Kansas utilities run coal plants all year, costing millions
“It doesn’t matter to the regulated utilities,” said Travis Kavulla, director of energy policy at the R Street Institute, a think tank that favors free markets and limited government. “Because whatever they pay in fuel . . . gets recovered from their customers, dollar for dollar.”
For example: If the market is paying $25 per megawatt hour of generated electricity and a Westar coal plant self-commits at $30 per megawatt hour, that plant should lose Westar $5 per megawatt hour produced.
But it won’t, because the fuel tariff reimburses Westar for their total fuel cost.
Kavulla, who used to be a state regulator in Montana before joining R Street, said regulators could help the problem by making sure utilities have some skin in the game.
Until regulators make changes, Kavulla expects coal power plant owners such as Westar will likely continue to self-commit their resources and enter into long-term coal purchasing agreements.
“After all,” he said. “If I’m a Utility Chief Financial Officer, why would I spend a lot of my time trying to drive the best deal on a fuel supply contract if it’s fundamentally not going to make me any profit?”