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US capacity market revamp not sufficient to aid nuclear power units: execs

Highlights

The US Federal Energy Regulatory Commission's recent approval of PJM's plan to reward high-performing generating units in its capacity auctions would be helpful to nuclear generators if replicated in other competitive markets, but still falls short of changes in market designs needed to assure units continue operations, two utility executives said Wednesday.

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"From a policy perspective, we view this FERC action as progress, but capacity is only 15%-20% of [a nuclear power] plant's revenues," William Mohl, president, Entergy Wholesale Commodities, said in an interview Wednesday after his presentation at a Boston conference on the outlook for nuclear generation, presented by Bloomberg BNA.

The FERC capacity performance plan, approved June 10, would reward units with high performance and penalize those that fail to perform. The intent is to reduce price spikes and other system disruptions during key moments, such as extreme weather and high demand.

PJM said in its December 12 proposal that the reforms aim "to ensure that resources committed as capacity to meet the PJM region's reliability needs will deliver the promised energy and reserves when called upon in emergencies, providing the reliability that the region expects and requires."


Mohl said that ISO New England recently adopted "a performance assessment mechanism" that he said is similar to the one implemented by PJM, adding that the New England market capacity revision "will be helpful to single-unit site [nuclear] plants."

Entergy operates the 620-MW Pilgrim site in Massachusetts. Entergy's 1,067-MW Indian Point-2, 1,080-MW Indian Point-3 and 849-MW FitzPatrick in New York are within the New York ISO and "won't benefit" from the PJM capacity market change, he said.

Daniel Weekley, Dominion Resources vice president, corporate affairs, said in an interview Wednesday after his presentation at the conference that the capacity market changes in PJM and ISO New England have shortcomings.

"One of the things we look at in every market, in New England or PJM, is whether capacity markets ... send the long-term pricing signals necessary for building additional generation," Weekley said. "We continue to argue that this is what's missing in these [ISO New England and PJM] markets."

Dominion operates the 918-MW Millstone-2 and 1,276-MW Millstone-3 in Connecticut.

Mohl said FERC should issue orders to ISOs that they revamp energy markets, which determine the price paid for electricity. Noting that the "energy [component] comprises about 85% of a plant's revenues," he said "what we're asking [FERC] is that for both day-ahead and real time pricing all actual dispatch costs are included."

In many deregulated markets now, he said, energy costs "include only pricing and excludes things like load costs and startup costs."

"We're asking that those costs be included in the LMP [locational marginal price]" and include the costs for starting up a unit when called upon by an ISO.

Mohl said the cost to electricity consumers for implementing such changes "varies based on region, but what we're talking about is somewhere between a $3 and $5 a megawatt hour increase" in energy prices.

An increase of this magnitude, he said, "is pretty minor compared with a present market structure where we're shutting down viable plants."

Entergy shut Vermont Yankee at the end of December, saying that the 580-MW unit could not operate profitably in the New England market. Dominion shut the 581-MW Kewaunee in Wisconsin in 2013, likewise saying it could not operate profitably.

Most at risk within the Entergy fleet, Mohl said in a May 14 interview, are Pilgrim and FitzPatrick. "I've made it clear FitzPatrick has been a marginal unit for a while," he said. "We're really counting on some positive changes in market design to be able to continue to run it."

--Jim Ostroff, james.ostroff@platts.com
--Edited by Lisa Miller, lisa.miller@platts.com