Week Ending April 6, 2018

With Perry Reviewing FirstEnergy Petition, States and Groups Give Views

This Article Appears as Published in Foster Report No 3193
With Perry Reviewing FirstEnergy Petition, States and Groups Give Views

Rick Perry

Numerous consumer advocates and energy trade groups filed comments with Energy Secretary Rick Perry opposing the request from FirstEnergy Solutions (FES) for an emergency order under the Federal Power Act (FPA) to boost compensation for coal and nuclear power plants in PJM Interconnection.

FES said PJM has not addressed wholesale power market flaws that ignore grid resilience issues and, like FERC, has delayed any action while coal and nuclear plants with fuel supplies on site are retired and grid reliability is put at risk. “FES respectfully submits that allowing PJM to continue to kick the can down the road is how we arrived at this crisis,” the company told Perry. PJM General Counsel Vincent Duane sent a March 30 letter to Perry indicating that there is no need for Perry to take immediate action, while FES submitted a response to the PJM letter, asserting that “the time for action is now.”

As they did before making their filings and in subsequent letters to the Department of Energy (DOE), groups countered that there is no resiliency crisis warranting the action sought by the subsidiary of FirstEnergy Corp. Unlike serious power supply concerns or dire situations when DOE issued emergency orders under FPA section 202(c), “there is no imminent threat” that merits such a ruling for the PJM area, said a collection of 11 groups.

Those groups, which included industrial consumers, natural gas interests, competitive generators, and renewable resources, said Perry should make the FirstEnergy application subject to a comment period of at least 60 days. The groups that filed the March 30 letter are: American Council on Renewable Energy, Advanced Energy Economy, American Forest and Paper Association, American Petroleum Institute, American Wind Energy Association, Electricity Consumers Resource Council, Electric Power Supply Association, Independent Petroleum Association of America, Interstate Natural Gas Association of America, Natural Gas Supply Association, and the Solar Energy Industries Association.

When or how Perry may address the FES request is an open question, with several sources speculating that he may wait a while given the lack of a clear emergency. A spokeswoman for Perry said the application “is now under review,” without additional comment.

There does not appear to be any statutory deadline for action, and other requests for emergency orders under FPA section 202(c) have been addressed in different time frames, from days to months. The most recent use of the authority under that section of the law, in June 2017, came three days after PJM filed a request for emergency order to maintain grid stability in the Hampton Roads area of Virginia due to Dominion Energy Virginia Electric and Power Co. retiring two units at its Yorktown power plant. In a 6/16/17 decision that has since been extended several times, Perry agreed with PJM’s determination that the two Yorktown units are needed to maintain grid reliability. The units are to be dispatched only when called upon to address reliability needs, Perry said

That decision is among the list of FPA section 202(c) orders DOE secretaries have issued over the past 18 years, with eight orders since 2000.

The list does not indicate if other requests for emergency action were rejected, and the lack of clarity on how the process will work in FES’ petition is a concern, sources have said.

FES asked 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. Referring to pass generation retirements and those being announced, FES 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 Nation’s security is jeopardized if DOE does not act now to preserve fuel-secure generation and the diversity of supply” in PJM, it said. 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.

In response to the March 29 request, several entities labeled it a pleading for a financial bailout of coal and nuclear generation units, adding that FPA section 202(c) is meant for immediate and dire power grid emergency situations, which clearly do not exist in PJM.[1] The competitive generation market in PJM provides adequate power supplies and healthy reserves, with a diverse range of resources, the grid operator said.

By seeking additional compensation for coal and nuclear units, the FES request of Perry is somewhat similar to Perry’s notice of proposed rulemaking (NOPR) that was rejected by FERC in a 1/8/18 order.  The NOPR asked FERC to act under FPA section 206 to provide full cost recovery for power plants with 90 days of fuel on site in organized markets that have energy and capacity markets, which was generally viewed as a step to provide additional compensation for coal and nuclear power plants in those regions. Adopting the NOPR would have prevented such facilities from retiring because they have been priced out of the market by lower-cost generation resources.

A few days after sending the request to DOE, FES filed for bankruptcy under Chapter 11 of the Bankruptcy Code. FES is the competitive generation arm of FirstEnergy and the financial woes do not involve multi-state utilities under Ohio-based FirstEnergy, the parent company noted.

The bankruptcy filing and FES’ notice that it intends to retire three nuclear plants in PJM in the coming years highlight the lack of urgency in the case, the 11 trade groups said in their letter to Perry. The plant retirements will not occur until 2020 or 2021 and the bankruptcy filing will decrease, not increase, financial pressures on FES they said.

Without a clear emergency, Perry should establish notice-and-comment procedures before taking any favorable action on the FES request, they said. The company’s petition is basically asking Perry to second-guess FERC’s expert findings in the NOPR proceeding, which had a substantial record developed, compared with the pleading of one company, the groups said.

Other entities that have sought to intervene or comment in the proceeding include consumer advocates from New Jersey and West Virginia, industrial customers in PJM and others concerned about higher power costs if Perry agrees with FES. “The request is legally misguided and factually incorrect,” said the consumer advocate division of the West Virginia Public Service Commission.

Two other generators with nuclear assets in PJM offered tepid support for FES’ request, asserting that policymakers need to address wholesale market functions that do not properly compensate nuclear units for zero-emission power supplies that also boost local economies in communities where they are located. PSEG Services Corp., which includes New Jersey utility Public Service Electric and Gas Co. and competitive generator PSEG Power LLC, and Exelon Corp. sent letters to Perry stating that PJM and FERC have not given proper attention or priority to grid resilience issues.

“Both FERC and PJM have acknowledged that traditional reliability analyses do not encompass the resilience of supply,” so PJM’s reliability evaluation “is not dispositive of whether action is needed,” Exelon said. It told Perry that policymakers need to fix “market rule flaws that unfairly disadvantage nuclear plants.”

The PSEG companies said policymakers should “take immediate steps to assure that the attributes of nuclear generation are properly valued in market rules so that nuclear generation retains its role in supporting a resilient and secure electric grid and continues to serve as an important economic driver in the communities they serve.”

In his letter, Duane of PJM said he would not address at this time “several misstated facts presented by FES” or PJM’s disagreement with several points in the company’s petition. Instead, he gave Perry two reasons why there is no need to take immediate action.

First, PJM will undertake a detailed analysis of its system and the planned FES unit retirements within 30 days, as called for in the PJM tariff, to determine of the announced retirements would present supply adequacy, local reliability or voltage support issues. If any concerns are raised, PJM’s tariff provides another 60 days for PJM to work with FES on a range of tools to address such concerns, including transmission system upgrades or full cost-of-service compensation to induce generation assets to remain online temporarily.

Second, because the FES generation units will remain operational for several years, and FES could rescind its decision to retire them before then or sell them, PJM, FERC, and DOE have plenty of time to assess any measures that might be taken, Duane said.

He asked Perry to allow the process to take place in an orderly manner “and refrain from taking unnecessary, extraordinary and precedential immediate action as sought by FES.”

But PJM’s response actually reinforces the need for emergency relief, the FirstEnergy subsidiary countered in its letter to Perry. The grid operator focused on reliability issues and not resiliency concerns that are the subject of the petition. The emergency involves the bigger picture associated with numerous power plant retirements and more that are likely to in the future, resulting in an irreparable loss of resiliency in the PJM area.

By narrowly framing the issue around the few FES units, “PJM continues to assume away the legitimacy of this resiliency crisis,” the company said. The response brings up the issue of reliability compared with resilience, which is the ability of the grid to withstand challenging conditions and emergencies, which was the focus of Perry’s NOPR and a DOE staff study on baseload generation retirements. In the FERC proceeding after it rejected the NOPR, parties are providing comments on resilience issues.

Duane of PJM addressed reliability and system adequacy issues, asking Perry to trust the PJM process that led to the crisis, FES said. “In effect, PJM is asking the Secretary to defer action on the application and instead rely on a narrow process run by an entity that has admitted that it does not have a clear view of what resilience is, how to measure it, or how to ensure it,” the company said.

By Tom Tiernan TTiernan@fosterreport.com

[1]   For a past story, see, Groups Pushing Back on FirstEnergy Seeking DOE Help, DOE Lab Touting Coal Use, FR No. 3192, pp. 1-4.

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