* Herald & Review…
Dynegy says that, at least in Southern Illinois, it faces a unique set of problems.
The company argues that its struggling fleet of coal plants in the region contends with more than the usual market challenges presented by cheap natural gas and other mounting competition. Instead, it claims operations are disadvantaged by a double whammy of bad rate designs from the region’s grid operator and by new state subsidies for nuclear plants that have further undercut coal’s local competitiveness.
The company warns that the bleak outlook for its plants could mean uncertainty in terms of cost and reliability for Southern Illinois electrical customers.
“The system is becoming dangerously short on capacity and added retirements will put much more pressure on that,” said Dean Ellis, Dynegy’s executive vice president of regulatory affairs.
Already, the company reports that approximately 20 percent of its downstate Illinois’ power generation has shut down in the last two years, with another 30 percent set to close in the next three years “due to an inability to cover operating costs,” according to a recently released statement. The company declines to speculate on the future plans awaiting specific plants in the area.
Dynegy, which bought five Southern Illinois coal plants from Ameren in 2013, has long criticized the market structure implemented by the regional grid operator, the Midcontinent Independent System Operator, or MISO. Southern Illinois is one of the only places in MISO’s expansive territory where electricity is deregulated, and not provided by regulated monopolies assured of certain fiscal returns.
What’s wrong with Dynegy’s bill?
The proposal could reportedly raise electric bills by $115 a year for the average Ameren Illinois household to support outdated, expensive coal plants that were built in the 1950s, 1960s and 1970s. Dynegy is Illinois’ biggest owner of coal plants, having bought five from Ameren in 2013. The company operates eight plants and more than 5,000 megawatts of coal generation in Southern Illinois.
What would Dynegy’s bill do?
The legislation effects the pricing of “capacity”—a key component of electric rates. Capacity prices, which are wrapped into the electric supply rate, are payments we electric customers make to big power generators for the promise to meet power demand during peak periods of usage.
Dynegy’s legislation would aim to create a capacity-pricing system for Central and Southern Illinois that is run by a state agency, the Illinois Power Agency, and would produce higher prices closer to what customers in Northern Illinois pay. Northern Illinois’ capacity-pricing system is more lucrative for power generators. It is run by a power-grid operator that covers 12 other states, including several in the eastern United States, where power prices tend to be higher.
Is Dynegy threatening to close power plants if it doesn’t get its legislation?
Dean Ellis, Dynegy’s executive vice president of regulatory and government affairs, told Crain’s Chicago Business the lower capacity prices under the current system “will inevitably lead to (plant) retirements.” He stopped short of saying Dynegy will close specific plants.
SB 2250/HB4141 says it a bit stronger, claiming 3,000 MW of electric generation is “at risk” of early retirement, energy writer Jeff Tomich reports.
Crain’s points out that plant closures pose little financial risk to Dynegy, because it essentially paid nothing to acquire the plants from Ameren in 2013. (Ameren gave the facilities to Dynegy, and even threw in $200 million to entice the company to take them off its hands.)
Is Central and Southern Illinois in danger of a power shortage?
Not immediately. Illinois has an electricity surplus. CUB Executive Director David Kolata said if there is any reliability issue for downstate Illinois, it likely won’t develop for another four or five years. Regardless, the answer is not to prop up expensive, aging coal-fired power plants. The reason CUB supported the Future Energy Jobs Act last year is to create a plan for Illinois’ energy future that emphasizes efficiency and renewable energy—not outdated and inefficient sources of power.
Why are coal plants hurting?
While some blame environmental regulations for the ailing coal industry, the major reason coal plants (and other generators, like nuclear) have seen their revenues drop is because of a glut of natural gas (thanks to new “fracking” drilling procedures). Improved energy efficiency and renewable energy also are factors.
With power prices falling, capacity payments have become a key source of revenue for plant operators like Dynegy. Crain’s Chicago Business reporter Steve Daniels does a nice job explaining how generators of coal and nuclear energy have responded to the fall of wholesale power prices because of the glut of natural gas.
The first company to obtain a permit for fracking in Illinois announced Friday it won’t use it, citing market conditions and the state’s “burdensome and costly” regulations.
Wichita, Kansas-based Woolsey Companies Inc. was given permission in September by the Illinois Department of Natural Resources to drill near the southeast Illinois community of Enfield.
“The process we have gone through to receive a permit was burdensome, time consuming and costly due to the current rules and regulations of the state of Illinois, and it appears that this process would continue for future permit applications,” Woolsey vice president Mark Sooter said in a statement. […]
The Illinois Legislature in 2013 passed a law regulating fracking. At the time, the law was considered one of the most stringent in the nation. But oil prices soon dropped, and companies that secured leases to frack put their plans on hold.
An Illinois Senate subcommittee on energy is scheduled to hold a hearing on state fracking rules later this month in Chicago, said Fujan.
“They called a hearing to discuss fracking and whether new research should have been taken into consideration,” she said. “We’re going to pursue further restrictions on fracking and an outright ban, if possible.”
Department of Natural Resources spokesman Ed Cross said a new permit would be required if Woolsey decided to revive the Illinois wells.
“They’d have to start the whole process over,” said Cross.
Two other energy development companies registered for hydraulic fracturing in Illinois, though neither applied for a permit and one later withdrew the registration.