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Why Purchased Power is Such a Big Deal to Better Understand US Utilities’ Climate Impact

For RMI’s Utility Transition Hub, new data on power purchased by US utilities yields a more complete picture of total emissions

RMI’s Utility Transition Hub, launched in April 2021, has become a critical tool to analyze and model utility generation and related emissions. Yet until now, the hub lacked a complete picture of the power that utilities buy from external sources, an important piece of their energy supply in addition to generation from utility-owned facilities.

A recent update of our dataset fills this gap. This newly released data unlocks analysis not previously possible. It gives us a full picture of the generation and related emissions of the largest regulated utilities in the United States.

Here are four insights that show how big a deal this new data is:

Big Deal #1: Details on a Quarter of US Electricity Supply

Utilities are responsible for more than the emissions that come directly out of the power plants they own. Power that utilities purchase from external sources is an important component of our energy supply and carries with it emissions that need to be reduced just as much as utility-owned power sources.

Our new dataset relies on data from FERC Form 1, which includes some municipal, cooperative, and transmission companies, but primarily covers vertically integrated, investor-owned utilities.

  • Previously, with this set of utilities, we accounted for 1,502 TWh of generation and 704 MMT of CO2 emissions from utility-owned power plants in 2020.
  • The new data provides details of the technologies and fuel sources for an additional 1,029 TWh of purchased power connected to 369 MMT of additional CO2
  • The addition is equal to 26% of total US electricity generation and 24% of US electricity emissions.

Some of the power purchased by one utility was generated by another, so we can’t simply add together these numbers to get our overall coverage of the electricity sector. Regardless, our new dataset provides details on a significant amount of generation and emissions, and now gives a holistic picture of the full energy supply of most major utilities in the United States.

The importance of purchased power is particularly notable for vertically integrated, investor-owned utilities, whose business model is based on owning all components of the electricity system (generation, transmission, and distribution). Even this group of utilities, which we refer to as “regulated utilities” in the rest of this blog, on average gets 27% of its energy supply from purchased power!

Big Deal #2: A Critical Source of Carbon-Free Electricity

Regulated utilities like to own power plants, because if their capital investment is approved by regulators, they receive an authorized rate of return on that investment and create earnings for their shareholders. But they also purchase power from third parties for a few reasons:

  • Regulations and laws require that they do so. For example, the Public Utility Regulatory Policies Act of 1978 (PURPA) requires utilities to purchase power produced by qualifying facilities. Net metering policies require utilities to purchase power from distributed generation resources such as rooftop solar. And some states require all-source procurement, where utilities must use a competitive bid process and equally consider utility-owned and alternative generation resources in their planning.
  • Reliability. Power purchases create an opportunity to expand beyond a utility service territory, providing geographical diversity that reduces variability of renewables. Market purchases allow utilities call upon a broader electric grid to meet reliability needs on an hourly basis. And power purchase contracts with individual generators can fill gaps in meeting annual energy demand in cases such as when an existing power plant retires early.
  • Cost. Purchased power may be lower cost than a utility building and owning its own power plant. One reason this can be true is because wind and solar are often the lowest cost generation resources, but because of tax capacity limitations and inability to capture tax incentives, many utilities find cheaper sources of renewable energy from outside sources. Thankfully, the Inflation Reduction Act may help solve that problem, by making it possible for the utility to transfer tax incentives to other taxpayers or to choose a production tax credit (PTC) as an alternative to an investment tax credit (ITC).
  • Emissions targets have become standard for electric utilities in the United States, as set by a state or by the utility itself. Similarly, state renewable portfolio standards mandate that a fraction of a utility’s generation come from renewables. These targets don’t directly require that utilities purchase power from third parties, but in many cases it can be either more cost effective or timely for utilities to meet emissions targets with purchased power.

From the list above, it’s clear that purchased power is an important way that regulated utilities source carbon-free energy. RMI’s new data shows that this happens in practice too. In 2020, solar and wind made up a combined 5% of owned generation, but a full 22% of purchased generation – that’s a big deal!

Purchased power also has higher fractions of generation from hydroelectric, biomass, and geothermal generation, and lower fractions of coal and fossil gas generation. That makes purchased power a critical way in which the United States grid has been and will continue to reduce emissions and meet the US target of 100% clean electricity by 2035.

Big Deal #3: The Customer Perspective

Understandably, many electricity customers want to know the technology mix and the emissions associated with the electricity they’re using. That information is necessary for emissions accounting and for making informed decisions about tradeoffs between fossil fuel vs. electric appliances and vehicles. But the data that was previously available was either hard to access or limited in detail; customers had to search for a recent utility report or publication, or may have used state electricity data to make estimates.

Now, RMI’s data provides a comprehensive database with detailed technology and emissions breakdowns of generation and emissions, including both utility-owned as well as purchased power that is delivered to customers. This enables broad assessments of the emissions that come from a customer’s electricity generation, as in the chart below. Filling in the complete electricity customer perspective is a big deal!

Big Deal #4: Better Comparisons of Utilities

By including emissions and generation from both owned and purchased power, RMI’s new data allows for better comparisons across utilities. If analysts were previously comparing the technology mix or the emissions associated with utilities based only on owned generation, they were missing a big part of the story. Financial industry stakeholders, in particular, should take notice that including the emissions from purchased power is critical to understanding the total emissions profile of utilities.

As an example in the chart below, Consumers Energy Co. owns primarily fossil power plants. Just 7 percent of its owned power generation comes from clean energy sources. But it also gets over a third of its electricity supply from other generators, and 44 percent of that purchased power is clean, making its overall electricity supply 30 percent zero-carbon. In the alternative direction, MidAmerican Energy Company’s owned generation is 75 percent clean but only 22 percent of its purchased power comes from clean generation sources, so its overall generation mix is 67 percent clean.

Now we have a full picture of these utilities and can make more informed comparisons and assessments of their generation and emissions – that’s a big deal!

The Backstory: How we did it

In the past, when analyzing the US electricity sector, we typically have had a complete view of the power plants owned by each utility. We get publicly available data from the Energy Information Administration (EIA)’s forms EIA-860 and EIA-923, and the Federal Energy Regulatory Commission (FERC)’s FERC Form 1. Our partners at Catalyst Cooperative tidy up and combine multiple years of this data. RMI’s Utility Transition Hub has easily accessible data downloads and visuals that show the technology, location, operational data, and emissions associated with power plants.

However, the plants that a utility owns are just one source of electricity supply. The full portfolio includes power purchase agreements with third-party generators, electricity market purchases, net exchanges with other utilities, and wheeling (transmission for/by other companies). This creates a messy landscape, which until now prevented stakeholders from engaging in conversations on utilities’ complete energy supply.

In recent months we were able to close this data gap, by cleaning up and combining datasets from EIA and FERC to produce detailed, machine-readable data on purchased power. Rather than a black box quantity of energy purchased by a utility, we now know who each utility purchased their power from and the technologies, fuels, and emissions associated with those purchases. This newly released data unlocks analysis that was not previously possible, giving us a fuller picture of the electricity generation and related emissions from the largest regulated utilities in the United States — a very big deal indeed.

Visit RMI’s Utility Transition Hub for More

The data presented in this article is available on RMI’s Utility Transition Hub, through a data download and accompanying data visualizations. Data is currently available for 2005-2020. Data for 2021 will be available in the near future.

For news and to track updates, visit the Utility Transition Hub and click ‘subscribe’ there.