Two calamitous events related to coal-fired power plants are occurring behind the scenes of the Louisiana electric-utility industry, and they threaten to cause big and painful costs for us ratepayers. In our blog post yesterday we talked about the Cleco Cajun Energy Complex in New Roads, LA and the “cost of coal price” emergency affecting eight co-ops in Louisiana. Today we’ll travel to DeSoto Parish for more “cost of coal price” blunders.
…where the now-closed Dolet Hills Power Station sits. The plant and its coal mine were co-owned and operated from 1986 to 2021 by Cleco and SWEPCO (Southwestern Electric Power Company).
A behind-the-scenes debate over management of this coal-fired power plant will get some media attention when LPSC members decide whether to require the plant’s owners to issue up to $128 million in refunds and disallow further charges for additional disputed costs from Cleco and SWEPCO ratepayers.
On December 31, 2021, the Dolet Hills plant officially ended its 35-year run providing lignite-fueled electricity. In its last two years the plant’s cost of operation “increased noticeably,” in the words of one utility analyst. The owners’ decision to run the plant despite the inflated cost, and what that means for the two companies and their customers, is now the subject of intense lobbying at the LPSC.
In November, Commissioners quietly received a recommendation by an LPSC administrative-law judge to require Cleco and SWEPCO to refund the millions in Dolet Hills fuel costs they had already charged customers. The commission routinely approves electric companies’ ability to charge customers for their fuel costs, whether it is coal, natural gas, nuclear, wind, solar or energy purchased on the market. But such routine fuel decisions hinge on agreement between the LPSC and utilities that power companies’ purchases on behalf of customers were “prudent,” and result in “just and reasonable rates.”
The Dolet Hills plant was a valuable asset and revenue generator for Cleco and SWEPCO. The unit was a “mine-mouth” operation, burning lignite dug from two surface mines next to or near the power plant. In contrast, the Wyoming coal burned by Cleco Cajun at New Roads is sub-bituminous, delivered over a long distance by train and barge from Wyoming, at least when the river is high. Dolet Hills was the only plant in the state with the unusual shared ownership of plant and mine.
SWEPCO, based in Shreveport, has long produced power from burning lignite at plants in East Texas and at Dolet Hills. Lignite is considered the most harmful coal for the environment because it has low carbon value and high moisture content. In the early 1980s SWEPCO partnered with Cleco, based in Pineville, to jointly build and run Dolet Hills Power Station. It was a 642-megawatt “baseload” plant, meaning its owners typically ran the unit continuously.
The advent of cheap fossil gas from fracking, the recent growth of clean wind and solar power, and climate advocacy have caused a steep decline in utilities’ use of coal. Add to that the fact that coal, when burned, produces more local pollution than renewable energy. Like other utilities, Cleco and SWEPCO faced these economic and environmental pressures at Dolet Hills. They jointly agreed with the LPSC to close the plant in 2026, and later moved up that deadline to December 2021 due to settlement agreements with Sierra Club.
But in the period of 2019-2021 the companies faced a mountain of mined lignite. As senior LPSC Administrative Law Judge Joy Guillot wrote in her November 2023 opinion, that was in part because the companies – with LPSC consent – had expanded lignite production for the Dolet Hills plant in 2009 by opening the Oxbow Mine in neighboring Red River Parish. At roughly the same time the two utilities joined regional electricity transmission organizations, or “RTOs”. RTOs give utilities access to electricity generated across state lines and over large territories, including cheap power from other generators.
The RTO power gives regulators a benchmark to compare the cost of imported power with home-grown electricity prices. Regulators typically require the cheapest reliable power. According to Judge Guillot’s ruling, Dolet Hills in its last two years saw its power costs spike from $4 per megawatt-hour to more than $13/mwh. Guillot quoted Maurice Brubaker, a consultant to Packaging Corp. of America and International Paper, two industrial Cleco customers, as saying Dolet Hills lignite fuel costs “increased noticeably” in this period. The industrial customers said the utilities “sought to burn and monetize the mined lignite as fuel costs, rather than add the lignite inventory as a stranded cost.”
For regulated power companies, stranded assets are a curse to be avoided. They are typically power plants, pipelines, and other machinery which are no longer useful, and cost recovery may no longer allowed by regulators. The Judge’s ruling pointed out that the companies continued to run Dolet Hills despite “imprudent, above-market-cost lignite.” They did so, LPSC staff said, solely for the purpose of the companies’ desire to recover the stranded cost of the mines. Staff quoted SWEPCO: “In order for all mine-closure costs to be recovered, SWEPCO must burn all of the lignite from the Dolet Hills mine and collect all of the under-recovered fuel balance.”
Cleco and SWEPCO acknowledged the extraordinary escalation of Dolet Hills costs in its last years but argued that previous agreements with the LPSC guaranteed cost recovery to the utilities. In particular the companies cited Mining Orders issued by the LPSC in 2001 and 2009.
Said the judge: “The companies’ decision-making to keep Dolet Hills in ‘must-run’ status was to burn all the lignite from the mines and collect fuel balances even when the resulting rates were no longer just and reasonable.” The Mining Orders allowed the companies to collect on the lignite through customer fuel adjustments. “No such guaranteed recovery existed for a stranded asset,” the judge said. In their most recent filings in this proceeding on December 27, 2023, Commission staff took the position that Cleco Customers are due a refund of $106 million and Swepco customers are due a $24 million refund.
Last year, at the very same time the hearings in this case were underway in Baton Rouge, the Louisiana Legislature made moves to insulate utilities from the possibility that regulators could require refunds for plants like this. The Legislature passed Act 149, allowing utilities to securitize the costs of refunds to customers if the Commission orders them, and then ask the Commission to have customers pay off that securitized debt. A little insurance, if you will. SWEPCO and Cleco pushed hard for this bill.
These twin coal-related disasters are making the LPSC’s decisions in favor of new power contracts for Louisiana’s rural electric co-ops look smart in hindsight. One of these contracts goes by the name “1803 Power Cooperative.” Most Louisiana kids will recognize 1803 as the year of the Louisiana Purchase.
The 1803 deal comprises three large-scale solar farms, a new fossil-gas generator being built in Iberville Parish, and market power purchases made possible by the Midwest Independent System Operator (MISO). MISO is a regional transmission organization serving the co-ops as well as Cleco and Entergy. 1803 is supposed to take over from Cleco Cajun in the middle of 2025. Not a moment too soon.
The Commission will decide in the coming months how much Cleco and SWEPCO must refund to their customers from the Dolet-Hills fuel costs. If the LPSC does require refunds, the Commission will then have to respond to the companys’ plans to securitize the debt and ask for the money all over again.
One thing is crystal clear: not only has coal seen its day as a dirty, planet warming fuel, it’s an expensive bet, and customers keep getting stuck with the bill. The Commission has responsibility to make sure utilities are only passing on prudent costs. Another takeaway from the coal-barging disaster: climate change is impacting our utility bills in ways no one could have predicted and it is adding up. The bottom line: these coal plants can’t retire soon enough.
UPDATE: On Friday, February 2, 2024, the Administrative Law Judge (ALJ) issued her recommendation in the proceeding! The ALJ recommends that Cleco and SWEPCO are not allowed to recover certain fuel costs from customers on the basis that they were incurred imprudently. If accepted by the LPSC, Cleco must refund customers $128 million and SWEPCO will owe its LA customers $55,300,117. The LPSC Commissioners will have the final say on who’s responsible for the costs and if refunds are warranted, but the ALJ recommendation is a big win for LA ratepayers!
In response Cleco and SWEPCO have asked for the opportunity to make their case directly to the Commission during their monthly Business & Executive (B&E) Session.
