Legislative efforts to preserve Illinois' aging coal fleet have stalled as the state rushes to pass a new budget, leaving competitive generator Dynegy seeking other market solutions to keep its plants running. Exelon Corp.'s uneconomic Clinton Power Station and Quad Cities plants were saved by the Future Energy Jobs Bill, signed by Gov. Bruce Rauner in 2016, which allows emissions-free generation to receive zero-emission credits, or ZECs, over 10 years. Opponents say the 10-year contracts will amount to $2.35 billion worth of state payments over the next decade. Dynegy, which owns about a quarter of the 27,000 MW of coal capacity in Illinois, calls the ZEC program a "scheme" that interferes with competitive electricity markets.
The generator, which owns about 6,360 MW of coal capacity and 2,700 MW of gas capacity, is hoping for a comprehensive legislative solution to help support its struggling coal fleet, which averages 53 years in operation, S&P Global data shows.
Without a state-level, comprehensive energy solution for coal, companies like Dynegy are left with limited options at a time when market conditions under Midcontinent ISO are not favorable enough to keep existing coal plants operating.
Dynegy's next steps
"We're between the proverbial rock and a hard place," Dynegy Senior Vice President of Regulatory and Government Affairs Dean Ellis said in a March 28 interview. The wholesale power generator is focused on two primary vehicles: "One would be a market design change through MISO, and the second would be a legislative change," Ellis said. "The problem is the design that was filed by MISO was rejected of course by FERC and MISO is now reluctant to go back to FERC with a second design."
FERC in February rejected a market solution that MISO proposed to address price signals for competitive generators. That decision sent the grid operator back to work, with stakeholders on an alternative solution, according to a statement issued by MISO. MISO's "immediate next steps will now be focused on how best to coordinate in particular with Illinois" and how to "ensure improved long term price signals for committed capacity to reliably serve consumers in the state," according to the statement.
The "most ideal" solution is to move Illinois entirely into a competitive ISO, Ellis said. The state today is split between two power markets: the northern part lies in the eastern grid operated by PJM Interconnection, while the central and southern counties fall in MISO. With MISO dominated by traditional utilities, Ellis said, the company backed a bill in 2016 to move the state fully into PJM. That legislation failed in the legislature.
In the meantime, Dynegy has continued to pseudo-tie more of its coal capacity into PJM, where capacity auction clearing prices are more favorable for its plants. MISO defines a pseudo-tie as the ability of a generating unit physically located within the 15-state grid to transfer control of a unit and sell its power into a different grid. For example, the generator scheduled 240 MW of the capacity at its Hennepin Power Station to sell into PJM beginning June 1, 2017, according to Dynegy's latest Form 10-K. "We continue to look into ways to export our capacity outside of MISO," primarily in PJM, Ellis said.
Litigation is another route. Dynegy joined other competitive generators to file suit against the state's ZEC program, as similar programs have arisen in legislative proposals in Ohio, New York, Connecticut and New Jersey. The policies in each state are at different stages, but Ellis is "confident" that the company will stop the "contagion of these out-of-market schemes."
Budget woes hold legislature's attention
Regarding state discussions on coal, Ellis said "it is going to be very difficult for the state to pass a second energy bill at a time when it can't even pay for basic human services." The legislature's attention right now is on passing a state budget after its current fiscal year operating deficit hit $5.7 billion at the end of March, according to a March 30 Moody's report.
During a House Energy Committee hearing last year, Republican Reps. C.D. Davidsmeyer and Peter Breen pressed for continued dialogue about down-state coal plants, which supply about 40% of the state's power generation. But a legislative fix seems unlikely before the spring term ends on May 31.
During deliberations, the Sierra Club's Illinois chapter opposed versions of the Future Energy Jobs bill that included a lifeline for coal plants. Environmental, faith groups and businesses under the Clean Energy Jobs Coalition refused to back the bill until the coal plant fix was removed. Jack Darin, the director of the Sierra Club's Illinois chapter, agreed in a March 30 interview that there is little appetite in Springfield to bring up another energy bill before the Future Energy Jobs bill has time to take effect on June 1.
Ellis noted that regional grid operators such as those in PJM, New York and New England have set up groups to examine how to adapt the markets to address state policies such as the ZEC programs. PJM, for example, set up a Capacity Construct/Public Policy Senior Task Force that is scheduled to meet on April 21.
"We view it as positive that the ISOs are engaged in this discussion because those state-level policies are detrimental to competition," Ellis said regarding the ZEC program. "And so the ISOs, we view it as a positive that they are trying to find ways to protect the market," he added.