Taxpayers take hit as utilities run coal plants year-round

The way Westar Energy runs its coal plants in Kansas unnecessarily costs consumers millions of dollars a year through an obscure, if common, practice known as self-committing generation.

The company essentially runs its coal plants year-round, even during the winter months when it’s not cost-effective. An analysis by the Union of Concerned Scientists, which advocates for reduced reliance on coal, says that’s been costing Westar customers $20 million a year in added fuel costs.

But market operators including the Southwest Power Pool (SPP) — Westar buys and sells wholesale electricity through the organization — worry that the practice hurts the market.

Regulators in Missouri, where Westar’s parent company Evergy is headquartered, have opened up an investigation to see if it’s unfairly costing consumers.

The daily auction

The Southwest Power Pool coordinates electricity generation in Kansas and 13 other states, mostly in the Central Plains. It helps make sure there’s enough electricity to meet the needs of users across the service region at the best price.

The SPP forecasts daily demand. Power generators bid to sell into that market based on how much they project it will cost to operate that day.

The SPP dispatches power plants from the least expensive source on up, until the day’s needs are met. The most expensive unit that gets selected in the auction essentially becomes the market price.

The market price is the price a generator gets paid for providing electricity as well as the price a utility would pay to buy it.

That market system is supposed to ensure that the price of electricity remains as low as possible.

But there’s a catch.

The wrench in the works

The market allows power plants to self-commit — or send electricity to the power grid regardless of the price. Self-committing is common for regulated utilities across the country.

But it can prevent cheaper resources, often wind and natural gas, from turning on.

“They’re skipping in line,” said Joseph Daniel, senior energy analyst at the Union of Concerned Scientists, who’s been studying self-committing generation for years.

Daniel argues that the practice artificially drives the market price down, essentially robbing more cost-effective generators of revenue.

SPP officials tend to agree. In their 2018 annual state of the market report released in May, the SPP identified self-committing resources as a serious problem because it distorts market signals and prevents the market from running as efficiently as possible.

While the amount of power that is self-committed in the entire SPP service region is decreasing, it still made up about 30% of day-ahead bids in 2018.

“We could make it more efficient by reducing the number of self-commits and making it a purely economic solution,” said Bruce Rew, SPP’s vice president of operations.