Units of Ameren (NYSE: AEE) and Dynegy (NYSE: DYN) are back before the Illinois Pollution Control Board seeking a necessary approval for Dynegy to be able to close on its planned buy of coal-fired capacity at several plants from Ameren.
Saying that Ameren Energy Resources (AER) didn’t meet certain technical standards, the board on June 6 had refused to transfer air compliance breaks previously granted by the board from AER to a unit of Dynegy. On May 2, AER and the Illinois Power Holdings LLC (IPH) unit of Dynegy filed a motion to reopen a docket and substitute IPH as the holder of those prior breaks under the state’s Multi-Pollutant Standard (MPS).
The board in its June 6 ruling said that all units in the MPS Group must be considered in its decision in this case, not just those units to be sold to Dynegy. So it rejected the May 2 application so that problem could be fixed.
In May 2012, AER filed a petition for a variance from the overall SO2 annual emission rate in the MPS applicable to the seven coal-fired stations in the “AER MPS Group.” AER stated that, as of January 2012, it generated electricity at five of these seven stations, having ceased operations at Meredosia and Hutsonville in December 2011. AER sought relief from one MPS requirement for five years beginning Jan. 1, 2015, and ending December 31, 2019, and another requirement for approximately three years, beginning Jan. 1, 2017, and ending Jan. 15, 2020. In September 2012, the board granted AER those variances.
On July 22, IPH and AmerenEnergy Medina Valley Cogen LLC filed an amended application with the board that they said takes care of the problem. They also asked for a decision within 120 days. They asked the board for “dual variances” for the plants.
The Ameren MPS Rule is a system-wide rule applicable to a discreet group of seven coal-fired plants: Coffeen Energy Center (Montgomery County); Duck Creek Energy Center (Fulton County); E.D. Edwards Energy Center (Peoria County); Newton Energy Center (Jasper County); Joppa Energy Center (Massac County); Hutsonville Energy Center (Crawford County) and Meredosia Energy Center (Morgan County).
In connection with the closing of the transaction, Ameren will initiate a reorganization of AER, which creates “New AER” for the acceptance of the active generating facilities of the MPS Group (Coffeen, Duck Creek, E.D. Edwards, Joppa, Newton) which will then be acquired by IPH.
As a principal foundation of the MPS, the MPS applies fleet-wide and, once an owner or operator opts its electric generating units (EGUs) into the MPS as an identified MPS group, those units remain permanently part of that MPS group for regulatory purposes even if one or more of the units are subsequently sold to a new owner. The board must analyze, as it did for AER’s request, how the variance will apply to all seven facilities in the MPS Group, not just those five that will be owned by IPH. An involved agency is the Illinois Environmental Protection Agency.
“In keeping with the plain language of the regulation and the Agency’s stated ‘once in, always in’ intent of the MPS, IPH and Ameren have entered into an agreement for the sale of five of the seven facilities that comprise the MPS Group while taking special care to account for the continued compliance with the MPS emission rates of the units at all seven of the Energy Centers,” the July 22 application said. “Likewise, any analysis of the variance requested in this Petition must consider the EGUs at all seven of the facilities, regardless of ownership. This is how the Agency intended the MPS regulations to operate and it is based on the framework used to develop the original as well as current Ameren MPS Rule emission rates. Further, the Board adopted this system-wide regulatory approach, as is evident from the plain language of the rule.”
Ameren says the fate of the plants in doubt if deal not approved
The application said about what happens if the board fails to approve this proposal: “If relief is not granted, and the transaction fails to close, Ameren will need to pursue other options. Ameren’s stated intention to exit the merchant generation business to better focus on its core regulated business, inevitably means that AER will no longer be in a position to ensure the operation of these plants. Ameren would continue to explore exit possibilities which could include sale of the assets, the restructuring of debt and equity in [Ameren Energy Generating], or some combination thereof. While it is difficult to predict the outcome of Ameren’s exit strategy, there is no reason to believe that any other potential buyer will be willing to acquire the plants without this variance, unless the buyer intended to close one or more of the Energy Centers. Under a restructuring scenario, control and operation of the merchant business would be dependent on negotiation with bondholders thereby creating uncertainty for employees, suppliers, and local communities. IPH, with a continuation of the variance relief granted to AER, represents the best path forward for the continued operation of those facilities in a manner that achieves ultimate compliance with the Ameren MPS Rule.”
The five operating coal-fired plants involved are:
- Newton, 1,215 MW;
- Joppa, 1,002 MW;
- Coffeen, 895 MW.
- E.D. Edwards, 650 MW; and
- Duck Creek, 410 MW.
The crux of the problem was that the AER MPS Group consists of seven plants (five open and two shut), and the September 2012 board variance approval applied to the group, but AER only requested the transfer of the breaks related to the five plants that IPH is actually buying.
he board said in its June 6 rejection: “The two shuttered energy centers, Hutsonville and Meredosia, will be transferred from AER into an existing indirect subsidiary of Ameren: AmerenEnergy Medina Valley Cogen, L.L.C. (Medina Valley). The movants represent that Medina Valley has agreed not to operate these plants through December 31, 2020, and to provide annual certification to IPH regarding its compliance to satisfy the variance condition associated with these plants.”
The movants told the board that the operation of the five operating energy centers “will not change as a result of the transaction” and that those plants “will continue to meet their environmental obligations.” IPH will continue with the Newton flue gas desulfurization (FGD) project, though at a slowed construction pace approved by the board.
The board pointed out June 6 that the variance currently granted to AER relates to seven facilities. “Under the movants’ substitution request, IPH would only take control of five of these facilities, with another third party assuming control of the other two facilities,” it added. “The Board considered all seven facilities in the AER MPS Group in its analysis of AER’s variance request, and any new variance request that omits these two facilities could not be subject to the same analysis. The Board would therefore be required to undertake a new analysis specifically related to the five facilities in the requested variance.”