Close Coal Plants, Save Money: That's an Indiana Utility's Plan. The Coal Industry Wants to Stop It.

A coal company hired former Trump EPA head Scott Pruitt to get Indiana lawmakers to block the plan, but economics point to renewable energy as the best option.

The Michigan City Generating Station, one of NIPSCO's coal-fired power plants, sits on the shore of Lake Michigan. Credit: Joe Passe/CC-BY-SA-2.0

The Michigan City Generating Station, one of NIPSCO's coal-fired power plants, sits on the shore of Lake Michigan. Burning coal contributes greenhouse gas emissions that fuel climate change, but that isn't the only reason the utility wants to shut this plant down. Credit: Joe Passe/CC-BY-SA-2.0

When Indiana's third-largest utility analyzed the economics of its power plants last year, it decided it was time for a big shift—away from the coal power that had long sustained the business and toward renewable energy.

The coal plants simply weren't paying off anymore. In fact, shutting them down would save about $4 billion over 30 years.

But the utility, NIPSCO, knew it would face a fight. Indiana is second only to Texas in generating electricity from coal, and the state has several coal mines and politically connected coal companies.

Coal interests launched a campaign to try to stop NIPSCO's plan and hired former Trump administration EPA Administrator Scott Pruitt as a lobbyist to persuade the legislature to intervene. But this fight, so far, isn't going as the coal industry had hoped. Many of the state's institutions, including legislators and even the Indiana Chamber of Commerce, have resisted coal's aggressive push.

Through it all, NIPSCO and its president, Violet Sistovaris, have not wavered.

 

"Our conclusions were solely driven by economics and driving for more affordable rates for the state and ultimately for lower-cost energy for customers," Sistovaris said.

Utilities across the country have been coming to the same conclusion. This time it's in a Republican-leaning state with no renewable energy mandates.

Vectren, another Indiana utility, has also proposed closing one coal-fired power plant and part of another.

Map: Indiana's Coal-Fired Power Plants

"You sort of see an 'end of days' scenario for all this old coal capacity," said Kenneth Medlock III, an economist and senior director of energy studies at Rice University's Baker Institute for Public Policy.

"You can see an industry backed into a corner and now they're going to dig in their heels and fight, and that's what happening in Indiana and in other states," he said. "And I don't think this is a fight they're going to win."

NIPSCO Didn't Expect Renewables to Win Out

Indiana law requires utilities to issue long-term plans every three years and go through an exhaustive review process.

When NIPSCO (short for Northern Indiana Public Service Co.) began working on its new plan, it knew that its two coal-fired power plants were more expensive to operate than many other options. What it didn't know was that solar and wind energy would turn out to be the most cost-effective choices for its 468,000 electricity customers, Sistovaris said.

The company, which gets about 65 percent of its generating capacity from coal, put out a request for proposals for projects to fill the gap if it closed the two coal plants. The results were clear: wind and solar power options were much less expensive than anything else, including natural gas. The wind and solar projects also had much more predictable costs because there was no risk tied to the fluctuating prices of fossil fuels.

The plan NIPSCO came up with shows the 30-year cost of eight different scenarios for the coal plants. The most expensive would be to continue operating both plants, at a cost of about $15.4 billion. The least expensive, at $10.9 billion, would be to shut down both by 2023 and replace them mostly with wind and solar and some energy storage.

The company chose an option in between: closing its R.M. Schahfer Generating Station in 2023 and its Michigan City Generating Station in 2028 and replacing them with renewable power and storage, which would save about $4 billion compared to keeping the plants running. The long timeline would give NIPSCO and its employees time to make the transition.

Chart: Where Indiana Gets Its Electricity

The economics behind the decision are in line with what is happening across the U.S. as coal-fired power plants are struggling to compete on price with natural gas and renewables.

Coal has seen its market share battered by a decade of low natural gas prices, which has lifted gas to become the leading fuel for power plants. But the fastest-growing power sources are renewable, as prices of wind turbines and solar panels have dropped to the point that they are competitive with fossil fuels in much of the country.

The fact that these price trends are driving utilities' decisions in Indiana underscores that there are almost no safe havens for coal, said Ben Inskeep, an Indiana-based clean energy analyst for EQ Research.

"This is not a passing fad," he said. "It's the direction of the whole industry, and when this starts moving, it's hard to stop."

Opponents Cite Trump's Pollution Rule Changes

Indiana's government prides itself on being business-friendly and letting market forces work. But it also has long-standing ties to the coal industry, although only a few thousand people still work in the remaining mines. The debate over coal-plant closings has put those two elements in conflict.

The Indiana Coal Council attacked NIPSCO's plan in filings with the Indiana Utility Regulatory Commission, arguing that the utility "is biased against continued operations of the remaining coal plants, calling into question its conclusions."

It argued that NIPSCO was incorrect in estimating that the retrofits required to keep the coal plants in compliance with federal clean air standards would cost more than $1 billion. The Coal Council said the Trump administration was changing those rules, so the retrofits may cost less, though those proposed changes are being challenged in court.

Sistovaris was not surprised by some of the fervor of the coal industry's attempt to fight the plan. But she said the plan is one company's response to its circumstances, not a broader statement about energy policy.

"We believe that the path that we've outlined makes sense for our customers, and we don't believe this is a one-size approach or model for other utilities to follow," she said.

Vectren's A.B. Brown Generating Station. Credit: Peter-Burzynski/CC-BY-3.0

Vectren has proposed shutting down its A.B. Brown Generating Station and part of another coal-fired power plant in Indiana. Credit: Peter-Burzynski/CC-BY-3.0

The five-member regulatory commission does not vote on this type of plan, but a commission staff member will issue comments in the next few months that NIPSCO can use as a guide to what the commission sees as the plan's strengths and flaws. The commission will weigh in later, on issues such as entering into contracts for renewable energy or for approval to shut down a coal plant.

The GOP-Controlled Legislature Says 'No'

The coal industry also appealed to the Republican-controlled legislature for help as the NIPSCO and Vectren proposals took shape, and with the possibility that other Indiana utilities might want to close their coal plants.

Rep. Ed Soliday, a Republican, proposed an amendment that would bar the utility commission from approving new power plants or power contracts until 2021. He said he wanted to give the state time to study the rapid transition in the energy economy and come up with an energy policy.

The amendment was opposed by utilities and many other business groups, and did not pass.

With time running out in the legislative session, Hallador Energy—which has a subsidiary coal company in Indiana, Rail Point Solutions—announced it had hired Pruitt, the former EPA administrator who resigned in 2018 amid ethics scandals, as a lobbyist. Pruitt's job, according to a Hallador news release, was to persuade lawmakers to add a provision to the state budget bill that would prevent utility regulators from making decisions based on federal rules that the Trump administration's EPA is in the process of rolling back.

"Who better than Scott Pruitt to aid the Indiana legislature on what Trump energy policy will look like?" Hallador said.

That, too, was rejected. Again, utilities and business groups opposed the proposal, including the Indiana Chamber of Commerce.

"Not one person we've talked to or heard from—except for Scott Pruitt and Rail Point—thinks the moratorium will benefit ratepayers," Indiana Chamber of Commerce President and CEO Kevin Brinegar said in a statement.

'A Microcosm of What's Happening Everywhere'

Indiana is part of a larger fight as coal interests try to get states and the federal government to solidify the economic footing of coal power plants.

Coal-supporting officials, including President Donald Trump, put pressure on the Tennessee Valley Authority earlier this year as that utility's board was deciding whether to close another money-losing coal plant. Despite the pleas, the board approved the shutdown, saying the decision came down to economics.

In Montana, the coal industry has been pushing hard for a measure that would encourage the utility NorthWestern Energy to buy a larger share of the financially troubled Colstrip power plant, which would help the plant stay in business and allow the owner to pass additional costs on to customers. The bill did not have enough support to pass, either on its own or as an amendment to the state budget, in the legislative session that ended on Thursday.

Wyoming's legislature did pass a bill, which the governor signed in March, that requires utilities to search for buyers for any coal plant before considering shutting it down. It also requires the utilities to continue buying power from any coal plant that is sold.

Chart: Top 10 Coal Power States

The timing of this push for states to intervene in the market is not a coincidence. The last construction boom for coal-fired power plants was around 1980, and those coal plants are reaching an age where they need expensive upgrades, said Rice's Medlock. As plant owners consider whether to pay for upgrades, many are seeing that their money is better spent on less expensive power sources.

"When you look at what's happening in Indiana, that's just a microcosm of what's happening everywhere," Medlock said.

Natural Gas Couldn't Compete, Either

One of the options NIPSCO considered was to convert its coal plants to run on natural gas, but the company found that other options were less expensive and had lower risk.

That was eye-opening, said David Konisky, a professor of public and environmental affairs at Indiana University Bloomington, who was used to seeing utilities switching from coal to gas.

"The NIPSCO decision was important because of the idea of leapfrogging natural gas," he said. "That shook up the state a little bit because it was not foreseen."

In several states, utilities have argued that gas could be a "bridge fuel," relied upon while coal plants are closing and the grid adapts to increasing levels of renewable energy.

The role of natural gas was front and center in the proposal from Vectren.

The utility, which has about 141,000 electricity customers in the state, released a plan early last year to close its coal-fired A.B. Brown Generating Station and one of the generating units at its F.B. Culley Generating Station. The company proposed to build a natural gas plant on the A.B. Brown site and invest in renewable energy.

The plan was opposed by environmental groups, which said the large gas plant wasn't needed, and by coal companies, which said Vectren should wait until the Trump administration loosened the federal pollution rules.

This week, the utility commission rejected the gas plant plan, ruling that the project was an unreasonable financial risk at a time of rapid change in the utility sector. Vectren says it will now take a broad look at what electricity generation options make the most economic sense and submit its findings as part of its long-term plan, which is due this year.

The NIPSCO plan provides a good idea of what Vectren, and many other utilities, may find.

"The industry is evolving," Sistovaris said. "This is an industry in transition."

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