Week Ending March 30, 2018

Groups Pushing Back on FirstEnergy Seeking DOE Help, DOE Lab Touting Coal Use

This Article Appears as Published in Foster Report No 3192
Groups Pushing Back on FirstEnergy Seeking DOE Help, DOE Lab Touting Coal Use

In the days leading up to the Easter holiday, remnants of the Department of Energy (DOE) grid resilience proposal rose from the dead in the form of a DOE lab report and a FirstEnergy Corp. petition for emergency action from Energy Secretary Rick Perry to support coal and nuclear power plants.

Similar to Perry’s notice of proposed rulemaking (NOPR) that was rejected by FERC, the FirstEnergy request for compensation to coal and nuclear generation units in PJM Interconnection drew the ire of an array of groups supporting the environment, renewable fuels, the natural gas and oil industry and competitive markets.

The Natural Gas Supply Association (NGSA) was one of the few groups to criticize the National Energy Technology Laboratory (NETL) study touting coal-fired generation use during the winter “bomb cyclone” storm event at the end of 2017 and the first week of 2018. The NETL report, which was used to support FirstEnergy’s request, states that continued retirement of coal and nuclear power plants in organized wholesale markets could harm the nation’s ability to meet power supply needs during future severe weather events.

The FirstEnergy request seeks intervention from Perry to find that an “emergency condition” exists in PJM such that additional compensation is needed to support coal and nuclear power plants at risk of retirement, which will diminish fuel security and diversity of generation in the PJM area. “The Nation’s security is jeopardized if DOE does not act now to preserve fuel-secure generation and the diversity of supply” in PJM, the Ohio-based utility said.

Coal and nuclear generation retirements need to stop immediately, lest the PJM grid be placed at risk of failure due to over-reliance on generation units that lack fuel security and compete with other industries for limited fuel delivery capabilities. The request asks Perry to use DOE authority to find that an emergency exists and to have PJM pay each coal and nuclear generation unit that can operate for 25 days at full output cost-based rates that provide full cost recovery for continued operations.

FirstEnergy made the March 29 request under Section 202(c) of the Federal Power Act, Section 301(b) of the DOE Organization Act and certain DOE rules and practices. It, along with coal firm Murray Energy and Exelon Corp., which owns a majority of the nuclear generation in PJM, were among the companies supporting Perry’s plan to have FERC adopt a NOPR to support coal and nuclear units in organized wholesale power markets.

FERC declined to do so, instead opting to seek more information from grid operators on whether further action on market design, price formation, or other areas is needed to address grid resilience. That 1/8/18 order (RM18-1, AD18-7) directed each regional transmission organization (RTO) and independent system operator (ISO) to submit information on numerous resilience issues, and the proceeding remains pending at the Commission.

With FERC failing to take the steps beyond what was asked by Perry, FirstEnergy went around the Commission and sought action from DOE directly.

“The findings in the NETL report fully support the Secretary determining that an emergency exists within the meaning of FPA Section 202(c) that warrants immediate action,” FirstEnergy said. Citing high natural gas prices, reduced output from wind generation, and comparing prices during the bomb cyclone event and regular operations, the NETL report placed the value of resilient generation in PJM during the winter storm at $3.5 billion.

If Perry does not act immediately to ensure coal and nuclear units in PJM do not retire by providing additional financial support, the PJM grid will likely experience reliability issues, FirstEnergy said. The letter cites Perry’s proposal and other sources detailing plant retirements in the region, noting that “FERC has for several years failed to heed this warning and to act to prevent this impending crisis” in PJM.

Among those who said there is no crisis in PJM is the grid operator itself. “There is no immediate emergency” and nothing to date indicates that an emergency would result from the generation retirements planned in the PJM footprint, PJM said. “The PJM system has adequate power supplies and healthy reserves in operation today, and resources are more diverse than they have ever been.”

The retirement of generation units is planned in advance and discussed among stakeholders, including a preliminary analysis of upcoming generation retirements and the effect on the transmission grid. “We found that the system would remain reliable. We have adequate amounts of generation available,” the media affairs office at PJM said in response to questions.

While FirstEnergy Solutions has notified PJM of plans to retire three nuclear generation facilities in the coming years, other generators and the competitive market design produce reliable power supplies at reasonable costs. In Ohio alone, there is about 10,000 MW of generation under construction or in the review process to connect to the grid, PJM said.

FirstEnergy Solutions on March 28 indicated that it would deactivate the Davis-Besse and Perry nuclear plants in Ohio and the Beaver Valley plant in Pennsylvania, which total 4,048 MW, in the next three years. PJM will review the plant closures for reliability impacts while the units continue normal operations, it said.

Besides seeking intervention at the federal level, FirstEnergy Solutions asked lawmakers in Ohio and Pennsylvania to support keeping the plants from retiring. “We call on elected officials in Ohio and Pennsylvania to consider policy solutions that would recognize the importance of these facilities to the employees and local economies in which they operate, and the unique role they play in providing reliable, zero-emission electric power for consumers in both states,” said Don Moul, president of FES Generation Companies and chief nuclear officer at FirstEnergy.

In the letter to Perry, FirstEnergy said it is making the request for additional compensation for all eligible coal and nuclear units in PJM, not just those owned by FirstEnergy. It provided information on FirstEnergy units, and said DOE could require PJM to obtain information to support contracts with each plant eligible under the criteria laid out.

Among the groups that blasted FirstEnergy’s petition to Perry were NGSA, the American Petroleum Institute, Sierra Club and Advanced Energy Economy, a national business group that supports renewable resources and energy efficiency.

FPA Section 202(c) is meant for immediate and dire power grid emergency situations, which clearly do not exist in PJM, said Dena Wiggins, president and CEO of NGSA. “Competitive markets have a long track record of delivering affordable power to customers. It would be counterproductive and send the wrong signal to the market for DOE to grant this request,” she said.

The Sierra Club said it is prepared to take legal action if Perry decides to issue an order as sought by FirstEnergy, which the group claims would be illegal because it would not meet the definition of emergency as called for under FPA Section 202(c).

“FirstEnergy is trying every trick in the book to get Rick Perry and the Trump administration to stop the rapid growth of the clean energy economy, boost their own profits and drag us backward into the past yet again, but they will not succeed,” said Mary Anne Hitt, director of Sierra Club’s Beyond Coal campaign.

API said FirstEnergy should stop misleading the public and government officials about the status of its power plants in Ohio and Pennsylvania. “FirstEnergy’s latest attempt to spread a false narrative surrounding the reliability of the electric grid is nothing more than a ruse that will force main street consumers to pay higher prices,” said Todd Snitchler, director of API’s market development group and a former commissioner at the Ohio Public Utility Commission.

“For FirstEnergy to cry wolf on the issue of grid reliability is irresponsible and is the company’s latest attempt to force consumers to pay for a bailout,” Snitchler said.

AEE called on Perry to reject the request, which it termed a multi-billion-dollar bailout to salvage power plants that are losing money in the competitive generation market. “This outrageous attempt to evade established market procedures is unprecedented,” and “we fully expect Secretary Perry to reject this application as an inappropriate use of his emergency powers, just as he did last year when Murray Energy asked him to keep coal plants open,” said Malcolm Woolf, senior vice president of policy at AEE.

As mentioned, the NETL report touting the heavy reliance on coal-fired generation during the “bomb cyclone” is being challenged by NGSA as using flawed assumptions that mistake economic dispatch choices for physical limitations on gas supplies. The report wrongly asserts that physical constraints on natural gas supplies took place during the winter storm, when it was the generation choices of grid operators that resulted in different resources being used, Wiggins said in a statement.

The NETL report concludes that continued retirement of coal and nuclear power plants in organized wholesale markets could harm the nation’s ability to meet power supply needs during future severe weather events. Without the resilience provided by baseload coal plants, the Eastern part of the U.S. would have suffered severe electricity shortages and likely would have had widespread blackouts, it said.

That view was one of the prompts that led Perry to seek a rulemaking from FERC to have ISOs and RTOs provide additional compensation for coal and nuclear generation units. When FERC issued that decision in January, Perry said generation resources with on-site fuel capabilities play an essential role in providing Americans with reliable, resilient, and affordable electricity, particularly in time of weather-related stresses like the “bomb cyclone” storm.

The NETL report analyzed ISO and RTO market performance, generation choices and other factors during the storm that struck much of the Eastern U.S. between 12/27/17 and 1/8/18. Coal provided a majority of the daily power generation required to meet the emergency, with 55% of the generation across six ISOs, according to the study.

The report shows that “coal was the most resilient form of power generation during the event and that removing coal from the energy mix would worsen threats to the electrical grid’s dependability during future severe weather events,” said Peter Balash of NETL’s Energy Systems Analysis team and one of the authors of the report.

The report warns against overestimating the nation’s ability to respond to weather events if the current rate of coal plant retirements continues.

It also notes that fuel-oil generation resources were used heavily in ISO New England due to gas pipeline and delivery constraints. Nuclear plants generally ran at maximum output, while wind power resources were 12% lower than during a typical winter day, NETL said.

“Lack of sufficient natural gas pipeline infrastructure and the surge in natural gas demand for heating led to sharp increases in natural gas spot prices exceeding 300% across the Northeast and Mid-Atlantic,” according to the report. The limitation of natural gas supplies via pipeline for power generation in New York ISO and ISO New England stands out as a key takeaway from the bomb cyclone event, NETL said.

NETL said it welcomes comments from interested parties and given the industry reactions to the NOPR that was rejected by FERC, it should receive plenty of feedback.

The NETL authors confuse physical availability of fuel with economic generation dispatch choices made by ISOs, which is a “fatal flaw” of the report, Wiggins said in a statement. “The amount of natural gas dispatched versus coal during the bomb cyclone is not a measure of how much natural gas was physically available to run, it is simply a predictable behavior by power generators reacting to competitive power market structures.  Making conclusions about the physical resilience of fuels based on their market prices during a cold freeze is not a sound approach nor does it indicate generation outages and system collapse as the report wrongly concludes” she said.

NGSA added that low natural gas prices have saved consumers billions of dollars by providing reliable and affordable fuel supplies for generators, with those low costs forecast to continue for many years to come. Indeed, it is competition with low natural gas prices that has led older, uneconomic power plants to seek subsidies to support their continued operation, the group said, noting that it plans to share its concerns directly with NETL.

By Tom Tiernan TTiernan@fosterreport.com

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