Illinois Senate Passes Tenaska Sourcing Agreement Bill

The Illinois Senate has passed SB 678 which would require, among other things, that alternative retail electric suppliers enter into sourcing agreements with an initial clean coal generating facility to be developed under the law, which is to be the Tenaska Taylorville Energy Center.

The bill still requires approval of the House, with consideration likely not occurring until next year's session.

Each electric utility and alternative retail electric supplier would be required to purchase, each month for a period of 30 years, a fraction of the clean coal facility's output, with the individual supplier's obligation equal to its retail market sales of electricity (expressed in kilowatt-hours sold) in the State during the third month preceding the applicable month divided by the total retail market sales of electricity (expressed in kilowatt-hours sold) in the State by all clean coal electricity buyers during such third month preceding the applicable month, subject to any limitations in the required purchases pursuant to various cost caps.

This latest obligation is an improvement over earlier proposals which established the obligation based on year-ago sales, but there is still a three-month lag between the retail supplier's obligations and its current customer count.

The engrossed bill applies reduced clean coal procurement obligations resulting from cost caps to both the utilities and retail suppliers. Additionally, prior language which suggested that the cost caps were only triggered when costs were incurred "pursuant to the procurement plan" (meaning the utilities' default service plan) has been stricken.

For small customers, the retail rate impact from the clean coal sourcing agreements may not exceed the greater of (i) 2.015% of the amount paid per kilowatt-hour by eligible retail customers during the year ending May 31, 2009 or (ii) the incremental amount per kilowatt-hour paid for the clean coal resources in 2013.

"If for any year the small customer rate impact would exceed the [above] limitation ... the clean coal fraction for each clean coal electricity buyer shall be adjusted for such year in a manner that will result in (a) the quantity of electric power projected to be purchased by each clean coal electricity buyer being reduced by an amount sufficient to result in such deemed rate impact on all small electric customers (whether served by electric utilities or alternative retail electric suppliers) being equal to such limitation for such year and (b) any such reductions in amounts allocated to the clean coal electricity buyers in order to achieve the objective described in clause (a) ... being allocated to, and purchased and paid for by, the clean coal electricity buyers in proportion to their retail sales to large electric customers."

Notably, any reduced obligation due to the small customer cost cap would be required to be assumed by load serving entities on behalf of their large customers, subject to a large customer cost cap.

The annual large customer rate impact shall not exceed $0.005 per kilowatt-hour, except that the rate impact calculation shall exclude any actual costs for such year incurred by the initial clean coal facility to the extent such costs exceed the corresponding amount assumed in the "reference case" of the facility cost report for the initial clean coal facility for such year, "and are not principally within the reasonable control of the initial clean coal facility."

To the extent the large customer cost cap is implemented, the required obligation of each clean coal buyer would be adjusted downward.

While utilities and retail suppliers would be subject to the same calculation to determine their proportional obligation to purchase power from the clean coal facility, the bill provides that each clean coal buyer shall have the right to determine whether its obligations under the sourcing agreement shall be governed by the power purchase provisions or the contract for differences enumerated in the bill. As such, it is not clear whether the different elections afforded to clean coal buyers will result in a distorting impact on the bypassable default service rate if the utility and various retail suppliers make different elections.

The bill also ends the obligation for retail suppliers to meet renewable portfolio standards effective June 1, 2012, with all renewable obligations assumed by the utility for all delivery volumes, addressed on a nonbypassable basis.