Senate Bill (SB) 4, an omnibus energy bill, was just passed out of the House and will next be on the governor’s desk. The bill includes provisions for new power generation, utility financials, and regulations for closing existing facilities. This is particularly relevant as Missouri’s largest utilities, Ameren and Evergy, are slated to close most of their coal plants by the 2040s. This would be a monumental shift, especially for Ameren, whose current coal fleet comprises 56% of its energy mix. and began operating in the 1960s and 1970s.
The Monopoly (Vertically Integrated) System
SB 4 addresses issues in a regulated monopoly market. In a truly competitive electricity market (such as through retail competition), market forces would guide energy development and allow private developers to compete to meet energy demand. However, Missouri’s system grants exclusive service territories to some utilities, meaning some consumers have no choice in who provides their electricity.
In this system, the cheapest power plant for ratepayers is often one that has been fully depreciated (its construction costs have been paid off). Monopoly utilities earn profits during a plant’s depreciation period, meaning that once depreciation ends, utilities have an incentive to close plants and build new ones to restart the profit cycle.
An Oversimplified Math Problem
Consider the hypothetical company Energysaurus Rex (E-Rex). E-Rex wants to construct a $500 natural gas plant, and it plans to depreciate that plant over five years and earn a government-approved 10% profit:
Over five years, E-Rex recoups its investment and earns $150 in profit, plus operational costs. Once depreciation ends, ratepayers pay only for operation.
This dynamic creates the potential for utilities to use the “energy transition” as an opportunity to shut down depreciated coal plants early, even when these plants still provide reliable, affordable power. While some power plants naturally reach the end of their lifespan, premature closures without proper replacements could put ratepayers at risk of unnecessary price hikes and power outages.
Reliable Replacement of Power Plants
SB 4 mandates that prior to the closure of an existing power plant, a replacement must be secured with equal or greater “reliable electric generation.” This includes:
- At least 80% of the replacement capacity must come from dispatchable (always available to be sent to the grid) power sources, such as nuclear, coal, or natural gas.
- “Adequate” transmission lines must be in place and ready to operate immediately or shortly after a plant is taken offline (depending on the interconnectedness and nature of the plant being shut down).
Explanations of “dispatchable” and “reliable” can be found here and here.
SB 4 also expands the Missouri Public Service Commission’s (MPSC) oversight, influences long-term resource planning, and alters financial policies for utilities. Some of these provisions give the MPSC powers that could also help curb premature plant closures, but they also raise questions about the appropriate level of state control over a government-approved monopoly. The general assembly has voted to expand state regulators’ authority over government-approved monopolies, but the final decision rests with the governor. He must weigh whether SB 4 strikes an appropriate balance.
Provisions in SB 4 could help maintain reliability by ensuring dispatchable power plants are replaced with similar sources. SB 4 could potentially help prevent premature coal plant closures, thus keeping electricity costs lower for longer. However, Missouri should consider how to introduce more market competition into the energy sector, so that innovation and competition, rather than regulation, drive Missouri’s energy future.
