Demand Response Energy Efficiency FERC MISO PJM Planning Reliability and Resilience Transmission

Phasing Out Dirty Plants

September 23, 2013

Coal-PlantThe Sustainable FERC Project’s priority is to accelerate the deployment of clean energy resources into America’s electricity transmission grid. Part of our priority is ensuring that older, dirtier and costlier power plants – nearly all of which are powered by coal and oil –do not block the entry of these new resources onto the grid.

Hundreds of these power plants are slated to close in the next several years because of lower energy demand, cheaper natural gas, and new U.S. Environmental Protection Agency (EPA) standards for mercury and other toxic air pollutants. Most of these plants are located in the mid-Atlantic, Midwest and Southeast.

As owners announce plant retirements, grid planners at Regional Transmission Organizations (RTOs) work through the process of evaluating whether the closures will affect grid reliability. Sometimes the plants can close with virtually no impact on grid reliability – especially since most regions of the country have had a healthy surplus of power capacity. In other cases the RTOs may need to accelerate transmission line upgrades or take other steps to make up for the retiring plants, such as moving power into areas of potential shortfall or activating demand response (customer reductions in load) to reduce energy demand on hot days.

However, sometimes an RTO or utility concludes that accelerating upgrades and existing demand response aren’t enough and that a power plant can’t close until after other solutions are implemented. In these cases, the owners will receive guaranteed payments—ultimately funded by consumers—to continue plant operation. In the world of transmission system planning, these payments are called “reliability must run” payments, or “RMRs” for short.

Although much of the work related to reliability around power plant retirement takes place at the local and regional level, the Federal Energy Regulatory Commission (FERC) impacts determinations about reliability and power plant retirement in a few different ways. It regulates the technical rules RTOs and utilities use to plan for power plant retirements. FERC also reviews proposed RMR contracts. Finally, FERC advises the U.S. Environmental Protection Agency on reliability determinations that provide the basis for power plant owners to request additional time for complying with EPA’s mercury and air toxics standards (MATS) rule.

Power Plant Retirement Impacts Analysis and Reasonableness of RMR Payments

The Sustainable FERC Project has two concerns when an owner announces a power plant retirement and the RTO assesses the impacts of the plant’s closure on grid reliability. The first concern is to make sure the RTO/utility has evaluated the grid impacts of the planned retirement accurately and reasonably. Doing so involves delving deeply into the “black box” of transmission planning, which we and our allies navigate with the help of transmission experts. The second area of concern arises after the RTO/utility has decided that an RMR contract is necessary for some period of time. RMR payments, which can total tens of millions of dollars annually, can be economic lifelines for plant owners, especially during periods when the plants otherwise can’t compete in the energy markets. In some cases, the owners end up making more money than before the “reliability need” determination.

Although sometimes justified, these payments can create several problems. They virtually assure more pollution than otherwise would exist if they closed and they limit opportunities for cleaner generation and energy efficiency to compete. To minimize the costs of RMR payments, the Sustainable FERC Project and our allies examine them in detail and determine if either the RTO or the power plant owner is proposing to include improper or unnecessary costs in the scope of the contract.

The FERC Project’s Power Plant Retirement/Reliability Advocacy

The Sustainable FERC Project and its allies are engaged on these issues at the Federal Energy Regulatory Commission (FERC), in coal-heavy regions such as the RTOs Midcontinent Independent System Operator, Inc. (MISO) and PJM Interconnection LLC (PJM), and in the southeast at the Southeast Regional Transmission Planning Process. For example, we ask FERC to carefully assess all power plant requests for extensions of time to comply with the U.S. EPA mercury and air toxics standards. We also work with partners to propose demand response or energy efficiency that may avoid or reduce the amount of time necessary for the plants to operate past their desired retirement dates. Finally, we work to improve RTO rules governing power plant retirements, by including more public access to information, requiring early notice of plant retirements and reasonable, consumer-friendly RMR payment terms, and consideration of alternatives to RMR payments.

The Project doesn’t oppose all payments to coal plants that continue to operate for reliability reasons. But we want to be sure that grid operators and FERC fully consider all reasonable and reliable alternative solutions to continued operation, including cleaner efficiency, demand response and generation. To do otherwise would, in the words of the Federal Power Act, be unjust, unreasonable and discriminatory, and it will create more pollution.