Essential Power says PJM proposal a burden on simple-cycle power plants

Several related power producers, including Essential Power LLC, told the Federal Energy Regulatory Commission on Jan. 20 that a PJM Interconnection proposal will cut payments to owners of simple-cycle power plants that aren’t designed to operate at new run rates that the PJM plan will demand.

The companies are Essential Power LLC, Essential Power OPP LLC, Essential Power Rock Springs LLC and Lakewood Cogeneration LP. They addressed concerns that they have with respect to PJM’s Dec. 12, 2014, proposed changes to the Open Access Transmission Tariff and Operating Agreement in its effort to comprehensively change the forward capacity market.

Essential Power is an energy trading and marketing company with market based rate authority which is active in the PJM market. It owns several companies which own and operate generating capacity in the PJM and ISO New England markets.

  • Essential Power OPP owns a two unit simple cycle power plant in Lakewood, N.J., with a total installed capacity of 336.1 MW. The plant is an important provider of peaking capacity, particularly during the summer and shoulder periods. During the winter, the plant is subject to interruption by New Jersey Natural Gas (NJNG) under its New Jersey Board of Public Utilities-approved tariff when NJNG determines in its discretion that interruption or other restrictions are necessary to preserve local gas distribution system integrity.
  • Lakewood Cogeneration owns a 2×1 dual-fuel combined cycle plant in Lakewood, N.J., which is also located behind the NJNG citygate. Its units represent a total installed capacity of 241.9 MW. It has a firm gas transportation agreement with NJNG and approved by the NJBPU, but is also subject to interruption by the local utility at its discretion if necessary to preserve local gas distribution system integrity.
  • Essential Power Rock Springs owns two units at a simple cycle power plant in Rising Sun, Maryland, with a total installed capacity of 330.0 MW. It is an important provider of peaking capacity, particularly during the summer and shoulder periods. It has a firm natural gas transportation agreement with Columbia Natural Gas Transmission. Under the FERC-approved gas transmission tariffs, Columbia can require 24-hour ratable takes and other pipeline restrictions as they deem necessary to maintain system integrity, thus limiting the operational flexibility of the plant.

“In January 2014, there was abnormally cold weather in a large segment of the United States, as a result of a weather pattern known as the Polar Vortex,” said the Essential Power companies. “The extreme cold conditions seen last winter are an anomaly and are not considered part of a normal weather pattern. In the aftermath of the cold snaps, there were investigations into how the electric and gas systems performed including a report by PJM. PJM’s Capacity Performance proposal is an effort to address some concerns that PJM identified with the capacity market and its function during times of system stress. PJM has historically focused the [Reliability Pricing Model (RPM)] market design to meet summer peaks which are historically the highest peaks in the PJM system.

“In response to the RPM market design, generation developers built plants which are designed to meet these summer peaks, including single-fueled simple cycle units. These plants may have fuel arrangements which are highly reliable during the summer to meet maximum peaks, but which are interruptible during cold weather. In addition, unlike baseload units, these units are able to meet PJM needs by being highly flexible and able to respond quickly to changes in demand, voltage support requirements and reactive power.

“PJM’s new Capacity Performance scheme is focused on the ability of resources to provide service during winter peaks, in addition to the prior focus on summer peaks. Specifically, the proposed scheme requires 100% of capacity resources to meet new year-round requirements. The new scheme favors base load capacity which is designed to run nearly all the time, and as a result, has access to fuel at all times, whether it is from nuclear rods, coal piles or firm contractual relationships. These units tend to be less flexible and responsive to meet PJM’s need for short duration peak energy, reserves, voltage support or reactive power.

“PJM’s proposed shift in focus from meeting the traditional highest peaks which occur in the summer to meeting peaks throughout the year will probably not require any modification to base load units. However, if PJM’s proposal to require 100% of capacity resources to meet year round requirements is approved, owners of existing peaking units are going to have to examine whether, and if, they can adapt.

“Some peaking units will be able to meet the new Capacity Performance requirements either through the installation of on-site back up fuel such as fuel oil, or by contracting for non-curtailable gas supplies. For others, this may be difficult, impossible or exorbitantly expensive. For example, for generators behind a citygate, gas transportation and supply is subject to interruption by the local utility under terms of its state approved tariffs which ensure the ability to continue to meet human needs during time periods of extreme cold. Those tariffs allow the local utility to curtail industrial and commercial customers (including power generation) to maintain local gas system reliability. Therefore, units located behind a citygate will be unable to obtain uninterruptible gas supplies from their local gas utility at any cost. In order to continue to rely on gas under the new scheme they will have to investigate whether there are opportunities to bypass the local utility with a firmer transportation or supply option.

“Generators which currently rely solely on gas may also consider conversion to dual fuel capability. However, such conversion will be subject to the ability to install a backup fuel at their site and to obtain required environmental permitting for dual fuel operation. Adding a backup fuel requires the generator to go through the air and other permitting processes. Based upon our experience within the PJM footprint, such a process is very challenging. Even if the generator is able to obtain the required permitting the combustion of fuel oil may require the installation of new pollution control equipment which, when combined with the required storage tank(s), could double the footprint of the plant. It may be impossible for many plants to obtain the additional space, particularly in highly populated areas.

“There is no question that a number of gas fired peaking generators who built their facilities to meet PJM’s summer peaking requirements will simply be unable to convert their operation to meet the new year round requirements or will only be able to do so at an exorbitant cost. If PJM’s proposal is adopted, these facilities would no longer be eligible for capacity payments from PJM. Unless PJM’s proposal is significantly amended, as described herein, it will be unjust and unreasonable as applied to these generators.”

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.