Is Your Minnesota Electric Cooperative Still Losing Money on Coal Power?

James Gignac

Midwest Senior Policy Manager

UCS recently released a new analysis on the costly effects of how electric utilities operate their coal-fired power plants.

Using 2018 data from the Midcontinent Independent System Operator (MISO) territory, our report—entitled Used, But How Useful?—shows how uneconomic operations of coal plants in the MISO region led to hundreds of millions ($350 million to be exact) in unnecessary costs to consumers in just that one year. Utilities that exploit power market loopholes to run their plants at times when it would be cheaper to purchase power from the market should cease that practice—or else regulators should deny efforts to pass the costs onto customers.

Earlier this year, UCS published an issue brief detailing how Minnesota electric cooperatives (sometimes referred to as “co-ops”) remain tied to out-of-state coal plants located in North Dakota, Wisconsin, and Wyoming. We reported data showing how co-op coal plant owners requiring their plants to run when it would be cheaper to purchase power from the market led to millions of dollars in excess costs to customers. Our Used, But How Useful? report demonstrates how the MISO plants from this group continued to operate uneconomically in 2018. Here are the results with customer savings had the plants been run economically:

Some cooperatives are responding to coal plants’ increasingly poor economics

Some cooperatives are taking action to address the unnecessary costs of running expensive coal plants and deciding not to use certain plants altogether. For example, in late January, Dairyland Power Cooperative announced that it would retire its Genoa plant in 2021. And a major announcement came last month from Great River Energy when it unveiled plans to retire the massive Coal Creek Station in North Dakota by 2023 and to also stop burning coal at its Spiritwood facility.

Importantly, Great River Energy’s plan for replacing Coal Creek avoids risky investments in new gas-fired plants and instead features a large expansion of over 1,000 megawatts of wind power. Indeed, as part of its announcement, Great River Energy stated it has already approved 600 megawatts of new wind energy projects, most of which will be located in Minnesota. Another key feature of the transition plan is installation of a unique long-duration battery storage system capable of delivering power for up to 150 hours to assist with maintaining electric grid reliability during extreme weather conditions.

The results from our Used, But How Useful? analysis show that the steps taken by Dairyland and Great River Energy will reduce unnecessary costs to their customers. But more needs to be done to address the problem of Minnesota electric cooperatives and out-of-state coal plants. While Used, But How Useful? looked only at MISO plants, the problem of coal plants operating uneconomically occurs wherever plant owners are allowed to exploit power market rules. For example, earlier UCS research reported in our Minnesota co-op issue brief showed that Basin Electric plants produced millions of dollars in customer burden from uneconomic operations in 2015-2017.

Winds of change in electric cooperatives

Power cooperatives are increasingly recognizing the growing lack of competitiveness that coal plants have with other cheaper and cleaner options such as wind and solar. In addition to the Great River Energy and Dairyland announcements described above, other generation and transmission co-ops such as Tri-State and Hoosier Energy and Southern Illinois Power Cooperative are making moves away from coal and toward clean energy.

Local distribution co-ops–such as those that contract to receive electricity from the generation and transmission co-ops mentioned above—are key players in pushing for change. Their desire for lower costs and cleaner power helped drive recent moves made by generating and transmission cooperatives like Tri-State and Great River Energy. Other local co-ops such as those served by Minnkota and Basin Electric should receive the same benefits of lower bills and access to cleaner energy. While electric cooperatives are often described as slower to change than other types of utilities, it’s clear that continuing to push for generation and transmission co-ops to modernize their approach can and does result in better outcomes for local cooperatives and their customers.

Supporting communities and workers is essential

While transitioning away from coal is a positive for consumer bills and the environment, it is extremely challenging for communities and workers that are currently dependent on coal plants or coal mines for their economic livelihoods. As my colleague Jeremy Richardson has written about, the coal industry’s structural decline has been accelerating—and that was before the COVID-19 pandemic placed even greater pressure on coal’s financial picture.

Taking Coal Creek Station as an example, the plant and the nearby coal mine that supplies it have been major contributors to the local tax base and local economy for decades. Located near the small town of Underwood, North Dakota, the plant employs around 265 people and its companion coal mine around 400 employees. Closing the facilities will be very difficult for the employees and surrounding community.

Thus, it is crucial that plant owners like Great River Energy be committed to supporting workers and communities through the challenging transition process caused by a plant closure. One way the cooperative is doing this is through a promise to continue paying the local government share of the plant’s taxes for five years after it closes—a total of about $15 million. Other actions and policies that can help include extended unemployment benefits, replacement assistance, and job retraining programs as first steps for affected coal plant and coal mine workers. But many more, longer-term and sustained, economic recovery policies are desperately needed, several of which are outlined here by my colleague Jeremy Richardson.

However, one reaction that does not help is opposing clean energy development and the jobs and economic activity it can bring to places like North Dakota. With the Coal Creek Station’s retirement, the large high-voltage, direct current power line that connects the plant to areas of high electricity demand will be available to carry energy from new wind farms in North Dakota. Wind energy supporters in North Dakota estimate that a single 250 megawatt wind farm produces over $28 million in total tax revenue over a 25-year lifespan, with much of that going directly to local counties. Yet, Great River Energy is so far pursuing its new wind resources in Minnesota and South Dakota due to obstacles in North Dakota such as overly restrictive zoning ordinances.

In the end, UCS’ Used, But How Useful report further illuminates how coal plants and their traditional modes of operation—including plants owned by power co-ops serving Minnesota customers—are increasingly costly and unnecessary. Electric cooperatives are more and more beginning to respond to their members’ needs and making the transition to less expensive and cleaner resources to benefit their customers and reduce emissions. The trend is a positive one and more cooperatives should join it—with support from policymakers at all levels to assist communities and workers in making the shift toward a clean energy future and new economic development.