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Dynegy backs Illinois bills proposing in-state capacity procurement process

Competitive power generator Dynegy Inc. is backing a pair of bills to set up a competitive power auction that would support its downstate coal plants in Illinois.

The Downstate Illinois Competitive Generation Procurement and Reliability Security Act lets the Illinois Power Agency form a competitive process to procure capacity for retail customers in Ameren Illinois Co.'s service territory in central and southern Illinois.

The Senate version, S.B. 2250, was introduced Oct. 25 by state Sen. James Clayborne, a Democratic, and Republican Sen. Sue Rezin, minority leader of the Senate Energy and Public Utilities Committee. The companion bill, H.B. 4141, is proposed by Democratic Reps. Linda Chapa LaVia, who chairs the House Energy Committee, and Elgie Sims. Republican Rep. Avery Bourne is a co-sponsor of the bill.

The bills address how capacity prices are calculated in grid operator Midcontinent ISO's Zone 4, which covers central and southern Illinois. The northern portion of Illinois sells into a different power market operated by the PJM Interconnection. The legislation comes as MISO auction clearing prices have declined, leaving certain merchant plants uncompetitive. MISO's 2017/2018 planning resource auction cleared at a price of $1.50/MW-day in Zone 4, according to results released May 10. Meanwhile, the same zone cleared $72/MW-day in the prior year's auction, MISO's 2016/2017 auction report shows.

Both Illinois, which is fully deregulated, and Michigan, which is partially deregulated, have pursued state-level fixes to secure capacity after a solution proposed by MISO was rejected by the Federal Energy Regulatory Commission in February.

Beginning with the 2018 and 2019 planning years, the Illinois Power Agency would hold a competitive procurement process for capacity under S.B. 2250. The bill includes a calculation for projected capacity prices that is based on the PJM auction clearing price in the RTO zone and the "weighted average price for capacity" from the contracts awarded by the IPA's competitive process. Current legislation bases the calculation partially on the PJM auction clearing price and MISO's auction clearing price for Zone 4.

"Under the status quo, the viability of existing plants that are fully environmentally compliant is threatened, as are thousands of local jobs and support functions. This legislative proposal would help safeguard our downstate plants without the use of subsidies, while encouraging investment in all sources of power supply — including conventional generation, demand response and renewables," Dynegy President and CEO Robert Flexon said in a news release.

"Since this legislation would impact Ameren Illinois customers, we have had discussions with Dynegy," Ameren Illinois Chairman and President Richard Mark said in an emailed statement. "While we have not formulated a position on the bills that were introduced, we have previously stated and continue to believe that Illinois does not need to procure capacity for delivery prior to June 1, 2020 (or 2021). We have always advocated for a plan to ensure long-term resource adequacy and minimize price volatility for Ameren Illinois customers."

Ameren Illinois is owned by Ameren Corp.

Dynegy backed the two bills as a way to "create a functioning capacity market in the service area through a subsidy-free, fuel-neutral competitive power auction," it said. In 2016, the company tried to negotiate a fixed resource adequacy plan proposal, but it failed to make it in the final version of the Future Energy Jobs Act, passed in 2016, that included subsidies in the form of zero-emission credits for two of Exelon Corp.'s nuclear plants in the state.

S.B. 2250 has been referred to the Assignments Committee, while the House version has been referred to the Rules Committee. While the bills are being reviewed, an amended air pollution regulation is also being considered by the Illinois Pollution Control Board and is expected to help ease air pollution requirements for Dynegy's coal plants. The Pollution Control Board on Oct. 30 will hold a pre-conference hearing on the proposed regulation.

Though Dynegy is a pursuing a state-level fix, it has opposed a U.S. Department of Energy proposal to offer assistance to coal and nuclear plants. The DOE in late September asked FERC to require regional power markets that have both capacity and energy markets to offer power plants with at least 90 days of fuel on-site full cost recovery. The notice is expected to help existing coal and nuclear plants recover their operating costs, but independent power producers including Dynegy and NRG Energy Inc. have opposed the DOE proposal as harmful to and interfering with competitive power markets.