By Rich Heidorn Jr.

WASHINGTON — PJM and the Federal Energy Regulatory Commission were summoned to the Capitol last week to defend their actions to ensure reliability — FERC in response to sabotage concerns, and PJM in the wake of an extraordinary winter that featured more near calamities than a James Bond movie.

The early expectation was that last month’s leak of a FERC study revealing the grid’s vulnerabilities would dominate the hearing before the Senate Energy and Natural Resources Committee and new Chair Mary Landrieu (D-La.). The day before the hearing, the Department of Energy’s Inspector General released a report that criticized FERC’s security procedures. (See related story, IG Faults FERC on Leaked Sabotage Report)

But the hearing instead focused largely on how PJM — after resorting to voltage reductions and load shedding in January — will keep the lights on over the next two years, as economics and EPA regulations idle 40,000 MW of coal-fired generation.

Role for Coal                                                       

It was a stage, and a topic, that Sen. Joe Manchin had been waiting for. Manchin, the West Virginia Democrat who put the final bullet in the FERC nomination of Ron Binz last year, was the most animated person in the hearing room.

Manchin cited a report by AEP that 89% of the coal capacity that it will retire in the next 14 months was dispatched in January.

“I’m not here trying to push a product that you don’t want,” Manchin insisted, referring to coal. “But when we hear from people like you, the professionals, who say we’ve gotta have it. And I’ve got an [Obama] administration that’s fighting me every way they can, to get rid of it,” he said, shaking his head over the contradiction.

Then Manchin concluded with a triplet worthy of Yogi Berra: “You gotta have it, but you don’t want it, but you know you need it.”

Natural Gas Dependency

Several witnesses and senators expressed concern over growing too dependent on natural gas. But Calpine CEO Thad Hill, whose company’s generating fleet is 95% natural gas-fired, had no nostalgia for coal.

Of the 30,000 MW of PJM generation that suffered outages due to mechanical problems in January, Hill said, almost 15,000 MW were coal-fired versus only 1,500 MW of modern combined cycle. (Another 7,500 were older gas units, Hill said.) “The point being: This isn’t about overreliance on any one fuel. It was about operational readiness this winter.”

While PJM will lose 15,000 MW of coal over the next three years, it will get 19,000 MW of new resources, Hill said, including a 309-MW combined-cycle plant Calpine is building in Dover, Del.

He noted that the current retirements, sparked by EPA’s Mercury and Air Toxics (MATS) rule, is thinning the coal fleet of its most aged and inefficient units. The median AEP plant being retired is about 50 years old and less than 200 MW.

The coal fleet is certain to be reduced further after the EPA announces its greenhouse gas regulations for existing generation in June. (See related story, Now Comes the Hard Part) In addition, some nuclear generation is at risk due to low energy and capacity prices and pending EPA cooling-water regulations.

AEP CEO Nick Akins complained that PJM’s capacity market was “not functioning as intended.

“Yes, PJM has more than 8,000 MW of planned (mostly gas) generation identified in the last two auctions, but many of those generators are being proposed with some form of state regulatory funding support,” he said in his written testimony. “What this means is that many new builds are the result of state directives rather than a response to market signals.”

Kormos: PJM is Prepared

PJM Executive Vice President for Operations Mike Kormos noted that the RTO’s fuel diversity will actually increase over the next few years as coal is replaced by gas and other resources. Coal will remain one-third of PJM’s capacity, he noted.

PJM generation capacity is expected to drop by almost 3,500 MW through 2017. (See chart.) Nevertheless, Kormos told the senators that PJM’s capacity auction has obtained more than its required energy and reserves “through the MATS [transition] period.”

He acknowledged challenges ahead. For one, Kormos said, there will be more price volatility as a result of the replacement of coal by natural gas and demand response, which he described as “one of highest priced resources.”

After enjoying several years of low-priced shale gas tranquility, natural gas generators were jolted in January when prices briefly spiked to more than $100/mmBtu. Kormos said PJM’s costs also were boosted in January by what he called the gas pipeline industry’s “onerous” contract provisions.

“It would not be realistic for me to stand up here and tell you that there will never be an interruption in service,” he said. “But … we will be able to serve the load in all but the most extreme circumstances.”

Moeller: Not Confident in Retirement Data

Commissioner Philip Moeller said he is troubled by contradictory capacity forecasts.

“We have executives who say we can get through this period without any problem,” he said. “We have others who are very concerned. My focus has been to try and get the data: which plants retire when; where they are on the system.

“We’re not exactly confident in a lot of the numbers,” he continued. “And that has me very concerned going into the next two to three years.”

Moeller cited MISO, which recently predicted a 2-GW capacity shortfall in summer 2016 — down from estimates a few months ago of a 6-GW deficit. He noted that the revised projection assumes an annual 0.75% drop in energy consumption. “That’s a pretty big assumption,” he said ruefully.

Moeller’s prediction: “A lot of it’s going to depend on the weather. If we have mild weather for the next couple of years we might make it through. But if we have extreme weather in the summer or … in the winter, the system will be extremely stressed.”