Consumers Energy can’t cycle its coal plants up and down like environmental groups claim it can and the environmental groups in question are not taking into account the proper meaning of a “must run” unit in the Midwest ISO, Consumers Energy said in Sept. 7 testimony filed at the Michigan Public Service Commission.
Consumers Energy, a unit of CMS Energy (NYSE: CMS), was responding to testimony from various parties filed in a Power Supply Cost Recovery Plan case that it initially filed nearly a year ago. Utility official Richard Blumenstock rebutted recent testimony from the Michigan Environmental Council and Natural Resources Defense Council and their expert, Patricia Richards of La Capra Associates.
Richards, generally speaking, said the Consumers coal units should be dispatched less in favor of ostensibly cheaper gas-fired generation off of the MISO market. Consumers had already said in this case that its coal units are being dispatched less due to cheap gas-fired generation, with Blumenstock contending that this coal displacement has basically reached its economic limits.
Richards repeatedly stated throughout her testimony that the company’s coal units should not be offered as must-run to the MISO market. Richards appears to confuse PJM’s definition of must-run and MISO’s definition of must-run, which are different, Blumenstock said. Units designated as must-run in the Midwest Energy Market are dispatchable. MISO dispatches these units, not the offering Market Participant, and does so in an optimized fashion, he added.
Richards also has said that MISO is in a better position to determine when to run the Consumers Energy units, but Blumenstock said he disagrees with her statement in the context of the company’s coal units. “MISO’s least-cost commitment algorithms are limited to evaluating the commitment of units over the day-ahead period (24 hours) and the real-time period (5 minutes), and thus do not adequately consider units that have operating cycles longer than those periods,” he explained. “Since the Company’s coal units have a start-up time greater than 24 hours, MISO’s least-cost commitment algorithm fails to consider the cost and value of the subject units for all hours after the 24th hour.”
The economic decision to commit a unit is simply based on recovering that unit’s cost through market revenue over the operating period, Blumentock added. MISO’s commitment decisions are based on a 24-hour operating period, whereas the company’s commitment decisions are based on a period longer than 24 hours.
Blumenstock breaks down example coal dispatch costs
As an example, assume a coal unit capable of 800 MW has a $360,000 start-up cost, a $140/hour no-load cost, a dispatch range from 350 MW to 800 MW, and an incremental cost of $21/MW at minimum power production and $25/MW at maximum power production, Blumenstock wrote. Assume this coal unit is in a market where the off-peak (8 hours, HE 1-6 and HE 23-24) price of energy is $20/MW and the on-peak (16 hours, HE 6-23) price of energy is $32/MW. In these market conditions, the coal unit would operate at minimum load (350 MW) for the 8 hours of off-peak and full load (800 MW) for the 16 hours of on-peak. Each day this coal unit is on-line, it would receive $465,600 in revenue.
The first day this coal unit is on-line, it would cost $742,160. For each day thereafter, the coal unit would cost $382,160, which is the same cost as the first day, but without any start-up cost. On the first day the coal unit is on-line, the net energy value (revenue minus cost) would be -$276,560. On the second day and every day thereafter, the net energy value of this coal unit would be +$83,440. So, it takes about four and a half days of operation to produce a positive net energy value, Blumenstock noted.
Since MISO only considers the net energy value for a unit over a 24-hour operating period, MISO disregards the net energy value of a unit beyond the 24-hour period and, consequently, would not commit this coal unit since its net energy value is a negative number, -$276,560. In order to realize the net energy value of this coal unit, MISO would have to increase its operating outlook to at least five days.
“This example illustrates the limitation of MISO’s ability to recognize the full net energy value of a coal unit having a relatively long start-up time, and, consequently, why a decision to offer a coal unit as must-run helps such a plant to achieve its full net energy value,” Blumenstock wrote.
Richards said that MISO has the ability to optimize power cost production for units that have a 24-hour start-up time and long minimum run time. Said Blumentock in response: “It is clear from my previous description and example that MISO cannot optimize power cost production for units having a long operating cycle. Witness Richards bases her statement on an ISO/RTO Metrix Report for 2010, attached to her direct testimony as Exhibit MEC-17. Nowhere in this report could I find a statement that MISO has the ability to optimize power cost production for units having a long operating cycle. Therefore, I conclude that her statement is unfounded.”
He added: “Witness Richards underestimates what MISO considers when making commitment decisions. She states ‘MISO will dispatch power plants to minimize start-up costs, honor minimum run times, and take into account if a power plant is already on line.’ MISO’s commitment decisions are not just based on start-up cost, run times, and current status. MISO also considers no-load cost, incremental energy price, daily energy limit, starts per day/week limit, operating ranges, and ramp rates. Witness Richards again confuses the definition of must-run. She states, ‘If a coal plant is already on line and running as a base load unit from a prior day there are no start-up costs or ramp times as the plant is already on line at full load.’ The assertion that on-line units are at full load and do not have ramp times leads me to believe she is referring to must-run as defined in the PJM Market.”
Blumenstock says coal cycling causes too much wear and tear
Richards contended that cycling coal units up and down does not result in extraordinary impact on coal units. “Dispatching a unit involves changing real power production for a unit that is on-line,” Blumenstock wrote in response. “This should not be confused with cycling, which involves taking a unit off-line and then putting it back on-line. In the context of cycling as I just have defined it, Witness Richards’ statement is not accurate.”
Blumenstock used as evidence an Electric Power Research Institute (EPRI) report titled “Impact of Cycling on Coal-Fired Power Generating Assets” that cites a number of equipment wear and tear downsides to cycling of a coal unit, including creep, fatigue, corrosion and cracking. “I believe the EPRI paper is representative of the industry’s view of the impact of cycling on coal units,” he noted. “The Company’s experience with cycling a coal unit is that significant wear and tear does occur, just as described in the EPRI paper.”
Richards contended that Consumers Energy should fully take advantage of the competitive market and reduce power costs by offering its coal units as dispatchable rather than must-run. “Offering our coal units as must-run takes full advantage of the competitive market and causes them to realize their full market value,” Blumenstock responded. “The must-run designation allows Market Participants to realize full market value of their units with long operating cycles. Offering our coal units as must-run reduces power costs by offering to the Midwest Energy Market energy sources that are lower cost over longer periods than other generation.”