The members of the Michigan Public Service Commission on Dec. 20 issued an order that requires Consumers Energy to come back “expeditiously” with more information on how Entergy Corp.’s (NYSE: ETR) plan to retire the 881-MW Palisades nuclear plant in Michigan will impact the utility and its power supply situation.
On Dec. 8, Consumers Energy announced that it reached an agreement with Entergy for early termination of a power purchase agreement (PPA) whereby Consumers purchases electricity generated by the Palisades Nuclear Power Plant from Entergy Nuclear Palisades LLC (ENP). The power purchase agreement in question provides for Consumers to purchase nearly all of Palisades’ electric generation, and was approved by the commission in March 2007. The PPA has a 15-year term, and was intended to remain in effect until April 11, 2022.
Consumers announced that early termination of the PPA is expected to lower customer costs by up to $172 million, and contends that early termination makes sense in light of changed market conditions and the existence of less expensive alternatives to the power offered under the PPA. At the same time, Entergy announced that it plans to close Palisades permanently on Oct. 1, 2018.
The PSC noted that in its press release, Entergy reported that the transaction is expected to result in a total of $344 million in gross savings derived from the replacement of relatively higher-priced nuclear generation with lower cost alternatives. The savings would be split evenly between a buyout payment to Entergy and a reduction in Consumers’ customers’ rates.
Entergy indicated that it will notify the Midcontinent Independent System Operator (MISO) and the U.S. Nuclear Regulatory Commission (NRC) of its intent to permanently close and decommission Palisades.
The PSC order said: “Entergy states that Palisades generates 811 megawatts (MW) of carbon-free electricity, enough to power more than 800,000 homes. Reports in the financial and energy trade press, as well as information on Consumers’ investor relations website, indicate that Consumers is determining potential sources of replacement power, but currently intends to use natural gas, renewable energy, and energy efficiency to replace the 811 megawatts (MW) of power. Consumers also intends to recover through rates a securitization of the $172 million buyout fee due to Entergy. Consumers claims that the early termination will save customers approximately $45 million per year for the May 2018 to April 2022 time period. Consumers indicates that it will shortly seek Commission approval to securitize the buyout fee.
“The Commission emphasizes that it considers Palisades to be a significant contributor to the state’s electric generation mix, producing 811 MW of low-emission, baseload power, enough to power 800,000 Michigan households. Publically and repeatedly, the Commission has voiced its concerns related to resource adequacy in the near to medium term, and the loss of this generation without immediate sufficient and reliable replacement sources would introduce additional uncertainty to the state’s energy picture. Further, the complexities of operating and decommissioning nuclear plants warrant additional considerations when making a decision as critical as a closure compared to other types of generation, such as the storage of spent nuclear fuel and ongoing care of the site.”
The commission said this plan entails a full examination of whether the early termination of the PPA and replacement of such resource with alternative energy and capacity sources is a reasonable and prudent course of action, and, if so, whether it will provide cost savings to customers, and the amount thereof, while not jeopardizing reliability.
The commission directed the utility to file the following information, as expeditiously as possible:
- Provide a detailed description of the alternatives that were considered by Consumers and/or Entergy in lieu of Palisades’ closure, including whether any efforts – formal or informal – were made to sell the facility. Describe any efforts made to renegotiate the PPA with Consumers, and/or with any other utility, in lieu of early termination of the PPA. If neither sale nor renegotiation were pursued, explain why not.
- Provide documentation evidencing the analysis that results in the $344 million savings. This information should reflect projected market purchases as compared to the capacity and energy costs under the PPA to support the projected cost savings, including evidence of the difference between costs to customers under the PPA and market costs after the loss of Palisades’ capacity and energy output.
- Provide detailed data and analysis on the cost of any new energy and capacity sources Consumers seeks to use to replace Palisades.
- Identify specific resources that will be available in a timely manner to replace the capacity and energy provided by Palisades, while accounting for additional constraints caused by the loss of 800 MW of generation. Provide detailed information on the analyses and forecasts that have been relied upon in determining that supply and demand in MISO Zone 7 will be adequate after the early termination of the PPA, including a description of the assumptions made regarding Zone 7 with respect to energy resources, capacity, and load. Identify any timing issues with the proposed replacement portfolio and execution risks with Consumers’ plan.
- Explain the bid process used for determining how replacement capacity will be procured. Additionally, provide a detailed description of any certificate of need (CON) filing planned for the 2017-2022 time period.
- The commission will be required to determine the amount of any buyout fee to be recovered through rates and the appropriate cost recovery mechanism. Provide detailed information on all available cost recovery and financing options, and how each compares in terms of ratepayer costs and benefits.
- Provide a detailed analysis of the adequacy of the amounts in the decommissioning trust funds, including a description of the plan for continuous, decades-long monitoring of the site to ensure the safety of the public and protection of the environment. Additionally, provide updated information on the continued safe storage of spent nuclear fuel at the retired Big Rock Point facility.
- Provide information on the analysis of the effect of closing Palisades on emissions such as oxides of nitrogen, sulfur dioxide, and carbon dioxide, as well as the effect on fuel diversity.
- Provide information on bulk electric system impacts from the closure of Palisades and whether any transmission upgrades would be expected in order to allow for closure of the plant as proposed by Entergy in October 2018.
The commission also directed Consumers to file within 30 days a revised five-year forecast in its pending 2017 Power Supply Cost Recovery (PSCR) plan case. That case was filed in September of this year. Consumers’ recent announcements have clearly rendered the filed forecast obsolete, and the commission finds that it will be necessary to review a forecast that reflects the utility’s actual plans.