FirstEnergy’s Hatfield’s Ferry, Mitchell plants no longer producing electricity, but concerns remain in Pennsylvania

FirstEnergy’s (NYSE:FE) Hatfield’s Ferry and Mitchell plants are no longer producing electricity but, despite reassurances from grid operator PJM Interconnection, a recent legislative hearing in Pennsylvania showed that concerns over grid reliability remain.

The Hatfield’s Ferry station is a coal-fired power station located in Masontown, Pa., and has a generating capacity of 1,710 MW, according to FirstEnergy Generation President James Lash. The Mitchell power station is a coal-fired power station located in Courtney, Pa., and has a capacity of 370 MW. Together, the plants comprise about 10% of FirstEnergy’s total generating capacity. In testimony before the state House of Representatives Consumer Affairs Committee on Oct. 3, Lash added that the company intended to close the plants by Oct. 9.

“The plants are no longer producing electricity,” a FirstEnergy spokesperson told TransmissionHub on Oct. 10. “In the coming weeks, they will be prepared for final shutdown status. FirstEnergy remains committed to closing the plants in a safe, secure and environmentally responsible manner.”

The spokesperson noted that the Oct. 3 legislative hearing, as well as one in September, that FirstEnergy attended did not include a vote and were not part of any approval process for closing the plants, but rather intended as an opportunity to answer questions and share information.

PUC commissioner has obligation ‘to ask tough questions’

Pamela Witmer, commissioner with the state Public Utility Commission (PUC), in Oct. 3 testimony before the committee, said, “We are six days away from the closing of these facilities and unanswered questions remain for the company and PJM Interconnection.”

She noted that PJM recently indicated that the plants’ closure will not cause problems when it comes to ensuring the electric grid’s reliability.

PJM rules require a minimum 90-day notice of deactivation in order to conduct a reliability review, which FirstEnergy met with its July 9 announcement of the closures. However, Witmer added, typically, companies give PJM 18 months to do a thorough reliability review analysis.

“This begs the questions – did PJM have sufficient time to examine all of the reliability concerns closely?” Witmer said. “Do we have enough generation and transmission to ensure that consumers in the PJM footprint will have reliable electric service at reasonable prices? After all, in an August meeting at the PUC, PJM indicated reliability concerns did exist.”

Another question that remains, she said, is why FirstEnergy is not pursuing the sale of the plants to a third party that would be willing to take the steps to keep them operational whether through fuel conversion, necessary upgrades or a dual-fuel retrofit as NRG Energy (NYSE:NRG) has announced at New Castle in Lawrence County.

Witmer noted that in testimony before the state Senate, PUC Chairman Robert Powelson pointed out that the move to deactivate the FirstEnergy plants does not match the company’s position at a conference in March, when FirstEnergy indicated they were considering converting the facilities to natural gas co-firing units.

She said the company has noted that “the economics (of conversion) do not work at today’s gas prices,” and has cited the facilities’ inability to clear the base-residual auction as a change since the presentation at the March conference.

She countered that natural gas and electric prices have been relatively stable since March and that when the company appeared at the conference in March, it knew that it was a possibility that the facilities would not clear the auction.

Witmer noted that she agrees with FirstEnergy that complying with the Mercury and Air Toxics Standards (MATS) rule, the Cooling Water Intake regulations and the recently announced Greenhouse Gas rules is a complex and expensive undertaking. However, MATS is not new, nor are the compliance timelines. The Hatfield’s Ferry plant has a waiver extending the MATS compliance deadline until April 2016, and its previous owner, Allegheny Energy, spent $715m on a scrubber system that removed 95% of the plant’s sulfur dioxide emissions.

Since it seems that FirstEnergy views closure as its only option, Witmer urged the PJM Independent Market Monitor (IMM) to evaluate the effect of the plant deactivations on FirstEnergy’s remaining generation and transmission assets in PJM.

Among other things, she noted that she does not and would not support a return to vertically integrated utility monopolies. “I understand that if PJM makes the determination that there are no reliability concerns and the IMM is satisfied, then ultimately this is a business decision by the company,” Witmer said. “However, I view it as my obligation as a PUC commissioner to ask tough questions and ensure that every possible alternative short of closure has been fully explored and vetted.”

FirstEnergy: ‘We simply can’t justify making that kind of investment at plants that are already losing money’

In Oct. 3 testimony before the same committee, Lash said closing plants is never an easy decision and it is not one that the company takes lightly, noting that the closures affect 380 colleagues and have ramifications throughout the entire organization.

“My job is to run electric generating plants, not to close them,” he said. “However, while deactivating plants is an unpleasant choice, it was unfortunately the necessary choice for both Hatfield’s Ferry and Mitchell.”

The decision to close the plants needs to be understood within the context of the regional electricity market, he said, adding that most of FirstEnergy’s generating fleet depends on revenues from the wholesale and competitive retail markets.

One consequence of the nation’s prolonged economic slump is that the wholesale and competitive retail energy markets are depressed. Due to the abundance of natural gas and other market pressures, market prices for electricity are at historic lows, he added. However, costs are increasing, driven mainly by state and federal regulatory mandates – usually environmental mandates.

FirstEnergy conducts economic analyses on all of its generating stations on an ongoing basis, and it is apparent that the slow economy and cost of upcoming environmental regulations have made continued operation of Hatfield’s Ferry and Mitchell uneconomical, he said. “This conclusion is supported by the PJM Independent Market Monitor’s market power analysis, which also determined that these units are uneconomical.”

He noted that together, the plants need about $270m in equipment upgrades to comply with the pending MATS rule, adding, “We simply can’t justify making that kind of investment at plants that are already losing money.”

While FirstEnergy has seen some slight economic improvements recently, residential demand for power has remained relatively flat, commercial deliveries are down about 6% and industrial deliveries are down about 8% since 2007, Lash said.

As part of FirstEnergy’s efforts to examine every opportunity for keeping the plants open, both were considered for co-firing with natural gas, but studies showed that natural gas conversion was uneconomical for the two plants, he said.

He also noted that both plants failed to clear the 2016-2017 PJM base residual capacity auction and some of the individual units at those stations have not cleared that auction for several years.

“[T]he effects of market dysfunction are not limited to the Hatfield’s Ferry and Mitchell plants,” he said. “The simple fact is that if the markets do not generate sufficient revenues, more plants will close and new generation may not come online.”

Regarding the scrubbers installed at Hatfield’s Ferry in 2009, which cost $715m, he said ratepayers did not pay for the scrubbers. They were funded through a combination of cash and state-authorized, tax-exempt bonds, which have been and will continue to be paid entirely by FirstEnergy’s shareholders, Lash added.

He also noted that the company hopes to reassign about 25% of the plant employees to other parts of its organization and those who are not able to be reassigned will receive severance pay and an extension of medical benefits, as well as career transition counseling and reimbursement for career training expenses. “Unfortunately, it is not feasible to expect that affected employees can simply transition into line worker jobs within our company, as those jobs require years of training and open positions are not common,” he said.

PJM: Power grid will remain reliable despite generation retirements

In Oct. 3 testimony before the same legislative committee, Mike Kormos, PJM’s executive vice president of operations, said that PJM analyses evaluating reliability in relation to the FirstEnergy plants simulated various types of events, at critical load levels, to ensure that the transmission system will be able to meet all required performance criteria in the wake of the announced deactivations. Also evaluated were PJM’s load deliverability tests and generation deliverability tests, each which simulated more than 10,000 discrete single contingency outages.

Kormos also said that PJM’s analyses evaluated the potential impacts of double contingency events on its system.

“The bulk of the reliability issues that PJM identified in our analyses will be resolved by transmission upgrades already planned, approved and included in PJM’s regional transmission plan,” Kormos said, adding that PJM has worked with the relevant transmission owners to accelerate planned transmission projects wherever possible.

However, some of the required transmission upgrades will not be in place before the expected onset of reliability issues resulting from the FirstEnergy plant deactivations.

In all instances when transmission solutions will not be in place, Kormos said, PJM worked with the transmission owners to identify and develop interim operating procedures that will allow PJM operators to manage system constraints and to manage system reliability in conformance with all applicable reliability criteria.

“To summarize, PJM did not find any reliability issues related to the deactivations of Hatfield’s Ferry and Mitchell that could not be adequately resolved by a combination of expediting transmission projects already planned and approved for reliability and modifying some of PJM’s grid-operating protocols,” he said. “FirstEnergy was informed of our findings by letter on [Sept.] 20, approving their deactivations, effective [Oct.] 9.”

Kormos noted that PJM ensures there are adequate resources to meet the forecasted demand of customers during a year plus a reserve margin, which is a sort of insurance policy to account for operational issues, necessary maintenance of generating resources or increases in customer demand above the forecasted levels.

In 2011, shortly after the U.S. EPA issued its final MATS rule in 2011, PJM began receiving notifications of retirements from generation owners, he said, adding that some of those have already occurred and most will be completed by early 2015.

While many of the retirements will occur in Pennsylvania, the operation of the power grid will remain reliable because the PJM forward capacity market is attracting investment in new gas-fired resources and demand response resources and PJM’s regional transmission planning process has identified transmission upgrades necessary to maintain reliable power grid operation.

Kormos also noted that the coal retirements and EPA regulations coupled with low natural gas prices resulting from shale gas opportunities are causing a shift across the industry from coal to gas-fired generation, and the increasing penetration of demand resources and renewable resources also is apparent.

The primary driver of increased electricity production from gas-fired resources is the reduction in gas prices due to shale gas developments. He also said that the reduction in electricity demand growth due to the economy, the economics of fuel supply and the increased costs for coal plants due to environmental regulations have significantly altered power market operations.

Additionally, within the past few months, the forward contract prices for electricity have reduced by more than 10%, triggering further consideration of even more coal unit retirements.

Kormos further noted that regardless of whether deactivating a generation unit would adversely affect the reliability of the bulk electric transmission system, the generation owner may deactivate the generating unit anytime subsequent to the 90 days after the owner’s original notice to PJM.

PJM has the ability to request the deactivating generators to remain in service for a limited period under terms of reliability contracts, he said, adding that PJM cannot require a generation resource to operate after its proposed deactivation date. However, based on PJM’s request, a generation owner may voluntarily agree to operate beyond the proposed deactivation date and seek cost recovery under the PJM tariff formula or a cost of service filing with FERC.

About Corina Rivera-Linares 3263 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.