March 13, 2018 - The owner of a fleet of struggling coal plants in Illinois wants state lawmakers to create a new capacity market that would reward some baseload generators more than the current MISO market does.
Stakeholders say an Illinois proposal to create a new state-run capacity market to reward baseload generators is a money grab by companies and unnecessary to maintain adequate generation and grid reliability.
The push is driven by Dynegy, which said it needs higher capacity payments in order to keep its financially struggling coal plants open.
Critics of the proposal, including consumer and clean energy groups and the state attorney general, say the coal plants are not needed and that ratepayers should not have to pay higher bills to help Dynegy’s plants, especially given Dynegy’s recently-completed $4 billion merger with Vistra Energy.
On February 26, the Illinois Commerce Commission released a 164-page report summing up stakeholder input on its proposal, a move ordered as part of Dynegy’s pursuit of legislation to create new state payments for capacity — the promise to be ready to provide power if needed.
Legislation introduced in the state’s November veto session, and likely to be considered again this spring, would significantly increase the payments Dynegy gets for capacity. The proposed legislation would allow the Illinois Power Agency to pay generators for capacity along with procuring the power that is used on a daily basis on behalf of the state’s utilities, ComEd and Ameren.
Currently, capacity payments are determined through an auction run by the MISO regional transmission organization. In those auctions, Dynegy is competing with plants in regulated states, where generators can charge customers for their investments in infrastructure and operations. Since Dynegy sells its power on the market and cannot get directly reimbursed for investments under Illinois’ deregulated system, it says the auction is an unfair competition.
Dynegy has been pushing for revenue supports since 2014 after it acquired five financially struggling coal plants in a deal where Ameren basically paid Dynegy to take the fleet off its hands.
Dynegy’s coal plants provide more than half of the electricity for downstate Illinois. The company says a third of its units are at high risk of retirement and another third are under serious consideration for retirement if their finances do not improve.
The company says closing the coal plants could leave the state without adequate power. But critics note that Illinois is an energy exporter and there has typically been more than enough electricity generated to meet consumers’ needs.
The February report included input from Attorney General Lisa Madigan’s office noting that extreme weather events and even squirrels on power lines cause more outages than a lack of electricity generation.
“There’s more than enough energy” available in Illinois, said Jessica Collingsworth, Union of Concerned Scientists Midwest lead energy policy analyst, adding that the Future Energy Jobs Act calls for more than 4,000 additional MW of renewable energy. “And we’re going to have all this new solar and wind energy.”
Clean energy and consumer groups argue that the main goal should be increasing resiliency and reliability of the grid through upgrades to make the grid “smarter” and more responsive and through reducing demand during peak times.
“Reliability is really the day-by-day, hour-by-hour cooperation between grid operators and power providers,” said Christie Hicks, clean energy regulatory implementation manager for the Environmental Defense Fund. “It’s more than just having power available.”
Dean Ellis, Dynegy executive vice president of regulatory and government affairs, argued that Dynegy’s proposal is not a “bailout” as critics have called it but rather a logical, precautionary measure that won’t only benefit Dynegy.
“If a capacity market [run by the Illinois Power Agency] is introduced, there’s no guarantee that Dynegy is selected in the process — further evidence that this is not a bailout benefiting a single company,” he said.
“The time to best address a crisis is before it happens; by the time there’s a generation shortage in southern and central Illinois, it will be too late for a cost-effective solution,” Ellis continued. “And, by then, southern and central Illinois will have lost thousands of direct and indirect jobs and millions from its tax base, consumers will be paying higher prices, and Illinois will be relying upon other states for its energy security.”
Dynegy says the coal plants are crucial for grid reliability, including maintaining a smooth flow of energy on the wires.
But the Environmental Defense Fund said large power plants typically only provide such grid regulation services during times of peak power demand, and the system is better served by more nimble methods of balancing the grid.
Industry Support and Competition
Murray Energy and Foresight Energy, companies that own coal mines in Illinois, submitted comments that support Dynegy’s proposals. They emphasized the importance of baseload power as a way to ensure reliability and allow for electricity exports, which the coal companies said benefit Illinois consumers.
Exelon also supported Dynegy’s proposal. Exelon’s Clinton nuclear plant would likely benefit from new capacity payments, and Exelon’s nuclear fleet benefits from a similar provision for nuclear generation embedded in the state’s sweeping 2016 energy law.
Rockland Capitol, which operates 1,000 MW of natural gas-fired generation in Illinois, also said its plants need higher capacity payments to remain viable in Illinois. Rockland said that without changes, it will seek to invest elsewhere in the future and might even move its existing gas plants to other states.
But other natural gas interests say they are ready to increase capacity in the state if coal plants close, even without increased capacity payments.
The American Petroleum Institute opposed the idea of a resource adequacy standard designed to help Dynegy’s coal plants and noted in comments that there is ample natural gas infrastructure in the region.
“Policies aimed at promoting economic development or support for a specific type of fuel or generating asset disguised as a resource adequacy fix would severely distort Illinois’ competitive marketplace and continuously expose customers to changing political priorities,” said API comments in the February report.
A consortium of developers called EmberClear plans to build a 1,100-MW, billion-dollar natural gas-fired plant in central Illinois, to go online by late 2022. EmberClear Midwest Vice President John Kinnamon said that cheap natural gas prices and Illinois’ “robust” gas pipeline infrastructure mean that gas can cheaply be delivered from across the country, producing electricity that can be competitive in deregulated power markets.
“We believe in a competitive environment, in a competitive market we will be dispatched,” said Kinnamon, adding that the EmberClear developers come from the coal industry. “We’re not seeking any relief or market benefit from the legislature.”
The project did receive an Enterprise Zone designation from the county near the state’s capitol where it will be located, meaning tax incentives.
Kinnamon said that in the past the region might have been “so competitive that I think no one has ever really considered it a realistic place to invest in this kind of capital,” but now the time seems ripe for the natural gas plant.
A Separate Request
As Dynegy deals with the state legislature and Illinois Commerce Commission on its request for new capacity payments, it is also asking the Illinois Pollution Control Board to change its obligations under a state air quality agreement.
Critics say that the changes it seeks would allow it to close or scale back generation from its cleaner plants and increase production from its cheaper-to-run, dirtier plants.
On March 6, the Pollution Control Board held the latest of its public meetings in Edwardsville, Illinois, on Dynegy’s request for changes to compliance with the state’s multi-pollutant standard. The board will also hold hearings in the state capitol in mid-April.
Sierra Club Beyond Coal Illinois campaign leader Christine Nannicelli said Dynegy’s pollution control board proposal “just gives them flexibility that ultimately is about boosting shareholder value.”
She sees the aims of Dynegy’s capacity payment legislation and pollution board proceedings as the same: “How can they put this fleet in a position to deliver the most profit for shareholders?”
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