Pennsylvania PUC chairman concerned about grid reliability following FirstEnergy’s planned plant closures

If FirstEnergy (NYSE:FE) does not reverse course on its decision to close its Hatfield’s Ferry and Mitchell plants, then PJM Interconnection’s Independent Market Monitor (IMM) should evaluate the effect of those plant deactivations on the company’s remaining generation and transmission assets in PJM, according to Pennsylvania Public Utility Commission (PUC) Chairman Robert Powelson.

“I would also encourage the IMM to examine the impact that the closures will have on locational marginal prices (LMP),” he said in Sept. 13 testimony before the Pennsylvania Senate Consumer Protection and Professional Licensure Committee.

The plants’ deactivation will mean the loss of about 2,000 MW of base load generation and more than 380 jobs in the region, Powelson said, adding that the PUC “is deeply concerned about the impact of these plant retirements on Pennsylvania and their potential effect on the overall reliability of the electric grid.”

In an Aug. 23 meeting between the PUC, PJM and other stakeholders, PJM reinforced the message it has stated publicly, which is that the plant closures will affect reliability and that FirstEnergy should keep at least a portion of the units running past the proposed deactivation date of Oct. 9.

Since FirstEnergy cited the cost of compliance with current and future environmental regulations as one of the reasons for the closures, the PUC has requested a meeting with Gina McCarthy, the administrator of the U.S. Environmental Protection Agency (EPA), to discuss the deactivations.

While the PUC “will do everything we can to ensure the outcome will not have a detrimental effect on Pennsylvania electric customers,” the PUC’s interest is not an attempt to exercise any regulatory authority over FirstEnergy regarding the plant closures, he said.

“The PUC strongly supports the restructured electricity market in Pennsylvania and understands it is not our place to make managerial decisions for wholesale electric generation suppliers in our state,” Powelson said. “However, in a situation like this, where FirstEnergy’s plant closures will potentially affect overall grid reliability, it is the PUC’s responsibility to ask some hard questions.”

He noted that at a presentation at the Morgan Stanley Utilities Conference in March, FirstEnergy said it was considering converting the plants’ units to natural gas co-firing units. That makes sense since the plants are “sitting on top of one of the largest shale gas deposits in the world,” he said, adding, “The question is – what has changed in four months?”

FirstEnergy maintains that the results of the 2013 capacity auction, which PJM posted on May 24, influenced its decision, but those results apply to the 2016-2017 period and have no immediate economic or environmental impact on the plants’ short-term operation, he said.

The EPA “train wreck” that FirstEnergy cites as a primary reason for the plant closures has been looming for a long time, he said, noting that it is unclear why FirstEnergy has not made plant upgrades like other electric generation suppliers, for instance, particularly in the case of the Hatfield’s Ferry plant, which has a waiver extending the Mercury and Air Toxics Standards (MATS) compliance deadline until April 2016.

Powelson also said that even if the company determined that for economic reasons, it does not want to upgrade or convert the plants, why is it not attempting to sell the plants to a third party that would be willing to explore a fuel conversion or make the necessary upgrades. FirstEnergy make a concerted effort to do so with its hydropower assets, he said, noting that on Sept. 4, the company sought FERC approval to sell 11 of its hydroelectric power facilities in Pennsylvania, Virginia and West Virginia.

FirstEnergy responds

A FirstEnergy spokesperson told TransmissionHub on Sept. 17 that both plants are “losing money,” and will be closed by Oct. 9 as a result of current and projected economic conditions, the need to begin making MATS investments, and uncertainty around other pending environmental regulations.

“Closing plants is never an easy decision and it’s not one that FirstEnergy takes lightly,” the spokesperson said. “FirstEnergy is confident there are no reliability issues that would require us to keep the plants in operation, and we are in ongoing discussions with PJM regarding grid reliability.”

Both plants were carefully considered for co-firing with natural gas, she said, adding, “However, our studies demonstrated that the low price of power, gas prices that are higher this year than they were when we began considering the option, and the high retrofit costs to convert the technology made natural gas conversion uneconomical for these two plants.”

The spokesperson continued: “Many plants are closing for the same reasons we are deactivating Hatfield’s Ferry and Mitchell – low revenues and high capital investment requirements. Due to these factors, we have not been approached by any buyers who are interested in operating the facilities as power plants.”

About Corina Rivera-Linares 3106 Articles
Corina Rivera-Linares, chief editor for TransmissionHub, has covered the U.S. power industry for the past 15 years. Before joining TransmissionHub, Corina covered renewable energy and environmental issues, as well as transmission, generation, regulation, legislation and ISO/RTO matters at SNL Financial. She has also covered such topics as health, politics, and education for weekly newspapers and national magazines. She can be reached at clinares@endeavorb2b.com.