Illinois Commerce Commission issues order supporting FutureGen 2.0 coal project

The Illinois Commerce Commission, over the objections of affiliates of Ameren (NYSE: AEE) and Exelon (NYSE: EXC), on Dec. 19 approved a plan from the Illinois Power Agency that in part supports power sales from the in-development FutureGen 2.0 clean coal project.

The Illinois Public Utilities Act (PUA) requires the Illinois Power Agency (IPA) to prepare a power procurement plan that is designed to secure electricity commodity and associated transmission services to meet the needs of eligible retail customers in the service areas of Exelon’s Commonwealth Edison (ComEd) and Ameren Illinois (AIC). On Sept. 28, 2012, the IPA filed with the commission its fifth annual power procurement plan, initiating this proceeding.

The IPA Act contains a goal that cost-effective clean coal resources account for 25% of the electricity used in Illinois by Jan. 1, 2025. The act describes two special cases: the “initial clean coal facility” and “electricity generated by power plants that were previously owned by Illinois utilities and that have been or will be converted into clean coal facilities (‘retrofit clean coal facility’).” Currently, there is no facility meeting the definition of an “initial clean coal facility” that the IPA is aware of that has announced plans to begin operations within the next five years. However, the IPA said it is aware of a retrofit clean coal facility that intends to begin operations within the next five years, FutureGen 2.0.

FutureGen 2.0 consists of the proposed repowering of one unit at the shut Meredosia power plant of Ameren Energy Resources, which is located in Morgan County. FutureGen 2.0 is to be developed as 166 MWe (gross) of near-zero emissions coal-fueled generation, with a targeted commercial operation date in 2017, and a 30-year life. It is anticipated to operate as a baseload plant to be dispatched by the Midwest ISO in the coal stack of the dispatch order.

FutureGen 2.0, supported by the U.S. Department of Energy, is designed to validate the cost and performance of commercial-scale, near zero emissions oxy-combustion coal-fueled power generation with carbon capture and sequestration. The plant would receive $1bn in federal stimulus funds and additional state-level grant funding. These funding sources, coupled with the non-profit status of the sponsoring FutureGen Alliance, significantly improve the economics of the project, the IPA plan said.

The first year of commercial operation for FutureGen 2.0 is anticipated to be 2017, which is the fifth year in the planning horizon in the 2013 procurement plan. Inclusion of the FutureGen sourcing agreement in the 2013 procurement plan is appropriate so that financing for the unfunded portion of the project can be secured and to allow pre-commercial operation date work on the project to proceed, the IPA plan said.

FutureGen 2.0 proposed a sourcing agreement with Ameren, ComEd and Alternate Retail Electric Suppliers (ARES). Given the size of the FutureGen 2.0 plant and the allocation of its output to Ameren, ComEd and the ARES in proportion to their market share, the Ameren and ComEd combined market share of the output could be on the order of a 50 MW block of energy, with the remainder shared among the ARES. Given the large unhedged positions of Ameren and ComEd in 2017 and beyond, this purchase does not appear to introduce an appreciable amount of portfolio risk, while maintaining competitive neutrality with ARES, the plan said.

Power purchase deal term was cut, but IPA generally got what it wanted from commission

Ameren and ComEd disagreed with various parts of the IPA plan. But the commission in its Dec. 19 order generally found for the IPA.

“The Commission agrees with Staff and FutureGen that the Commission has the authority to order both utilities and ARES to enter into a sourcing agreement with FutureGen,” said the commission about one contested issue. “The plain language of Section 1-75(d)(5) of the IPA Act supports the conclusion that both utilities and ARES are to be included in any sourcing agreements with retrofit clean coal facilities that the Commission approves. Furthermore, Section 16-115(d)(5) of the PUA contemplates ARES sourcing electricity from ‘clean coal facilities’ as that term is defined in Section 1-10 of the IPA Act, which includes facilities other than the ‘initial clean coal facility.’”

FutureGen originally proposed a 30-year term for the sourcing agreement, but in response to comments from commission staff and other parties, has reduced the term to 20 years. “Twenty years is consistent with the term of the power purchase agreements approved by the Commission for long-term renewable projects,” the commission noted. “A 20-year term balances Staff’s concern against the need to maintain lower rates and ratepayer impacts in the early years of the sourcing agreement. Accordingly, the 20-year term is approved by the Commission.”

The IPA Act requires all clean coal facilities to meet the definition of cost-effective, with the cost limit found in Section 1-75(d)(2) at 2.015% of the amount paid per kilowatt hour by eligible Ameren or ComEd customers during the year ending May 31, 2009. Applying this limit, the rate cap for eligible Ameren and ComEd retail customers is 2.382 $/MWh and 2.169 $/MWh, respectively. FutureGen 2.0’s expected increase in customer rates over the proposed term of the agreement has been estimated to be 1.505 $/MWh, well below the statutory caps, the commission noted.

In its objections, FutureGen described a two-phase process for obtaining initial approvals. According to FutureGen, Phase 1 would be undertaken by the commission in this just-concluded proceeding and consist of commission consideration of approval of the sourcing agreement as to form and the rate formula. As part of Phase 2, FutureGen indicates that it would submit a set of proposed “Preapproved Total Capital Costs” and a proposed rate of return and capital structure (including a debt/equity ratio). “The Commission agrees with and adopts this approach, but notes that since the Commission has already approved FutureGen’s return on equity and capital structure, these need not be included as Phase 2 issues,” the commission ruled.

Because FutureGen’s two-phase process is approved, the commission will immediately initiate a separate proceeding in order to address, as expeditiously as practicable, the remaining contested issues regarding the proposed sourcing agreement. The issues will include, but are not limited to:

  • the provisions within Section 1-75(d)(3) of the IPA Act that are mandatory for sourcing agreements that are not associated with the initial clean coal facility;
  • the preapproved total capital costs; and
  • staff’s recommendations for annual audits, reconciliations, and periodic benchmark tests.

“The Commission notes that issues resolved in Phase 1 shall not be relitigated in Phase 2 of the process,” the commission warned.

With respect to “adequate and reliable electric service,” the commission said it agreed with FutureGen’s assertion that “FutureGen 2.0 will serve as a new source of up to 168 MW of base load capacity in markets – PJM and MISO – with a growing appetite for electricity.” The commission also found that by demonstrating new clean coal technology on a commercial scale, FutureGen 2.0 will help encourage the conversion of other Illinois coal plants to clean coal facilities and may also enhance markets for ancillary uses of CO2, such as for enhanced oil recovery.

FutureGen stated that the project will provide “environmentally sustainable power” by capturing and sequestering 98% of CO2 emissions during regular operations, and that it will serve as a hedge against the possible introduction in the future of greenhouse gas regulation. “The Commission agrees that the risk of carbon regulation and legislation is real and that FutureGen 2.0 will serve as a reasonable hedge against such future carbon risk, particularly as it relates to providing a continued market for the use of Illinois coal, an abundant State resource,” the commission wrote.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.