Have Coal Resources been Running Uneconomically in MISO?

Concerns have been raised recently that the owners of coal resources in MISO have been compelling MISO to start coal units uneconomically by designating them as “must-run”.  We have evaluated these concerns using actual resource cost and revenue data that is not publicly available.

We performed an economic analysis of unit commitment and dispatch of all coal-fired resources over two timeframes: from 2016 through 2018 and in 2019.  This analysis includes a detailed review of actions taken by coal-fired resources to:  a) start up the resources from an offline state and b) remain online each day after starting up.

Our analysis identifies the extent to which the resource owners’ operating actions are economically efficient.  Efficient actions can appear unprofitable in certain timeframes.  Hence, we also separately evaluate the profitability of the decisions made by coal resource owners to start up and shut down the resources.  The table below shows a high-level summary of our results, indicating the percent of days in each of the two timeframes when coal resources were operating efficiently and profitably.  The full report is available here.

We find that the decisions of the owners of coal resources to start them or to keep them online have generally been efficient, even when they are not profitable and are generating negative operating net revenues.  In general, the efficient decisions to operate that are ultimately unprofitable for the day are attributable to the costs of shutting the generator down and starting it back up later, i.e., “cycling the unit”.  In other words, it can be economic for an owner to incur a small loss to stay online and avoid the costs of cycling the unit.

The table shows that in more than 95 percent of the days in which a coal resource is operating in both timeframes, the decision to operate was efficient.  However, we note that the coal resources were less profitable in 2019 when natural gas and energy prices were lower and baseload coal resources were less profitable.

These results cast serious doubts on the credibility of the recent studies asserting that MISO’s coal-fired resources are routinely starting and operating uneconomically.  Other findings of our evaluation include:

  • Coal resources operated by merchant utilities differ from those operated by MISO’s integrated utilities, which underscores the fact that regulatory incentives can weaken the natural discipline of the competitive markets.
  • The dispatch of coal-fired resources varies significantly among the integrated utilities.
    • A substantial share of the integrated utilities operate almost as efficiently as their merchant counterparts.
    • Unfortunately, a small share of integrated utilities operate much less efficiently than others.

Although we find that the decisions to start and continue operating coal resources in MISO have generally been economic, there is clearly room for improvement.  We encourage the integrated utilities that own coal resources to adopt improvements in their operating procedures that increase the efficiency of their commitments and dispatch.  We also recommend that MISO consider providing additional information that may facilitate more efficient decisions by the resource owners.  Three key improvements include:

  1. Offering Economically in the Day-Ahead Market. Offering the resources economically more frequently in the day-ahead market would allow the market to guide efficient shutdown decisions.  Since MISO’s day-ahead market is a reasonably good predictor of upcoming market conditions, allowing the day-ahead market to economically schedule is an efficient means to make decisions that have multi-day implications.  This explains why this is the typical approach employed by merchant owners of generating resources.
  2. Seasonal Outages. Some of MISO’s regulated utilities are beginning to adopt improvements in operating procedures, such as taking extended outages during shoulder seasons when the resources are much less likely to be needed or economic.  This would likely be beneficial for a number of utilities to consider.
  3. Additional Forward Price and Outage Information. We encourage MISO to consider providing additional forward information on prices and key outages that would improve coal resource owners’ ability to determine when their resources will be economic to operate.  This could include publishing all 36 hours of prices produced by its day-ahead market, rather than limiting the prices published to the first 24 hours.