Dynegy downbeat on future of Illinois coal plants

OREANDA-NEWS. June 22, 2015. Independent power producer Dynegy is downbeat about the prospects for its 7GW coal fleet in Illinois as power market design is squeezing generators' revenue while environmental pressure mounts on coal.

Dynegy's Illinois generating fleet — nine power plants in all — is selling into the Midcontinent Independent System Operator (MISO) power grid. But "under the current [market] construct, we do not belong there. It does not value coal generation," Dynegy chief executive Robert Flexon said yesterday at the annual meeting of MISO stakeholders in Milwaukee.

Power plants in regional transmission organizations like MISO make money both by selling electricity and by promising to supply capacity. Power prices in energy markets in Illinois has been range-bound because of relatively cheap natural gas and heavily-subsidized wind power. "So you have to get your compensation in other ways," Flexon said.

Power generators have long pushed for reforms of capacity markets in MISO and other US organized markets. They got their wish in the PJM Interconnection, which this year introduced the concept of "capacity performance" resources that will earn more revenue by promising to meet stringent performance and fuel supply requirements. Coal and nuclear plants will be the biggest beneficiaries.

In addition to capacity markets, coal and nuclear plant owners are pushing for support on state level in Ohio and Illinois. But direct subsidies for coal or nuclear draw opposition from environmentalists, consumer advocates and even some power producers. "We try to avoid a situation when we ask for a subsidy. ... It is a market distortion," Entergy merchant generation arm president Bill Mohl said at the MISO meeting.

Generating units in central and southern Illinois, which forms part of MISO zone 4, cleared the latest capacity auction in April at \\$150/MW-day for the June 2015-May 2016 period. Capacity in the rest of MISO cleared the auction at less than \\$4/MW-day. By comparison, fixed operation and maintenance costs for coal plants are estimated at \\$110-\\$219/MW-day.

The higher capacity price for MISO zone 4 — rising nine-fold from the previous auction — has attracted the ire of the Illinois attorney general and state lawmakers, who allege that the results stem from uncompetitive behavior. Dynegy, which owns more than half the capacity in the zone, said it offered all available capacity without physical or economic withholding. MISO's market monitor cleared the auction results as competitive.

The public reaction to the capacity price spike is indicative, Flexon said. "We got all the attention even though [capacity prices] in other markets are higher," he said.

Without sustained prices at that level, "the future of power generation in central and southern Illinois will fade," Flexon said.

Dynegy wholly owns the Baldwin, Hennepin, Wood River, Coffeen, Duck Creek, Edwards, Joppa and Newton power plants in Illinois, and the unit 6 at Havana plant, with 7,065MW of combined capacity. Those plants in the first quarter received Powder River basin coal from the Antelope, Belle Ayre, Black Thunder and North Antelope Rochelle mines, Energy Information Administration data show.