By Amanda Durish Cook

Dynegy’s most recent bid to develop a specialized capacity market for downstate Illinois has failed to gain traction in the state’s legislature, but the conversation around the region’s resource adequacy is far from over.

The legislation (SB 2250/HB 4141), which would have created a separate competitive capacity auction for central and southern Illinois administered by the Illinois Power Agency, failed to advance after hearings this month.

Dynegy last month characterized the competitive auction as “subsidy-free” and “fuel-neutral.” It was expected to translate into higher clearing prices.

“It didn’t move but that doesn’t necessarily mean it’s dead. I think they will try again in the legislature in 2018,” said Jessica Collingsworth, an energy analyst with the Union of Concerned Scientists. “Coal is on its way out, and Dynegy is holding on for as long as it can. … I think it may be the same exact bill [in the future]. They seem to have stuck with that on the legislative angle.”

Dynegy did not respond to a request for comment on its next steps. The company has said the “lack of a functioning capacity market” in MISO’s Zone 4 is to blame for power plant closures and, in turn, increased electricity bills as shortage pricing is imposed in the absence of sufficient baseload generation.

The Houston-based company said the legislative proposal was meant to address electric reliability and price stability in Zone 4. Last year, FERC rejected MISO’s separate three-year forward capacity market design for deregulated portions of its footprint.

No Support for NOPR

Although coal-fired generation represents more than one-third of Dynegy’s capacity, the company does not support the cost recovery for coal and nuclear facilities proposed by Energy Secretary Rick Perry (RM18-1). (See FERC Flooded with Comments on DOE NOPR.)

“Even from the perspective of a coal generator, the proposed rule should not be adopted because it would substantially, and potentially irreversibly, harm the nation’s competitive electricity markets,” Dynegy wrote. While acknowledging the NOPR would solve its price problems in MISO, the company nevertheless said it amounts to a “reregulation of coal and nuclear facilities that would severely harm, and potentially represent a death blow to the competitive markets that [FERC] has worked hard to develop.”

Dynegy CEO Robert Flexon said the separate auction would safeguard against distorted prices from regulated utilities.

“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.”

Collingsworth noted the legislation did not require Dynegy to keep any of its coal plants operating.

“Even if a bill were to pass, there’s no guarantee from Dynegy that these coal plants will stay open,” she said. “So what happens if we give them a bailout, and they only keep two plants open and run them harder? That’s still closing plants in communities.”

Collingsworth believes increased renewables and storage can be profitable even considering Zone 4’s deregulated market.

“I think people want solar on their roof. And I think that if they can’t have that, they want to buy into a community solar program. I think there is a lot of opportunity with the Future Energy Jobs Act. We have not even touched the surface of our solar potential in central and southern Illinois,” she said.

Dynegy has warned that another 30% of total downstate resources could retire over the next three years “due to an inability to cover operating costs.”

Dynegy has at least partial ownership in eight Zone 4 power plants totaling 6,500 MW, making it responsible for nearly 50% of electricity production in the local resource zone. Zone 4 currently has 57 utility-scale generating stations with a combined 16 GW of nameplate capacity.

The largest recent capacity declines in Zone 4 can be attributed to the retirement of Dynegy coal-fired generation. In the last two years, the company has shut down a combined 1.25 GW of coal-fired generation: the 500-MW Wood River power station in Alton, 617 MW at the Newton power plant and 136 MW at the Edwards plant in Bartonville.

Whitepaper, Workshops

MISO this year maintained there is no reliability issue Zone 4, predicting a 0.7-GW capacity surplus in the region in 2018, up from the 1.6-GW shortfall the grid operator predicted for 2018 in its 2016 resource adequacy survey produced in cooperation with the Organization of MISO States. (See Capacity Survey Shows MISO in the Black.)

“MISO’s recent 2017 OMS-MISO survey results suggest that Zone 4 capacity requirements will continue to be met through 2022. Planned transmission and generation provide additional reason for optimism in this regard,” the Illinois Commerce Commission wrote earlier this month in a white paper requested by Gov. Bruce Rauner as a response to MISO’s appeal for a resource adequacy plan.

The commission’s report said the state has four options to address resource adequacy in central and southern Illinois: continue to rely on existing competitive forces and market structures; impose additional capacity requirements on load-serving entities; create a reliability portfolio standard; or encourage or require utilities to switch RTOs. Dynegy last year proposed legislation that would transition the entire state into PJM’s markets. (See Dynegy Introduces Bill to Move All of Ill. Into PJM.)

MISO officials will participate in a pair of workshops on Zone 4 resource adequacy beginning Dec. 7 at the ICC’s offices. Stakeholder comments on the challenges of Zone 4 are due to the commission on Nov. 30.

Illinois EPA Rule Change Still in the Works

Meanwhile, Dynegy continues to work with the Illinois Environmental Protection Agency to revise the state’s Multi-Pollutant Standard, a 2006 clean air standard for coal plants. The company is advocating that an annual cap on sulfur dioxide and nitrogen oxide emissions be imposed on the state’s coal fleet as a whole, rather than on individual power plants. If approved, the new sulfur dioxide limit would be almost double what Dynegy emitted last year, while the nitrogen oxide cap would be 79% higher. The caps would not be decreased should Dynegy retire or mothball any plants.

The new rule was initially expected to be adopted this month, but the Illinois Pollution Control Board now plans to hold hearings on the change on Jan. 17 in Peoria and March 6 in Edwardsville. Peoria is near the shuttered Edwards plant, while Edwardsville is close to the vacated Wood River plant.

“This is going to give these communities a chance to speak out,” Collingsworth said. “It was so fast. I think the environmental community played a role in saying, ‘Whoa, pump the brakes’ and delayed this. You do need to have public input in this.”

The Illinois Clean Jobs Coalition said the revision would result in “massive new air pollution for the state of Illinois and beyond.”