PJM Takes Wraps Off Plan to Prop Up Prices for Nuclear, Coal Power

Tom Johnson | November 16, 2017 | Energy & Environment
Regional grid operator’s proposal is one answer to growing clamor by power producers to help subsidize plants that are struggling to compete

nuclear power plant
The regional grid operator yesterday unveiled a proposal to push up energy prices for power producers, the latest plan to prop up a sector that is lobbying intensely for financial help on the state and federal levels.

The proposal by PJM Interconnection is its response to an energy market in which falling natural-gas prices and other factors have led to premature retirement of coal and nuclear plants and left other units facing steep economic challenges.

In New Jersey, the predicament is developing into a potential brawl over efforts by the Public Service Enterprise Group to convince lawmakers to pass ratepayer subsidies to support their three nuclear power plants in South Jersey in the lame-duck legislative session. Without the subsidies, the company has threatened to close them.
The ultimate decision on giving new incentives to the plants will impact consumer bills, depending on the size of the subsidies. In New York, where the Cuomo administration approved help for a couple of nuclear plants, the subsidies amount to close to $1 billion over two years.

A bill has yet to emerge from those discussions, although yesterday rumors circulated in Trenton and Atlantic City where many policymakers were attending the annual New Jersey State League of Municipalities Convention that a measure could be introduced and voted out of committee as early as Monday.

Sen. Bob Smith (D-Middlesex), the chairman of the Senate Environment and Energy Committee, was circumspect when asked about the possibility. “The issue is being studied,’’ he said.

Meanwhile, the prospect of providing help to both coal and nuclear units also is under discussion in Washington, D.C., where the Federal Energy Regulatory Commission is expected to act on a U.S. Department of Energy proposal to provide financial aid to those sectors by the middle of December.

PJM, the operator of the nation’s largest power grid, is not supportive of the DOE proposal. It has been exploring ways to increase electricity prices before that initiative was proposed by the Trump administration, preferring what it calls a market-based solution to plants not being rewarded for providing the grid with reliable and resilient electricity.

“There are times right now where markets are not compensating resources,’’ said Stu Bresler, senior vice president of operations and markets for PJM in a call with reporters.

Slow to start up

The complicated market-based approach proposed by PJM would adjust its pricing for power plants that are dispatched to meet demand in the region. Among the changes, it would allow so-called inflexible units, or plants slow to start up, such as nuclear and coal facilities, to set the energy price.

The result would be to boost overall energy (electricity) and capacity (reserve) prices between 2 percent and 5 percent, according to projections by PJM. Whether that would be enough to satisfy energy companies lobbying for new financial incentives is uncertain.

“We do not view this as a final solutions facing nuclear,’’ said Lathrop Craig, vice president of ISO operations for PSEG, calling the proposed increases in energy prices modest. “It’s a piece of the total reforms we’d like to see in energy and capacity markets.’’

Others were more critical. “Clearly, we should not be subsidizing fossil-fuel facilities and profitable plants,’’ said Doug O’Malley, director of Environment New Jersey. “In New Jersey, we can’t rush this process. We need clear and transparent documentation.’’

Paul Patterson, an energy analyst at Glenrock Associates, said the PJM proposal reflects what has been a constant effort to change the rules to deal with shifts in the energy marketplace. “We are talking about something that is beginning to rival the complexity of the U.S. tax code,’’ he said.

Some states, including New York and Illinois, have opted to give nuclear units subsidies to avert their closing.