FirstEnergy asks DOE for emergency action to save PJM coal, nuke plants

Source: By Robert Walton and Gavin Bade, Utility Dive • Posted: Friday, March 30, 2018

  • FirstEnergy Solutions on Thursday asked the U.S. Department of Energy to issue an emergency order to provide cost recovery to coal and nuclear plants in the PJM Interconnection, saying market conditions there are a “threat to energy security and reliability.”
  • FirstEnergy made the appeal under Section 202(c) of the Federal Power Act, which allows the Department of Energy to issue emergency orders to keep plants operating. The company Wednesday announced it would close three nuclear plants in PJM before the end of their operational lives.
  • Orders under 202(c) are typically used to ensure reliable power supply after sudden emergencies, not insulate uneconomic plants from market forces. A DOE assistant secretary last month said the agency “would never” use a 202(c) order for economic reasons, and lawyers say an approval of FirstEnergy’s request would face immediate court challenges. ​

In a letter to Secretary of Energy Rick Perry, FirstEnergy requested that DOE exercise its authority under 202(c) to ensure “just and reasonable cost-based rates” for generators that have 25 days of onsite fuel supply and are not recovering their costs today.

On a plant-by-plant basis, the generators would negotiate with PJM for “just and reasonable cost-based rates that provide for full cost recovery.” FirstEnergy also requested that DOE’s order direct PJM to “begin negotiating immediately with such generators on the terms of such supply.”

 FirstEnergy wants the emergency order to remain in place for four years, or “until the Secretary determines that the emergency has ceased to exist because the PJM markets have been fixed to properly compensate these units for the resiliency and reliability benefits that they provide, whichever is later.”

FirstEnergy’s request did not identify specific plants for cost recovery, but included a list of all the coal and nuclear generators in PJM — about 85 in total.

The request rests on the assertion that market conditions in PJM will eventually push so many coal and nuclear generators offline that reliability will be threatened. Large, inflexible plants in that market and others are struggling to to the comparatively low cost of natural gas and renewables, and last month FirstEnergy’s CEO said if the situation continues “there will be no coal or nuclear plants left in these markets.”

“Threats to the Nation’s power supply and grid are real and can no longer be ignored,” FirstEnergy wrote. “The Nation’s security is jeopardized if DOE does not act now to preserve fuel-secure generation and the diversity of supply.”

Federal energy regulators have already weighed in on that reliability question. Last September, DOE proposed a similar cost recovery plan at the Federal Energy Regulatory Commission, targeting plants with a 90-day fuel supply. FERC, however, rejected the plan unanimously, writing that DOE and its allies — including FirstEnergy — did not prove that reliability is threatened, or that the cost recovery plan would improve conditions.

The Section 202(c) request appears to be FirstEnergy’s attempt to get around that decision, said Joel Eisen, an energy law professor at the University of Richmond.

“The application explicitly mentions FERC’s failure to compensate these plants,” he said. “There is no question whatsoever that this is an attempt to do what the [DOE proposal] would have done.”

Section 202(c) orders are infrequent and typically are issued in response to natural disasters. President Obama did not grant any requests under 202(c) authority, Ari Peskoe, director at the Energy Law Initiative at Harvard, noted in a tweet. President Bush did five times — twice in response to hurricanes.

Get electric utility news like this in your inbox daily. Subscribe to Utility Dive:

More recently, DOE approved a 202(c) order in April 2017 to keep a large coal plant online in the Southwest Power Pool until other generators were activated. Earlier orders from the Trump administration targeted a dam in Oklahoma and two Dominion Energy coal plants in Virginia.

Those situations all differ from FirstEnergy’s request in that they deal with sudden emergencies, not gradual retirements caused by market forces, said Eisen.

“[Section 202(c)] is not for some hypothetical future situation that might arise,” he said. “It is instead is for emergencies that have actually happened, like the shortages after Hurricanes Katrina and Ike.”

Efforts are already underway at PJM and other grid operators to reform pricing structures for large, inflexible generators. Those efforts are controversial, with Eisen and other industry observers worried they could amount to a low-profile bailout for coal and nuclear plants, but the Richmond professor said they are the proper forum to address issues of generator compensation.

“Those steps, whether they’re being done in the energy or capacity markets … are the proper mechanism for addressing the market forces that FirstEnergy is discussing,” Eisen said, “not a 202(c) order.”

It remains unclear if DOE officials are open to an emergency order. Just last month, Assistant DOE Secretary Bruce Walker said the agency “would never” use its emergency authority to keep uneconomic generators online. Last August, Perry also reportedly denied a request from coal miner Murray Energy to deploy the emergency authority for coal plants.

If DOE did decide to approve the FirstEnergy request, FERC has little regulatory recourse, Eisen said, meaning any challenge would have to come through the legal system.

“Neither the [FPA] statute nor the regulations provide authority for FERC to redefine the terms of the order or its conditions,” he said. “That means that for practical purposes the recourse is to the courts.”

That court challenge would likely come swiftly after an approval. Soon after FirstEnergy’s letter became public, NRG Energy, which owns gas generators in PJM that compete with FirstEnergy’s plants, issued a statement condemning the plan.

“There is absolutely no reliability problem in PJM — they’ve said so — and in any event, PJM would study the reliability impact of announced retirements and could facilitate a Reliability-Must-Run agreement if it was needed,” spokesperson David Gaier said via email. “The only crisis here is one affecting FirstEnergy’s shareholders, and Ohio ratepayers should not be asked to bail out FirstEnergy just because it can’t figure out how to profitably operate its power plants.”

3 nuclear closures

The day before its letter to Perry,FirstEnergy Solutions notified PJM and the U.S. Nuclear Regulatory Commission that two nuclear plants in Ohio and one in Pennsylvania, with combined capacity of 4 GW, would be deactivated over the next three years.

The closures will include the 908 MW Davis-Besse Nuclear Power Station in Ohio; the 1,872 MW Beaver Valley plant in Pennsylvania and the 1,268 MW Perry Nuclear plant in Ohio.

FirstEnergy in January warned Davis-Besse woud close if Ohio lawmakers did not approve a plant subsidy bill.

Don Moul, president of FES Generation and chief nuclear officer, said while the company’s plants “have taken aggressive measures to cut costs, the market challenges facing these units are beyond their control.”

Moul also called on state officials in Ohio and Pennsylvania to consider policy solutions. FirstEnergy will continue to work on legislative solutions to keep the plants operating, and will also be looking for potential buyers.