Photo by iStockphoto.com/markmortensen
PacifiCorp is one of the largest utilities in the West, serving parts of California, Oregon, Washington, Wyoming, Idaho, and Utah. It operates more coal-burning power plants than any other utility in the area, meaning that the electricity it produces comes with a large carbon price tag. PacifiCorp has long justified operating these plants by touting coal’s purported affordability. Yet when forced to finally analyze the economics of its coal plants in recent years, PacifiCorp sought to hide the rising cost of coal and its impact on customers. As it turns out, PacifiCorp’s coal plants are not only terrible for the climate but also quite expensive. Meanwhile, PacifiCorp has resisted efforts to build clean energy, even as clean energy costs have dropped significantly.
The good news is that all of this is starting to change—after years of pressure from advocates and unrelenting economics making clean energy irresistible on a cost-for-cost basis, PacifiCorp is increasing renewable energy in a big way and proposing to retire some, but not enough, of its coal plants. With a large number of coal units still on the books, the utility is unnecessarily inflating customer bills at a time when many families are struggling because of the economic crisis.
In February of this year, PacifiCorp filed its 2021 transition adjustment mechanism (TAM) application before the Oregon Public Utilities Commission. In the TAM, the utility seeks approval to charge customers for “net power costs” —i.e., fuel, wholesale purchase power, and wheeling expenses, minus wholesale sales revenue.
Even in the obscure world of utility regulation, TAM proceedings typically receive little notice. Nevertheless, they have big impacts on customers’ monthly bills, as fuel costs—particularly for coal—tend to make up a large percentage of a residential customer’s monthly bill. For instance, in PacifiCorp’s 2021 TAM, fuel costs account for roughly 20 to 25 percent of residential energy rates. In total, the company seeks $931 million for company-wide fuel expenses—66 percent of which would go toward paying for coal to supply PacifiCorp’s nine coal-burning power plants. (PacifiCorp seeks to recover approximately 25 percent of these costs from Oregon ratepayers.)
Here’s how this is working today: PacifiCorp calculates its anticipated cost to produce electricity (aka “total net power costs”)—including coal expenses—through a modeling tool known as “GRID.” GRID simulates the company’s power system on an hourly basis in order to provide an estimate of the energy generation from each of PacifiCorp’s generating units, plus any purchased power that’s needed to serve the company’s load. Utilized properly, GRID should show the optimal mix of generation to minimize costs to ratepayers while maintaining reliability. The accuracy of the GRID modeling is crucial, as improper inputs or constraints on the modeling can result in unnecessarily high fuel expenses, which are then passed on to PacifiCorp’s customers through their monthly bills.
Unfortunately, a review of PacifiCorp’s modeling practices indicates bad news for the utility’s customers: Instead of allowing GRID to independently determine the least-cost mix of energy generation available, PacifiCorp manipulates the modeling by imposing numerous constraints designed to ensure that its coal plants continue to operate, even when cheaper and cleaner energy is available. For example, PacifiCorp imposes a “minimum burn” constraint in the GRID model, which requires that certain coal units burn at least a minimum quantity of coal. This forces the model to pick running coal units to burn through set quantities of coal, regardless of whether or not it is economical to do so. To make matters worse, PacifiCorp also imposes a “must run” constraint in GRID, which dictates that coal units operate throughout the year independent of their cost. Without this constraint, GRID would incorporate “economic cycling” into its generation forecast, i.e., only operate coal plants when it is economical to do so.
All of this background is really important to understanding the major issue at play here: PacifiCorp imposes these constraints because the company has locked itself into coal contracts with high “minimum-take” requirements. In other words, PacifiCorp has contractually committed itself to either purchase large quantities of coal from various mines or pay high-dollar damages to avoid purchasing the coal. These contracts give PacifiCorp a huge incentive to run its dirty coal plants, regardless of economic or environmental costs. For years, utilities like PacifiCorp have argued that they’re just looking out for their customers by running “cheap” coal. But it turns out that PacifiCorp’s coal fleet is not only harming our health and climate but also leading to higher electric bills. What’s worse, many of these contracts were entered into long after PacifiCorp was aware that coal had become increasingly uneconomical in light of more stringent environmental standards and the plummeting cost of renewable energy. Nevertheless, PacifiCorp rolled the dice, betting that these contracts would make economic sense for years to come.
Now that it’s clear that PacifiCorp made a bad bet, the utility is attempting to manipulate the data to hide the fact that its customers, from Washington to Utah, are paying more for electricity produced from dirty energy sources than they should. In fact, on a simple dollar-per-megawatt- hour basis, the coal burn expenses at PacifiCorp’s Jim Bridger, Naughton, and Hayden coal plants are significantly higher than the costs of alternatives, including renewable energy sources. According to an expert retained by the Sierra Club for the Oregon 2021 TAM proceeding, PacifiCorp could drive down costs by replacing a substantial amount of these plants’ generation with Wyoming wind and market purchases, not to mention the environmental benefits that would accrue if these coal plants were taken offline.
To summarize: At a time when it was clear that transition to clean energy was going to not only clean up our air and protect the climate but also lower costs for customers, PacifiCorp locked in long-term contracts that bound it to burn coal for a long time to come. That decision is now driving up electric bills and stalling the transition to clean energy. The Sierra Club is a party to the 2021 TAM case to make sure that PacifiCorp’s customers aren’t the ones left footing the bill for PacifiCorp’s foolish investment in coal. The Oregon Public Utilities Commission should reject PacifiCorp’s request to recover coal expenses when it would be cheaper for the utility to rely on other energy sources, including wind and solar.