Presentation to the Commissioners New Jersey Board of Public Utilities Filed
October 19, 2020 - Introduction and Background to Preserve the Coal Power Plants, Stop Immediate Shutdown
On September 24, a press story appeared in NJ.com with the headline “N.J.’s last two coal power plants could soon close and not everyone is happy about it”. The intro also headlined: “The End of Garden State Coal“.
The two plants in question have a combined generating capacity of 481 MW, and as stated in the article “that’s enough electricity to serve about 480,000 homes”. The plants are the Logan Generating Plant and the Chambers Cogeneration Plant, now owned by Starwood Energy Group with electric sales from both plants to Atlantic City Electric. Starwood wants to close the plants, requiring Atlanta City Electric to assume shut in costs which it has no responsibility for, and then sell electricity to Atlantic City from power purchases through the PJM Pool. Starwood commissioned a very expensive and slick study justifying plant closure and the transaction based on claimed rate payer benefits from avoided CO2 emissions. This, notwithstanding that no ratepayer is paying for CO2 emissions in New Jersey in any context, whether driving a car, flipping a light switch, running a stove or doing other myriad things every-day living our lives. Including breathing,
This presentation is submitted in opposition to Starwood and any premature plant closure. It also includes a recommended course of action. I submit this as an individual who has spent a career in coal and electricity and is strongly adverse to any play by individuals or companies gaming the regulatory system to create wealth at the expense of ratepayers. Current concerns over worldwide CO2 emissions from using natural gas, oil and coal to live our lives are not a legal nor moral basis for Starwood to enjoy economic benefits through CO2 avoidance as a path to personal or corporate wealth. If they are allowed to proceed as proposed, it is ultimately the New Jersey ratepayers that will suffer and the State will as well.
My name is Fred Palmer and I have a deep background in utilities and coal. From 1980 to 2000 I served first as General Council and then CEO of Western Fuels Association (WFA), a coal cooperative owned by the nation’s biggest Rural Electric Generation and Transmission Cooperatives operating in a multi-state region. As a cooperative owned by cooperatives, WFA serves its Member-owners as both a coal buyer and producer. Immediately following my WFA tenure, from 2001 to 2015, I served as a part of the Peabody Energy senior management team in coal, climate and energy policy and government relations at home and abroad.
As a result of my role at WFA in coal-based electricity, in 1990 I accepted a DOE appointment as a Member of the National Coal Council (NCC), and I still serve as a Member of the NCC. The NCC is a federal advisory committee to the Secretary of Energy, US Department of Energy. My service has been through continuing, consecutive two- year terms under Presidents Bush (41), Clinton, Bush (43), Obama and now President Trump.
I am sending this to you in an individual capacity, but my job experience and three decade tenure on the NCC gives me a unique view of electricity supply generated from coal and its importance to us all, including to New Jersey utilizing the two coal units left and as part of the PJM Power Pool. I care deeply about people and their need for affordable, reliable and dependable electricity generated in a manner meeting EPA and State criteria emission pollution limits traditionally regulated. To me, that means preservation of existing coal-based electricity generation now and in the future.
My NCC tenure over the last 30 years informs my views in important ways. For example, in 2014 I had a lead role in preparing a study by the NCC for the Secretary of Energy on the current value of our coal plants, with a focus on the PJM Power Pool in the East, but not exclusively. Among participants in the study were American Electric Power and Southern Company.
The NCC study team did an in-depth review of the role of coal in serving people during the massive Polar Vortex of 2014 and found that 93% of the surge in electric demand due to the bitter cold was met from our coal plants then operating. Life giving, in other words, even as coal is vilified. The conclusion in the study was and is without the coal plants massive blackouts could have occurred for an extended period. Of course, many of those coal plants are now gone.
For 25 years, Atlantic City Electric (ACE) has purchased electricity from the two coal plants located in western New Jersey, now owned and operated by Starwood Energy Group Global, LLC since 2018. As noted above, the plants are the Logan Generating Plant and the Chambers Cogeneration Plant. ACE purchases are under Purchase Power Agreements with Starwood and the PPAs are subject to the jurisdiction of this Board. The PPAs involved run until 2024, or a little over three years from now.
While these are older plants running at reduced capacity, they nonetheless are important assets for ACE and the region as loss of the plants would cause direct jobs loss of 90-100 employees and directly impact another 2,500 people servicing the plants. All of this would occur during a time of severe economic downturn due to the Coronavirus. This would have devastating impact on many individuals and families and a large economic loss for New Jersey, certainly in the many millions of dollars.
On load factor and reliability, the two plants ran at much higher load capacity in the past, including during both winter cold excursions in the 2014 and 2016 polar vortex periods. Based on the 2014 NCC study, both coal power plants are needed to meet demand surge in extreme warm and cold periods to come, which periods most certainly will.
Starwood has tabled an offer to ACE for a buyout incorporating CO2 avoidance values, which would allow Starwood to discharge all workers and vendors while deploying a shut-down of both plants in two months. Starwood would then purchase at currently depressed prices from the PJM Pool for resell to ACE making additional profit. The job losses would be immediate; reliability risks for New Jersey and the PJM Power Pool would per force increase should the plants close. The buyout price sought includes payment of CO2 avoidance to be paid by ACE based on a CO2 cost avoidance study by FTI Consulting.
In the study FTI makes a disingenuous claim of massive savings through CO2 emissions avoidance due to the coal plant shutdowns. The amount claimed for New Jersey rate-payers spreads from $98 million-$932 million over the three-year period, the cost spread on its face showing FTI is dealing with phantom, unmeasurable costs. In any and all events the claimed savings produce no actual current dollar benefits for rate payers in actual lower rates. The claimed costs are 100% based on an ephemeral cost of avoided CO2, meaning true CO2 costs in real time do not exist.
Also objectionable about the FTI study is the complete lack of discussion of reliability risks associated with closing in New Jersey’s last two coal plants. Loss of these two power plants would join the string of numerous coal plant closures in the PJM Power Pool since 2014, and the existence of reliability risks from such closures is both real and acknowledged by experts.
In 2018, the North American Electric Reliability Corporation (NERC) raised concerns over electric reliability issues because of the pending shut in of 22,000 MW of coal generating capacity in the next year. In fact, 44,000 MW of coal plants have been closed down since with no reliability update yet from NERC.
Also, in 2018, Energy Ventures Analysis issued a PJM Interconnection Case Study warning of risks from additional scheduled plant closures of only 5,258 MW of coal capacity. The EVA study raised concerns stating “the loss of coal capacity will reduce the system reliability and resilience to respond to the demand for electricity.”
Reliability concerns are real and winter electricity blackouts are deadly, but not to worry for Starwood and FTI. Instead they hide behind the current concerns surrounding CO2 emissions, assigning speculative, negative values in eliminating them and implying it is better to have zero electricity supply if CO2 emissions attend generation. Thus, CO2 concerns, a separate subject by itself, are being waved around by Starwood in a brazen attempt to extort value out of coal plant premature closures, coal plants they bought only two years ago, all the while caring not at all about the coming Winter as they dismantle the units.
A Path Forward
There is nothing official in front of the Board to address on the plant closures, but there soon could be. With respect, the objections and concerns expressed in this document are real and need to be addressed before any plant closure deal is struck and approved for whatever reasons. And in this context, it is time to take note of increasing natural gas prices that could spiral from here with attendant shortages.
Natural Gas drilling in Marcellus in the East is dramatically lower and production decline is following. The promise of Permian Basin abundant associated natural gas from Texas and New Mexico shale oil production is disappearing and will continue to so long as oil prices stay under $62/bbl per a prominent Permian Basin oil driller. And because Natural Gas LNG exports from the US have returned to almost record levels while coal plant closures continue, it is absolutely conceivable that we return to the harsh days of natural gas shortages that were a concern 15 years ago until shale gas appeared in the last 5-10 years. With the massive already accomplished coal plant closures a reality, a very dangerous mix of unforeseen events coming together could make the PJM Pool into the California electricity fiasco.
The concept of utility prudence is front and center here and that means requiring Logan and Chambers to run until 2024; for sure this is something this Board can and should do. In too many instances, the concept of Prudence in utility planning and operations has taken a back seat to “we must do it now” CO2 avoidance and “decarbonization”. Certainly, Starwood and FTI are using CO2 emission avoidance to convince ACE and ultimately the Board that the plants should be allowed to close prematurely.
Utility prudence says the straight forward answer to Starwood and FTI is a simple, powerful no. And when 2024 comes around with the plants still running, both units deep in the money because of a material change in the natural gas market, perhaps the plants become a permanent fixture for New Jersey’s future.
Frederick D Palmer, Esq
National Coal Council