few years, I’ve learned a lot about antiracism. I’m by no means an expert on the subject, but one thing I’ve learned is that positive intent does not absolve your negative impact.

Antiracism is about recognizing that regardless of intent we must examine the impacts of our decisions and actions. The same is true for institutions.

Is the grid really racist?

With this in mind, it becomes painfully clear that the current US electric grid delivers racist outcomes. True, the electric grid is an inanimate object, incapable of having intent, but we can document the racist outcomes the grid produces.

Take, for example, this 2020 Berkeley study that, even after accounting for income, black families have higher electric bills. The analysis accounts for a variety of factors, including geography, income, and homeowner status and shows that Black households pay $273 more a year if they are renters and $408 more per year if they own the home.

Even after accounting for a range of variables, including income, researchers have shown that Black households pay more for electricity than white households. Source: The Race Gap in Residential Energy Expenditures, Eva Lyubich. June 2020

This NAACP study from 2017 found that utility company shut off policies disproportionately impact low-income and African American communities. The NAACP had also previously documented how pollution from coal plants has had disproportionately negative health impacts on African Americans. As noted below, coal power plants tend to be disproportionately located in low-income communities and communities of color.

There are plenty of other studies with similar findings. Like this one from 2019 by researchers at the University of Washington and Stanford University. But this isn’t a recent revelation; this problem has been well documented for decades (see this study from two decades ago led by The Black Leadership Forum or this book by Robert Bullard from three decades ago).

Now, the clean energy side of the industry isn’t without its issues. Despite considerable industry effort, Black families have a harder time accessing rooftop solar and it is more difficult for minority-owned businesses to access energy efficiency. Minority groups are also less likely to be part of the clean energy workforce.

The solar industry’s workforce in 2019 was predominantly white. Source: National Solar Job Census 2019

And it would be hypocritical for me not to point out that UCS’s energy team is disproportionately male, predominantly white, and confronting our own issues with racial justice.

Recognizing these problems doesn’t mean that solar is bad or that we should give up on clean energy. Just the opposite, we have to recognize and name these problems if we want to find ways to actively undo structural racism within the power industry as a whole.

How do we make the grid antiracist?

Before I get into how to make the grid antiracist I want to just say: there is no way for me to come up with an exhaustive list. Nor could I. Making the grid antiracist is going to require hard work by a lot of different people with different perspectives. It is going to require collective action to bring about transformative change. It is going to require national groups (like UCS) to show some deference to local communities and indigenous populations.

In the end, we have to replace structural racism with structural antiracism. Specifically, we have to root out actions, decisions, policies, and investments that perpetuate structural racism. It will require governments at the federal, state, and local levels to pass legislation and implement policies and programs that specifically address the historical injustices frontline communities have endured.

Opportunities to promote structural antiracism in the energy industry won’t be limited to big, infrequent events like bill signings and ribbon cuttings. There are also daily actions that governments, corporations, non-profits, and even individuals can take to help dismantle racism.

For example, two of the most important metrics of the electric system are affordability and reliability. Most state utility regulatory commissions are charged with ensuring reliable power at an affordable price. As analysts, we commonly look at these metrics in terms of averages: the average electricity rate or the electricity bill for an “average” family. I certainly have.

The same thing is true for the most common metrics used to measure reliability.

Looking at averages allows us to conceptualize huge data sets, but it can also hide important information. Not just the tail ends of the distribution but how that distribution falls across different groups. That is why we should more frequently and more carefully evaluate affordability and reliability not just in terms of the ‘average’ customer but how it breaks down along racial and income lines.

This might seem like a small gesture, but once again we in the energy sphere can learn something from antiracism trainings. Think of simple averages as the microaggressions of the energy data reporting world. Asking someone where they “are really from,” or complimenting a person’s “barely noticeable accent,” might seem small (hence the micro, in microaggressions) but those constant, small acts, perpetuate an environment of exclusion. They create a toxic workplace culture that can poison the opportunities for some to succeed.

It is hard to find answers if we never ask the questions. How do we make the grid antiracist? We start by asking questions and then work hard to find the answers.

The clean energy transition has some strong momentum right now, and removing obstacles that hinder the transition will allow us to see the benefits of renewable energy much more quickly. One such obstacle that slows down the transition to renewables? Contracts that lock in companies to burn fossil fuels for years to come.

Lucky for you, this just so happens to be the subject of a new UCS analysis, “Contracts to Burn: How Long-Term Fossil Fuel Contracts and Power Purchase Agreements Lock In Pollution, Harm Consumers, and Slow the Clean Energy Transition.”

Locking in fossil fuels

Long-term contracts to buy fossil fuels and burn them for power obligate utilities and other power providers to rely on fossil fuels well into the future. Affiliate transactions, which are agreements between subsidiaries of the same parent company or between a parent company and one of its subsidiaries, are subsets of long-term fossil fuel contracts and have similar outcomes.

All of these agreements essentially guarantee that utilities and power providers that sign onto them will be buying and burning fossil fuels for years to come, even when cheaper and cleaner energy sources are available. That “lock-in” means more air pollution, more carbon pollution, and potentially higher costs for households and businesses.

Historically, fuel and power contracts were signed for periods ranging from a few years to a few decades, usually at a discount, in order to protect against future fuel and power price volatility and guarantee a steady supply of each. But any perceived benefits of long-term fossil fuel contracts have some real and serious downsides.

Contracts to buy and burn fossil fuels lock-in heat-trapping gases and other pollutants for long periods of time. For a detailed list of emissions resulting from contracts at the power-plant level, see the report Appendix.

We project that existing contracts to buy and burn fossil fuels in the United States could create up to 5.4 billion tons of carbon dioxide (CO₂), 3 million tons of nitrogen oxides (NO_x), and 3.7 million tons of sulfur dioxide (SO₂) by 2050, primarily resulting from contracts to buy and burn coal. That means they can be bad for our health, our environment, and the climate.

Long-term contracts for fossil fuels can have hidden costs

Discounts often motivate utilities and other power providers to sign long-term fossil fuel contracts, but whether these discounts amount to any significant savings over the length of the contract is questionable. With renewable energy prices plummeting, locked-in power prices (even at a discount) for fossil-fuel-derived power need to be analyzed on a case-by-case basis to determine if they do indeed provide the savings they once did.

In our new analysis, we explore numerous cases in which fossil-fuel contracts, over the long run, end up costing power providers hundreds of millions of dollars in additional costs that could have been avoided by procuring fuel or power from the wholesale market (without a contract in place) or from renewable sources instead. Additional costs can come from expensive and restrictive take-or-pay provisions in fuel and power contracts, which create additional charges for parties when they don’t take the minimum quantity of fuel or power that’s being provided in their contracts.

Similarly, settlements and legal fees from exiting a contract early, an action some parties have deemed essential despite the contentious process that generally results from doing so, can end up adding millions of dollars more onto the total price tag of a contract. These additional costs could have been avoided if no long-term contract had been signed.

Long-term contracts for fossil fuels create inflexibility in our power supply.

Long-term fossil fuel contracts limit the energy choices for the contracting parties. Some contract clauses can include capacity limits on the amount of power independently procured from distributed renewable sources, for example. Similarly, “take-or-pay” provisions can cause parties to settle for the power or fuel provided in their contract, when cleaner and more affordable options may be available elsewhere, since the additional charges resulting from take-or-pay provisions make switching fuel or power sources incrementally more expensive.

And if the decision to leave a contract arises, some contracts can require as much as 20 years’ notice to exit, further limiting a power provider’s options in procuring clean alternatives to the fossil fuel power they are contractually obligated to purchase.

Getting beyond lock-in

The fact that some utilities have found it worthwhile to pay millions of dollars in fees to exit their fossil fuel contracts illustrates how long-term contracts for fossil fuels are no longer good deals for consumers. And they certainly aren’t good news for our environment.

This practice of signing long-term contracts for fossil fuels needs to be examined more as we move further into the clean energy transition. By scrutinizing existing contracts and encouraging decision-makers to avoid signing or approving any new, restrictive long-term contracts involving fossil fuels, we can clear additional hurdles that are keeping dirty fuels in our power sector at the expense of clean energy and pave the way for clean energy transition.

Now, I don’t talk about oil and gas very often, but it is an industry I’m all too familiar with. My first job out of college was working as a consultant to oil and gas (O&G) companies. In that capacity, I visited oil refineries across the US conducting environmental surveys and conducting engineering studies.

Jigar Shah is perhaps best known as the founder of SunEdison, co-founder/President of Generate Capital, and co-Host of the Energy Gang. Now known as the “Kanye West of Solar,” he too got his start in O&G. For 4 years, Jigar worked as an analyst for BP Solar working on solar, wind, hydrogen, and natural gas for the company.

I sat down with Jigar to discuss what the future holds for BP and other major oil and gas companies that are looking to transition from being an O&G company into an energy company of the future.

Joe: So, what are your thoughts on these recent pledges? Do you think oil companies like BP are well poised at this time to transition to clean resources?

Jigar: This has always been a question of dedication and therefore motivation.  The oil companies are really some of the best engineering and risk management companies in the world.  From regulatory affairs and changing popular opinion, they work in some of the toughest environments on the planet.  Those same skills have always been needed in decarbonization–it was just never a priority for shareholders.  Now the shareholders are demanding a shift.

Joe: So, this is being driven by shareholders. I can’t help but wonder what roles advocates, including UCS, have had in that. After all, advocates have campaigned to influence shareholders, particularly institutional shareholders like Norgis, Blackrock, and Vanguard. Any thoughts on that?

Jigar: To be honest, advocates are useful, but this has largely been about resource availability.  The UK transitioned from coal right around the time coal production was falling and coal imports were rising.  The late Matt Simmons wrote a prescient book in 2005 predicting peak conventional oil production and he was right. According to the International Energy Agency, conventional crude oil production peaked in 2006. And what BP said is that unconventional oil has largely been a bust resulting in an overall return of just 8.5 percent for them overall.  All of the oil majors have stated goals of 15 percent returns on oil explorations and have dramatically underperformed because the economy can’t handle a sustained oil price of $100/bbl.

Joe: It’s probably worth noting that this would not be the first time BP tried to market itself as being “Beyond Petroleum.” Are the circumstances today any different?

Jigar: I would say the circumstances are the same.  John Browne realized that conventional oil was peaking in the 2000s and that the future of their business was natural gas and clean energy.  The reason was that all of their investments required profits at $30/bbl oil and that wasn’t possible in conventional fields available to BP.  So he went after the one frontier that was left which was Russia and started transitioning the company to gas and clean energy.  He was ousted from the company by folks that didn’t want to make that transition.  Today, the reality he saw in 2000s has come fully true such that everyone sees the reality – including shareholders.  Bernard Looney will be given a chance to continue Lord Browne’s legacy but if he is slow or unsuccessful, then my sense is that BP will be cut up into pieces and sold off.

Joe: BP has been at the center of some major disasters including the Deepwater Horizon oil spill and the Texas City refinery explosion. Plus, there are the emissions at refineries that disproportionately affect low income and communities of color; not to mention the pollution from burning refined products… Do companies like BP need to make amends for their past before they move forward?

Jigar: I think we all need to take some responsibility for their actions.  Any actions they took to mislead the public through false advertising and financing of climate deniers is fair game.  But the siting of plants in frontline communities and the extraordinary growth in their markets came from consistent consumer demand for their products.  In fact, for the entire 20^th century, great use of petroleum was synonymous with a better standard of living.  It is only in the last few years that we have dedicated ourselves to decouple growth from increased fossil fuel consumption.  Shell did try to apologize for its previous sins and I do think that atonement is important, but let’s not make ourselves feel better by putting 100 percent of the blame on oil and gas companies.

Joe: I’m not sure it’s fair to blame us, as consumers, for BP’s lax safety standards that led to the major accidents and loss of human life associated with BP Texas City and Deepwater Horizon. Speaking from my own experiences at refineries, I’ve seen companies turn down proposals that would reduce the amount of pollution they release into the communities where they operate in order to preserve profit margins. Do you really think that consumers should be blamed for those decisions?

Jigar: I agree that the oil companies have a legacy of pollution and bad behavior around the world.  Some of the most egregious are the safety violations you cite.  There are also examples of human rights violations in Ecuador and Nigeria.  One of the worst violations was the Exxon Valdez spill off the State of Alaska.  But I do think that consumers should take some responsibility for their “see no evil, hear no evil” approach to conspicuous consumptions.  People never ask how energy prices can be so low and how we can afford to waste resources at scale with the creation of suburbs.

Joe: You also mention the role of these companies in misleading the public – is it really fair to blame the public when they’ve been willfully misled?

Jigar: There were 20 million people that marched or expressed protest on the first Earth Day.  That was almost 10 percent of the US population.  Fifty years later, that number is far smaller in the USA.  People have gotten lazy.  They register their protest on social media instead of demanding action from their elected officials, utility companies and other pressure points.  I am glad to see the passion in the divestment movement, but we can’t expect large corporations to sit by while their core product/shareholders are under siege.  I don’t condone their behavior but all people that are losing their right to make money fight like hell to keep up their standing.

Joe: When I was working at oil refineries, BP’s corporate culture seemed to promote “profits over all else” and its reputation for cutting corners on health safety and environment were well known. Recently there have been more conscious movements to reform organizations to detoxify their internal culture, including addressing gender and racial injustices. Do organizations need to detoxify their internal culture prior to detoxifying their business model, or can it be done at the same time?

Jigar: This is the reason that Environmental, Social, Governance (ESG) movements have been so important.  This is not something that we are doing/imposing to make people feel good.  Companies that truly care about safety, the well-being of their employees, and their environment have better financial performance. Companies that are good corporate citizens and hold themselves to high standards on governance makes less mistakes and find that they save themselves from their worst excesses.  BP should detoxify as should everyone else because it is good business and leads to a more productive workforce.

Joe: And what can BP specifically do to accomplish those reforms?

Jigar: This generally starts with changing out the people.  It is pretty hard to make these types of reforms without new people.  Once you have new people dedicated to changing then you have to really be in folks’ faces about it.  You have to make people practice.  But more importantly, you have to have a culture of responsibility at the top where people are modelling good behavior.  People ultimately watch more than they listen.

Joe: Where are the pitfalls, where could a company like BP screw this all up?

Jigar: Companies like BP are likely to screw this up.  This is why companies that do make the transition are heralded.  I think BP has new leadership and their heart is in the right place. I worry they will go after solar and wind because it is familiar and not go after the truly innovative stuff where their expertise can differentiate them.  They should do solar and wind in emerging markets. In the OECD they should be doing advanced liquid fuels, green hydrogen, waste-to-value, renewable natural gas, and geothermal energy.  Be bold or slowly decay.

Joe: Okay, so do you think this will happen? I mean, what betting odds would you give BP’s chances to make this transition? And, do you think other oil majors will follow?

Jigar: Let’s be honest, this kind of transition really has no precedent.  To be a Supermajor in one sector and transition to another is almost impossible.  I think that BP has been working to change their culture in this area since Lord John Browne.  So I think they have a shot and many of us will have to help them make the transition.  But this will be hard.  I think if BP does this fast, they will attract followers from their peer group.  But if this goes slowly, then their peer group will likely not follow and their own chances of success will be next to impossible.

Editor’s Note (9/21/20): UCS has a long history of documenting and exposing fossil fuel industry disinformation and an active campaign to hold BP and other major fossil fuel companies accountable for their role in climate change. 

UCS has shown that the fossil fuel industry, including BP, has been deliberately misleading the public about climate change for decades—and that deception continues today. It’s no wonder that a majority of people in the US believe that fossil fuel companies are responsible for, and should pay a portion of the costs of, climate damages. 

Climate accountability advocates are undeniably having an impact: UCS analysis finds that BP and other major fossil fuel companies are responding—albeit not fast enough—to growing pressure from activists, investors, and climate lawsuits. 

Millions of people—led by the youth climate movement—are fighting like hell to protect our climate and our democracy. The environmental justice movement continues to resist the deadly effects of siting oil refineries and other toxic facilities in communities of color.  

Learn more here about UCS’s work to hold fossil fuel companies accountable for their role in climate change. 

Turns out when the government commits to great big plans and backs it up with the resources needed, we can accomplish great big things. With that in mind I have to ask:

Could we end energy poverty?

Based on some cursory calculations, it doesn’t look like it would cost that much. And the good news: I know where to find the money.

What is energy poverty?

In the simplest sense, the energy burden is the percent of your income that goes to energy services like electricity and gas that power appliances and heat or cool your home. If your energy burden gets to a certain troublesome level, experts consider that energy poverty. Academics seem to disagree on the exact threshold; some say as high as 30 percent, while others say 20 percent of one’s income.

What is indisputable is that while the average energy burden in the US typically hovers around 2.5-3 percent of one’s income, the average low-income household faces an energy burden that is 2x to 10x those levels. So, while we all feel an energy burden (because we all must pay for the energy we use), energy poverty falls directly onto the backs of millions of households from disadvantaged communities.

In hard economic times like these, energy poverty leads many to impossibly difficult decisions, like whether or not you should pay for electricity so you can run an AC unit and not die of heat exposure, or pay for medicine or food instead. Not paying your electric bill can also have implications on your ability to stay in your apartment and even impact child custody.

It’s a problem that we must solve.

Not that much, when you put it anyway

Using data from DOE’s Low-income Energy Affordability Database, I have calculated that the cost to cover 100 percent of the energy bills for all families at or below the federal poverty line would be about $10 billion a year. Since eliminating energy poverty does not necessitate paying 100 percent of someone’s energy bills, let’s call that $10 billion number the upper limit of eliminating energy poverty among those living below the poverty line.

However, even those that live above the federal poverty line suffer from an above-average energy burden and may even cross a threshold into energy poverty. In recent years, those living at 4 times the federal poverty line and below spent about $45 billion on energy annually. In theory, $45 billion is how much it would cost to end the energy burden for all those living at or below 4x the federal poverty line. Eliminating energy poverty should cost less than that. So, let’s call $45 billion per year the high-end estimate to end energy poverty.

A little perspective

To put $10 billion in perspective: Boston’s “big dig” to install several miles of tunnels through the city, cost more than twice that to fund!

But at least Bostonians got some tunnels for that money. Many times, energy bills have charges that force people to pay for energy infrastructure that never even gets built. For example, a failed nuclear plant in South Carolina, the VC Summer plant, was abandoned in 2017.

Its cost: $9 billion.

$9 billion could have covered the energy bills for all South Carolina families living at or below the federal poverty line…24 times over.

Now, families in South Carolina are stuck paying for a power plant that will never generate power.

In nearby Virginia, consumers that are at or below the federal poverty line have paid roughly $300 million annually in energy bills in recent years; meanwhile, Dominion, the large monopoly utility in the state, over-collected about that amount in both 2017 and 2018.

What if we considered this challenge at a national level? The federal government could easily appropriate $10 billion; with the annual federal budget approaching $5 trillion, it’s a drop in the bucket.

It’s a little over 1 percent of the US military’s annual budget.

The current administration’s tax cuts alone amounted to an annualized cost of around $100 billion in corporate bailout money and tax breaks for the uber-wealthy.

$10 billion is a mere 10 percent of that.

It is also worth noting that the current tax code provides corporate welfare to companies, including utility companies like Xcel in Minnesota and DTE in Michigan. As a result, dozens of companies pay a negative tax rate.

If we just account for the 27 largest corporations that had a negative tax rate, which includes Xcel and DTE, and implemented a 15 percent minimum corporate tax rate on those companies alone, the US could pay for 100 percent of the energy bills of every family below the federal poverty line.

When even the high estimate is low

The DOE numbers indicate that covering 100 percent of the electric and home heating bills of all families at or below 4x the federal poverty line would cost $45 billion per year. Remember, in reality, we’d probably need less than that.

That puts my estimate to ending energy poverty in the range of $10 billion-$50 billion per year.

You know what else the US funds in the range of $10 billion-50 billion per year?

Domestic fossil fuel subsidies.

That’s right. The US has a choice: we could either continue subsidizing fossil fuels, or we could try to make energy poverty functionally extinct.

Throwing money at the problem isn’t a long-term solution

One last thing. Like so many energy injustices, energy poverty does not exist in a vacuum. Even after accounting for income, Black families pay more for energy than white families and are twice as likely to have their electricity shut off as white families. The crushing weight of structural racism and the lack of economic mobility all mean that just throwing money at this problem won’t truly end energy poverty. But we can make the problem a whole lot less bad if we simply committed to it.

Instead, we underfund great programs like WAP and LIHEAP that directly help alleviate the energy burden and help reduce energy poverty. We need to fund those programs a lot more and make massive investments in sustainable housing that is accessible to low- and moderate-income families. We need to increase access to renewables for low-income families and people of color.

Why do we need to do this?

Because when the government commits to great big plans and backs it up with the resources needed, we can accomplish great big things.

Here’s the problem: The COVID-19 pandemic hasn’t gone away—3 million US people have been diagnosed with COVID-19 and that number is rising, swiftly. Meanwhile, millions of people are unemployed as the COVID-related economic crisis worsens, and many families are struggling to pay for basic necessities like food and shelter. And now, a major heatwave is bearing down on the same states that are also in the throes of a dangerous surge in COVID-19 cases.

Even absent a health or economic crisis, the hottest days of summer are the absolute worst time to lift life-saving moratoriums on utility shut-offs.

As heat waves blanket the country, bills are expected to spike. UCS analysis found that the average family could see their bill increase 25% over past summers, that’s $50 a month for some.

The good news is that there are proactive measures states and the federal government can take to ease the burden for families.

Customers are facing an impossible decision

Families across the country are facing difficult decisions. It is in both their own personal interest and in the interest of public health to stay at home as new COVID-19 hot spots emerge in states like Arizona, Texas, and Florida.

But, staying at home means more electric use and higher electric bills. And with one and three families struggling to pay energy bills prior to the COVID pandemic, a spike in electric bills won’t be easy to deal with.

The summer comes with high temps and high electric bills

Summer electric bills are almost always higher than spring or fall bills, due to increased residential use of power for air conditioning and the like. But this summer, people are going to be spending unprecedented time at home and going to be using more power at home as well to keep cool.

Data on how home electric consumption patterns have changed this year are still very fresh and subject to refinement. Uplight, a customer-focused energy service company, is reporting based on 700,000 customers’ data that residential electric consumption in the parts of the country they examined was up 20-30%. Those numbers are in line with other reports from Texas.

Will those percent increases hold steady as heat waves spread across the country? I simply don’t know. It’ll depend on how long stay-at-home orders remain in place (or when they return), and on the weather, and on a range of other factors.

But, since they’re the best numbers available, it’s worth considering what will happen to electricity bills if monthly use continues to be that much higher, and what that adds up to. And that’s just what UCS has analyzed.

Increase electricity use means increased bills, but it isn’t one-to-one

UCS found that a 30% increase in power usage doesn’t mean a 30% increase in utility bills. That’s because most utilities bill customers based on fixed charges that don’t scale with increased (or reduced) electric use.

While different utilities even in the same state might price things differently, UCS studied data from OpenEI  (a repository of datasets that are crowdsourced by industry analysts) to estimate customers’ average volumetric rates (that is, cost per kilowatt-hour) by accounting for average state fixed charges.

What UCS calculations suggest is that a 20-30% increase in residential electricity use could result in an increase in electric bills ranging from 15 percent to 30 percent a month (depending on utility).

Applying that range to the data on average residential bills by state gives the potential increase in bills across the country. And the graphic below shows what UCS found about what an average customer might expect in terms of increased electric bills if recent apparent trends hold.

The estimated increase in electric bill ($/month) over the historical average for the same month

In the summer, households in Southern states see outsized increases in electric bills in our analysis. Those bill increases could reach over $50 extra a month in many southern states.

• In Florida, for example, the average residential bill could exceed $211, which is about $46 above historical averages or 29% above typical July bills.
• In Arizona, the average bill could exceed $267 for a typical family, which is about $55 above historical averages or 25% above typical July bills.
• In Texas, the average bill could exceed $230 for the average family in the state, which is about $51 above historical averages or 29% above typical July bills.

It’s important to note FL, AZ, and TX—among many other states—are experiencing a resurgence of COVID-19 infections in July and thus it is likely stay-at-home guidance will continue for a while yet.

Low income and black families will be hit hardest

Paying an extra $20 or even 50 dollars a month pales in comparison to the healthcare cost and cost of human life if we fail to contain the spread of COVID-19 by lifting stay-at-home orders too soon. It’s also worth noting that reduced commuting or other financial burdens might help offset the increase in electric bills, which will make the increased electric bill more manageable for some households. (I, for one, haven’t used mass transit in over four months.)

But for those living near or below the poverty line, these increased costs might devastate already thin household budgets. Same for the recently unemployed, who are suddenly faced with a whole new math when it comes to meeting expenses (and who may well already have been among low salary earners). Furthermore, the economic pain is not equitably experienced in the US, even during the pandemic: the 2020 unemployment rate among Asian, Hispanic and Black workers is notably higher than for white workers, even in the same catastrophic COVID circumstances. As Jacqui Patterson, director of the NAACP’s environmental and climate justice program, pointed out in a recent Bloomberg article, this is “another situation where people are paying the price of poverty with their lives.”

And it isn’t just poor people who face higher than average electric bills.  A recent study found that Black families pay higher electric bills, even after accounting for variables including income. COVID-19 and heat waves are likely to compound existing inequities, including energy poverty. This is why I’ve described energy poverty acting like a pre-existing condition.

Existing programs can provide relief… if we fund them enough

While for many families the crisis exacerbates already serious electricity burdens, in aggregate the societal cost of the stay-at-home extra is not actually that much. Our calculations based on the above assumptions suggest that covering the increase in electric bills for everyone living at or below 4 times the federal poverty could take about $1 billion a month (on average). While this number might increase based on COVID crisis impacts and the number of families that have lost their primary sources of income, the amount will still be a drop in the bucket compared to the billions in relief the federal government has thrown away in corporate bailouts.

Congress’s initial response packages for this crisis were insufficient and need to include considerable increases to important federal programs that help struggling families deal with energy burdens, like the Weatherization Assistance Program (WAP) and the Low-Income Home Energy Assistance Program (LIHEAP). Substantial additional funding for those programs is a needed first step.

What can be done for these compounding crises?

State budgets are in disarray. Now more than ever the federal government really needs to step up and help support programs that can assist families through this pandemic.

Sen. Majority Leader Mitch McConnell has said that he won’t support a “blue state bailout”, but most of the hardest-hit families will be low-income households in red states like West Virginia, Tennessee, South Carolina, Georgia, Alabama, and Mississippi. Providing aid to states to increase support for LIHEAP or WAP would help all those in need, not just those in “blue states.”

Moreover, many of the states that are seeing waves of new COVID cases, states like Florida, Arizona, and Texas, are the same states where families are most at risk of seeing a spike in electric bills.

What else is particularly striking is just how little it would cost the federal government to step in and alleviate the issue for the households least equipped to handle these extra costs.

A few billion dollars is not small change, certainly, but in the context of the economy, the emergency, and the relief funding approved by Congress to date, it is certainly manageable—and the right thing to do.  Encouraging people to stay home when possible is going to continue to be important guidance for protecting public health, and, during heat waves, that’s only possible if people can confidently use whatever air conditioning or other means of cooling they have safe access to. Millions of US households have plenty to worry about without having to think about how they’re going to cover the extra electricity costs from staying safer at home.

Unfortunately, just because wholesale power prices are at record lows for utilities doesn’t mean you’ll be seeing any of those low costs flowing through to your electric bill.

Why?

As we found in our new UCS report, Used but How Useful, How Electric Utilities Exploit Loopholes, Forcing Customers to Bail Out Uneconomic Coal-Fired Power Plants, utilities across 15 states right in the heart of the U.S. exploited power market loopholes, costing customers $350 million in 2018.

Over the past year, my colleagues and I have been analyzing how some monopoly utilities have found a way to exploit loopholes in the market rules and state regulation. We did this by using the same software that the grid operators use to help inform decision making around which power plants should (and shouldn’t) operate over the course of the year. By closely replicating what happened in 2018 and comparing it with what should have happened, we were able to determine that large swaths of the coal fleet operated when lower cost (and cleaner) resources were available.

By exploiting loopholes, companies that have a monopoly on providing power to its service base can run expensive power plants all day long without consequences, even while lower cost resources are plentifully available on the open market. The UCS report out today found that five utilities—Cleco Power, DTE, Xcel Energy, Duke Energy, and Ameren—were particularly egregious in ignoring market signals, operating very expensive coal-fired power plants and shunting the use of other, lower-cost generation sources.

Sunshine as a disinfectant

In my inaugural UCS blog titled, “The Coal Bailout Nobody Is Talking About,” I helped shine a light on this hidden coal bailout that was happening in states across the county. Since then, that work has been called the “story of the year” by Greentech Media’s podcast “The Energy Gang,” been a sought-after topic of discussion at conferences across the country, and been a hotly contested issue in utility proceedings in over a dozen states.

We also have the Midcontinent Independent System Operator (MISO), the grid operator responsible for delivering electricity to much of the Midwest, acknowledging that curbing the practice could produce hundreds of millions in savings.

Thanks to the tireless work of organizers, communications staff, analysts, and consumer advocates, this issue is now the coal bailout everyone is talking about!

But that doesn’t mean the fight is over, there is still plenty of resistance to change in the utility industry.

What are the utilities saying?

Utilities tend to get a bit defensive when you point out that they are wasting ratepayer dollars. But at a time when many families are experiencing economic turmoil, every dollar saved on bills matters dearly.

To their credit, a few utility companies have acknowledged their practice of self-scheduling and have begun to change how they operate their coal-fired power plants.

One change I’ve seen since analyzing their 2018 practices is some companies are now planning to pause coal plants operation for months at a time—a move that would save customers millions. For example,  Xcel and Cleco, despite initial resistance, have proposed the path of converting units to seasonal operation, a solution UCS has advocated for.

Utilities are starting to conduct their own investigations into self-scheduling of coal plants, thanks in part to what UCS has been saying all along: consumers stand to save tens of millions of dollars a year if the utilities in MISO (and in other regions of the country) choose to operate these uneconomic coal plants less often.

Other utilities remain intractable, insisting that they are doing nothing wrong. For example, DTE Electric Co., was ranked in the new report as the second-worst utility, in terms of burdening customers with expensive coal when less expensive electricity was readily available off the open market. DTE representatives insist that its coal generation and commitment practices do not cost its customers anything. However, our new analysis refutes those claims, as do previous analyses by UCS, Sierra Club, and Bloomberg New Energy Finance, as well as an analysis conducted as part of a fuel-adjustment rate case in front of the Michigan Public Service Commission.

What is MISO saying?

Most recently, the market operators and market monitors have begun talking about this issue. By and large, the reports are well aligned. As noted by Utility Dive, MISO’s retrospective analysis was largely in agreement with UCS analysis of the issue.

MISO has started to recognize that current levels of self-commitment may be problematic and has begun to explore ways to address it from the perspective of market participation and system efficiency.

Part of that exploration includes a potential multiday market that, coal-plant owning utilities say would enable them to participate more efficiently. MISO investigated the potential for multiday markets, assuming different levels of increased market participation. MISO found that even at modest increases in switching to economic commitment would yield large benefits.

A 2019 MISO report detailed the “value proposition” that the organized market provides participants. Dispatching the most economic resources to meet the region’s electric needs, MISO provided the system with $282 million to $312 million in benefits in 2018. Those benefits were realized, despite the large portion of capacity not fully participating in the market through the practice of self-committing. Comparing the benefits that MISO currently provides with the potential $350 million in additional production-cost savings the new UCS analysis has found suggests that eliminating uneconomic self-commitment of power plants would double the benefits to MISO–and to the customers who rely on power from that grid.

The numbers that matter the most

Market efficiency is ideal, and companies should be concerned with the efficient allocation of resources. But at the end of the day, the most important metric in my book is the consumer. How does this market exploitation impact the typical Midwest family?

Our new report makes it very clear: uneconomic commitment practices are costing customers every time they pay their bill. The worst actors–Cleco in Louisiana; DTE in Michigan; and Xcel Energy in Minnesota—collectively lost hundreds of millions of dollars by choosing to sell the most coal-powered electricity when less expensive electricity was available from market sources. They also drove the vast majority of consumer costs for folks in the Midwest. And though Cleco and Xcel are at least attempting to make course corrections to how they operate their plants, DTE and many other egregious utilities have yet to rectify their actions and are still being bailed out by consumers.

TABLE 1. Residential Electric Bill Savings, by State

SOURCE: USED BUT HOW USEFUL (UCS 2020). MISO customers would have saved roughly $350 million through the more efficient use of existing resources of its electric system in 2018. For each state, savings reflect only customers within the MISO footprint and are based on UCS modeling and historical consumption patterns of residential customers. Actual savings would depend on the utility service provider, mechanisms for cost recovery, and the profit structure of utility/customer profit sharing.

Conclusion

Automatic cost recovery without scrutiny from regulators has enabled some utilities to lose millions of dollars in wholesale markets without incurring actual losses on their balance sheets.

In most parts of the United States, the cost to buy and burn coal exceeds the market price in most hours of the year. From a financial perspective, it makes sense for power plants to burn coal for fewer and fewer hours with each passing year. And with each passing year, it makes more sense to replace that coal with low-cost renewables, like wind and solar power.

For over 100 years, rate-regulation of electric utilities has been predicated on the notion that a public regulator can act as a substitute for competition. In a truly competitive market, these levels of uneconomic coal generation would not exist. Where state regulators seek to provide discipline in the absence of market forces, a strong signal is needed to bring the utilities’ attention to minimize these ongoing expenses. Utilities will often throw up strawman excuses in technical proceedings for why their coal plants are so uneconomic, but it is not incumbent on the regulator to innovate on behalf of the utility.

Rather, utility companies, particularly those who have a monopoly presence, are obligated to come up with a solution and regulators should either approve or disapprove of the companies’ proposals.

And if they don’t? Utility customers will continue to be on the hook for hundreds of millions of dollars year after year.

What differentiates those hypotheticals from what I call “Crisis Vultures” is that Crisis Vultures are using the fog of COVID to avoid scrutiny as they push their unethical agendas.

In the past month I’ve seen:

• Energy efficiency under attack by electric and gas industry shills that are coming out of the woodwork to call for ending all energy efficiency programs and standards. Energy efficiency helps people save money, now is the worst time to cut efficiency funds.
• Multiple Indiana utilities have come together to demand regulators allow them to jack up residential rates because the state’s industrial and commercial sectors aren’t using as much electricity. Imagine if Hulu, Netflix, and Disney + all colluded to increase their fees by 30% because stay-at-home orders have us all binge-watching our favorite shows? They’d be sued for price gouging and for anti-competitive behavior.
• A shady group that masquerades as a “consumer advocate” has requested that federal regulators take over rooftop solar transactions, a move that would effectively end net metering and prevent countless customers from saving money by switching to solar.
• Coal barons are trying to strip away protections from coal miners, and oil and gas executives are pushing for corporate bailouts and permission to pollute.
• Unfortunately, the list goes on…

Pushing for corporate interests that are in direct conflict with the broader public interest is sickening. It just infuriates me to see this all happening not despite all that is going on but because everything else is going on and bad corporate actors are taking advantage of our weakened state.

I’m not naïve; I’m not surprised when I see companies push for policies that benefit their bottom line—but companies are run by people, and any person with any sort of moral compass would know that trying to profiteer from a crisis is morally reprehensible.

Vultures are a majestic animal, and I have no problem with vultures acting like vultures, but it sickens my stomach to see people acting that way.

I feel grateful to work here at UCS, where so many of my colleagues have pointed out that there is an all-out attack on policies that protect public health right now. See our blogs here, for a continued documenting of these all-too-frequent craven attacks. And if you are so moved, you can support our work by donating here.

The energy burden is a different kind of pre-existing condition:

In the last four weeks, 22 million people filed for unemployment. Millions of people will not have steady income (or the healthcare tied to it) to pay rent and utility bills for the foreseeable future which means that thousands, possibly millions of home-bound Americans will struggle to pay for energy.

Your energy burden is the amount of your monthly income that goes to paying for energy, like your monthly electric bill. So, when household energy use increases or income decreases, your energy burden rises. The energy burden is not a symptom of the pandemic and the economic downturn; it is more like a pre-existing condition for many Americans.

Before the coronavirus outbreak, I shared a few maps that showed how expensive electricity is for some. The energy burden in most pronounced in places already struggling economically, like in Appalachia, where residents in some counties must put more than 30 percent of their income toward their electric bills, and in the Midwest where states such as Michigan have some families spending more than 1/5 of their income on energy bills. The tragic facts are that US families living below the poverty line are far more likely to also be suffering from their energy burden.

But like other pre-existing conditions, the impacts of the coronavirus pandemic are exacerbating the underlying problems afflicting communities across the country.

Critical responses to minimize the spread of COVID-19 are social distancing, washing hands frequently, covering our faces with masks and staying at home. More time at home for most will drive up energy bills, and not by a little. Estimates on how much electricity demand will increase vary but I’ve seen estimates as high as a 20% increase on average. For some families that’s a bag of groceries or a refill on prescription medication.

What happens when the power gets turned off?

Under normal conditions, if you cannot pay your electric bill your electricity can get turned off. This can have devastating consequences. Most states have protections for health and medical reasons and some states have protections during extreme heat or cold weather. But enforcement of those protections can vary by utility service area and place unnecessary burdens on the customer.

Only Florida has no protections of any kind against utility shut-offs when health or medical reasons would merit protection against it. However, when it comes to protection against extreme heat, only a few states have mandatory protections based on temperature thresholds.

The NAACP has also pointed out that utilities have unceremoniously disconnected the power of millions of people, disproportionally African-American and Latinx households.

April tends to be a mild month for most of the country, but the South already had its first heat wave at the end of March. If this pandemic lasts into the summer, utility disconnects could become deadly. In the summer, families can’t turn off the A/C and go to the movies if we are following public health measures and sheltering in place. Lots of families that don’t have or can’t afford to run A/C would otherwise gather at local community pools, beaches, or in cooling centers, but with parks, pools and community groups closed to prevent the virus’s spread, what will happen to these families in July or August?

But we won’t have to wait till the summer to see how families will be hard hit by falling behind on bills and losing power. Here are a few ways electricity disconnection policies cause people harm during the pandemic:

• Loss of electricity during the COVID-19 pandemic means families will lose their ability to refrigerate essential food supplies.
• Child abuse guidance discusses how unsanitary household conditions are a contributing factor to child protective services involvement. Unsanitary household conditions can include, for example, rotting food (which might happen if electricity is cut off).
• HUD’s handbook on federally subsidized housing includes a chapter on termination, which says that lease agreements can be terminated for repeated minor infractions including failing to pay utilities.
• Airway machines used to treat respiratory ailments—pre-existing conditions in this pandemic—will not work. Our elderly neighbors in particular might rely on medicine that requires refrigeration or medical equipment that requires electricity. They too have fallen victim to utility shut-offs even during the pandemic.

Empowering solutions are available today

Decisionmakers seeking solutions can look to implement utility shut off moratoriums as a good start. Good news is that many utilities have voluntarily taken action to that effect. One of the best trackers on who is taking what action has been assembled by Energy Policy Institute.

But voluntary actions do not always provide comprehensive protection, and they certainly have not been universally adopted across the country. Some moratoriums only apply to customers directly affected by COVID-19, which will place additional onerous red tape on households that are stricken and perhaps unable to access testing. Others might only be an extension of standard medical shut off protections. Moratoriums put in place by voluntary action can also be revoked or lifted by voluntary action, which does not provide any sense of certainty to people struggling to make ends meet.

This is why the US needs mandatory moratoriums on all utility disconnections. These normally would be rendered at the state level, either by a regulatory commission, legislative act, or even an emergency executive order. But the inconsistent leadership among states in response to the COVID-19 crisis suggests that Congressional action is needed to ensure that all vulnerable utility customers are protected. That’s exactly what a coalition of organizations, including UCS, is calling for in future federal aid legislation. UCS has called for a national moratorium on utility shut-offs.

And let’s be clear, preventing new shut-offs isn’t enough. Cutting power off at residence during a pandemic is not good public policy. People who are without electricity should have it restored so residents can safely shelter in place and help flatten the curve. So far, only Colorado and Wisconsin’s leadership has taken this option.

Addressing the root causes of energy poverty

Preventing shut-offs is a good first step, but the increased bill charges will nevertheless place greater economic pressure on an incalculable number of families. Addressing the root of the problem (energy affordability) must be prioritized when we begin to recover from the health and economic ramifications of the COVID-19 pandemic.

One way policymakers can do that is to forgive outstanding balances on utility bills, perhaps with an eligibility cap based on income. Additional funds could be made available to those who are still struggling to pay their bills via capping bills, waiving late payment fees, automating payment plans or other protective measures that rightfully place consumers (particularly vulnerable consumers) at the center of any energy-related COVID-19 response. Low-and-moderate-income energy efficiency and solar programs should be funded as much as practically possible.

New infrastructure, particularly new construction that is slated for public housing, subsidized housing, or housing specifically marketed for low- and moderate-income families, should include smart thermostats, better insulation, and energy-efficient appliances.

Implementing these solutions may seem daunting, let us not forget that one of the best ways to ease people’s energy burden is to keep a utility’s overall energy costs low. That means state utility commissions must be vigilant in utility rate cases and fuel recovery cost dockets to protect people facing unfathomable economic pressures. Unscrupulous utilities have been known to hide unnecessary costs in our energy bills. Commissions and their staff are overwhelmed at this time, but they should be applying extra scrutiny during proceedings when utilities are recovering costs associated with delivering energy.

What might a utility try to get past the commission?

Well, residential demand is up, so for many people, bills will increase. However, wholesale electricity rates are low right now, in some cases at all-time lows. Why? Because industrial and commercial demand reductions (from social distancing at home) have more than offset residential demand increases. Overall US energy demand is down, and supply/demand economics predicts that when demand decreases, prices decrease.

At the same time, natural gas prices have set record lows each month of this year and that’s a trend that is expected to hold true for a while.

Low demand plus low gas prices mean wholesale market prices are incredibly low. Utilities should be taking advantage of low market prices to ensure that they deliver electricity to customers at as low a cost as possible. Utilities must also NOT over-run coal plants uneconomically because that will not only needlessly cost customers more, but it will also increase air pollution which will exacerbate respiratory issues and susceptibility to COVID-19, according to a recent study published by Harvard.

Fig 1. Natural Gas Prices by month at Henry Hub. 10-year range in grey, 10 year average in black, 2020 in blue (solid line: historical; dotted line: NYMEX projection). Source: UCS, S&P Global

Now is a time for data-driven policy

Under normal conditions, my day-to-day job is primarily comprised of engaging on energy regulation at state utility commissions and at regional transmission organizations. I like those venues because they place such importance on hearing from experts and data-driven decision making. And while the COVID-19 pandemic will change many aspects of the industry, data-driven decision making shouldn’t change. The job of regulators has never been more important.

Similarly, the job of consumer advocates and watchdog groups has never been more critical. UCS and others will continue to monitor what is happening in ongoing technical proceedings and do everything we can to help protect consumers and human health.

As legislators look to offer immediate aid and to forge paths for our economic recovery, they too should look at the data: 1-in-3 Americans were already experiencing energy poverty and struggling to pay their energy bills before the crisis; and supporting energy efficiency and renewable energy will reduce that burden.

In this blog, we’ll explore why the premise of this argument is not only deeply flawed but its entire framing ignores the basic principles and intentions as to why states joined wholesale power pools in the first place. It is also worth noting that we do need flexible resources and that fossil fuels aren’t the best positioned to provide that flexibility.

Before we get into all that, I want to take a special moment to thank UCS Associate Analyst Ashtin Massie for her indispensable contributions to this analysis.

A deeply flawed premise

Coal-fired power plants are ramping up and down over the course of the day, but some analysts seem content with presuming that wind and solar are the culprits to coal cycling.

The latest research from UCS looks at the Midcontinent Independent System Operator (MISO) which spans from North Dakota to Michigan and down to the Gulf states of Louisiana and Mississippi. There is a fair amount of wind in MISO, with more coming online every year.

The variability in output from wind is far less than the variability in demand, which in any given moment has to be met with the mix of resources available on the grid. This relationship has long pre-dated wind or solar adoption and will continue (at least until we are better able to store electricity at scale).

The below graphic represents the 24-hours of an “average” day in MISO in 2018 for each of the four seasons. The sum-total of all resources in a given hour reflects the electricity demand in that hour.

Credit: Ashtin Massie. Processed using data made available by S&P Global Market Intelligence

In MISO, on an average summer day, coal-fired and gas-fired power plants ramp up and down over the course of the day in fairly substantial ways. The data confirms that coal-fired power plants’ output cycles over the course of the day.

However, a close examination of the data shows it’s not in response to wind.

Coal (and gas) aren’t cycling to follow the output of wind; they are cycling to follow load!

The variance in coal (or gas) output over the course of the day far exceeds that of wind, which wouldn’t be the case if coal was only cycling to back up the variability of wind power. The coal and gas output cycle corresponds to large swings in demand. In the summer, that comes from the air conditioning load to keep homes, office buildings, and industrial facilities cool. In the future, that demand could very easily be met with solar.

In MISO today, coal is no longer a baseload resource and it is this economic reality that is driving many changes in coal plant operations. Demand drives prices, and when coal plants do end up cycling, it is out of response to those price signals. In the future, flexible demand will also be able to respond to price and will work in concert with renewables and storage to meet our reliability needs.

Improper framing, we want to minimize system costs, not individual costs

The data show that at least for grids with wind adoption at the levels MISO is presently seeing, wind integration really isn’t a problem for coal-plant operators. But both wind and solar adoption are on the rise. Nearly 90% of new capacity in MISO is going to be from wind, solar, or storage. It isn’t impossible to imagine a future where wind integration might create challenges someday.

Yet some already assert that integrating renewables has become an “inefficiency.” Such an assertion only appears valid if you look at this issue from the glasses of the plant manager. Not even the lenses of the utility or system operator would produce such a myopic vision.

What the grid operators are supposed to optimize around is the lowest system costs, not the lowest unit costs. And sometimes unit cost minimization doesn’t result in system cost minimization.

There is a fundamental problem with framing wind integration as a “cost” or “inefficiency.” When the owner of a unit won’t shut it down (out of a desire to avoid shut down costs) the system is deprived of lower cost, more efficient resources. What UCS, Sierra Club, and many others have shown: turning down or off coal-fired power plants actually lower costs and increasing efficiency.

For example, an NREL study found that increased wind adoption in the west might increases costs at some individual power plants but that for every $1 in ‘integration costs’ there would be $45-$200 of system benefits.

Arguably the introduction of new resources has allowed coal plant operators to go long periods of time without relying on coal. See this glorious visual from a guest blog by one of our Stanford fellows last summer.

Credit: Emma Spellman, Union of Concerned Scientists

In many parts of the country, coal-plants are really only economic for a few months of the year, and the continued addition of wind, solar, storage, and flexible demand will allow utilities to avoid the costly shutdowns by operating coal plants seasonally.

Need for market rules that are fuel neutral

At the end of the day, we do need an electric grid that is flexible. Demand for electricity is not constant and so we need a grid that is nimble enough to meet those needs. Competitive markets, that often dictate the economics of our grid, might very well need market products for flexibility, but those market rules should be available on an equal basis to all resources and not set up the way capacity markets were set up that resulted in fairly substantial biases.

If a competitive market was developed for a flexibility product, and it was done agnostically, coal isn’t going to be able to offer that service at a lower cost than other resources. Wind, solar, storage, flexible demand, and gas will all beat out coal.

A manufactured problem

Trying to solve a problem before it gets out of hand is admirable but manufacturing a problem out of fear of the unknown, not so much. Simply put: the current rhetoric of renewables scapegoating is unjustified. We’ve been ramping up on renewables for some time now and every year we seem to learn new ways to cost-effectively integrate higher levels of wind and solar. Deployment of clean energy technologies has led to innovation which has led to more deployment and then more innovation. I’m skeptical that the virtuous cycle is suddenly going to stop.

• Those that argue baseload resources like coal and nuclear are needed to reliably provide a constant amount of electricity year-round and so have to be preserved through additional incentives.
• Those that push back on the very notion of the need for baseload resources, noting the way we think about providing electricity should recognize the favorable economics and improved performance of technologies like wind, solar, and batteries.

This blog attempts to illustrate that:

The very notion that “coal is a baseload resource” is wrong. Plus, it turns out that not running a coal plant as a baseload resource can save customers 10’s of millions of dollars. 

History of baseload

Historically, electric demand has been thought of as being either baseload, shoulder load, or peak load.

Baseload demand is the minimum level of demand that the system in aggregate never (or rarely) falls below. Peak load is intuitively the load associated with the peak in demand, the highest levels of demand that are only seen during the highest demand hours of the day (daily peak demand) or highest days of the year (annual peak demand). Shoulder load is the demand that falls in-between the peak and base.

Illustrative graphics of peak, mid merit, and baseload resources, shown here in a chronological load shape and as a load duration curve.

For the first 100 years (or so) of the utility industry, baseload resources were built and operated to serve baseload demand, that is, they were built to turn on and stay on, running all out all year round and meet the portion of demand that appears constant in aggregate. Baseload units were built with the expectation of having a high capacity factor and have historically had high capital costs but low operating costs.

It is worth noting that wind and solar have high capital costs but low (nearly zero) operating costs.

Shoulder units were used to serve shoulder load (also known as “mid-merit” because they fall in the middle section of a merit order supply curve. Shoulder units or mid-merit units have typically been built on the expectation of moderate capacity factors.

Finally “peaking units” or “peakers” are typically built to serve peak load. Peakers tend to have low capital costs but higher operating costs compared to the mid-merit and baseload resources.

Baseload economics

Traditional thinking was that market prices follow load, thus baseload, mid-merit, and peakers all have a corresponding economic meaning. The idea was baseload units are economic to run in all (or nearly all) hours of the year. While peaker units only make economic sense to serve the peak loads.

Supply curve with load duration curve superimposed

In the above illustrative graph, the system load (represented by the load duration curve) never drops below 20,000 MW and so we can think of the first tranche 20 GW worth of resources as the resources that are truly baseload when lined up in merit order. Next, you have a tranche of shoulder resources that fall in the middle of the merit order, i.e. are “mid-merit” resources. Finally, you have the most expensive resources, presumably only needed when demand is at its peak.

When wholesale markets were first formed, it made economic sense to continue running coal plants as baseload resources because the market clearing prices were, generally, above coal power plant’s production costs, absent a carbon price like those established by RGGI or CA AB32.

Those units were early in the merit order line and fell far to the left of the supply curve. So, if it runs at maximum, all year round, its owner might actually make money. That dynamic has changed.

One measure of how it has changed is the dark spread. The dark spread is the measured difference between coal production costs (which is dominated by coal fuel prices) and market-clearing prices. The difference between gas production costs (which is dominated by gas fuel prices) and market prices is known as the “spark spread.” A positive dark spread (or spark spread) is indicative that a power plant with the corresponding fuel source is generating net revenues in the wholesale energy market such that it is could be covering its fixed costs and maybe even earning a profit. Maybe.

Changing market conditions have reduced dark spreads and, in some markets, the dark spread is negative for sustained periods of time. EIA assembled this data for PJM and found that while spark spreads have been narrowly positive, dark spreads have been negative for many days, weeks.

Spark and Dark Spreads in PJM show that coal’s economic viability has been slipping for some time. Data from EIA

A number of factors have contributed to declining and flat market prices. Increasing gas capacity coupled with relatively low gas prices have driven this changing market dynamic along with flat demand (thanks to energy efficiency) and increasing adoption of zero marginal cost resources like wind and solar. These factors in aggregate have turned power plants that were formerly economic as baseload to units that may only be economic at limited times, as illustrated in the below figure.

In this illustrative example, a power plant with $26/MWh production costs that stays on all year it will lose money in the spring and fall. Maybe it can make up for those losses in the summer, but would it would be better off if its owners turned it off. Source UCS

The idea here is to re-examine the past assumption of baseload plants operating at full output all year if they are not always profitable. The profitability of operations can and should be assessed in useful and meaningful periods.  A regulatory review need not accept operations that lose money part of the year. Because power plants can ramp up and ramp down, it is possible for a power plant owner to operate a power plant such that it makes money over the course of the year, despite running at a loss for long periods of time. For example, a power plant might be making money in the summer month and operate at full output. During the months when the market price drops below a unit’s production costs it isn’t uncommon to see that the unit’s owner operates the unit at the economic or physical minimum output. This helps minimize losses, but not fully avoid market losses.

Cycling and Seasonal Operations

It is worth noting that some power plants have reacted to the changing market dynamics. There are two emerging trends in coal plant operations: cycling and seasonal operations

Cycling

Cycling is a technical term to describe power plant operations that includes ramping the output of the power plant up and down over the course of the day (or week) to respond to changing market prices. Though cycling a coal plant does increase maintenance costs, it has been part of the strategy the fleet of coal plants in the Midwest have taken up.

Based on data assembled by the Energy Information Agency (EIA), coal-fired power plants in the Southwest Power Pool (the RTO directly west of MISO that spans from North Dakota down to Oklahoma and spills into small sections of New Mexico, Texas, and Louisiana) cycle on a daily basis. This claim is clearly supported by the data which shows the hourly variation in output of coal plants over the course of the day.

Data shows that coal cycles over the course of the year and over the course of the day.

Cycling alone is not proof positive that a power plant is operating economically. Coal plants could be cycling, but depending on market prices it is possible that no amount of cycling will help a coal plant become economic. However, many owners of coal plants that don’t cycle suggest that it is operationally impossible to cycle coal plants because they are “baseload” resources. But the existence of coal plant cycling is evidence that coal plants can cycle. The question we should be asking is, what about your coal plant is “special” such that it can’t cycle?

Seasonal operations

There is a second trend amongst coal plant operators in response to changed market conditions. These plant owners save customers money by switching to seasonal operation and operating less.

This strategy has been adopted by the owners of coal plants in multiple states. The Martin Lake and Monticello coal plants in Texas, owned by Luminant went to seasonal operations in 2015. The Gibbons Creek coal plant, also in Texas, owned by the Texas Municipal Power Agency and member utilities, followed suit in 2017. Cleco and SWEPCO joined in on the trend in 2018 when the companies announced that their Dolet Hills facility, in Louisiana, would switch to seasonal operation. Xcel Energy has also begun exploring options to go on a “coal holiday” during the months where it no longer makes economic sense to run their coal plants.

When the owners of the Dolet Hill coal-fired plant made the switch to seasonal operations, they opted to only operate four months of the year between June and September when demand (and electricity prices) are highest. The utilities’ own estimations indicate this will save customers $85 million by the end of 2020. When Xcel made the switch for their plants, they announced that the move would save customers upwards of $30 million a year and about 5 million metric tons annually.

The issue will only get pronounced in the future

It seems like hardly a month goes by without a report coming out that shows utilities can build wind or solar at prices below the operating costs of the coal fleet. So, even if this issue doesn’t apply to a coal plant today, it is likely to apply to it in the near future. Utilities need to be constantly evaluating this issue in processes like plant scheduling, utility resource plans and requests for fuel cost recovery. Some utilities do a very bad job at this, and just assume their coal plants will run all out, all year round, out into the future indefinitely. But that type of thinking has to stop.

For many years I’ve been obsessed with detecting and surfacing the many forms of market failures that exist in the power sector. So, when I hear other economists, journalists, or other leaders in the energy space suggesting that these types of market failures don’t exist, it touches a nerve. The fact is economics are necessary but not sufficient to produce real-life results.

UCS and other advocates participate in complex, technical, and often arcane energy decision-making structures because economics are simply not enough to bring forth the low cost, climate-resilient, decarbonized power sector the US needs. We intervene on utility dockets that decide how the grid is shaped and used; we raise awareness of the costs and opportunities of power generation sources among decisionmakers and the public; and we connect the dots between government regulators, policymakers, and corporations (utilities) through analysis and advocacy. All of these efforts have successfully advanced power sector decarbonization.

Here are three examples where advocacy has played an essential role in ensuring the power sector makes the right economic choice.

“Externalities”

Advocates have made an undeniable contribution to markets through their work to pass and ensure enforcement of environmental regulations that internalize externalities such as safety, health, and reliability.

Approximately two-thirds of US coal plants are in “rate base,” which means that so long as the power plant operates, the owners get to recover the costs to operate the plant—and a profit—via electricity bills. This creates a powerful incentive for the owners to keep power plants open even if they are not economic. Unless they need to make a major investment in the power plant, there is little reason from a profit standpoint for a utility to retire a power plant.

This economic incentive naturally counters whatever market forces would encourage a decarbonized power sector. Even if our economic assessments today say it would be more economical for an asset to retire, many “uneconomic” coal plants would have kept chugging along had it not been for environmental policies that forced the owners to make “retrofit or retire” decisions.

And where did those environmental policies originate? Advocates.

There are countless examples of state and federal policies that were only passed because of advocates pushing for science-based standards that would protect human health.

Advocates often must sue states and federal agencies to get information on energy data, or for them to properly enforce science-based protections. These regulations were an attempt to rectify one of the most pervasive market failures: externalities.

“Perfect information”

Many good analyses that draw the specious conclusion that it is economics alone that retired coal plants point to gas prices.

It is true that gas prices are impactful, particularly when regulators and utilities choose how existing energy resources are operated, but only up to a point. Owners of rate-regulated coal plants will often ignore those market price signals and elect to operate their coal plants, seemingly at a loss, because they are able to get bailed out by their unwitting customers. A lack of transparency, information asymmetry, and institutional inertia are the main market failures here.

This market failure instance happens to also be a good example of how advocates are helping ensure that the utility industry is feeling the full force of the markets, and are not continuing with “business as usual.”

In another example, just two years after I wrote the first report documenting the issue, the market monitor released its own analysis of the problem. A little over a year ago, there was little interest from regulators, and now they are seeking more information on the phenomenon of self-committing and how they can address it.

The market monitors and insider experts all knew about the problem for years, but it wasn’t until advocates shined a light on the problem that anyone even thought to start thinking about addressing it.

These issues of information asymmetry and lack of transparency can also directly affect the market itself. When New England governance of ISO-NE (NEPOOL) sought to ban stakeholders from meetings, UCS was an advocate for openness and was very quick to file comments in support of more rights for members of the press to be in attendance as power grid decisions are cast.

“Competition”

Utility power plants that are in rate-base (like DTE in Michigan and Xcel Energy in Minnesota) tend to be owned by “monopoly” utility companies but also include electric co-ops and municipal utilities. For this segment of the market, there is little to no built-in competitive force that would drive market economics (let alone drive decarbonization). In fact, that is why there are regulars and litigated proceedings with intervenors, as a substitute for market forces and competition.

Low gas prices did make it profitable to build gas plants, but most gas price projections used by regulated utilities 10 years ago, even 5 years ago, weren’t projecting sustained low gas prices. It was experts hired by intervenors (typically consumer advocates and environmental advocates) that had to come in and argue with the utilities about the reasonableness of not retiring those coal plants. For most coal plants, the original game plan by the owners included keeping them open for decades to come, but it was advocates that helped make sure the realities of economics were coming to fruition in the wonky annuls of utility regulatory proceedings.

Today, many monopoly utilities are rushing to build gas plants to the point of overreliance even though clean energy is the more affordable option. That is why UCS deploys its experts to testify in utility proceedings to help ensure that the market realities come to fruition and why we are working to ensure that grid operators update their planning processes and market rules to give clean energy technologies a fair shake.

Advocacy on its own would not have had as much success in course-correcting market failures had there not been economics shifting in favor of clean energy. Unlike the utility-hired experts, the intervenor work UCS provides is always held to an incredibly high technical standard and has to go up high priced consultants that the utilities hire. Thankfully, advocacy groups like UCS are able to go toe-to-toe with these multi-billion-dollar corporations, countering flawed utility analysis with robust objective analysis.

Denying the role of advocacy could be dangerous

The truth is, “There is No Free Market for Electricity.” The electric sector, as it is today and was in the past, is full of market failures, with jargon terms like monopoly power, sunk cost fallacies, perfect foresight, barriers to exit/entry, information asymmetry, and more.

In order to facilitate more efficient markets, UCS is continuing to work on analyses about other barriers that are preventing a “market-driven” transition to clean energy. Barriers include self-committing coal, affiliate transactions, and imprudent investments.

And, as a practicing economist, I understand the desire to have a simple economic explanation to how we’ve gotten to where we are. If we can explain the past, it will help improve our ability to shape the future. But if we misunderstand the past, we will fail at any endeavor to shape the future.

Economics and market forces will play an unquestionably important role in the energy transition. However, it is undeniable the role of advocacy organizations in identifying barriers to the clean energy transition and helping the market-driven change that will ensure the power sector is decarbonized.