Indiana Utility Regulators Deny New Natural Gas Facility To Replace Coal: The Reason Why May Surprise You

This is a great testament to the importance of reading past a headline.

Upon first glance at this article from The Associated Press, “Indiana regulators reject Vectren plan for gas power plant,” I cringed.

Vectren South, a small utility company in Indiana, sought a new 850 megawatt (MW), $781 million gas plant in preparation for environmental policies that, the utility says, will eventually force the closure of its coal plants.

“Here we go again,” I thought. “Another utility board that thinks intermittent renewable energy is capable of replacing coal generation.”

However, after further reading of the article and the document in which the new plant was denied, what became clear was that renewable energy and reducing CO2 emissions was not the main concern of the Indiana regulators – who operate in a state with only a voluntary, incentive-based renewable energy mandate – but rather if the project was necessary at all and if it served as a cost-benefit to consumers.

No Gas Means More Coal, And More CO2

Replacing Vectren’s coal fleet with natural gas generation would have certainly led to decreases in CO2 emissions – a point which the utility company argued – and denying the utility’s “transition” away from coal fired-electricity should be seen as a blow to environmentalists seeking CO2 reductions.

This is especially true when given the full context of why this project was denied.

The Indiana Utility Regulatory Commission, along with the Indiana Office of Utility Consumer Counselor, questioned Vectren South’s justification to build a natural gas plant and the model it used to determine the cost, as well as the utility’s reasoning behind wanting to retire its coal facilities in the first place, stating that only considering CO2 emission reductions “was too narrow an approach to environmental risk and one that biased the analysis in favor of gas-fired generation.”

They asked whether Vectren South was jumping the gun on replacing their coal fleet without first considering refurbishing their coal facilities or refueling them with gas, addressing recent and possible future changes to environmental policies, and possible cost decreases in different energy sources that would make a natural gas facility uneconomical in the long run.

As the Commission reiterated in their response:

Ms. Aguilar summarized the following alternatives that Vectren South failed to fully analyze: (1) Retain Coal at Vectren South’s existing plants and invest in refurbishments; (2) Retain the agreement with Alcoa for Warrick Unit 4; (3) Refuel the A.B. Brown unit(s) with gas; (4) A blended option, such as refueling one or more A.B. Brown units to gas and building a smaller CCGT; (5) Enter into a PPA with one of the bidders who responded to Vectren South’s RFP; and (6) Retain its Broadway Avenue Unit 2… Ms. Aguilar argued that Vectren South unfairly screened out these alternatives during the IRP process.

While the commission didn’t leave out the possibility of renewables becoming a less-expensive energy source in the future (which is highly questionable, if not already proven false, after accounting for the many hidden costs of renewable energy) and ordered the utility to better assess renewable options in the future, it’s clear that the Commission’s main intent behind denying this project was not out of some hysterical push to side-step fossil fuels in favor of renewable generation in the state of Indiana (a battle we have seen here in Minnesota).

Rather, it was out of concern for the cost that would have been attributed to Indiana electricity consumers – even if that meant the continuation of every single coal facility owned by Vectren South (totaling 1,000 megawatts and including Cully Unit 2, which “has the worst heat rate of any coal unit in the state”).

As long as it was more affordable in the long run, that’s what seems to have taken precedence.

This Doesn’t Solve Vectren’s Perceived Problems

To be fair to Vectren, the utility does have reasonable concerns about the continuation of coal-fired power facilities, concerns that are well-justified in the age of intermittent renewable energy forcing baseload power plants to increasingly ramp up and down production to meet renewable generation – a process that adds increased wear and tear to power facilities, especially coal.

As Wayne D. Games, Vice President of Power Supply at Vectren South, stated on behalf of the utility:

Mr. Games further testified that growth of renewable energy sources and low natural gas prices have negatively affected MISO’s dispatch of Vectren South’s coal-fired units. Instead of running continuously, Vectren South’s units are now cycled up and down throughout the day, or are shut down altogether, decreasing unit efficiency and increasing wear and tear on the units. Mr. Games testified that because the units were not designed to cycle in this manner, the units cannot effectively compete with gas units in particular, which have far better operating flexibility. Continued market reforms are exacerbating this issue and jeopardizing unit availability and reliability.

They also cited concerns about environmental policies that could force Vectren to retire all of its coal facilities by as early as 2024, a claim that consumer boards, coal companies, and the Commission itself questions.

The Final Ruling From Indiana Utility Regulators

The Commission responded to Vectren’s request for a new gas facility as such:

The pre-approval of long-lived power plant investment and the concurrent regulatory assurance of that investment’s recovery is, at its base, the creation of fixed costs that customers will be required to pay several years into the future, perhaps as long as 30 years or more into the future. Accordingly, our consideration in this and other pre-approval requests, especially in periods of seemingly quickening technological change, must not ignore the risk that any such investment may become uneconomic over the long-term. We must acknowledge that the economic forces at work may come from other supply side options or even demand side opportunities… Outcomes that reasonably minimize such potential risk and serve to foster utility and customer flexibility in an environment of rapid technological innovation on both the utility and customer side of the meter are, therefore, a lens through which we will review Vectren South’s request.

The Commission acknowledges Vectren South’s issuance of an RFP [Request for Purchase] but believes the RFP was unduly restrictive given the rapid changes in technology and costs being seen in the market, especially regarding renewable energy. The narrow RFP with its focus on a large baseload dispatchable resource limited the options Vectren South evaluated to those larger than 600 MW. As a result, Vectren South foreclosed consideration of combinations of smaller resources that might have offered greater resource diversity, flexibility and cost efficiencies than reliance on the acquisition of a single large natural-gas facility.

Based on Vectren South’s unduly restrictive RFP the Commission cannot conclude that Vectren South thoroughly evaluated the purchase of power in connection with Vectren South’s request.

In other words, the Commission simply wasn’t satisfied that Vectren South evaluated all possible options in order to limit the cost to consumers – whether that meant refurbishing and continuing the operation of their coal facilities, or the combination of a smaller gas facility and renewable energy sources.

It was concerned with cost, not politics.

Something To Learn

Members of the Minnesota Public Utilities Commission (PUC) – who are currently being asked by Xcel Energy to approve the closure of coal-fired power plants Sherco and Allen S. King in favor of building more than 7,300 MWs of combined wind, solar, and peaker sources – could learn something from the way these regulators went about this process.

Before any one person’s motivations to see renewable energy increase in production, due to a misplaced belief that it will reduce CO2 emissions globally, the potential cost to consumers should be the most important factor whenever the PUC considers retiring affordable coal facilities and approving new resource additions – both of which will increase the cost of electricity for Minnesota families.

I encourage everyone to take a look through the 38-page document and see how utility planning should be done.