FE CEO Tony Alexander Admits New OH Rate Hike Is About Bailing Out Base Load Model
On The Power Line, I have often written about how the US base load/peak load model of electricity dispatch is not a hard and fast rule, but a distinct feature of our dying centralized system. Germany, and even recent renewable integration studies by PJM Interconnection, have shown that increased renewable generation will work fine if fossil fuel generators are used only to fill in during times of low renewables output.
The new system requires new operation patterns for fossil generators. The dispatch requirements are very hard for big nuke and coal plants to meet, because these plants can only operate efficiently at high output on a continuous basis.
Yesterday, I posted about FirstEnergy’s push to bail out its failing base load plants, the Davis Besse nuke and the Sammis coal burner by raising OH electric rates.
Seeking Alpha also released yesterday the transcript of FirstEnergy’s recent quarterly analyst call. In the transcript, CEO Tony Alexander says this:
This program [the Sammis/Davis Besse bailout] would also help ensure the continued investment in and operation of significant base load assets located primarily in Ohio.
Remember that my post yesterday, I quoted UBS analyst Julien Dumoulin-Smith as saying that without the bailout, FE might have to close both plants.
Alexander also admits that FE’s plants can’t compete in PJM’s capacity market.
Turning to other generate [sic] matters, the PJM capacity auction for 2017 and 2018 which was held in May produced stronger results than last year. However, the prices were still not where they need to be to sufficiently support the type of generation resources needed to assure a reliable and diverse supply or essential electric service.
Dumoulin-Smith pointed out most of the capacity of Sammis and Davis Besse could not be sold in the May capacity auction because the plants’ operation costs were too high and FE could not bid low enough to clear their capacity. Operating margins on the sales of electricity from the two plants are so thin, that their profitability is dependent on the bonus the get from capacity sales.
The fact is that time is running out for old time base load generators, unless FE can convince the OH PUC rate payers should subsidize what amounts to a corporate jobs program.