DOE Coal Orders Show the Politics of Grid Reliability
On December 30, the Department of Energy (DOE) ruled that Tri-State, a Colorado utility, must keep Unit 1 of its Craig coal power plant open.
Then on January 29, Tri-State petitioned the DOE for rehearing and for clarification.
Here’s the core of Tri-State’s argument:
Tri-State and Platte River, as member-owned and municipal public utilities, respectively, face unique challenges from the DOE’s Order that lead them to file this request. The costs of compliance fall directly on their members and customers…The members and customers must pay those costs even though neither Tri State nor Platte River are experiencing these shortages…
Energy has become politicized. That’s not news.
What’s less discussed is the economic structure that makes politicization so costly. This case shows how it works.
No politician wants outages while they’re in power.
The easiest thing for any politician to do is to order power plants to remain operational, to ensure there is as much generating capacity as possible in the system.
Importantly, the politicians don’t bear the cost.
(The DOE’s order points to FERC rate recovery, which is federal approval to ramp up charges on ratepayers. The federal government declares the emergency; local customers pay the bill.)
This creates a classic moral hazard: politicians can declare emergencies to avoid any risk of outages on their watch, while ratepayers bear the full cost of the insurance policy. The decision-maker doesn’t face the consequences of the decision.
The economic reality is one of the core challenges of the resource planning process that utilities go through.
Utilities can’t afford to keep every generating asset online. Like any capital allocator, they must navigate an array of tradeoffs.
The resource planning process is how they optimize their generation and transmission footprint, finding the balance that allows them to meet the anticipated needs of their customer base while minimizing the associated cost.
As an added bit of disruption, back in 2016 Unit 1 was scheduled to close on December 31, 2025. The DOE issued its emergency order on December 30, one day before the closure.
The timing almost certainly is driving some of the added expense here, as Tri-State was about as far toward the decommissioning process as it could have conceivably been.
As the utilities say in their filing:
Petitioners and the Department of Energy (DOE) share the goal of securing reliable and affordable electricity generation assets for their service areas’ energy grid, including in the event of an energy emergency.
This case demonstrates the challenges around affordability when politicians with expansive emergency powers, and who have little to no exposure to the resulting economics, override the already vetted plans of regulated utilities.
The politicization of energy comes with many costs. The $85 million annual cost estimate for Craig Unit 1 means Tri-State ratepayers are about to learn this firsthand.
