Underestimating Cost of Shutting Coal Plants

April 18, 2019

by H. Sterling Burnett, Ph.D.

Republicans in the Indiana House are attempting to block the plan of Northern Indiana Public Service Company’s (NIPSCO) to prematurely shutter two large coal power plants and replace them largely with renewable energy sources.

Republicans on Indiana’s House Utilities Committee passed an amendment to a Senate sewage and water bill to prohibit state regulators from approving any new power plants, power contracts, or changes in electricity generation sources until Jan. 1, 2021.

The moratorium would apply to contracts for power or proposed power plants of 250 megawatts or larger. The provision would also require Indiana’s Utility Regulatory Commission (IURC) to carry out a comprehensive study of the potential costs and benefits of proposals to transition away from coal to renewable power sources.

In late 2018, NIPSCO, which provides electric power to approximately 460,000 customers across Indiana, filed a plan with IURC proposing to prematurely shutter a coal power plant in Wheatfield by 2023 and one in Michigan City by 2028, replacing the electricity provided with a mixture of 1,500 MW of solar and battery backup, 150 MW of wind, 125 MW of reduced demand through efficiency and demand-side management programs, and 50 MW of electricity purchased from other utilities.

In its filing, NIPSCO claimed its move would save ratepayers more than $4 billion over the long run, but the facts say otherwise. The U.S. Energy Information Administration (EIA) and numerous studies show coal and natural gas generate the cheapest electric power nationwide. Because 95 percent of the electricity generated in Indiana comes from existing coal or natural gas plants, the state’s electricity prices are approximately 6.8 percent below the national average. Indeed, Indianans currently pay less than the nationwide average for electricity, precisely because the state’s utilities generate most of their electricity using coal and natural gas.

Further evidence NIPSCO’s plan would cost, not save, consumers money comes directly from the utility’s proposal, which demands a 12 percent rate hike to pay for the transition. Using EIA data, if the rate hike were to go into effect, the average Indiana household would pay an additional $164 per year for electricity. And, of course, Hoosiers would also pay more for goods and services, since businesses would pass on their higher energy costs under the utility’s new price structure to consumers.

As James Taylor, my colleague at the Heartland Institute, noted during testimony before a hearing of the IURC on Jan. 28, “To put NIPSCO’s proposed rate hike in perspective, U.S. electricity prices have risen 7 percent during the past decade. In this single proposal, NIPSCO proposes a rate hike that is nearly double what national electricity prices have risen during the entire past decade. In what Alice-in-Wonderland universe does NIPSCO save consumers $4 billion by raising each household’s electricity bill more than $100 per year?”

NIPSCO’s plan calls for replacing coal power with solar power, the most expensive source of electric power in the world. And absent coal, natural gas or nuclear power to back it up — especially to provide power at night or on cloudy or stormy days — NIPSCO’s plan would require exorbitantly expensive battery backup to make sure power is always available.

As a result, if NIPSCO were to get its way, electric power customers in Indiana would go from paying rates below the national average to paying above national average rates. NIPSCO would profit, but businesses, residents and the state’s economy would surely suffer.

Coal plants can function efficiently for 30–50 years, and sometimes even longer. By comparison, solar panels — even if they operate as intended, with no panels failing prematurely or being broken or damaged by storms or other events — must be cleaned regularly, adding to maintenance costs.

Even when cleaned properly and regularly, the amount of power solar panels generate declines over time. After 20–25 years — well before a more reliable coal plant would cease operating and well before solar facilities are paid off, if they are financed over 30 years — the entire array of panels at NIPSCO’s solar facilities would need to be replaced. Its huge battery packs would have to be replaced even more often. As a result, NIPSCO’s ratepayers would never see the long-term savings the utility’s plan promises.

As a government-protected monopoly utility, Indiana guarantees NIPSCO a profit of approximately 10 percent for every dollar it spends on new facilities and equipment. As a result, NIPSCO has a financial self-interest to build expensive new power facilities, even when existing coal facilities, which have already been paid off, are working perfectly well. In addition, NIPSCO would reap millions in federal taxpayer subsidies in the form of a 30 percent tax credit for solar equipment if it can get its plan approved and in motion before the tax credits expire in 2021.

In short, NIPSCO’s plan is not about protecting the environment or saving ratepayers money, it’s about generating more profits for NIPSCO.

With their action, Republicans on the House Utilities Committee sent notice to NIPSCO and other utilities Indiana would no longer sit idly by and allow the state’s electricity providers to shut down well-functioning, reliable, and relatively inexpensive coal power plants and replace them with intermittent, more expensive renewable sources of power. The Indiana General Assembly should pass this moratorium, and Indiana’s governor should sign it into law.

It’s not often I praise government action, but with this moratorium, Indiana’s House Republicans are sticking up for the state’s residents against a large electric utility — a classic David versus Goliath situation.

H. Sterling Burnett, Ph.D. (hburnett@heartland.org) is a senior fellow on energy and the environment at the Heartland Institute. He wrote this for the quarterly Indiana Policy Review.


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