FERC issued an order approving settlements on reliability must run (RMR) deals that will keep the Brandon Shores Generating Station and the H.A. Wagner Generating Station in Maryland running until May 31, 2029 (ER24-1787 and ER24-1790).
Talen Energy owns both plants, which are located near Baltimore and had sought to retire this year. But PJM found that would have led to reliability issues. Brandon Shores is a 1,289-MW coal plant, and Wagner is an 843-MW oil-fired unit. Now they will run until transmission improvements are ready to replace them reliably.
Brandon Shores is getting $145 million a year and Wagner $35 million, which includes fixed-cost charges, a monthly investment tracker payment to recover spending that’s needed to keep the plants running and a reimbursement mechanism to cover operations and maintenance costs.
Talen entered into settlements with Exelon, PJM, the Maryland PSC, the Southern Maryland Electric Cooperative and the Old Dominion Electric Cooperative on the RMR deals, which cut its initial annual cost from $175 million for Brandon Shores and $40 million for Wagner. Talen will credit market revenues the plants earn back to customers, and it agreed to limits on investments in the plants, which require PJM approval.
PJM said the settlements represent a significant achievement of consensus on issues between Talen and a broad coalition of load parties that will pay for the RMR deals.
The deal was opposed by PJM’s Independent Market Monitor and the Maryland Office of People’s Counsel, who took issue with how the plants determined their sunk costs. Talen was spun off from PPL in 2015, and at that point Brandon Shores was appraised at $648 million. But in 2012, the firm bought both plants for just $372.5 million. The people’s counsel argued that using the higher number amounted to a windfall for Talen.
FERC trial staff countered that the sunk costs are within the just and reasonable range and will be offset by capacity revenues being credited back to customers. And costs would be greater if outages occurred in the area because the plants were retired too soon.
“Under this approach, the commission need not find that the rate is exactly the rate the commission would establish on the merits after litigation,” the order said. “The commission need only find that the overall package, resulting from the give and take of the bargaining which led to the settlement, falls within a broad ambit of various rates which may be just and reasonable.”
Precedent gives the commission a few legal rationales for approving settlements. The one it picked focuses on the end result of the deal and involves a balancing of the benefits with costs and the potential effect of continued litigation.
The deals provide a high degree of certainty to market participants that the units will be available, including a longer RMR (five months more than initially proposed) and fewer circumstances under which Wagner and Brandon Shores can terminate operations. It also gives PJM flexibility to end the RMR deals early if market conditions change.
“This certainty provides value to the settlements, especially in light of the serious reliability concerns at stake without the settlements that could lead to much greater costs overall,” FERC said.
