Lincoln Power and Nautilus Power, power plant companies that Cogentrix Energy manages, made moves Friday to protect themselves from penalties being imposed by the PJM Interconnection for failing to perform during Winter Storm Elliott.
Lincoln Power, which owns the 480-MW Elgin power plant and the 330-MW Rocky Road plant in Illinois, filed for bankruptcy in the U.S. Bankruptcy Court for the District of Delaware. The power plants face penalties totaling $38.9 million for failing to run during the winter storm in late December, “a multiple” of their annual revenue, according to a court filing.
Before the penalties, the plants were facing a liquidity crunch driven by low clearing prices in PJM’s recent capacity auctions, Justin Pugh, chief restructuring officer for the debtors, said in a court statement.
Power plant owners in PJM may owe up to $2 billion for failing to provide electricity during Winter Storm Elliott in late December, according to initial estimates by the grid operator in 13 Mid-Atlantic and Midwestern states and the District of Columbia.
In related news, Nautilus Power, a power marketer owned by the Carlyle Group, asked the Federal Energy Regulatory Commission Friday to relieve it of pending PJM penalties for failing to provide power during Winter Storm Elliott.
PJM did not need two Nautilus power plants to address capacity shortfalls during certain periods for which the grid operator tentatively intends to fine the company, according to the complaint. Also, the pending nonperformance charges are “unjust and unreasonable,” in part because the power plants’ failure to run had little effect on PJM, the company said.
“The imposition of nonperformance charges on the Nautilus entities, in the manner planned by PJM, bears no reasonable relationship to any costs or burdens caused by the Nautilus entities, and therefore should be precluded by FERC,” the company said.
Nautilus owns three power plants in PJM: the 773-MW Rock Springs power plant in Maryland, the 383-MW Essential Power OPP plant and the 237-MW Lakewood plant, both in New Jersey. The plants are managed by Cogentrix Energy, which is owned by Carlyle Group funds.
Based on the redacted complaint, it appears that Nautilus may owe more in nonperformance penalties than the revenue it is receiving this year from PJM’s capacity market.
Nautilus seeks relief from PJM’s nonperformance charges on OPP and Rock Springs for certain settlement intervals during two “performance assessment intervals,” or PAI, on Dec. 23 and Dec. 24. PAIs are triggered when PJM declares an emergency action. Power plants that fail to meet their capacity obligations in those periods face financial penalties and those that overperform are rewarded.
FERC should take a hard look at whether PJM used its discretion “reasonably” when it declared and kept in place the PAIs and when it decided that the OPP, Rock Springs, and Lakewood units were “needed” to address a capacity emergency, according to Nautilus.
“All of these issues — from PJM’s load forecasting failures, to PJM’s failures to adhere to its Cold Weather Alert process, to its continuation of [power] exports throughout both PAIs, and the decision to identify OPP and Rock Springs as ‘needed’ until well after emergency conditions appear to have abated during the December 24 PAI — color PJM’s exercise of discretion in both its implementation of the two PAIs and its determination of which generating units were ‘needed’ to address capacity shortage issues,” it said.
FERC should bar charges on the Nautilus power plants because they bear “no reasonable relationship” to any costs or burdens the plants caused, according to Nautilus.
Among other things, the OPP and Rock Springs plants were unable to buy natural gas to burn, it said.
During real-time operations, gas pipeline capacity is generally unavailable on short notice, according to the complaint.
“The Nautilus entities are unable to address these issues simply by proactively purchasing gas on a day-ahead basis, even if they have not cleared in the PJM Day-Ahead Market or otherwise been identified in the day-ahead [Reliability Assessment and Commitment] process,” the company said. “Such gas purchasing approaches are economically infeasible for the Nautilus entities.”
Also, when considering whether the estimated penalties are appropriate, the power plants’ failure to run had little effect on PJM, according to Nautilus. Although PJM faced capacity and supply problems during both PAIs, no power outages occurred and operating conditions returned to normal “relatively quickly,” particularly on Dec. 24, it said.
On Dec. 23 and Dec. 24, gas-fired power plants accounted for 63% of the outages and coal-fired generators made up 28% of the outages on a MWh basis, according to a March 9 PJM presentation. A lack of fuel supply was the largest single cause of the outages at the gas-fired power plants, followed by freezing equipment.
PJM in February asked FERC for permission to give generators nine months, up from three months, to pay any nonperformance penalties to avoid defaults.