Right now, Minnesota Power and Otter Tail Power have the opportunity to reduce air and climate pollution and cut down on customers’ electric bills, all by running their coal-fired power units less. Read on to learn what they need to do and how you can help.
Studies find billions lost needlessly
Last year, the Minnesota Public Utilities Commission (PUC) required all investor-owned electricity providers in Minnesota (Xcel, Minnesota Power, and Otter Tail Power) to investigate whether changing the way they operate their coal plants could save customers money and cut down pollution. This was in response to analysis done by Union of Concerned Scientists, Fresh Energy, Sierra Club, and others showing that many utilities are running their coal plants all the time, even when electricity prices are too low to recover the costs of operating them. These studies found that the utilities across the country have lost billions of dollars from this practice, and are passing on these losses to customers.
Even before the coronavirus pandemic, nearly one-third of households in the US were struggling to pay their electric bills. Black Americans were particularly hard-hit, with many paying more for energy than white households. We also know that people of color and low-income communities are experiencing disproportionate financial impacts and higher rates of illness and death from the coronavirus pandemic. Coal plants fuel the climate crisis and emit air pollution known to exacerbate COVID-19. Our utilities have the responsibility to take action to reduce this economic and pollution burden for their customers.
Why would they run coal plants at times when they lose money?
Coal-fired power plants are a large, clunky, and outdated way of generating electricity, and it takes hours or even days—and lots of money—to turn them on and to turn them off again. In Minnesota, the electricity they generate is sold into our regional energy grid through the grid operator MISO. While each electricity provider generates its own electricity for customers, they also buy and sell all of their energy into a regional grid to allow more flexibility and reliability and to lower cost.
In theory, the market is set up so that electricity generators will respond to market price signals, with the lowest cost generators operating all the time and the highest price generators only operating at times when prices are high (such as on hot summer days or the coldest winter days). But in reality, it doesn’t always work that way. Coal plants in particular have a hard time responding to market signals, because they take so long to turn on and off.
For coal plants, utilities often rely on a practice called “self-commitment” or “self-scheduling,” meaning they run the plants all the time and take whatever price the market offers, even if the price is lower than the cost to generate power. In a fully competitive market, the utilities would be incentivized to take steps to avoid operating at a loss, since shareholders would then lose money. But regulated monopoly utilities like Minnesota Power and Otter Tail Power are currently able to pass their costs on to their captive customers. They are therefore protected from the consequences of failing to operate the coal plants in a manner that would minimize costs.
There is an alternative to self-committing coal plants
Analysis has found that utilities can save money by running their coal plants only when it makes economic sense to do so. Utilities can use forward-looking analyses to determine when market prices will be high enough to justify turning on the coal plant, taking into account the amount of time it takes to turn the plant on and off.
There are a couple ways to do that. A utility can economically dispatch its coal plant—meaning the market chooses when it runs based on electricity prices. Or it can seasonally dispatch its plant—meaning the utility may stop running a plant altogether for a whole season if they know the plant will not run or barely run.
Unfortunately, many utilities are not taking these common-sense steps to minimize costs to customers. They are taking advantage of captive customers and running coal units when they are not needed, even if there are lower cost (and often cleaner) electricity generation options available. This is bad for the environment and our climate, as it means utilities are burning fossil fuels that they don’t really need to be burning.
And it’s bad for customers, as the utilities are paying increased costs for keeping coal plants running when lower cost options are available, and those costs are passed back to ratepayers in the form of higher electric bills. To make matters worse, there is yet another impact from customers subsidizing coal generation: this puts potential market competitors at a disadvantage. Most new competitors are wind and solar companies, so not only are utilities running coal plants too much, but the practice is also preventing cleaner sources of generation from being able to compete.
Back to Minnesota
Xcel Energy recently found it could save customers tens of millions of dollars by only running its coal plants when it makes economic sense to do so, rather than running them all the time and passing on losses to customers. This would also lead to a decrease in climate-change-causing carbon dioxide pollution, to the tune of 5 million fewer tons emitted per year. Xcel has committed to doing this at its Sherco 2 and King plants until they retire in 2023 and 2028. The MN Public Utilities Commission (PUC) approved Xcel’s plan this summer.
As a result of the MN PUC request, Otter Tail Power recently followed Xcel’s lead and changed its Big Stone coal plant in South Dakota operation to economic dispatch during the Spring and Fall seasons. Otter Tail has not made changes to the way it operates its Coyote plant in North Dakota.
Unfortunately, Minnesota Power ignored the Commission deadline and said they would look at this issue in the future.
Sierra Club analyzed Minnesota Power’s operation of its Boswell 3&4 coal plant and found that Boswell is losing money over half the time it operates. Running Boswell all the time, rather than only when it makes economic sense to do so, has resulted in increased costs and pollution over the past few years. We found that by changing the way the plant is running—just like Xcel and Otter Tail (in part) are doing—Minnesota Power would save customers money and cut pollution.
We also found that Otter Tail Power could benefit its customers and the environment by changing the way their Coyote plant is running.
Sierra Club submitted comments to the MN PUC asking the Commission to hold Minnesota Power accountable for its failure to do the analysis required by the Commission and to find that the Commission will not allow Minnesota Power or Otter Tail Power to recover costs from customers that result from its poor operating decisions.
What can you do?
The public has an opportunity to submit comments, as well. You can click here to submit a comment on Minnesota Power’s filing or submit your own comment to the MN PUC referencing docket 19-704. Comments are due by July 23rd.
We are also calling on Minnesota Power and Otter Tail Power to make plans now to retire these coal plants by 2030 and to develop strong community and worker transition plans with communities. Increasingly, coal plants can’t compete economically with clean energy, as we’ve seen this year with Great River Energy retiring its Coal Creek coal plant in North Dakota and replacing it with clean energy. And we need to move to 100% clean electricity, not continue burning fossil fuels like coal and gas, to address the climate crisis.
In the midst of exacerbated health and economic inequities, we need our power companies to operate economically. Changing the way they operate coal plants so that the plant responds to market signals, rather than burning coal all the time even when it doesn’t make economic sense, is a no brainer for customers, the climate, and our health.