Illinois Committee Moves Tenaska Sourcing Agreement Bill Forward; Renewable Obligation to Cease for Retail Suppliers?

A revived bill to require Illinois utilities and retail suppliers to enter sourcing agreements with a clean coal facility, which will be Tenaska's Taylorville Energy Center, passed the Illinois Senate's Executive Committee yesterday, and is headed to the Senate floor.

The sourcing agreements and other clean coal provisions have now been rolled into SB678 through an amendment, which also includes a host of changes to renewable obligations, including the apparent removal of renewable compliance obligations from competitive suppliers, and the treatment of renewable standards compliance as a delivery service.

The 209-page amendment to SB678 including the clean coal and renewable provisions is not a model for clarity, with the meaning of sections wholly altered by accompanying changes to otherwise unrelated statutes, with such changes separated by 100 pages of text.

That being said, what Matters preliminarily gleans from the bill is that retail suppliers would still be required to enter sourcing agreements with the clean coal facility, but there appears to be an attempt to apply the same cost caps to the utilities and retail suppliers. Whether these provisions make the impact on the bypassable Price to Compare for the mandated purchases competitively neutral remains to be seen.

One wrinkle appears to be that the cost cap is only triggered when the utility's costs exceeds an established threshold (not if an individual retail supplier's costs exceed this threshold), although, once triggered, the cost cap would apply to all buyers of energy from the clean coal facility.

Although the amendment discusses the cost cap being applicable to all buyers of clean coal power, Matters bases the conclusion that only the utility's costs trigger the imposition of the cost cap due to language that states, "the total amount purchased under sourcing agreements with the initial clean coal facility pursuant to the procurement plan for any given year shall be reduced by an amount necessary to limit the annual estimated average net increase..." [emphasis added]

It would appear that only utilities enter sourcing agreements pursuant to "to the procurement plan," meaning the Illinois Power Agency procurement plan.

Regardless of the trigger, the amendment appears clear that, once the cost caps are implicated, the amount purchased from the clean coal facility, "for each clean coal electricity buyer shall be adjusted," to comply with the cost cap. However, it's still unclear how this adjustment would be determined if each individual retail supplier's costs are different, but the utility's costs are used for purposes of assessing the cost cap.

Previously, a major retail market-skewing impact from the original bill was that only the utilities' clean coal obligations were subject to a cost cap, and not only were retail suppliers not afforded the same protection, but they were also required to undertake additional procurements to purchase any energy not procured by the utilities due to the cost cap. It is not clear whether the new language totally eliminates the potential retail market-skewing impacts from mandated procurements.

A separate cost cap also now applies to commercial customers previously excluded from the original cost cap.

Also unclear to Matters is how each retail supplier's amount to be purchased from the clean coal facility will be determined. Amendments to the statute regarding electric supplier licensing would explicitly make suppliers subject to certain provisions of the clean coal law, but it appears that the determination of each LSE's purchase obligation is addressed in a subsection of the clean coal law not explicitly referenced, but presumably incorporated by operation of the explicitly referenced sections.

If so, it appears a retail supplier's purchase obligation would be based on its megawatt-hour sales in the immediately preceding year. This was one of the problems with the original bill in that retail suppliers would remain obligated to purchase a fixed percent from the clean coal facility regardless of customer churn, which will negatively impact suppliers especially as they lose customers.

There is also a question of whether each purchaser of clean coal energy will pay the same rate, as clean coal buyers shall "negotiate in good faith" when signing sourcing agreements. Some language suggests that a clean coal buyer may elect either a power purchase mechanism or a contract for differences mechanism for the sourcing agreement, but elsewhere it appears payment for certain costs are mandatory.

Regardless of these revisions, the bill remains opposed by the STOP Coalition, whose members include retail suppliers and the Illinois Competitive Energy Association.

Renewable Changes
The amended bill also suggests that retail suppliers will no longer be required to comply with any renewable energy obligations after May 31, 2012.

Specifically, the supplier licensing statute would be amended to provide that, "The obligations specified in this Section of alternative retail electric suppliers and electric utilities operating outside their service territories to procure renewable energy resources, make alternative compliance payments, and file annual reports, and the obligations of the Commission to determine and post alternative compliance payment rates, shall terminate effective May 31, 2012."

Retail suppliers would remain responsible for all alternative compliance payments that they were obligated to pay for periods through and including May 31, 2012, but were not paid as of that date.

Illinois would retain renewable portfolio standards, however. With the apparent cessation of retail supplier renewable compliance obligations, costs of renewable compliance would be placed in distribution rates, with the utilities (through the Illinois Power Agency procurement plan) apparently assuming renewable compliance obligations for all loads on a nonbypassable basis.

The amendment addresses how to allocate the costs of bundled renewable energy contracts to determine an energy price, to be charged in bypassable utility generation rates, and the renewable compliance costs (e.g. the costs of RECs embedded in the bundled supply) to be included in distribution rates.