Ameren Blames Lack of Forward Capacity Market for Merchant Closures

Ameren Energy Resources Company announced this morning that its Meredosia and Hutsonville merchant generation plants will cease operating by the end of 2011.

While the closure of these units is "primarily" the result of the expected cost of complying with the Cross-State Air Pollution Rule (CSAPR), Ameren said that, "[a]nother factor driving the closure of operations at these facilities is a lack of a multi-year capacity market managed by the Midwest Independent Transmission System Operator (MISO)."

"I suspect that MISO's proposed capacity construct, recently filed with the Federal Energy Regulatory Commission, will lead to the closure of additional non-AER merchant plants in the Midwest over the next few years unless the proposal is significantly modified," said AER President and Chief Executive Officer Steven R. Sullivan.

However, the closure of these old and inefficient plants is the expected outcome of a competitive energy market, and given the MISO's extreme capacity surplus, customers should not be expected to maintain these inefficient units through capacity payments if they are not economic.

The net generating capacity of Meredosia Energy Center is 369 megawatts, including one 203-megawatt, coal-fired unit and one 166-megawatt, oil-fired unit. The Hutsonville Energy Center has two coal-fired units with a net generating capacity of 151 megawatts.

The coal-fired unit at Meredosia dates to 1960, while the Hutsonville units entered service in 1953-54.

Likely indicating the high cost and inefficient nature of the generation, Ameren said that the two facilities provided approximately 4 percent of Ameren Energy Resources' total generation over the last two years and a lesser percentage of margin.

The closure of these facilities is expected to result in a charge to third quarter 2011 earnings. Ameren Energy Generating Company's net investment in the Hutsonville and Meredosia energy centers totaled $26 million and $1 million, respectively, as of June 30, 2011. In addition, the company expects to incur other costs related to employee severance and the closure of these centers that are still being determined.