Kan. should ease costs of aging coal plants — study

Source: By Jeffrey Tomich, E&E News reporter • Posted: Monday, January 13, 2020

Kansas needs better tools to help beat back rising electric rates, according to a study ordered by state lawmakers. Among them: a mechanism to ease the transition away from coal.

The 324-page report released last week is the first of a two-part study authorized by lawmakers in 2019 following complaints about climbing electric rates. The second phase is due this summer.

The review of Kansas’ electric system was done by London Economics International and makes four recommendations for policymakers, including development of a state energy plan and mandated integrated resource planning. The report also urges allowing for securitization — a form of refinancing — of older fossil plants, primarily coal, that are running less frequently each year.

Across the United States, and especially in the Midwest, cheaper natural gas and renewable energy are putting pressure on an aging coal fleet. As a result, coal plants are being dispatched less frequently. Coal still makes up almost a third of Kansas electricity generating capacity and 40% of the electricity produced.

The London Economics rate study showed that coal plants in the state that ran 70% of the time in 2007 ran just 50% of the time in 2017, and the average capacity factor, or use, of coal plants in Kansas was about 5% lower than the regional average last year.

“The relative competitiveness of coal plants in Kansas is declining in relation to other low-cost resources in [the Southwest Power Pool’s] centralized wholesale market,” the report said, referring to the regional grid operator.

Those plants include two operated by Kansas City-based Evergy Inc., the largest investor-owned utility in the state formed by the 2018 merger of Westar Energy and Kansas City Power & Light Co.

The utility, which has retired some of its coal fleet, continues to run other large plants, including the 1,857-megawatt Jeffrey Energy Center northwest of Topeka and the 1,578-MW La Cygne Station south of Kansas City.

Last week’s report identified Jeffrey and La Cygne as among those having average capacity factors lower than the regional average.

Andy Knott, manager of the Sierra Club’s Beyond Coal campaign in the region, said the London Economics report highlights important data about the ratepayer impact of aging coal plants.

“It certainly validates the research we’ve done,” said Knott, citing a report the Sierra Club released a year ago estimating that the Jeffrey and La Cygne plants would saddle Kansas consumers with an extra $847 million in electricity costs over the next two decades.

The plants’ lower capacity factors referenced in the report are “just another measure of the poor economics of coal,” Knott said. The Sierra Club and other environmental advocates argue the plants are dispatched more often than they should be based on economics.

Evergy Senior Vice President Chuck Caisley disputed the idea that the utility’s coal fleet is leading to higher electric rates for its Kansas customers.

The company is dispatching the plants in a very different way from a decade ago, he said, ramping them up and down in support of the utility’s growing wind fleet.

Caisley said the electric industry’s continued shift from coal to cleaner fuels is “the seminal issue for the electric industry over the next 20 years.”

London Economics didn’t explicitly attribute rising electric rates to idle coal plants. But the report said the Kansas Corporation Commission needs better tools to assess the economic value of aging coal plants and recommended securitization as a tool to help ease the cost impact of retirements.

The pressures facing Evergy’s coal fleet aren’t unique, and neither is the idea of using securitization — a tool to refinance higher-cost debt with low-interest, ratepayer-backed bonds — as a way to speed the transition to cleaner energy (Energywire, May 29, 2019).

“Declining capacity factors of currently operating rate-based Kansas coal plants (two of which have capacity factors significantly below the regional average) suggest a need to periodically review their usefulness,” the study said. But the KCC is “limited in terms of protecting ratepayers from paying for investments that are underutilized.”