remainssteadfast in its opposition to generation subsidies as the independent powerproducer gears up for the PJMInterconnection LLC capacityauction, which opens May 11.
"Maintaininga level playing field among competitors is essential in having well-structuredtransparent and functioning markets that encourage sensible investments in existingand new generation resources," Talen Energy President and CEO Paul Farrsaid May 10 on the company's first-quarter 2016 call.
Talenhas joined fellow IPP, DynegyInc., in challengingpower purchase agreements for "uneconomic generation" in Ohio.
ThePublic Utilities Commission of Ohio on March 31 modified eight-yearPPA plans for nearly 6,000 MW of primarily coal-fired generation that is owned,in part or whole, by AmericanElectric Power Co. Inc. and FirstEnergy Corp. subsidiaries. These agreements, whichwould require customers to offset PJM capacity and energy prices, have sincebeen modified basedon FERC's decision torevoke waivers of affiliate power sales restrictions and review the PPAs.
FirstEnergyhas proposed an alternativeto its plan in hopes of avoiding FERC review. AEP is of its Ohiogeneration assets as it seeks a slimmed-down power contract for its share oftwo Ohio Valley Electric Corp.coal plants.
Farr,however, remained unwavering in his belief that these plans will harm the market.
"Highercost units in what remains a persistently low gas price market are going to beunder pressure," he said.
Notingthat AEP and FirstEnergy have said their plants will be "uneconomicgeneration" absent the proposed subsidies, Farr said: "Well, thenthose units need to shut."
"Idon't fault people for trying to do certain things. But at the end of the day …that subsidization activity across all these markets is preserving uneconomicgeneration, which is having a downward pressure on both capacity and energy.So, those owners and other owners that are facing the impact of Marcellus andUtica gas need to take a hard look in the mirror and make some tough decisions."
Withthe PJM 2019/2020 Base Residual Auction window opening May 11 and closing May17, Farr said he doubts anything related to the subsidies will be finalized bythe time results are posted May 24.
FirstEnergyhas said that competitive subsidiary FirstEnergySolutions Corp. will bid the 908-MW Davis-Besse nuclear plant and 2,210-MWW.H. Sammis coalplant into the auction as it evaluates options for securing an income guaranteefor this generation.
Evenwithout the affiliate contracts, Farr said "the substance at the end ofthe day and the result is the same — uneconomic generation is subsidized and ithas an impact on wholesale pricing in the market."
"Andthat's a FERC jurisdictionalissue."
Farreffectively quashed any analyst or investor query into the potential sale ofthe company.
Bloomberg,citing unnamed sources, reported May 6 that private equity firm could benearing a deal forthe merchant generator.
TalenEnergy was formedthrough the merger of PPL Corp.'sPPL Energy Supply and a portfolio of assets owned by Riverstone, which now hasa 35% stake in the company.
"Wedo not comment or speculate on market rumors," Farr said. "We neverhave and we never will."
Asfar as industry consolidation, in general, Farr acknowledged that the "cashflows look compelling."
"Ithink that scale is important, that driving out cost is important," hesaid. "I guess I would say that as I think about our experience in goingafter cost here, and the way that we went after cost as part of an integratedutility holding company, it's much different. So, I would say that from myperspective — in looking at operators operating uneconomic plants in Ohio, inlooking at some nuclear shutdown that's going on in the industry — gettingafter cost is much more, I guess I'll call it aggressive in an IPP context thaninside of the utility holding company with common systems, common businessprocesses.
"It'sjust a different urgency in a different culture."