TVA to lose largest industrial customer

The Tennessee Valley Authority is losing its largest industrial customer, a government-owned uranium enrichment plant.  When the plant near Paducah, Kentucky closes next year, TVA will lose about 5 percent of its electricity sales, resulting in a loss of about $600 million in annual revenue. What does this mean for TVA and for its fleet of coal-fired electric generating facilities?

The Tennessee Valley Authority is the nation's largest public power provider and a corporation of the U.S. government.  TVA provides electricity for about 9 million people in seven southeastern states: Alabama, Georgia, Kentucky, Mississippi, North Carolina, Tennessee, and Virginia.  TVA is independently financed, meaning it neither receives no taxpayer money nor retains any earnings as profits.  It owns the most operating electric capacity of any utility in the U.S. (33,804 MW as of 2011), and leads the nation in both volume of annual energy sales (167,730 million kilowatt-hours) and annual revenue ($11.841 billion).

TVA's largest customer has been the Paducah Gaseous Diffusion Plant.  Originally built by the U.S. Department of Energy to enrich uranium into fuel for U.S. nuclear power plants, the plant has been leased to and managed by USEC, Inc. since 1993.  Paducah has been the nation's only facility for processing low-enriched uranium since 2001.

Last month, USEC announced that it plans to close the Paducah plant in 2014.  When that happens, TVA will face a new, smaller landscape of demand for its power.  As a result, some observers expect TVA to close the nearby Shawnee Fossil Plant.  The Shawnee facility is a 1,200-megawatt coal-fired power plant built at the same time as the Paducah enrichment plant at a site about 2 miles away.

TVA has not yet indicated whether it will close Shawnee, but in recent months it has announced plans to close 3 other older coal-fired power plants: the Widows Creek Fossil Plant in northeast Alabama, and the John Sevier and Johnsonville fossil plants in Tennessee.  On the other hand, TVA continues to modernize and invest in refurbishing other older coal-fired plants, including the Gallatin Fossil Plant near Nashville, Tennessee.  TVA is investing about $1.1 billion in Gallatin to install pollution controls including sulfur dioxide capture technology.

How TVA responds to the loss of the Paducah uranium plant remains to be seen.  TVA's relatively low rates for power may attract another large industrial customer to the region.  If that happens, it may continue to operate the Shawnee facility and other plants that can be made economical.  Otherwise, TVA may find itself faced with choices to mothball Shawnee or to do something else with its newfound surplus power.

Mid-Atlantic electric grid operator plans $2.4 billion in upgrades due to fossil-fuel plant retirements

The operator of the mid-Atlantic electric grid has announced a need for $2.4 billion in grid upgrades to keep the lights on in the coming years, as fossil-fueled generators shut down.

PJM Interconnection LLC is the regional transmission organization that manages wholesale electricity markets and the transmission grid in all or parts of 13 states and the District of Columbia, covering about 60 million people.  In that role, PJM works with electric utilities and merchant generators to identify upgrades needed to maintain reliable electric service throughout its territory.  In 2012, PJM authorized more than 750 electric transmission improvement projects with a total cost of more than $5 billion.

PJM released its annual regional transmission expansion plan on March 7.  In that plan, PJM identified three major trends driving the need for further grid upgrades: upcoming power plant retirements, the rapid switch to natural gas, and the growth of wind power to meet states’ renewable energy requirements.

Of these, the large-scale retirement of fossil-fueled power plants may pose the greatest challenge.  Power plant operators must inform PJM if they plan to close their plants, and are doing so in droves.  PJM received 104 retirement requests between November 2011 and December 2012.  In all, these requests signal intents to shutter 13,868 megawatts of generation.  Retirement requests continue to roll in; in January 2013 alone, an additional 1,697 megawatts of generation filed notices of intents to retire.  This tide of closures is driven largely by relatively low electricity prices and increased costs for coal- and oil-fired generation due to environmental and emissions regulations. 

At the same time, 2012 brought a record amount of new generation to the PJM market, primarily fueled by natural gas. Meanwhile, the addition of new renewable resources to the grid - such as wind-powered generators - adds another layer of challenge, as these renewable projects are often located in relatively remote areas far from consumers in urban centers.

PJM must ensure enough power to keep its customers' lights on, a task that requires both having enough operating generators and the right amount of transmission to connect generators to customers.  As a result, PJM has identified 130 projects needed to maintain reliability.  These projects include new transmission lines, line rebuilds, equipment upgrades, and new and expanded substations, and substation additions.

Much of PJM's analysis is based on assumptions about which generation plants will close, which new generation plants will be built and come online, and how much consumer demand for electricity will grow.  Will PJM's predictions come true?  If so, consumers will bear the cost of PJM's identified grid fixes.