Subsidizing coal and nuclear power plants would not be legal, says PJM

Source: By John Funk, The Plain Dealer • Posted: Wednesday, October 25, 2017

CLEVELAND, Ohio — The independent company that manages competitive wholesale power markets in Ohio and 12 other states believes a federal proposal to subsidize the owners of old nuclear and coal plants is unworkable and would not even be legal.

The U.S. Department of Energy proposal “is simply unworkable,” said Andrew Ott, CEO of PJM Interconnection, in a press conference today. “We believe it is contrary to law.”

PJM intends to file formal comments later today with the Federal Energy Regulatory Commission regarding the proposal from the DOE.

The DOE in September, following intense lobbying from the coal industry and from FirstEnergy and other traditional utilities, proposed that FERC require PJM and other grid managers to credit the owners of the big coal and nuclear plants for providing “resiliency” to the grid because they store fuel on-site and run 24 hours a day. They also generate power at higher prices than new gas turbine plants.

In other words, the DOE wants PJM’s fiercely competitive markets to accept higher priced power from old coal and nuclear plants at whatever it cost to generate — plus a profit — the way the old plants did business before de-regulation.

The DOE reasoned that coal plants traditionally have a 45-to-60 day fuel supply on hand, while nuclear plants run continuously for 18-to-24 months before having to replace a third of their fuel rods, a process that takes 30 to 60 days. The plan would require coal plants to have a 90-day supply of fuel on-site.

The proposal was aimed at helping the old plants compete with new ultra-efficient¬† gas turbine power plants — which are about twice as efficient — but which rely on pipeline gas rather than fuel on site.

The DOE reasoned that coal and nuclear power plants would be able to continue to function if storms or terrorists disabled the grid, or interfered with gas pipelines, and pointed to the problems grid operators faced during the Polar Vortex event in the winter of 2014.

The sub-zero temperatures knocked out some gas plants because, it turned out, their owners had not signed “firm” contracts. The weather also shutdown coal plants because their stockpiles, stored outside, had frozen. FirstEnergy lost one of its Pennsylvania nuclear plants when the main transformer shorted out. Wind farms, on the other hand, appear to have functioned without a problem in the deep freeze.

PJM’s announcement that it will oppose a direct handout to old coal and nuclear because it would distort competitive markets came just three days after the Public Utilities Commission of Ohio announced it would argue against the proposal, primarily because it could raise customer electric rates.

PUCO Chairman Asim Haque said the DOE had not done a cost analysis of the impact the plan would have on power prices before ordering the FERC to weave it into competitive market pricing. The PUCO was to file its formal arguments later today.

Nobody knows how much such a radical change to competitive markets would add to customer bills, said Haque.

Haque and Ott from PJM said they had been working on a cost analysis as well as other proposals to reflect the value of the old power plants to the grid.

Ott told reporters, “We do believe there is a need for action and we will discuss [with FERC] PJM’s proposal to strengthen energy price formation to ensure that our market properly compensates reliability resources.”

The formal comments of PJM and PUCO will reach the FERC on the heels of comments from the independent developers building gas turbine plants.

The developers of 26 independently-owned gas turbine power plants in Ohio, West Virginia and Pennsylvania earlier warned that competitive electric markets would be destroyed by special pricing for old coal and nuclear plants.

“We urge the Commission to maintain competitive electricity markets and reject the [U.S. Department of Energy’s] recommendation to provide full rate recovery to specific legacy generation units,” the group wrote in its comments.

The gas developers argued that their projects, most of which are still being built, will account for $21 billion in new development and about 21,000 construction jobs.

The gas turbines plants are about twice as efficient as nuclear and coal plants, burn cleanly, operate around the clock, and use fuel that has remained cheap.