Thursday, January 24, 2019

UPDATE: FES Seeks Bankruptcy, DOE Emergency Order

Davis-Besse, Beaver Valley Nukes Closing

By Michael Brooks

FirstEnergy Solutions filed for bankruptcy Saturday, two days after asking Energy Secretary Rick Perry to issue an emergency order directing PJM to compensate coal-fired and nuclear power plants that have 25 days of onsite fuel.

The request from FirstEnergy’s competitive power business came a day after the company announced that it will close its three nuclear plants — Davis-Besse and Perry in Ohio, and Beaver Valley in Pennsylvania — by 2021.

Davis Besse Plant NRC

Late Saturday night, the subsidiary filed for Chapter 11 protection in U.S. Bankruptcy Court in Akron, Ohio. The move has been expected since at least February, when FirstEnergy CEO Charles Jones predicted it in a company earnings call. (See FirstEnergy CEO Predicts Death of FES, Coal, Nuclear.)

In a statement, FirstEnergy made clear that the bankruptcy proceedings only applied to FES and its subsidiaries, including FirstEnergy Nuclear Operating Co. Jones touted the move as part of the company’s strategy to get out of the competitive power industry.

“Becoming a fully regulated utility company should give FirstEnergy a stronger balance sheet, solid cash flows and more predictable earnings. Simply put, we will be better positioned to deliver on the tremendous opportunities for customer-focused growth,” he said.

According to Bloomberg, FES is about $3.6 billion in debt, of which 60% is in municipal bonds. It had faced an April 2 deadline to pay bond holders $100 million.

‘Immediate Action’ Requested

In its 44-page letter to Secretary Perry, FES said the premature retirements of its three plants, along with other coal and nuclear plants in PJM, constitute an emergency threat to the reliability of the RTO’s grid. It cited as evidence a report released just two days earlier by the Department of Energy’s National Energy Technology Laboratory that said coal “provided the most resilient form of generation in PJM” during the January cold snap known as the “bomb cyclone.”

“PJM continues to claim that all is well with its system, but at the same time shows it does not have a clear view of what resilience is, how to measure it or how to ensure it,” FES told Perry. “PJM has demonstrated little urgency to remedy this problem any time soon — so immediate action by the secretary is needed to alleviate the present emergency.”

Beaver Valley Plant

PJM rejected FES’ allegation. “This is not an issue of reliability,” PJM said in an emailed statement. “There is no immediate emergency.”

FES also criticized FERC for rejecting DOE’s Notice of Proposed Rulemaking that would have directed all RTOs and ISOs to compensate the full operating costs of any generating facility with 90 days of onsite fuel. The commission instead opened a new docket to receive input on the resilience issue. (See RTO Resilience Filings Seek Time, More Gas Coordination.)

“Despite the fact that the time for such remedial action has come, FERC terminated your rulemaking proceeding and chose instead merely to study the issue further,” the company wrote. “FERC’s response was disappointing. FERC’s reliance on comments by RTOs/ISOs — the very entities that preside over the flawed markets — is misplaced. More fundamentally, FERC’s decision to study the issue further is too little, too late.”

FERC recently extended the deadline to May 9 for intervenors to submit comments in response to the grid operators’ filings (AD18-7).

FPA Section 202c

FES’ requested order, which would be invoked under Section 202c of the Federal Power Act, would apply to “nuclear and coal-fired generators located within the PJM footprint that have a supply of fuel on site sufficient to allow 25 days of operation at full output; that are substantially compliant with all applicable federal, state and local environmental laws and regulations; and that do not recover any of their capital or operating costs through rates regulated by a duly authorized state regulatory authority, municipal government or energy cooperative.”

Those plants would “be compensated with just and reasonable rates that provide for full recovery of its fully allocated costs and a fair return on equity.”

FES also requested that in cases when PJM and a qualifying plant are unable to reach an agreement on rates, “the secretary step in and determine the just and reasonable compensation and conditions.” It also asked that the order remain in effect for at least 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.”

The Energy Department has used its authority to declare emergencies eight times since 1977 — when the Department of Energy Organization Act transferred this power from FERC to the secretary of energy — beginning with the Western Energy Crisis of 2000. Perry has invoked it twice: last April for the Oklahoma-owned Grand River Dam Authority’s Grand River Energy Center Unit 1, and in June for Dominion Energy’s Yorktown plant. (See DOE Approves Emergency Dispatch of Yorktown Units.)

In both cases, the plants were coal-fired. And in both, Perry issued the orders less than five days after receiving the requests from the plants’ owners. In Yorktown’s case, PJM had also filed a request.

Section 202c limits any emergency action to 90 days if it conflicts with any other law, although it allows the secretary to extend the emergency for another 90 days after a review. Perry has renewed the Yorktown request twice, as PJM had requested that it stay in effect until the construction of a needed transmission line in the Historic Triangle region of Virginia.

However, FES said that “because the eligible nuclear and coal-fired generators must continue to substantially comply with all applicable federal, state and local environmental laws and regulations, the provision in Section 202c limiting the duration to a 90-day period is not applicable.”

Robert Murray, CEO of coal producer Murray Energy, has been lobbying the Trump administration to issue an emergency order for FirstEnergy’s Ohio coal plants, his company’s biggest customer, since at least last July. Perry had reportedly rejected the use of such an order in August, opting instead to issue the resilience NOPR. (See Photos Show Murray’s Role in Perry Coal NOPR.)

Bloomberg, citing anonymous sources, reported in February that DOE officials were still considering the use of 202c for FirstEnergy’s coal plants, but the department countered that the sources were “misinformed.” Nevertheless, Undersecretary Mark Menezes told Bloomberg that “we have authorities that we can use when the need arises. They’re well known. And we’ll use them if we need to.”

PJM, Stakeholders React

PJM acknowledged fuel supply diversity is important. “But the PJM system has adequate power supplies and healthy reserves in operation today, and resources are more diverse than they have ever been. Nothing we have seen to date indicates that an emergency would result from the generator retirements,” the RTO said. “The potential for the retirements has been discussed publicly for some time. In anticipation, PJM took a preliminary look at the effect of the retirements on the system. We found that the system would remain reliable. We have adequate amounts of generation available.”

In February, PJM issued a report showing that its grid performed reliably during the cold snap but that price formation changes were needed, echoing comments that CEO Andy Ott made in January before the Senate Energy and Natural Resources Committee. (See PJM: Cold Snap Uplift Shows Need for Pricing Changes.)

Condemnation of FES’ request was widespread across stakeholder sectors and interests.

“FirstEnergy does not speak for its own customers, as strong opposition from their customers to past FirstEnergy bailout attempts clearly shows, much less their attempt to speak for all 65 million customers who depend on PJM,” the Electric Power Supply Association said. “Similarly, FirstEnergy does not speak for all other coal and nuclear asset owners.”

On Friday, EPSA joined with 10 other trade associations — the American Council on Renewable Energy, American Forest & Paper Association, American Petroleum Institute, American Wind Energy Association, Electricity Consumers Resource Council, Independent Petroleum Association of America, Interstate Natural Gas Association of America, Natural Gas Supply Association, Solar Energy Industries Association and Advanced Energy Economy — to request that Perry allow comment on FES’ filing, citing the company’s failure to seek rehearing of FERC’s decision on the resilience NOPR.

“It would be manifestly unreasonable and unfair to both other interested parties and the secretary for FE Solutions to demand that the secretary act without hearing from interested parties, including PJM, after having failed to exercise its right to request rehearing before FERC and waited nearly three months before challenging FERC’s order through the March 29 request to the secretary,” the groups said.

The Sierra Club said a 202c order would be illegal and promised to sue the department if Perry granted FES’ request. “If the Trump administration bows to FirstEnergy and moves forward with this bailout attempt, Sierra Club fully intends to challenge and defeat the administration in court,” said Mary Anne Hitt, director of the group’s Beyond Coal campaign.

NRG Energy spokesman David Gaier called FES’ request “a solution in search of a problem.”

“The only crisis here is one affecting FirstEnergy’s shareholders, and Ohio ratepayers should not be asked to bail out FE for its inability to profitably operate its power plants,” Gaier said.

John Moore, director of the Natural Resources Defense Council’s Sustainable FERC Project, said, “FirstEnergy is desperate to pad its bottom line at the expense of its customers. The region is awash in cleaner and cheaper resources, and FirstEnergy can’t compete in the market. This move is stunning given that the Federal Energy Regulatory Commission, the Department of Energy and the state of Ohio have all rejected these bailouts.”

“PJM has twice the reserve margin it needs so this fuel supply crisis is completely manufactured,” said Rob Gramlich, president of Grid Strategies, a renewable energy consultancy. “PJM has been quite accommodating in my opinion, asking FERC for a nationwide ruling and to be directed to make market design changes if they deem necessary. They’re punishing some pretty good deeds.”

While the Nuclear Energy Institute lamented the plant closures, it did not express direct support for FES’ request.

“The announcement from FirstEnergy to retire more than 4,000 MW of nuclear power generation demonstrates the urgency for policymakers to act before it is too late,” said John Kotek, NEI vice president of policy development and public affairs. “All options to prevent the closure of nuclear plants should be explored.”

Nuke Closures

In Wednesday’s announcement of the nuclear plant closures, FES Generation President Don Moul repeated its call for “elected officials in Ohio and Pennsylvania to consider policy solutions that would recognize the importance of these facilities to the employees and local economies in which they operate, and the unique role they play in providing reliable, zero-emission electric power for consumers in both states.”

Zero-emission credit legislation similar to that passed in Illinois and New York has stalled in Ohio, however.

Perry Nuclear Plant | Wainstead

The plants have a combined capacity of slightly more than 4 GW, representing about 65% of the electricity FES generated in 2017, according to the company.

“PJM has an established 90-day process to review generator retirement requests. We will conduct the full analysis required to determine if there would be any local effects on the grid,” the RTO said in its statement. “However, given the unusually long advance notice, there would be sufficient time to complete any transmission upgrades required.”

It also noted there are about 10 GW of generation in Ohio under construction or in the interconnection queue.