The Sierra Club on Sept. 12 released a report from ACM Partners, an independent financial research firm, that it says shows the pending no-cash sale of five Illinois coal-fired power plants by Ameren (NYSE: AEE) to Dynegy (NYSE: DYN) is a “high risk” move.
The analysis found that Dynegy is preparing for the high risk of the purchase by creating an unfunded “shell company” called Illinois Power Holdings (IPH) to operate the coal plants, the club said. This financial model protects the profits of “polluters like Dynegy,” while forcing Illinois communities to bear the risk when the financial model fails, the club claimed.
Said David Johnson of ACM Partners: “Based on our analysis, the Illinois shell company will not have the proper capital to adequately operate these coal-fired units. This capital covers daily maintenance and operation expenses and future pollution controls. With the high likelihood that Dynegy’s shell company eventually declares bankruptcy, there is a significant risk that workers’ pensions won’t get funded and that local communities will have to shoulder necessary environmental cleanup costs.”
Dynegy has requested a variance, which it said it needs to be granted before this plant purchase can be completed, from the Illinois Pollution Control Board (IPCB) to have until 2020 to comply with the Illinois Multi-Pollutant Standard (MPS), a law established in 2006. The company claims that complying with the current standard will cause the company undue financial hardship.
“Dynegy knew the financial risks of burning coal in Illinois, so they entered this agreement to buy Ameren’s coal plants with eyes wide open,” said Kady McFadden, Field Organizer with the Sierra Club Beyond Coal campaign in Illinois. “To claim that the company will face financial hardship by complying with vital clean air standards is a false claim by a known polluter. Illinois families are ready for clean air, not more polluters shirking responsibility to clean up.”
The IPCB will hold a hearing on Dynegy’s variance request on Sept. 17 at the Illinois Environmental Protection Agency building in Springfield, Ill.
Dynegy, Ameren offer to shut E.D. Edwards Unit 1
In a Sept. 5 filing at the board in response to a series of questions, Dynegy and Ameren, among other things, offered up the retirement of the coal-fired Edwards Unit 1, which has been in the works for some time, as part of this deal.
“While nothing in the Act or the Board’s rules requires Petitioners to demonstrate a ‘net benefit’ to the environment when requesting a variance, IPH remains open to considering possible alternative approaches to address the Board’s interest in ensuring a ‘net benefit’ and, in that vein, has engaged in discussions with the Illinois Environmental Protection Agency (‘IEPA’) related to reducing overall emissions in Illinois. Significantly, IEPA and IPH have executed a Memorandum of Agreement (‘MOA’) which will have the benefit of reducing the environmental footprint of Dynegy subsidiary plants in Illinois, including the operating MPS Group plants anticipated to be acquired in the underlying transaction. Specifically, as relevant to the MPS Group, IPH has agreed to retire E.D. Edwards Unit 1 as soon as allowed to do so by the Midcontinent Independent Transmission System Operator, Inc. (‘MISO’). IPH would accept a Board condition, consistent with the MOA, which would make the retirement of E.D. Edwards Unit 1 an enforceable condition of the variance.”
There has been an ongoing argument lately at the Federal Energy Regulatory Commission over the financial support MISO is offering Ameren to keep the 90-MW Edwards Unit 1 operating while MISO makes local transmission upgrades to make up for the loss of this capacity. The Edwards plant began commercial operation in 1960 with Unit 1. Edwards Unit 2 (240 MW net) began commercial operation in 1968, while Unit 3 (315 MW net) began commercial operation in 1972. Units 2 and 3 are not involved in the retirement deal.
The Sept. 5 filing at the Illinois board added: “Other environmental benefits resulting from the MOA, ancillary to the requested variance but nonetheless, in part, subject to closing on the underlying transaction, are the permanent retirement of the air operating permits at Stallings (Madison County) and Oglesby (LaSalle County) Combustion Turbine Facilities and the installation of Advanced Gas Path Technology at Kendall Power Station (Kendall County). Petitioners assert that the proposed compliance plan, enhanced by the agreed approach in the MOA, is more appropriate than imposition of annual emission caps….”
On Sept. 5, the Illinois EPA offered to the board its usual position of neither supporting nor objecting to a variance request like this.
The MPS Group includes: the Coffeen Energy Center in Montgomery County, the Duck Creek Energy Center in Fulton County, the E.D. Edwards Energy Center in Peoria County, the Joppa Energy Center in Massac County, the Hutsonville Energy Center in Crawford County, the Meredosia Energy Center in Morgan County, and the Newton Energy Center in Jasper County. Electricity continues to be generated at five of these facilities. Meredosia and Hutsonville are shut and not part of the sale to Dynegy.
Dynegy already owns coal-fired plants in Illinois: the Baldwin (Randolph County); Havana (Mason County); Hennepin (Putnam County); and Wood River (Madison County). In November 2011, Dynegy permanently retired a fifth coal-fired plant, the Vermilion Power Station in Vermilion County.
Dynegy asks for continued changes in MPS compliance out to 2020
In their MPS variance request, the companies propose that the MPS Group will meet an overall SO2 annual mitigation emission rate of 0.35 lb/mmBtu through 2019, as opposed to the MPS requirement of 0.25 lb/mmBtu for calendar years 2015 and 2016 and 0.23 lb/mmBtu for calendar year 2017 and each calendar year thereafter.
The proposed rate will effectively commit IPH/Dynegy to:
- maximize flue gas desulfurization (FGD) performance at the Duck Creek and Coffeen plants;
- continue to burn low-sulfur coal (0.55 lbs sulfur/mmBtu) from the Powder River Basin at the E.D. Edwards, Joppa and Newton plants; and
- manage generation as necessary to maintain compliance.
Further, Ameren also will commit to the continued cessation of operations of the electrical generating units at the Hutsonville and Meredosia plants through the end of 2020, with the exception of the FutureGen 2.0 clean coal project that will involve a partial repowering of Meredosia.
IPH will also maintain a continuous, though slowed down program of construction at Newton so as to be in a position to have the Newton FGD project completed and operational to meet compliance obligations. Proceeding in this manner will position the companies for compliance with the MPS’ final overall SO2 annual emission rate (0.23 lb/mmBtu) beginning in 2020, with the installation and operation of the Newton FGDs.