Dive Brief:
- A Sierra Club report released last week alleges utilities in the Southwest Power Pool are running more expensive coal-fired plants, even when cheaper wind power is available on the wholesale market, and then making up the expense in state rate proceedings.
- The report finds that in 2015 and 2016, running 14 of the more expensive plants amounted to $300 million in higher electric costs paid by customers.
- RTO Insider reports the grid operator has strongly pushed back on those conclusions, arguing they fail to take into account differences in wholesale and retail prices, and long-term supply contracts.
Dive Insight:
Southwest Power Pool officials dispute Sierra Club's conclusions, but its market monitor has said that "self-committing" — whereby generators operate units regardless of whether or not the electric revenues from the SPP market cover the marginal costs — is a potential issue in the marketplace.
According to the conservation group's report, drafted by Sierra Club electric analyst Joe Daniel, some utilities are taking advantage of complex ratemaking proceedings to pass on unnecessary costs to customers.
"Utilities are able to get away with this because utilities can take advantage of the complex nature of rate design, rate cases, and market rules," the report found. "This complexity and lack of transparency creates a system where customers buffer and fill in the gap of a [utility's] market losses."
The practice not only forces captive utility customers to pay higher prices, according to the Sierra Club, it also "harms proper SPP market operations" by displacing lower-cost units and artificially suppressing market revenues.
Overall, however, coal use has been declining in the SPP as wind has grown.
A summer report on power prices in the marketplace found they were flat year-over-year. Low gas prices and increased wind generation have helped grow SPP's market. Installed wind generation on the Southwest grid grew by 30% last year, rising from 12 GW to more than 16 GW.
