Illinois commission rules against power buy from clean coal project

The Illinois Commerce Commission decided Dec. 17 that a “clean coal” provision under state law is not binding on the Illinois Power Agency when it comes to an 80-MW coal-fired project of Sargas.

The “clean coal” provision in state law was created for – and has already been used by IPA for – the FutureGen 2.0 repowering project, which is getting U.S. Department of Energy funding help. But Sargas said the provision also applies to its own 80-MW project at Mattoon, Illinois, which like FutureGen 2.0 would use carbon capture and sequestration technology to sharply reduce CO2 emissions.

State law requires IPA to prepare a power procurement plan to secure electricity commodity and associated transmission services to meet the needs of eligible retail customers in the service areas of Commonwealth Edison (ComEd) and Ameren Illinois Co. On Sept. 29, 2014, the IPA filed with the commission its seventh annual power procurement plan initiating this proceeding.

“The IPA Act contains an aspirational goal that cost-effective clean coal resources will account for 25% of the electricity used in Illinois by January 1, 2025,” said the commission order. “As a part of the goal, the Plan must also include electricity generated from clean coal facilities. While there is a broader definition of ‘clean coal facility’ contained in the definition section of the IPA Act, the IPA says Section 1-75(d) 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, the IPA is unaware of any facility meeting the definition of an ‘initial clean coal facility’ that has announced plans to begin operations within the next five years.

“In Docket No. 12-0544, the Commission approved inclusion of FutureGen 2.0 as a retrofit clean coal resource starting in the 2017 delivery year. The IPA notes a recent Illinois Appellate Court ruling on the appeal of the Commission’s Final Order in Docke No. 12-0544 may provide additional certainty for the project’s development. On July 22, 2014, the appellate court upheld the Commission’s decision to require ComEd and Ameren to recover FutureGen sourcing agreement costs through a competitively-neutral retail distribution charge applicable to all utility distribution customers (including ARES customers).The IPA is not aware of any additional change in status of the project that would hinder FutureGen’s ability to deliver clean coal electricity as anticipated. Also, the IPA is not aware of any additional retrofitted clean coal facilities seeking inclusion in the Procurement Plan

“The IPA reports it has been approached by a team representing Sargas, Inc.(‘Sargas’), a US subsidiary of Sargas AS, a Norwegian technology company. Sargas is seeking to develop a coal-fired power plant in Mattoon designed to burn Illinois coal with 90% post-combustion carbon capture, with captured carbon then used for local enhanced oil recovery. The IPA says the project would be a single module, 80 MW facility seeking to begin construction as early as 2016 and begin operation as early as 2019.

Law has varying definitions of ‘clean coal’ facility

“According to the IPA, the regulatory treatment afforded proposed clean coal projects varies significantly by project type. The IPA Act contains provisions specific to an ‘initial clean coal facility,’ ‘retrofitted coal-fired power plants,’ a ‘clean coal SNG [substitute natural gas] facility,’ and a distinct ‘clean coal SNG brownfield facility.’ Based on conversations with the Sargas team and the project description provided by Sargas in its comments on the IPA’s draft plan, the IPA understands that the proposed Sargas project, a high-pressure combustion facility located on a greenfield site, would not fit into any of the above categories. Instead, the project would constitute a ‘clean coal facility’ as that term is used in the Section 1-10 of the IPA Act.

“The IPA says it does not have a mechanism for considering sourcing agreements from a standard, non-delineated ‘clean coal facility’ for inclusion in its Plan, and Sargas has not submitted sourcing agreements to the IPA for consideration. Instead, Sargas has requested that the IPA include a competitive clean coal procurement in its 2015 Procurement Plan. In Sargas’s view, again as the IPA understands it, the IPA’s authority to conduct a competitive clean coal procurement for projects such as Sargas stems from the broad language of the clean coal portfolio standard as manifest in Section 1-75(d)(1) of the IPA Act.

“The IPA has concerns with this proposal. The IPA notes the clean coal portfolio standard contains a rate impact cap, limiting the average net increase to ratepayers to a maximum 2.015% for sourcing agreements with clean coal facilities executed pursuant to the IPA’s Plan. Based on representations made by FutureGen in February 2013, FutureGen 2.0’s expected rate impact would be 1.32%, or approximately 65% of the statutory limit. The IPA says Sargas has represented having a cost structure lower than FutureGen with output of roughly half that of FutureGen’s; assuming sourcing agreements similar to FutureGen’s, and assuming the accuracy of FutureGen’s rate impact representations, it is possible that both projects could fit under this threshold.

“The IPA states that Section 1-75(d)(5) of the IPA Act provides an express mechanism for the IPA’s consideration of sourcing agreements between alternative retail electric suppliers and owners of retrofitted clean coal facilities. But, for a non-retrofitted greenfield ‘clean coal facility,’ such as Sargas, the IPA says the IPA Act contains no such mechanism for considering sourcing agreements involving ARES. As the IPA conducts procurement events only on behalf of utilities’ eligible retail customers absent express authority to the contrary, the IPA believes that any ‘clean coal facility’ sourcing agreements considered under the general provisions of Section 1-75(d)(1) would run only between the facility owner and the utilities to supply eligible retail customers.

“With a significantly smaller and migrant customer base responsible for covering sourcing agreement costs, the IPA suggests any sourcing agreement produced through a competitive ‘clean coal facility’ procurement would either violate the statutory rate cap or cover only a small portion of the project’s output. As a result, the IPA believes it would not be possible or wise to conduct a competitive procurement to solicit sourcing agreements for a ‘clean coal facility.’ Based on this review, the IPA believes that Sargas’s best path to a sourcing agreement covering the full output of its proposed clean coal facility would be through express statutory authority developed by the Illinois General Assembly. Nonetheless, the IPA invited Sargas, Inc. and its team to participate in the resulting plan approval process before the Commission, where Sargas may offer an alternative interpretation of judicial precedent and governing law for the Commission’s consideration.

Sargas points out the state agencies backing this project

“Sargas asserts that the extensive work it has done on the Mattoon project over the past several years has been undertaken in reliance on the statutory mandates concerning the IPA’s statutory obligation to include a clean coal provision in each Procurement Plan. Sargas claims considerable State resources, from the Department of Commerce and Economic Opportunity and Illinois Clean Coal Review Board, have also been expended in this regard. Sargas contends it does not seek special treatment – merely the opportunity to bid competitively in the processes required by the objectives of the legislative plan. Sargas believes the IPA analysis and 2015 Procurement Plan usurps legislative authority by its circumvention of these objectives.

“Ameren agrees with the IPA and Staff that procurement from Sargas should not be included in the Plan. Ameren says the IPA puts forth a legal basis for not including a procurement of Sargas in the Plan, and Staff provides additional clarity in its Objection that the IPA Act contains no mechanism to consider sourcing agreements from non-retrofitted greenfield clean coal plants such as Sargas.

“According to ComEd, the entirety of Sargas’ proposal rests on only a couple of phrases ‘cherry-picked’ from the Clean Coal Portfolio Standard. ComEd says these include a purported ‘requirement’ that 25% of Illinois electricity by 2025 be ‘clean-coal produced’ and the claim that ‘each annual ‘procurement plan shall include electricity generated using clean coal.’’ ComEd argues that when read in context, these phrases do not support the sort of procurement suggested by Sargas.”

The commission in the end ruled: “It is true that Illinois courts often defer to the expertise of administrative agencies. In this case, the Commission is not convinced that a proposal of the type presented by Sargas was contemplated by the Illinois General Assembly or is in the public interest. As a result, the Commission will not include a competitive clean coal procurement in the pending Procurement Plan.”

The decision also said: “Based upon its review of the law and the information provided, it is not clear to the Commission that the facility proposed by Sargas qualifies as a clean coal facility under Illinois law.” 

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.