Improving Energy Affordability through Economic Dispatch

When utilities prioritize running more expensive power plants before cheaper ones, customers pick up the tab. Economic dispatch can change that.

Nearly 70 million adults nationwide — one in every four — reported forgoing necessary expenses, such as for food or medicine, to pay their energy bills in 2023. Many of those people are in low-income households where every dollar counts. One way we can help decrease customer energy bills for many families is to refrain from running coal plants when lower-cost resources are available.

Coal plants shouldn’t be operating when lower-cost resources are available in the first place. Utilities are supposed to select power plants to run in “merit-order,” from least cost to highest cost. This is best accomplished through a process called “economic dispatch,” which ensures that consumer costs for electricity are as low as possible. However, some utilities skip the line, resulting in unnecessarily high energy bills — up to an extra $200 a year — and missed opportunities for customer savings. New economic dispatch data released by RMI illuminates just how big those missed opportunities are.

Translating Economic Dispatch to Customer Electric Bill Savings

Consumers could have saved $10 billion between 2016 and 2022 if their utilities followed economic dispatch practices. RMI’s analysis assessed hourly operations of coal plants nationwide and calculated the economic impact of dispatching coal at times when less expensive resources were available on the market, a practice known as “uneconomic dispatch.” Addressing uneconomic dispatch is one way to help reduce energy burden (the percentage of household income spent on energy costs), as utilities pass on the losses they incur directly to customers. RMI’s Dispatch Dashboard tracks uneconomic operation of coal plants and includes historical information on the average annual bill impact of uneconomic dispatch on residential customers. This can provide information and inspire solutions for mitigating energy burden, particularly for households that are affected the most.

RMI’s Dispatch Dashboard finds that customer bills rise an average of $9 annually due to uneconomic dispatch practices. Although this five-year average might seem modest, there is a huge range on what specific customers pay to prop up uneconomic coal plants. Customers of utilities that own extremely uneconomic coal plants can see bill impacts as high as $200 a year. Seven utilities, that serve over 1.5 million residential customers, have customers that see bill increases that average over $50 each year. Using the Dispatch Dashboard, we can explore regions of the United States and different utilities to get a better picture of how these uneconomic dispatch bill impacts are affecting households.

Bringing Energy Security Back to the South

Customers in the Southeast see the highest bill impacts by region from uneconomic dispatch, with some utilities consistently reaching above $100 per household due to uneconomic dispatch practices. The Southeast has historically had some of the highest residential energy bills and highest energy burden in the country, which we know adversely affects the millions of low-income, marginalized communities across the region. More customers in this region are cost-burdened than in any part of the country, creating a state of energy insecurity where millions of customers struggle to maintain vital services like heating and cooling. Eliminating uneconomic dispatch practices would bring some relief to the most vulnerable customers in local communities where the practice is most pronounced.

Meeting Affordability Goals in the Midwest

Enacting economic dispatch practices also provides an opportunity for utilities within the Midwest regional grid, or MISO, to improve affordability. The MISO region has the most utilities whose customers pay more than $40 per year for uneconomic dispatch operations — RMI’s research shows that an average of 670,000 households in MISO pay this amount or more per year to bail out coal plants that dispatch uneconomically. Currently, the Louisiana Public Service Commission (LPSC) is trying to claw back losses incurred from MISO member Cleco Power’s uneconomic dispatch that occurred over the years at the Dolet Hills coal plant. If the commission succeeds, that money will go back to customers’ wallets.

What the LPSC is doing is admirable, but there is a better way. Rather than have a reactionary battle over how to claw back losses coal plants already incurred, why not stop these uneconomic dispatch practices in the first place or at least address it as soon as possible. The Economic Dispatch Dashboard allows regulators to look at recent operations and determine whether coal plants have recently been operating uneconomically and address this in the next rate case before things really add up. State PUCs in MISO could then mandate economic dispatch practices to help member utilities achieve their climate and affordability goals.

Lowering the Energy Burden

Economic dispatch practices decrease customer bills and help bring down a household’s overall energy burden, and in turn, reduce the likelihood that a home will go without power, food, or other essentials. Additional actions such as fuel cost sharing and utilizing IRA incentives are also on the table for utilities and regulators, and can pave the way for economic dispatch, and thus bill savings for households that need it. While many actions are needed to improve affordability outcomes for customers, moving toward economic dispatch practices is a critical step utilities and regulators can take to bring energy security and relief from high energy bills to the most vulnerable in our communities.