Recent Changes to U.S. Coal Plant Operations and Current Compensation Practices

Abstract

Over the last decade, the U.S. electric power sector has gone through one of the most dramatic changes in its existence. The combination of low natural gas prices as a result of the shale gas revolution and significant reduction in construction and operating costs for renewable resources, in part due to federal tax credits such as the production tax credit and investment tax credit mainly benefitting wind and solar, respectively, has resulted in a significant shift away from coal-fired generation, and instead towards natural gas and renewable generation. Furthermore, the operating profile of existing coal-fired electric generating units has changed significantly. As new natural gas combined cycle plants have become increasingly more efficient and cheaper to operate than older existing coal-fired power plants, coal units continue to lose baseload generation share and more frequently operate as load-following, or cycling, resources. These trends are of particular importance to state public utility commissions. Functioning as economic regulators, commissions oversee investments in a reliable, efficient system while balancing emissions goals, customer demands, and other policy objectives. Changes to coal plant operations as a result of increased competition from other fuel sources may have a bearing on system reliability and economics, and therefore constitute an important area for commissions to monitor.