Talen Energy and PJM Extend Operation of Baltimore Power Plants till 2029

January 31, 2025

In a significant move aimed at securing grid reliability, Talen Energy has reached an agreement with PJM Interconnection, the Maryland Public Service Commission, Maryland electric utilities, consumer representatives, and the Sierra Club. The agreement will extend the operations of the 1.3-GW coal-fired Brandon Shores power plant and the 774-MW oil-fired H.A. Wagner units until May 31, 2029. This extension, facilitated under a reliability-must-run (RMR) contract, will help ensure grid reliability in the Baltimore area until planned transmission upgrades are completed in 2028. If the deal is approved by the Federal Energy Regulatory Commission (FERC), it will enable Talen to continue running these plants beyond their initially planned retirement dates of May 2025.

Agreement Details and Financial Implications

Fixed Payments and Performance Incentives

Under the recently finalized agreement, Talen Energy is poised to receive fixed payments of $312 per megawatt per day for the Brandon Shores plant and $137 per megawatt per day for the Wagner facility. Additionally, performance incentives include $5 million for Brandon Shores and $2.5 million for Wagner. In aggregate, Talen anticipates earning approximately $180 million annually from this arrangement, which encompasses these performance incentives. Besides these fixed payments, the company will also be reimbursed for fuel costs and variable operations and maintenance expenses.

The substantial financial aspect of this agreement underscores its importance in maintaining grid stability. The primary driver for this contract is the essential need to maintain grid and transmission reliability in the Baltimore region. PJM Interconnection’s reliability analysis underscored significant concerns related to potential voltage instability and thermal violations, should the plants be deactivated in 2025 before completing proposed transmission upgrades. These fixed payments and performance incentives are designed to ensure Talen has the resources necessary to keep the plants operational and reliable during this critical period.

Rationale Behind the Agreement

The central motivation behind this RMR contract is the critical need to ensure grid and transmission reliability in Baltimore. PJM Interconnection conducted a thorough reliability analysis, which revealed significant reliability risks, such as voltage instability and thermal violations, if the power plants were shut down in 2025 before the proposed transmission upgrades were completed. These risks highlight the reliance of the Baltimore area’s energy infrastructure on these specific facilities to prevent widespread disruptions.

This comprehensive analysis made it evident that deactivating these plants could lead to severe reliability concerns. As such, the agreement aims to provide the necessary financial and operational support to keep the plants running until the necessary upgrades are implemented. This approach underscores the strategic importance of balancing short-term grid stability needs with long-term plans for more sustainable energy solutions. By maintaining the operation of these plants, the agreement helps to bridge the gap between current energy capabilities and future infrastructure improvements.

Plant Details and Operational Challenges

H.A. Wagner Power Plant

The H.A. Wagner power plant, situated in Anne Arundel County, consists of multiple units with varied energy production capabilities. Wagner 3, a 359-MW unit, was converted from coal to fuel oil in 2023, while Wagner 4 is a 415-MW oil-fired unit. Additionally, Wagner 1, a 133-MW coal-fired unit built in the 1950s, and a 13-MW gas-fired combustion turbine serving as a peaking unit, contribute to the plant’s energy output. In 2020, Talen Energy retired Wagner 2, a 136-MW coal-fired unit, as part of its efforts to streamline operations and adapt to market conditions.

The conversion of Wagner 3 and retirement of Wagner 2 reflect Talen’s attempts to adjust its energy portfolio in response to regulatory pressures and market dynamics. Despite these efforts, the operational constraints of the Wagner plants, including fuel type limitations and restrictions on allowable emissions, present ongoing challenges. These constraints underscore the complexity of maintaining and operating older power plants while navigating regulatory requirements and market pressures. The agreement to extend the operation of Wagner units aims to address these challenges and ensure the continued stability of the Baltimore region’s energy supply.

Brandon Shores Generating Station

The Brandon Shores Generating Station, located just outside Baltimore, comprises two significant coal-fired units: Unit 1, completed in 1984, and Unit 2, completed in 1991. Initially, there were plans to convert the plant from coal to fuel oil. However, this conversion plan was ultimately scrapped due to high conversion costs and regulatory barriers. Compliance with the National Pollution Discharge Elimination System (NPDES), which prohibits coal operations after January 1, 2026, posed significant challenges to the conversion efforts.

The decision to abandon the conversion plan also highlights the broader regulatory environment’s influence on operational decisions. These regulatory barriers, combined with economic pressures, forced Talen to reconsider its strategy for Brandon Shores. Despite these hurdles, the plant remains a critical component of the Baltimore area’s energy infrastructure. The extension of its operation through 2029 under the RMR contract ensures it continues to play a vital role in grid reliability, particularly during the transition period while transmission upgrades are being completed.

PJM’s Reliability Analysis and Talen’s Initial Resistance

Voltage Deviation and Thermal Violations

PJM’s detailed reliability analysis indicated that deactivating both the Wagner and Brandon Shores plants would result in widespread voltage deviation violations and other reliability issues. Specifically, the loss of Brandon Shores Generators and the deactivation of Wagner units 3 and 4, which together constitute a significant 774 MW of capacity, would lead to major reliability challenges. To mitigate these risks, PJM determined that these units would need to operate under an RMR arrangement from the proposed deactivation date in 2025 until the completion of the necessary transmission upgrades in 2028.

The findings from PJM’s analysis underscore the importance of these plants to the overall stability of the Baltimore-area grid. The potential issues, such as voltage deviation and thermal violations, are critical challenges that would severely impact the reliability of the energy supply if not addressed. By including these plants in the RMR contract, PJM and Talen aim to ensure that adequate measures are in place to support grid reliability during the transition period, ultimately safeguarding consumers and the broader energy infrastructure.

Talen’s Shift in Stance

Initially, Talen Energy opposed the RMR proposal, expressing a preference to retire the plants due to economic and environmental constraints. The company cited deteriorating market conditions, including declining energy market margins and low capacity prices, as primary factors making continued operation financially unsustainable. Specific to the Wagner facility, permit restrictions capped oil-fired units at a capacity factor below 15%, limiting revenue potential. Faced with these constraints, Talen was inclined toward deactivation.

Despite the initial resistance, Talen shifted its stance and filed cost-of-service rate schedules for the plants’ operations through December 2028 with FERC. This change in position reflects the broader challenges faced by legacy energy producers in adapting to evolving market and regulatory landscapes. FERC accepted these rate schedules and commenced proceedings, though the final approval timeline remains uncertain. This strategic shift underscores Talen’s recognition of the critical role these plants play in ensuring grid reliability, even amid economic and regulatory pressures.

Settlement Terms and Market Participation

Capacity Market Exclusion

A key aspect of the settlement agreement is the exclusion of Brandon Shores and Wagner from participating in PJM’s capacity market. This exclusion allows them to avoid capacity performance penalties, which can be significant under certain market conditions. However, the plants will still be included in the supply stack, with their offer prices in future capacity auctions determined by the outcome of the ongoing Section 205 proceeding at FERC. This arrangement provides a structured approach for these plants to remain operational while addressing market dynamics.

By excluding these plants from the capacity market, the agreement mitigates the risk of penalties and focuses on ensuring operational reliability. This strategic decision aligns with the broader goal of maintaining grid stability while navigating regulatory constraints and market pressures. The inclusion in the supply stack, coupled with the ongoing FERC proceedings, highlights the complex interplay between regulatory requirements and market participation, aiming to balance operational needs with economic considerations.

Political and Environmental Pushback

The continued operation of Brandon Shores and Wagner under the RMR contract has faced significant political and environmental pushback. Notable figures, including Senator Chris Van Hollen and several Maryland congressional representatives, have voiced concerns that the RMR contract could unfairly burden Maryland ratepayers. They argue that this extended operation conflicts with Maryland’s clean energy goals, as outlined in the Climate Solutions Now Act of 2022, which mandates a 60% reduction in greenhouse gas emissions from 2006 levels by 2031 and targets net-zero emissions by 2045, with aims for 100% clean electricity by 2035.

These critiques underscore the tension between maintaining grid reliability and achieving long-term environmental goals. The pushback from political and environmental groups highlights the broader challenges of balancing immediate operational needs with the strategic shift towards cleaner energy. The agreement, while addressing short-term reliability concerns, must navigate these broader objectives, ensuring alignment with Maryland’s progressive climate targets. This dynamic reflects the ongoing negotiations between various stakeholders to find a path that supports both grid reliability and environmental sustainability.

Balancing Grid Reliability and Environmental Goals

Talen CEO’s Perspective

Talen CEO, Mac McFarland, praised the agreement as a critical milestone in ensuring the reliable supply of electricity to Baltimore and its surrounding areas, while also protecting Maryland consumer rates. He emphasized that the settlement represents a significant step in maintaining necessary grid stability during the interim period until transmission upgrades are completed. McFarland acknowledged the complexities involved in balancing grid reliability with environmental and economic considerations, signaling the importance of such agreements in navigating these multifaceted challenges.

The CEO’s endorsement of the agreement highlights its strategic importance in securing short-term grid stability, vital for consumers and the broader energy market. At the same time, McFarland’s recognition of the environmental and economic dimensions underscores the intricate balancing act required to navigate the evolving landscape of energy production and regulatory requirements. This perspective reflects the broader industry trends where legacy energy producers must adapt to meet contemporary demands while ensuring operational integrity.

Challenges for Legacy Energy Producers

Talen Energy has forged an agreement with PJM Interconnection, the Maryland Public Service Commission, Maryland electric utilities, consumer representatives, and the Sierra Club to ensure grid reliability. This deal will extend the operation of the 1.3-GW coal-fired Brandon Shores power plant and the 774-MW oil-fired H.A. Wagner units until May 31, 2029. Facilitated through a reliability-must-run (RMR) contract, the extension guarantees grid stability in the Baltimore area until planned transmission upgrades are finalized in 2028. The Federal Energy Regulatory Commission (FERC) must approve the agreement. Should FERC give the green light, Talen can operate its plants beyond their originally scheduled retirement dates in May 2025, ensuring continuous power supply. This move responds to concerns about maintaining reliable electricity as the region transitions to updated infrastructure, meeting the needs of local utilities and consumer advocates alike.

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