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FAQ on Dynegy’s legislation: Why you should oppose it

In the General Assembly’s October Veto session, Houston-based Dynegy is pushing legislation (Senate Bill 2250/House Bill 4141) to prop up its financially ailing coal-fired power plants.

UPDATE: The bill stalled in 2017, but CUB fully expects the legislation to come back in 2018. CUB opposes the legislation. Here’s why you should too.

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The proposal could reportedly raise electric bills by $115 a year for the average Ameren Illinois household to support outdated, expensive coal plants that were built in the 1950s, 1960s and 1970s.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. (Note: Another estimate by consumer advocates found that it could raise power bills by as much as $400 million a year.)

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.

Old-line generators using other fuels are struggling to produce enough revenue to operate and cover basic maintenance. They are appealing to every authority they can—from states like Illinois to the U.S. Department of Energy to the Federal Energy Regulatory Commission to regional power-grid operators—to make the “market” function better.

Energy Secretary Rick Perry recently urged FERC to ensure coal-fired and nuclear generators are paid extra for having months’ worth of fuel on-site. PJM, the power grid operator for Northern Illinois, is working on new pricing rules that compensate generators whose states don’t subsidize them for the “price suppression” they suffer from subsidized competitors. (NOTE: CUB opposes PJM’s proposal.)