Enviro groups say Consumers Energy coal units should be dispatched less

Consumers Energy is putting a “must run” label on its coal plants due to concerns about dispatch restrictions for those baseload units, meaning it can’t fully take advantage of off-system purchases of cheap natural gas-fired generation, said Patricia Richards, a Senior Consultant for La Capra Associates working on behalf of the Michigan Environmental Council and the Natural Resources Defense Council.

Testimony from Richards was filed Aug. 17 at the Michigan Public Service Commission in a long-running Power Supply Cost Recovery Plan case for Consumers Energy (CEC), a unit of CMS  Energy (NYSE: CMS).

“Alternative sources that could have lower costs, include the cost of buying from MISO which has a surplus of power, and running other resources in the CEC mix, may be disregarded due to CEC’s must run strategy of the coal plants,” Richards argued. “This method of bidding and must run designation results in sub optimal dispatch of resources and prevents cheaper opportunity purchases from the spot market and from other sources of power. In essence, CEC may be able to purchase cheaper power at the spot market rather than to force its coal plants to run which it does by simulating a lower cost of producing power from the coal plants. Meanwhile all out of merit economics of the plants are fully borne by ratepayers. “

With cheap natural gas prices CEC should be exploring any opportunities it has to cycle the coal plants by lowering minimum run times, exploring boiler operation changes that allow plants to be more flexible in dispatch, look for cycling that allows the plants to run at levels less than full load but that essentially keep the plants running at minimum levels (such as running at minimum levels on off peak periods and weekends and ramping back up during on-peak periods), Richards said.

The Midwest ISO dispatch algorithm looks at not only the price offered by each resource but it also at a variety of physical and operating characteristics of a given plant, Richards wrote. MISO uses a multitude of generation resource offer components to assess the need of a power plant. As long as CEC is properly offering its coal plants into the MISO system, effective dispatch for both CEC and MISO can be achieved, Richards added. CEC appears to dismiss MISO’s ability to effectively dispatch the company’s coal plants, Richards added. And yet RTOs across the U.S. dispatch coal-fired power plants on a routine basis.

“In fact, many RTOs like PJM effectively dispatch coal plants and manage the dispatch of resources with long start times even longer than 24 hours,” Richards wrote. “If a market participant has correctly offered its resource into MISO, simulation and economic dispatch within the generator’s ability is captured in the dispatch routine. A resource that is price competitive, with long maximum run times and that is already on line from the prior operating day is more likely to be kept on line than resources that are cold even if they have shorter run times.”

In PJM, 66% of steam (coal) units are dispatchable and 33% are must run, Richards noted. In fact, between the first quarter of 2011 and the first quarter of 2012, coal production in PJM declined 25% while natural gas increased by 60.8%. This is very similar to what is occurring in MISO and for CEC, as well. “In fact, coal power production from CEC dropped by 20% between the first quarter of 2011 and 2012,” Richards added. “Meanwhile, natural gas production increased by 31% during that same quarter for CEC. “In MISO, in the first five months of 2012, the average capacity factor for combined-cycle resources averaged 35 percent, much higher than the 10-20 percent in prior years, while coal fired generation declined from roughly 60% to 50% in 2012. I use PJM as a reference because it has a reasonably comparable generation mix to the MISO region as both are dominated by coal generation. The vast majority of coal plants in PJM can be dispatched and utilities can take advantage of lower market prices due to declining natural gas prices. This supports the assertion that CEC should be offering its plants as dispatchable resources rather than choosing to must run them.”

Consumers said it is already doing more to get gas-fired power

Historically cheap gas prices drove down coal-fired generation in 2011 in the MISO region, and at Consumers Energy, and are expected to do so again at least well into 2012, said Consumers Energy official Richard Blumenstock. Consumers Energy on Feb. 20 filed testimony from Blumenstock with the PSC to describe changes in the Midwest Energy Market that have occurred since the original filing of the utility’s 2012 Power Supply Cost Recovery (PSCR) plan in September 2011. Blumenstock is the utility’s Director of Electric Sourcing & Transactions.

“Prices for electricity in the Midwest Energy Market over the last three months of 2011 fell to their lowest level since the inception of the Midwest Energy Market,” Blumenstock wrote. “The average electric price in the fourth quarter of 2011 was $28.08 per MWh. The lowest average electric price for any prior fourth quarter was $29.51 per MWh. The month of December 2011, in particular, had the lowest average electric price of any prior December since the inception of the Midwest Energy Market. The average electric price in December of 2011 was $28.05 per MWh, which is 17% below the previous lowest December average of $33.80 per MWh.”

The primary driver for these depressed electricity prices was the low price for natural gas, he added. According to the U.S. Energy Information Administration (EIA), the monthly average Henry Hub Spot Gas prices for September through December of 2011 were $3.90, $3.57, $3.24, and $3.17 per Mcf, respectively. Industry analysts attribute the price drop to a recent growth in natural gas production resulting from shale gas plays with high concentrations of natural gas liquids and crude oil. With such low fuel costs, gas-fired generators have incremental and average costs below generators having coal or oil as fuel sources. This results in MISO, the entity responsible for administering the Midwest Energy Market, committing and dispatching lower cost natural gas-fueled generators before higher cost coal-fueled and oil-fueled generators.

Through September 2011, the Zeeland gas plant of Consumers Energy had a year-to-date utilization factor of 31%. The monthly utilization factors in October, November, and December of 2011 were 39%, 55% and 70%, respectively. Through September 2011, the company’s coal-fueled fleet of generators had a year-to-date utilization factor of 79%. The monthly utilization factors in October, November and December were 72%, 58% and 55%, respectively. “These trends in utilization factor clearly demonstrate that MISO utilized lower cost natural gas-fueled generation to meet electric demands,” Blumenstock said.

Consumers to bump up PRB coal use, take unit de-rates

One Consumers Energy response to this cheap-gas situation is that its coal-fueled generators will be operated using different blends of fuel depending on the variable cost of production and the relative value of energy. Second, the company’s coal-fueled generators are expected to experience increased cycling operations.

Prior to 1988, Consumers Energy operated its coal plants using high-Btu eastern coal. Beginning in the mid 1990s, after considerable testing of the effect of low-Btu western (i.e. Powder River Basin) coal on the operation of some of the company’s generating plants, the utility utilized a blend of eastern and western coal that reduced its cost of production while still achieving the maximum power output of each generating unit. From time to time, when market prices are below the cost of production for one or more coal-fueled generators, the company, on a temporary basis, successfully increased the amount of western coal in its fuel blends so as to lower its cost of production with a modest temporary reduction in maximum output.

“In 2012, during periods when electric prices are near or lower than the generating units’ cost of production, the company’s coal-fueled generators are expected to increase their use of western coal above the level where they can achieve full power output using only coal,” Blumenstock said. “This will have the effect of lowering the generator’s production cost and subsequently its price offer in the Midwest Energy Market for the operating range fueled by coal. Lowering the generator’s price offer makes the generator a more valuable resource to the Midwest Energy Market. Loss of the generator’s real power capability over the operating range fueled by coal will not be detrimental since electric demand during low electric price periods will be met by MISO through commitment and dispatch of lower cost generation resources.”

In 2012, on the other hand, during periods when electric prices are higher than the generator’s cost of production, the company’s coal-fueled generators are expected to increase their use of high-Btu eastern coal to the level necessary to provide maximum output of the generating unit.

As for considerations for cycling of coal units, these units were originally designed for continuous, baseload operation. Consumers Energy said it intends to shut down coal units for extended periods when electric prices in the Midwest Energy Market are forecasted to be well below the cost of production for a unit. The company’s coal units are not feasible to cycle on a daily basis due to start-up times in the 24-hour range. MISO makes commitment decisions in the Day-Ahead Market based on a 24-hour operating outlook. This is not enough time to accommodate typical coal-plant start-up times, the utility said.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.