Indiana Bill Would Make it Harder to Close Coal Plants

If the bill passes, Indiana would become the third in the U.S. to pass a law aimed at combating market forces that make renewables and natural gas cheaper than coal.

Jan 29, 2020
Nipsco Power Station in Michigan City, Indiana. Credit: Universal Images Group/Getty Images

The Michigan City Generating Station in Indiana, owned by the utility NIPSCO, is a coal-fired power plant that is set to close. A proposal in the state legislature would place new barriers before companies that want to close coal-fired plants. Credit: Universal Images Group/Getty Images

A proposed law in Indiana would make it harder for utilities to close coal plants, the latest effort by coal-heavy states to beat back the market forces making coal-fired power more expensive than wind, solar and natural gas.

Indiana is vital for the coal industry, with a history of coal mining and power plants that burn more coal than in any state other than Texas. At the same time, several Indiana utilities have announced plans to close coal plants ahead of schedule, saying they are responding to a market in which there are less expensive alternatives.

An Indiana House committee voted last week to recommend the bill to the full House.

"It's casting a shadow of uncertainty over Indiana's energy transition," said Ben Inskeep, the Indiana-based senior analyst for EQ Research, a clean energy consulting firm.

The bill doesn't say it's designed to apply only to coal plants, but it sets out criteria that would mean that coal plants are the only ones covered under the law.

Utilities would need to follow new rules for giving notice of plans to close or sell the plants, and state regulators would need to conduct a review to make sure the plans are in the public interest. Another part of the bill says it is in the public interest for Indiana to have a mix of power plants that provide "reliability, availability, fuel security and diversity"—some of the same terms the coal industry uses to argue for why its plants should stay open.

The measure also would make some plants more profitable for utilities, saying that eligible plants can earn an extra one percent profit over the level currently allowed.

The rules would stay in place until July 2021, allowing time for a state commission to complete a study of the state's energy system and recommend proposals for the 2021 legislative session. The commission is co-chaired by Rep. Ed Soliday, a Republican who also is the lead sponsor of the coal-plant bill.

During last week's hearing, Soliday said the bill is meant to pause the rapid changes in the way Indiana utilities generate electricity while the task force continues to work.

"It is not a bill to make coal last until a second coming," he said.

The bill would lead to higher utility bills, because utilities would be more likely to extend the lives of expensive coal plants, on top of the additional profit they would be allowed to earn. Those costs would be passed on to consumers.

"It's confusing that there's enough political will to literally force consumers to pay more for their power than they otherwise would," said Mark Dyson, principal in the electricity practice at the Rocky Mountain Institute, a nonprofit research group that promotes clean energy. "It kind of boggles the mind."

If Owners Put Coal Plants Up for Sale, Will Anyone Buy?

If the bill becomes law, Indiana would be the third state since the beginning of 2019 to pass a law that subsidizes coal plants or tries to slow down plans to close the plants. 

Is this a trend? If so, it is a small one. But analysts say the legislation can best be understood as a response to the much larger trend of coal's eroding competitiveness, which is happening despite efforts by the Trump administration to help the industry by rolling back regulations.

In Wyoming, Gov. Mark Gordon signed a bill last year requiring owners of coal-fired power plants to explore selling the plants before closing them. Since then, the utility Pacificorp has announced a plan to close two coal plants in the state, a process that will provide the first test of how the law will work in practice.

The big problem with the law from the coal industry's perspective is that there may not be a buyer.

"Nobody in their right mind wants to buy a coal plant in 2020," Dyson said, noting that the environmental and economic problems with operating a coal plant won't vanish under new ownership.

Map: Indiana's Coal-Fired Power Plants

Some Wyoming lawmakers have said they want to expand the power of state regulators to intercede when utilities want to close coal plants. This may be on the agenda when the Legislature begins its session in February.

In Ohio, Gov. Mike DeWine signed a bill in July that provides subsidies for two nuclear power plants and two coal-fired plants, and drastically reduces requirements that utilities meet benchmarks for renewable energy and energy efficiency.

The coal-plant provision of the law has an Indiana connection. It guarantees a profit for the two coal-fired plants operated by Ohio Valley Electric Corp., one in Ohio and one in Indiana. The two plants were built to supply power to a uranium enrichment facility in Ohio in the 1950s. But the uranium enrichment work reduced over time and the plants shifted to selling their electricity into the regional grid.

Ohio Valley Electric Corp. is jointly owned by a consortium of utilities, some of whom asked for subsidies as a condition of supporting the 2019 bill.

What Wyoming, Ohio and Indiana have in common is Republican-controlled state governments and a history of coal mining and coal-fired power. These kinds of proposals would have a difficult time gaining traction in most other states.

"These are outliers," said Jeremy Fisher, a senior advisor to the Sierra Club's Environmental Law Program.

He pointed to another trend in state legislation: a push to create financial mechanisms that would allow utilities to close coal-fired plants early. Colorado and New Mexico have passed bills that do this, and many other states are considering similar proposals.

The financial arrangements, called "securitization," allow utilities to pay off debts related to coal-fired plants by selling bonds that are backed by consumers, freeing up the utility to close coal plants and invest in lower-cost sources of electricity. This might not make sense for all plants and all utilities, but it would help in cases where a plant is only operating because a utility has the equivalent of an unpaid mortgage on it.

Opposition to Indiana Bill Unites Unlikely Groups

Before voting to recommend the bill, Indiana lawmakers listened to hours of testimony, most of it urging them to oppose the measure.

"Every constituency in Indiana appears to be against this bill except for the coal companies," Inskeep said. "It's a rare bill that seems to unite environmentalists, consumer advocates, utilities, the NAACP and the Chamber of Commerce."

And yet, the coal industry is a powerful player in Indiana politics, donating heavily to Gov. Eric Holcomb and lawmakers such as Soliday. For example, coal company executive Joe Craft was Holcomb's largest individual donor last year, giving $50,000.

The industry can see a wave of coal-plant closings coming. Northern Indiana Public Service Co. said in 2018 that it would close all of its remaining coal-fired plants and replace them with renewables and wholesale purchases from the open market, saving money in the process. Since then, other Indiana utilities have announced plans to close coal plants, including a big one last week, when Hoosier Energy said it would shut down a 1,070 megawatt plant in 2023.

The companies are responding to changes in the economics of electricity generation that mean it is often less expensive to build new wind, solar or natural gas than to continue operating old coal plants.

"It's pretty tough to stave off the economics for these companies," said Seth Feaster, an energy data analyst for the Institute for Energy Economics and Financial Analysis, a clean-energy research group. "The coal assets they have are just aging out."

It is not clear how the Indiana bill would affect coal plants in which the owner has announced the intent to close, but the closing has not yet happened. Some of those details should become apparent as the bill moves through the process.

If the bill is going to pass, it will need to happen quickly: Indiana has a part-time legislature, with a session that began Jan. 6 and is scheduled to end in mid-March.

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