Study Finds States Scrambling to Retain Baseload Power, Natural Gas Generation Also At Risk

DENVER, Feb. 13, 2017 /PRNewswire-USNewswire/ -- A study released today found states around the country are continuing to advance innovative strategies aimed at keeping coal and nuclear power plants online in organized markets despite stiff challenges in federal court and at the Federal Energy Regulatory Commission. 

Natural gas-fired power plants are also at risk of closure and bankruptcy in organized markets, the study found.  "This nascent and largely unpublicized development suggests gas-fired generation is facing the same pressure as the much-beleaguered coal and nuclear facilities, perhaps with more draconian implications for consumers and, especially, organized markets," the study added. "When baseloads plants cannot cover their fixed costs, all traditional baseload generation sources are at risk," the study noted.

The concerns over natural gas are prompted by sales of natural-gas fired assets in the Midwest and by developments in California indicating gas-fired generators are becoming uneconomic in the California ISO.  These developments include the bankruptcy filing by generator La Paloma and plant closures by merchant generators. "Expect increasing anxiety from the states and generators about regulatory and reliability risks," the study warned.   

The white paper by Raymond L. Gifford, a former chairman of the Colorado Public Utilities Commission, and Matthew S. Larson, partners in the law firm of Wilkinson Barker Knauer LLP's Denver office, questioned whether the structure of organized markets shares the blame for the exit of baseload capacity. "Policymakers support the notion of organized electricity markets yet also want to preordain the outcomes, such as low electricity prices, reliability and green energy," the study said. "The organized markets have thus become Frankenmarkets," the study said.  

The study describes a compendium of state efforts, or 'around market' solutions, to preserve baseload power. States in organized markets recently developed a single 'around market' solution "template" to prevent the loss of nuclear generation. First New York, through an administrative approach, then Illinois with legislation, adopted Zero Emission Credits of billions of dollars to resuscitate nuclear plants in their states. Challenges to both state's ZECs are pending at the Federal Energy Regulatory Commission. Yet Connecticut, New Jersey, Pennsylvania are also considering the ZEC "template" to ensure survival of their nuclear plants, the study said. 

Ohio remains at the front of the baseload power exit trend in organized electricity markets. Utilities in the Buckeye State have pushed the ultimate 'around market' solution, calling for reregulation of the market and the end of deregulation altogether. Success in Ohio could prove a game change. "This is a potential turning point, because when it comes to re-regulation, it is all about who goes first," the study emphasized.   

The study also suggested a diverse portfolio standard could emerge as the next 'around market' solution for states, a "middle way" between re-regulation and markets. Through a DPS, a state could mandate that minimum amounts of certain fuels be kept online, based on the availability and cost of fuels. The DPS could also serve as a technology-forcing initiative, encouraging the development of carbon capture and sequestration, the study said. 

"The coming months are crucial in the market design and baseload power exit debate for several reasons," the study concluded, as major issues such as the legal viability of ZECs, re-regulation in Ohio and perhaps most important, whether FERC will proactively or reactively address 'around market' solutions or even market design issues underlying the loss of baseload power.  

Contact: W. John Moore   
703-624-2308  

SOURCE Wilkinson Barker Knauer LLP