From Illinois Business Journal news services
HOUSTON — Dynegy Inc. plans to shut down multiple Illinois coal-fueled units because of their failure to recover basic operating costs.
Units one and three at the Baldwin Power Station in Baldwin, and unit two at the Newton Power Station in Newton, are expected to shut down operations over the next year.
In total, Dynegy is requesting that MISO remove 1,835 megawatts from MISO Zone 4. An additional 500 megawatts are targeted for shutdown, and a final determination is likely later this year. The decision to shut down operations at the Baldwin and Newton units was made after they once again failed to recover their basic operating costs in the most recent MISO capacity auction.
MISO, which stands for Midcontinent Independent Systems Operator, provides open-access transmission service and monitors the high voltage transmission system throughout the Midwest, and South, United States and in Manitoba, Canada. It operates one of the world’s largest real-time energy markets.
Earlier this year, Dynegy announced the 465-megawatt Wood River Power Station would retire in June for similar reasons. In total, 2,800 megawatts of generation from Illinois will be lost – approximately 30 percent of the power generation capacity in Southern Illinois. According to a 2014 economic impact study by Development Strategies, the Newton and Baldwin stations combined have historically supported nearly 4,000 direct and indirect jobs and $1 billion annually in economic activity for the region. Newton is responsible for $5 million in property taxes and Baldwin pays $4.8 million each year.
“This is a difficult decision, and we don’t take it lightly. For 40 years, the employees of the Baldwin and Newton Power Stations have generated reliable and affordable power for the people of Illinois,” said Robert C. Flexon, chief executive officer of Dynegy. “The men and women of these stations, just like the Wood River employees, have proudly and professionally served and safely operated these facilities for decades while contributing greatly to their communities.”
Competitive generating assets in MISO Zone 4, regardless of fuel type, are unable to support their operating costs in the existing MISO market design, Dynegy said in a statement. Generators are compensated in two ways – through the capacity market and through the energy market. The out-of-state utilities offer their capacity into the annual auction at little to no cost since they are more highly compensated through their home state regulatory process, putting competitive generators at a tremendous disadvantage.
This same issue also applies to the energy market, where utilities also offer their energy in at no cost and continuously dispatch their baseload plants regardless of price as they are able to pass through their variable costs to ratepayers. Since generators in Zone 4 are not regulated, they rely entirely on the capacity and energy markets which are, in effect, suppressed by the regulated utilities’ offering practices. MISO’s market design does not penalize or prevent this practice. This dynamic prevents Zone 4 generators from receiving an adequate level of compensation to cover their generating costs. If Newton and Baldwin were located in PJM, as northern Illinois plants are, or Zone 4 was regulated as the other MISO generators outside of Illinois are, no shutdowns would occur.
“This is a losing model that exports southern and central Illinois jobs and economic base to the surrounding states resulting in a catastrophic economic outcome for downstate Illinois,” Flexon continued. “As has been demonstrated repeatedly, there is a large disparity between how central and southern Illinois competitive generating stations are treated compared to generating stations in northern Illinois and MISO participants outside of Illinois. Central and southern Illinois competitive units in MISO Zone 4 are wrongly grouped with out-of-state utilities rather than the competitive power producers in northern Illinois and PJM. This must change.”