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Power plant owners say they won’t see windfall from electricity price auction, disputing Illinois AG

By: Jacob Barker |

With questions mounting from Illinois politicians about the results of an electricity price auction last week, the two big companies who stand to benefit say they won’t see the windfall some critics have claimed.

Houston-based Dynegy Inc. and Chicago-based Exelon both pushed back against assertions from the state’s attorney general that they will reap hundreds of millions in additional revenue after an electricity price-setting auction this month.

The complex and esoteric workings of electricity “capacity auctions” could hit home for downstate Illinois customers. The Illinois Citizens Utility Board estimates that downstate customers who aren’t on fixed power contracts could see their bills jump some 10 percent June 1, and prices could stay high when they go to renew their power contracts in deregulated Illinois.

The reason is a ninefold surge in capacity prices in downstate Illinois compared to last year. The price is set by an auction administered by the Midcontinent Independent System Operator, or MISO, which operates the grid in parts of 15 states, including downstate Illinois and Eastern Missouri.

Its annual capacity auction is meant to ensure reliability by setting the price paid to power plant owners who agree to keep their generators ready to pump electrons into the grid when demand is highest.

Those prices rose from $16.75 per megawatt day last year to $150 per megawatt day, starting in June. And those are only in Illinois. In other states that are part of MISO, the price didn’t rise above $3.50 per megawatt day.

The state’s consumer advocate questioned MISO’s market design, and Ameren Illinois, which serves most of downstate Illinois but doesn’t generate power in the deregulated state, said it was “extremely concerned and upset” by the results.

Illinois Attorney General Lisa Madigan’s office said it was taking a closer look at the MISO results “given the substantial increase in revenues that it will mean for Dynegy and Exelon.”

But her office’s testimony at an Illinois Senate hearing this week that Dynegy stood to see more than a $200 million boost in revenue “is not true,” Dynegy spokesman Micah Hirschfield said.

The company owns about 6,400 megawatts of coal generation in downstate Illinois, including the power plants it purchased from Ameren in 2013. Only 553 megawatts cleared the auction, Hirschfield said.

“The total we make from the auction was roughly $30 million, not $284 million or some of the numbers that have been thrown out there,” he said.

Likewise, Exelon said in a statement that much of its Clinton nuclear power plant’s capacity was already committed to other customers, and “we realized about $13 million from the auction, not upwards of $50 million as some have speculated.”

Exelon also said it did not set the auction price. The highest price paid to power plant owners to ensure capacity sets the price all auction participants receive.

Hirschfield declined to say if Dynegy set the high auction price.

But he did say the pricing in MISO is now similar to adjacent grid operator PJM Interconnection, which runs the grid in the Chicago area and several other states in the Mid-Atlantic and Ohio. The auction results also reflect “shrinking supply” due to coal plant retirements, Hirschfield said.

But a MISO executive told members of the Missouri Public Service Commission this week that more than enough power resources can meet the needs of downstate Illinois.

“What happened in Illinois, first let me tell you, is not a resource adequacy issue,” MISO’s central region executive Melissa Seymour said.

She said the higher prices are a result of more companies going to the auction instead of negotiating bilateral agreements with power suppliers. Bilateral prices have also risen in Illinois, with Dynegy securing some in the $75 to $80 a megawatt day range, according to a Morningstar analyst.

“You may take your chances in the auction because you think you might be better off,” Seymour said.