FirstEnergy supports need for coal and nuclear plants in Ohio’s deregulated market

The Sammis, Kyger Creek and Clifty Creek coal plants, plus the Davis-Besse nuclear plant, are in good shape in terms of various environmental compliance needs, said Raymond L. Evans, who is employed by FirstEnergy Service Co. (FES) as Vice-President, Environmental and Technologies.

Evans supplied May 4 testimony filed with the Public Utilities Commission of Ohio to support the inclusion of these plants in what amounts to a protective rate mechanism for the plants in Ohio’s deregulated power market. FES is a subsidiary of FirstEnergy (NYSE: FE).

“The purpose of my testimony is to describe how the Davis-Besse Nuclear Power Station (‘Davis-Besse’) and the coal-fired W.H. Sammis Plant (‘Sammis’) are compliant with all pertinent environmental regulations and to describe the plan for compliance with pending environmental regulations, which are final and awaiting action by the state or the Companies,” Evans wrote. “In my testimony, I’ll refer to the Davis-Besse and Sammis plants collectively as the ‘Plants.’ Portions of my testimony, as noted below, also apply equally to FES’s entitlement to the output of two coal-fired plants owned by Ohio Valley Electric Corporation (‘OVEC’) – the Kyger Creek Plant in Cheshire, Ohio (‘Kyger Creek’) and the Clifty Creek Plant in Madison, Indiana (‘Clifty Creek’).

“The Plants are in compliance with all applicable environmental regulations and have plans to comply with pending environmental regulations. The Plants are subject to multiple existing and pending regulations administered by the United States Environmental Protection Agency (‘U.S. EPA’) and Ohio Environmental Protection Agency (‘Ohio EPA’), including the Section 316(b) Cooling Water Intake Structures at Existing Facilities rule (‘316(b)’), the Disposal of Coal Combustion Residuals (‘CCR’) rule, the Effluent Limitations Guidelines and Standards (‘ELG’), the National Ambient Air Quality Standards (‘NAAQS’) for sulfur dioxide (‘SO2’) and ozone, and the Cross State Air Pollution Rule (‘CSAPR’).

“Additional environmental regulations may be issued in the future, and we will develop compliance plans whenever the U.S. EPA issues final decisions. Until an environmental regulation is final for implementation, we do not attempt to speculate what form that regulation will take and what compliance measures may be required. Regulations that may become final in the future include the proposed Clean Power Plan purportedly designed to regulate carbon dioxide (‘CO2’) emissions from existing power plants, revisions to the ELG regulations, and revisions to the NAAQS for SO2 and ground-level ozone.”

Evans noted that the pending version of 316(b) would require Sammis in 2015 to document intake and screen design data including flow volumes, flow velocities, structural and equipment drawings and calculations. Concurrently, to demonstrate best available cooling water intake technology, a number of aquatic studies also will be performed for up to three years to study what, if any, impact the intake structure and screens have on the Ohio River aquatic species in the vicinity of the plant. Once the studies are complete and decisions made by Ohio EPA, Sammis will comply with any further requirements.

Evans said the three coal plants are not subject to any compliance requirements under Ohio’s or Indiana’s State Implementation Plans (SIPs) for the 2010 SO2 Standard. Notably, although an area of Jefferson County, Ohio, has been designated non-attainment, Sammis is not located in the non-attainment area and does not impact SO2 emissions in that area (Sammis is down-wind of the non-attainment area). In developing its SIP, Ohio EPA has chosen not to model Sammis as part of the non-attainment area because it is not viewed as impacting the non-attainment area.

A 2005 Consent Decree between the U.S. EPA and Ohio Edison sets SO2 emission limits not to be exceeded at Sammis for each individual unit and design efficiencies for the wet flue gas desulfurization systems (WFGD), which scrub SO2 from the plant’s emissions. The coal procured for Sammis ensures that emission limits are achieved when scrubbed by the WFGD in accordance with good engineering practices. Sammis has existing capability to make further reductions in SO2 emission rates to accommodate changes to the 1-hour SO2 NAAQS.

Under the existing NAAQS standards, Sammis, Kyger Creek and Clifty Creek are not required to make further NOx reductions. Moreover, there is no mandate to install emissions controls related to the ozone NAAQS.

Sammis will not require any additional capital expenditures, e.g., installation of additional emissions controls, to comply with CSAPR. Sammis may from time to time purchase additional allowances, but such costs are expected to be immaterial.

At the beginning of a heavily-redacted section, Evans wrote that: “Sammis is a valuable asset for Ohio’s compliance with the proposed Clean Power Plan, through the term of the Economic Stability Program and beyond, according to U.S. EPA’s modeling for the proposed rule. The operation of Sammis, combined with investment in the other building blocks, represents Ohio’s least-cost strategy for complying with the Clean Power Plan.”

FirstEnergy argues that these plants would provide stability in an uncertain market

Other FirstEnergy representatives supplied May 4 testimony in this case.

Eileen M. Mikkelsen, employed by FirstEnergy Service as the Director of Rates and Regulatory Affairs for FirstEnergy’s Ohio utilities, had a focus on the fact that the commission on Feb. 25 rejected a plan by the AEP Ohio subsidiary of American Electric Power (NYSE: AEP) to protect AEP’s shares of the Clifty Creek and Kyger Creek coal plants, which are operated by Ohio Valley Electric Corp. (OVEC).

Mikkelsen wrote: “The AEP Ohio Order included four factors related to the PPA Rider: 1) financial need of the generating plant; 2) necessity of the generating facility, in light of future reliability concerns, including supply diversity; 3) description of how the generating plant is compliant with all pertinent environmental regulations and its plan for compliance with pending environmental regulations; and 4) the impact that a closure ofthe generating plant would have on electric prices and the resulting effect on economic development within the state.”

The Evans testimony addressed that third point. Other testimony discusses the necessity of maintaining the reliability benefits of resource diversity, both from a fuel source and asset class perspective. There were also issues addressed on now to maintain reliability based on PJM Interconnection planning criteria if the plants were to close, the increase in transmission system power losses that would occur, and the increased risk of transmission system instability due to the greater distance between generation sources and load if the plants were to close.

Donald Moul, Vice President of Commodity Operations for FirstEnergy Solutions, further discussd the financial need of the Davis-Besse Nuclear Power Station and the W.H. Sammis Plant, as well as the FES 4.85% interest in Ohio Valley Electric.

Asked if Ohio can depend on the PJM market in place of these plants, Moul wrote: “FERC recently delayed an order on the PJM Capacity Performance plan, based in part on comments recommending modifications to more closely match aspects of the plan used for New England ISO. In response, PJM has requested approval to delay the RPM Base Residual Auction, and the FERC granted PJM’s request to delay the Auction until possibly as late as August 15, 2015. Adoption of the PJM Capacity Performance plan as-filed is not a certainty. Moreover, the timing of adoption of the PJM Capacity Performance plan and the likely content of such a plan are very uncertain.

Moul added: “While the PJM Capacity Performance plan may help address some of the problems with PJM’s capacity market, it is not focused on Ohio-based solutions and it is not designed to preserve Ohio generation. Further, even if the Capacity Performance proposal is approved and functions as intended, significant problems remain with PJM market design and implementation, such that Ohio should not rely on the PJM market to ensure that Ohio maintains critical generation resource diversity.

“States must take an active role in energy security, and there is simply too much risk to Ohio’s future for Ohio to relinquish its duty to maintain its critical fuel-diverse baseload generation. Ohio needs to control the future of its system reliability. Uncertain future rules, and uncertain impacts from potential rule changes, make the Economic Stability Program even more critical to provide the needed certainty and stability for these key generation resources. The Economic Stability Program provides the certainty needed for investment.”

Emphasis placed on secure supplies of fuel

Moul added: “Sammis and Davis-Besse are baseload plants with onsite fuel supply, capable of running continuously for long periods and withstanding extreme events. New plants proposed for construction do not offer these attributes. Many of them are natural gas plants. Natural gas plants are intermediate plants with reliability challenges associated with natural gas fuel supply. Unlike baseload coal and nuclear plants, natural gas plants do not have significant supplies of fuel stored onsite, relying on a ‘just-in-time’ system of fuel delivery that requires problem-free scheduling and operation of thousands of miles of gas pipelines, gas storage facilities, and effective gas ‘gathering’ processes. This complex and interrelated gas delivery system ensures reliable operation only if the customer, here the natural gas plant, has contracts for ‘firm’ capacity on the pipelines and gas storage systems, and locked-in commodity supply. Even if a natural gas plant has a firm contract for fuel, there is still the potential for interruption due to a mechanical failure on the pipeline system. Building adequate pipeline infrastructure takes time and tremendous monetary resources. Moreover, adequate natural gas generation will not be in place in the near term. Renewable resources run intermittently and cannot provide ancillary service, much less serve as the backbone of the electric system like the Plants do. In short, not all megawatts are created equal.

“In addition, as Company witness Phillips explains, most planned assets appearing in the PJM queue will never go into service and generate a single megawatt. Also, Company witness Phillips explains that whether new plants can offset the harms to reliability caused by the loss of Sammis and Davis-Besse depends on the location of the new plants and their proximity to load. Unless these plants are sited in the same proximity as Sammis and Davis-Besse, and provide a similar quality of megawatt as baseload plants with onsite fuel supply, they in no way can replace the Plants.”

Rodney L. Phillips, employed by FirstEnergy Service as Director of Transmission Operations, said about power plant retirements in his May 4 testimony: “Ohio is a large net importer of power, according to data maintained by the Energy Information Administration. This deficit is trending upward and is exacerbated by retirements of Ohio generation that are outpacing additions of new Ohio capacity. According to data maintained by PJM, 4,292 MW of Ohio coal generation deactivated since 2005. Another 1,925 MW of Ohio coal generation is scheduled to be deactivated later in 2015. Meanwhile, only 1,207 MW of natural gas generation was placed into service in Ohio between 2005 and 2014. There is significant reliability and economic risk for Ohio in entrusting system reliability to out-of-state generators sending power on not-yet-built transmission lines.”

Phillips added: “Most projects in the PJM queue never break ground. For example, as of December 2014, new projects that have entered the Feasibility Study phase had only a 14.6% historical probability of going into service. It is common for developers to withdraw a generation project from the PJM queue. Further, potential natural gas generation would lack the important qualities of baseload nuclear and coal plants with significant on-site fuel supply to withstand extreme weather events and other interruptions of just-in-time fuel supply.”

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.