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Illinois’ second-biggest power generator pushes to boost downstate electric bills

By: Steve Daniels |

Dynegy Inc., the second-largest power generator in Illinois, is calling for market changes that would hike electricity bills substantially downstate.

The Houston-based power generation company wants downstate Illinois to join the northern part of the state in the PJM Interconnection LLC power-grid region, which runs from Chicago east to the Mid-Atlantic. The rest of the state is in the Midwest Independent System Operator power-grid region, which spans all or parts of 15 states in the middle of country.

The main reason: It’s far more lucrative for power generators to be in PJM than MISO. But the PJM region is costlier for ratepayers. Commonwealth Edison Co., the utility for Northern Illinois, switched to PJM from MISO a decade ago, a decision that proved financially beneficial to most of the Illinois nuclear plants owned by ComEd parent Exelon Corp.

COAL FLEET

Dynegy says it needs additional revenue to make its Illinois coal fleet economically viable. An executive said Dynegy may push the issue in Springfield next year when lawmakers are expected to take up a far-reaching energy bill. When it’s introduced, that measure is expected to provide financial assistance to Exelon’s nuclear plants, which are struggling to cope with low wholesale power prices tied to low natural gas prices.

“The prices the plants are earning in MISO are insufficient,” said Dean Ellis, Dynegy managing director for regulatory affairs, in an interview.

Improved revenue for Dynegy would mean higher electric bills for downstate households and businesses. If downstate Illinois was part of PJM rather than MISO today, the average household’s electricity rates would be roughly 9 or 10 percent higher.

That’s because of the different ways the two grid operators ensure that enough power plants are “on call” to deliver electricity during the highest-demand days of the year, usually in the summer.

CAPACITY PRICING

PJM conducts a tightly controlled auction three years in advance to establish a “capacity” price paid by all power users to qualified generators, giving distributors the right to call on those power sources in times of need. That’s on top of the cost for the electricity itself.

MISO also runs an auction, but it’s for the year ahead rather than three years in advance. The result is that capacity prices in PJM are far higher than in MISO. For the year that began in June, the PJM capacity price is more than seven times the MISO charge. The costs are embedded in the energy prices consumers and businesses pay, whether they buy from a utility like ComEd or from an alternative supplier.

If Ameren Illinois, the electric utility that serves most of downstate Illinois, were in PJM, retail power costs would be 0.8 cents per kilowatt hour more than they are now, according to an analysis by Mark Pruitt, former director of the Illinois Power Agency and now a consultant to cities and villages negotiating electricity contracts. That would increase the energy price Ameren Illinois customers pay by about 18 percent.

Electricity bills are made up of electricity costs and delivery. If Ameren Illinois’ delivery rates are included, the overall cost increase for the average household would be in the neighborhood of 9 or 10 percent. (Of course, many households get their electricity from a provider other than Ameren, so percentages would vary.)

AMEREN AFTEREFFECTS

Dynegy dramatically boosted its scale in Illinois last year with the purchase of five coal plants owned by St. Louis-based Ameren Corp., parent of Ameren Illinois. Dynegy owns nine Illinois coal plants with a production capacity of 7,042 megawatts; an additional natural gas plant in south suburban Minooka can generate another 1,200 megawatts.

With 11,660 megawatts of capacity at its six Illinois nukes, only Exelon is a larger power generator in the state.

Mr. Ellis said joining PJM isn’t the only possible solution to Dynegy’s problem. MISO could change its capacity market to be more like PJM’s. Dynegy doesn’t have a preference, he said.

“Why should Illinois policymakers allow Dynegy to move from the Midwest regional transmission organization into the East Coast-based PJM, which will simply lead to higher utility bills for Illinois businesses and residents?” said Howard Learner, executive director of the Chicago-based Environmental Law and Policy Center, a frequent utility critic. “That’s shooting Illinois business in the foot.”

Maintaining the status quo could jeopardize service reliability downstate as power plants shut down for lack of revenue, Mr. Ellis responded.

‘A LONG VIEW’

Asked whether Dynegy, which effectively acquired Ameren’s money-losing plants for nothing late last year, would close plants without big market changes, Mr. Ellis said, “Dynegy hasn’t made any decisions. . . .We’re trying to take a long view.”

Dynegy won’t comment on plants’ profitability other than to say its Illinois fleet is at least breaking even on a cash-flow basis.

The company has conferred with both Exelon and Ameren about its desires, Mr. Ellis said. Both companies have been noncommittal to date, he said.

Exelon’s Clinton nuclear plant is in MISO and is one of at least two Illinois nukes that are losing money, according to the company. The Clinton facility would benefit from a move to PJM, but Exelon might not want Dynegy’s large coal fleet to bid en masse into PJM’s capacity market and introduce more competition, thus suppressing prices.

As of now, about 12 percent of Dynegy’s Illinois coal-plant capacity can bid into PJM through transmission connections, a Dynegy spokeswoman said.

An Exelon spokesman won’t comment on whether the company would support putting all of Illinois into PJM. “We agree that the MISO capacity market needs to be improved to protect the reliability of the system for Illinois electric consumers and the state’s economy,” he emailed.

In a statement, Ameren’s transmission business unit said, “We are not actively considering leaving MISO.” The company added that it has submitted ideas to MISO about capacity-market improvements.