Ameren and Dynegy: MISO coal retirements not that dire

Units of Ameren (NYSE: AEE) and Dynegy (NYSE: DYN) on July 2 defended their deal for Ameren to sell Dynegy its coal-fired capacity in Illinois, saying this is not a market power issue as critics have contended.

Ameren Energy Generating Co., AmerenEnergy Resources Generating Co. and Dynegy Inc. were among the companies responding to the critics. They were answering protests filed by the Illinois Municipal Electric Agency (IMEA), Southwestern Electric Cooperative (SWEC) and Missouri Joint Municipal Electric Utility Commission (MJMEUC).

“As demonstrated in the application filed in this proceeding (‘Application’), the Transaction is consistent with the public interest under section 203 of the Federal Power Act (‘FPA’) because it will not have an adverse impact on competition, rates or regulation or result in any inappropriate cross-subsidization,” the Ameren and Dynegy units said. “Nevertheless, Protesting Intervenors raise two sets of arguments as to why the Commission should subject the Application to additional inquiry and grant other relief. First, they assert there are deficiencies in the Applicants’ assessment of the competitive impact of the Transaction, especially with regard to potential coal-plant retirements and markets for certain ancillary services. Second, certain of the Protesting Intervenors argue that the Transaction would adversely impact rates by increasing their costs of power purchased under existing long-term contracts with Ameren Marketing.”

The competitive issues raised are based on flawed interpretations of published data, including references contradicted by the plain language of the source documents they cite, said the companies. Further, the adverse rate impacts alleged by would occur under market-based rate agreements, and the commission has repeatedly determined that customers under such type of agreements are not entitled to hold- harmless or other ratepayer protections otherwise afforded to captive wholesale requirements customers purchasing power under a cost-based regulatory regime.

At the close of the transaction, Dynegy and the Ameren Merchant Utilities will only have overlapping ownership of generation within the very large geographic market of the Midcontinent Independent System Operator (MISO) balancing authority area (BAA). Applicants presented an affidavit by Julie Solomon of Navigant Consulting showing that the MISO BAA market will remain unconcentrated in all relevant time periods following closing of the transaction and that there will be no horizontal screen violations for energy, capacity or ancillary services.

IMEA questions whether the MISO BAA market as a whole is the relevant market for purposes of analyzing the competitive effects of the transaction and whether there are relevant submarkets that should have been analyzed in MISO. MJMEUC also suggests that there might be a relevant submarket to consider in MISO without offering any specific evidence of the parameters of such a submarket or the basis for postulating its existence, the companies said. “Such unsubstantiated speculation regarding market configuration or outcomes does not present a material issue of fact warranting additional inquiry,” they added.

Missouri agency raises issue of coal retirements

MJMEUC questions the sufficiency of Applicants’ analysis of the competitive impact of possible retirements and retrofits of coal-fired generation in the MISO BAA market because of recently adopted air-quality regulations. First, MJMEUC claims that Solomon’s sensitivity analysis “substantially underestimates” the likely amount of near-term retirements of coal- fired generation in MISO. In support of its contention, MJMEUC cites a recent survey of MISO generation owners which purportedly shows over 12,000 MW of environmentally-related retirements. Second, MJMEUC asserts that Solomon’s analysis failed to consider an additional 38,000 MW of coal-fired units that “are expected to be unavailable, and thus out of the market, for extended periods of time during the next several years due to unit retrofits.”

The commission requires applicants to analyze “known and measurable” changes in a section 203 competitive analysis and has generally not entertained speculative arguments about future market conditions, particularly when it comes to arguments about planned generation additions or retirements, the Ameren and Dynegy companies responded. At a minimum, any analysis of future market conditions must take into account capacity additions as well as retirements, which MJMEUC has not done.

MJMEUC’s argument that applicants’ sensitivity analysis should have been based on the loss of up to 50,000 MW of coal-fired generation in MISO is factually inaccurate and misinterprets the source data it cites as the basis for such an inflated estimate, they added. “However, even if one were to accept MJMEUC’s theory of a substantially smaller MISO BAA market size as a result of coal-unit retirements, the competitive analysis would still show that the proposed Transaction generally reduces market concentration in MISO because (i) Ameren currently has a considerably larger market share than Dynegy, and (ii) the effect of the Transaction would be deconcentrating,” they argued.

First, MJMEUC argues that Solomon’s assumption of 4,000-5,000 MW of retirements in her sensitivity case “significantly underestimates the amount of coal-fire capacity that is likely to be retired in the near term.” MJMEUC cites survey data referenced in recent congressional testimony by Claire Moeller of MISO as the basis for 12,000 MW of retirements but misconstrues the reference, the companies said. The 12,000 MW retirement figure cited by Moeller was not the result of the latest MISO survey of generation owners, but appears to be the amount of hypothetical retirements assumed for study purposes in a 2012 evaluation of the adequacy of the gas pipeline network infrastructure system in MISO. The actual March 2013 owner survey referenced by Moeller reported only 6,000 MW of coal-fired retirements (with no time frame specified) together with another 6,000 MW whose status is uncertain.

The amount of owner planned retirements reported in these quarterly MISO surveys has ranged from 4,000 to 6,000 MW in the most recent 12-month period. Further, the same owner-survey document includes an internal MISO analysis that forecasts net retirements of 8,000 MW (10,000 MW of retirements, offset by 2,000 MW of new capacity additions), over the 2013-2016 time frame.

“In short, there is a substantial degree of uncertainty and variability in published forecasts of near-term coal-plant retirements in MISO (even if the 2015-2016 timeframe is considered near term),” said Dynegy and Ameren. “Against this backdrop, the 4,000-5,000 MW of retirements assumed by Ms. Solomon is within a reasonable range for purposes of the sensitivity analysis included in her competitive assessment of the Transaction.”

Dynegy, Ameren note that all those retrofit tie-ins won’t occur at once

MJMEUC also argues that an additional 38,000 MW of coal-fired generation in MISO will be retrofitted over the next few years, resulting in extended outages that should be considered. However, a 2012 study performed for MISO by the Brattle Group investigated the potential for Mercury and Air Toxics Standards (MATS)-related retrofit outages on system operations and concluded that such retrofits would require incremental maintenance outage times ranging from only 1.3 to 24.2 days. The Brattle study also determined that such MATS-related retrofit outages would be scheduled by MISO in the spring and fall seasons and average approximately 4,000 MW. This is in stark contrast to MJMEUC’s suggestion that 38,000 MW of outages might occur simultaneously.

MJMEUC further argues that its “inflated” total of 50,000 MW of retirements and retrofits (12,000 MW+38,000 MW) represents 37% of total capacity in MISO and thus “has potential competitive market impacts that cannot properly be ignored.” However, there is no possible scenario in which 50,000 MW of coal-fired generation in MISO will simply “disappear” or go off-line, simultaneously as suggested by MJMEUC, said Dynegy and Ameren.

Solomon noted in her testimony that the generating assets subject to the transaction include:

  • Duck Creek (410 MW, coal);
  • Coffeen (895 MW, coal);
  • E.D. Edwards (650 MW, coal);
  • Newton (1,197 MW, coal); and
  • Joppa (1,241 MW, coal/gas).

With the exception of 239 MW of gas-fired peaking generation at Joppa, all of the generation being acquired by Dynegy consists of baseload coal. The Duck Creek, Coffeen, E.D. Edwards and Newton facilities are located in the MISO balancing authority area. Joppa is located in its own BAA, called the Electric Energy BAA. EEInc’s limited transmission facilities are directly connected to MISO, to the Tennessee Valley Authority and to the Louisville Gas & Electric/Kentucky Utilities BAA.

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.