Three major power producers protest break for Nelson Dewey coal plant

Subsidiaries of Dynegy, NRG Energy and Exelon on Feb. 6 filed a joint protest with the Federal Energy Regulatory Commission over a matter related to the timing of plans to retire two coal units at the Nelson Dewey power plant.

On Jan. 16, Wisconsin Power and Light (WPL) requested waiver of certain provisions of the Midcontinent Independent System Operator Open Access Transmission, Energy and Operating Reserve Markets Tariff. The protesting companies said this waiver is needed in order to permit WPL to use its Nelson Dewey units to satisfy its capacity obligations during the 2015-2016 Planning Year, despite the fact that those units will not be available for almost half of that Planning Year, and despite WPL having already procured almost enough replacement Zonal Resource Credits (ZRCs) to cover the entirety of the units’ capacity for the 2015-2016 Planning Year.

WPL is a load-serving entity (LSE) that serves customers in Wisconsin, and that owns two coal-fired units at Dewey with a total nameplate capacity of 200 MW, located within MISO’s Local Resource Zone (LRZ). Pursuant to a Consent Decree entered into by WPL, the U.S. Environmental Protection Agency and certain other parties, WPL is required to “Retire, Refuel, or Repower Nelson Dewey Units 1 and 2” by no later than Dec. 31, 2015.

WPL states that in August 2012, it submitted an Attachment Y Notice to MISO that it intended to retire the Nelson Dewey units no later than Dec. 31, 2015. In December 2013, MISO notified WPL that transmission system upgrades would be required to address violations of reliability criteria that would result from the retirement of the Nelson Dewey units, but that such upgrades would be completed prior to WPL’s requested retirement date of Dec. 31, 2015.

Under MISO’s resource adequacy rules, each LSE is required to demonstrate that it has ZRCs at least equal to its Planning Reserve Margin Requirement (PRMR). In the past, MISO utilized a monthly resource adequacy construct. However, in the middle of 2012, the commission approved MISO’s proposal to move to an annual construct, finding that “the annual auction term addresses the concern that short-term, e.g., monthly, capacity products may not provide the certainty to attract competitive participants to the auction as would a longer-term contract such as the one year that MISO proposes.” Under this annual construct, capacity resources are required to be available “any time during the Planning Year”11 – i.e., from June 1 through May 31 of the following year – or must be replaced with other “ZRCs to relieve the performance requirements applicable to the Planning Resource.” Such performance requirements include a daily “must-offer” obligation, where Market Participants with ZRCs that are used to satisfy an LSE’s resource adequacy requirements must “submit Self-Schedules or Offers for Energy, and Contingency Reserve, if qualified” for the relevant capacity “for each Hour of each day during the Planning Year.”

WPL has said the Dewey units are needed for Bulk Electric System reliability until certain planned transmission work is completed, so WPL cannot retire the units before the start of the 2015-16 Planning Year. At the same time, because such units must be retired prior to the end of the 2015-16 Planning Year, they cannot qualify as ZRCs, used to meet WPL’s PRMR, without purchasing replacement ZRCs for the end of the Planning Year. WPL states that in order to be compliant with the requirements of both the MISO Tariff and the EPA Consent Decree, and out of an abundance of caution, WPL procured and paid for an additional 155 MW of capacity (that is, ZRCs) for the entire 2015-2016 Planning Year (June 1, 2015 through May 31, 2016).

The Jan. 16 filing from WPL requests that the commission grant the Nelson Dewey units waiver of the must-offer requirement under Section 69A.5 of the Tariff and the requirement to purchase replacement ZRCs under Section 69A.3.1.h for the period from Jan. 1, 2015, through May 31, 2015. WPL said this relief is consistent with a recent commission order granting Indianapolis Power and Light a waiver related to some of its coal retirement plans.

“The January 16 Filing is the latest in a string of filings requesting waiver of MISO’s resource adequacy rules for the 2015-2016 Planning Year,” said the protest from Dynegy, NRG and Exelon. “In each of these filings, the requester has asserted that it should be permitted to ignore MISO’s resource adequacy requirements simply because the timing of MISO’s Planning Year does not perfectly coincide with the imposition of environmental regulations and requirements. And in each case, the request, if granted, would permit generation facilities to be used as capacity resources to satisfy resource adequacy obligations during the 2015-2016 Planning Year, even though such facilities will not be available for a significant portion of the year. In WPL’s case, the Nelson Dewey Units will not be available for a full five months – more than 40 percent of the 2015-2016 Planning Year. If granted, this request would create an uneven and unduly discriminatory playing field for capacity resources and threaten MISO’s capacity market and reliability in the region.”

MISO says these waiver requests create too much market uncertainty

Said MISO in its own Feb. 6 comments on the WPL request: “WPL’s waiver request is somewhat similar to several other waiver requests concerning coal-fired units that will retire or suspend in April 2016 comply with emission limitations imposed by the U.S. Environmental Protection Agency’s Mercury and Air Toxics Standards (‘MATS’) rule. On an installed capacity basis, these previous requests total 2,440 MW during the period of April 16, 2016 through May 31, 2016. WPL’s request adds 200 MW, for a present total of 2,640 MW. The notable difference between the previous waiver requests and WPL’s is the fact that WPL is requesting waiver for a significantly longer period of time – 5 months instead of 6.5 weeks. This 5 month time period includes the winter peak demand months, which the Winter 2014 Polar Vortex demonstrated can result in high demand and stressed system conditions.”

MISO added: “While MISO understands WPL’s situation regarding the period of time between the Consent Decree compliance deadline and the end of the MISO RAR Planning Year, MISO is unable to support WPL’s waiver request based on the same resource adequacy concerns MISO raised in its answers to the previous waiver requests. A variety of factors – including environmental requirements, an aging generation fleet, and economic conditions – have and will continue to reduce the MISO region’s available reserves. By 2016, the MISO North and Central Regions may face a capacity deficit below the Planning Reserve Margin. Such a shortfall would increase the risk of a loss of load event.

“These circumstances present unprecedented challenges for LSEs, state utility commissions and MISO. Certainty regarding Planning Resource availability will be essential to understand and manage through this critical period to a future in which sufficient Planning Resources are located in the right places to ensure resource adequacy. Transparency and fairness in application of Tariff requirements facilitate confidence in the outcomes of the resource adequacy planning process, which acts as a mutual insurance pool for all LSEs within the MISO region. In the event of an actual energy shortage, under the mutual insurance framework, all loads share in the load curtailment proportionally. This approach is based fundamentally upon an expectation of equal contribution to resources by LSEs on a planning basis.

“While a narrow view of one Market Participant’s request for a limited waiver could lead to an assumption that resource adequacy would not be significantly impacted, a broader perspective is warranted to protect against the opportunity for a confluence of factors to undermine the region’s expectations for resource adequacy. In response to the statement of Indianapolis Power (the first company to request a waiver) that its waiver request was limited in scope, MISO explained that it is not clear whether other requests may be submitted should the Commission grant the waiver. In fact, several companies have made waiver requests, implicating a total of 2,640 MW during the period of time from April 16, 2016 through May 31, 2016. WPL’s request compounds the concern because it includes the final 5 months of the Planning Year, including the winter peak demand period. It is very difficult to understand how these accumulated waiver requests are limited in scope and will not have a great potential for undesirable consequences. Moreover, a large number of pending requests creates additional regulatory uncertainty among buyers and sellers of capacity and hinders the efficiency of MISO’s capacity construct.”

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.