Electricity Markets

Association urges DOE to reject FirstEnergy plea for emergency order

The American Public Power Association is urging the Department of Energy to reject a request by FirstEnergy Solutions that the Secretary of Energy issue an emergency order requiring PJM Interconnection and, by extension, electricity consumers in the PJM region, to provide “full cost recovery” for certain merchant generating plants in PJM.

Such a request is unjustified, the Association said in its April 9 submittal to the DOE. FirstEnergy Solutions has neither demonstrated the existence of an emergency that would support action by Secretary of Energy Rick Perry under Federal Power Act section 202(c), nor shown that its requested relief is reasonable, the public power group argued.

At issue is a March 29 request made by FirstEnergy Solutions, on behalf of certain of its subsidiaries (collectively, FirstEnergy), with the DOE.

FES, a competitive generation subsidiary of investor-owned FirstEnergy Corporation, filed an application for an order under Section 202c of the FPA, which gives the Secretary of Energy extraordinary powers to confront emergencies.

A day prior to the request, FirstEnergy Solutions filed notice with PJM that three of the company’s nuclear power plants would be deactivated or sold during the next three years. On March 31 FirstEnergy Solutions, its subsidiaries and FirstEnergy Nuclear Operating Company filed voluntary petitions under Chapter 11 of the Federal Bankruptcy Code with the U.S. Bankruptcy Court in the Northern District of Ohio in Akron.

Details of the request

In its filing with the DOE, the Association noted that FirstEnergy claims that an emergency condition exists in the PJM region due to recent and imminent retirements of nuclear and coal-fired generating units. According to FirstEnergy, these plant retirements threaten generation diversity, reliability, resilience and electric security in PJM.

To address this alleged emergency, FirstEnergy asked the Secretary of Energy to issue a section 202(c) emergency order: (1) directing certain existing nuclear and coal-fired generators in PJM to enter into contracts with PJM “to generate, deliver, interchange, and transmit electric energy, capacity, and ancillary services to maintain fuel diversity and grid dependability and resiliency within the PJM region;” and (2) directing PJM to pay these merchant generating units “just and reasonable cost-based rates that provide for full cost recovery consistent with ratemaking standards and principles or as otherwise necessary to ensure continued operations.”

As proposed in the request, relief would extend to all eligible plants in PJM, not just those owned and operated by FirstEnergy.

FirstEnergy proposes that the emergency order remain in place for four years, “or until the Secretary determines that the emergency has ceased to exist because the PJM markets have been fixed to properly compensate these units for the resiliency and reliability benefits that they provide, whichever is later.”

Association: No emergency exists within the meaning of FPA section 202(c)

“FirstEnergy has not demonstrated the existence of an emergency within the meaning of FPA section 202(c),” the Association said in urging the Secretary of Energy to reject the request. 

The crux of FirstEnergy’s claim that an emergency exists is that retiring merchant coal and nuclear plants continue to be necessary for the reliable and resilient operation of the grid in the PJM region, which would otherwise be overly dependent on natural gas-fired plants and other forms of generation that lack fuel security, the Association said.

FirstEnergy asserts that the Federal Energy Regulatory Commission and PJM have not done enough to prevent coal and nuclear plant retirements, arguing, in particular, that PJM markets do not adequately compensate the reliability and resiliency benefits of traditional baseload units with secure fuel supplies. 

“FirstEnergy’s general claims concerning the potential adverse impacts of coal and nuclear plant retirements in PJM do not establish the existence of an emergency within the meaning of section 202(c), let alone one that would justify imposing cost of-service payments for merchant plants on consumers in PJM for at least a four-year period,” the Association said.

The public power group noted that Section 202(c) provides a narrow and limited mechanism for the Secretary “to require temporary connections of facilities and such generation, delivery, interchange, or transmission of electric energy” during emergencies.

Neither section 202(c) nor the DOE’s implementing regulations contemplate broad, protracted intervention in wholesale energy markets, and the Secretary of Energy’s emergency authority “simply cannot be invoked based on claims that plant retirement trends and over-reliance on a particular type of generation may pose reliability challenges some years in the future,” the Association went on to say.

FirstEnergy’s claimed “emergency” is, at the end of the day, based on economics, it argued.

FirstEnergy contends that merchant coal-fired and nuclear plants in PJM are inadequately compensated for the reliability and resilience benefits they provide.

The DOE’s regulations specifically state, however, that “[s]ituations where a shortage of electric energy is projected due solely to the failure of parties to agree to terms, conditions or other economic factors relating to service, generally will not be considered as emergencies unless the inability to supply electric service is imminent.”

The request by FirstEnergy cites plant retirements that may occur in the next several years, which does not demonstrate an “imminent” inability to supply electric service in PJM that could possibly justify characterizing the situation in PJM as an “emergency” within the meaning of FPA section 202(c), the public power group said.

The Association pointed to a March 30, 2018 letter to the Secretary of Energy from PJM responding to FirstEnergy’s request. PJM stated without reservation that there is no immediate threat to system reliability.  It also emphasized that plant retirements in the region are subject to review by PJM, which has “a range of tools available” to address any identified resource adequacy or reliability problems associated with plant retirements, including “offering full cost of service compensation . . . to induce assets to remain temporarily online.”

FERC considered same arguments in proposed grid resilience pricing rule

The Association also noted that most of the same arguments FirstEnergy raises in its request were considered by FERC in response to Perry’s proposed grid resiliency pricing rule.

The Commission found that requiring full cost recovery for fuel-secure merchant generating facilities was not justified.

FERC’s Jan. 8 order on the proposed rule noted that FirstEnergy and other commenters alleged grid resilience or reliability issues due to potential retirements of particular resources, but the Commission found “that these assertions do not demonstrate the unjustness or unreasonableness of the existing RTO/ISO tariffs.”

FERC prudently instituted proceedings to further analyze and address the issues raised by the Secretary of Energy’s proposed rule, and those proceedings are ongoing, as FirstEnergy acknowledges, the Association said.

“FirstEnergy did not seek rehearing of FERC’s January 8 order, and it is inappropriate for FirstEnergy to seek essentially the same relief from the Secretary that FERC, applying its exclusive jurisdiction over the rates, terms, and conditions of wholesale sales of electricity, found to be unjustified.”

The Association emphasized that it is not dismissing the broader concerns underlying FirstEnergy’s request. The Association agrees that fuel supply diversity enhances system reliability and resilience, adding that “there is no dispute that existing coal and nuclear plants currently make important contributions to resource adequacy in the PJM region.”

The Association also shares the concern that the organized markets operated by FERC-approved Regional Transmission Organizations and Independent System Operators have not proven to be well-suited to addressing fuel diversity objectives. 

“These are important and complex issues that regulators, policymakers, and industry stakeholders must address, and are currently seeking to address, in FERC’s resilience proceeding, in individual RTO/ISO stakeholder processes, in North American Electric Reliability Corporation proceedings, and elsewhere.”

But the public power group “strongly disputes the notion, however, that drastic intervention in the markets using the Secretary’s FPA section 202(c) emergency authority is an appropriate solution to these concerns in the PJM region.”