MEETING OF UTILITY REGULATORS COULD BE TIPPING POINT FOR FUTUREGEN

Tamar Hallerman
GHG Monitor
12/14/12

A key ruling expected next week from Illinois utility regulators could seal the fate for the Department of Energy’s flagship FutureGen 2.0 project. The five appointed members of the Illinois Commerce Commission (ICC) are scheduled to meet in Springfield Dec. 19 and are expected to vote on the Illinois Power Agency’s (IPA) power procurement plan for 2013. That blueprint, which secures electricity and transmission needed in the state for the next five years, includes a sourcing agreement that requires the state’s utilities—including Commonwealth Edison (ComEd), Ameren Illinois and smaller alternative retail electric suppliers—to purchase all of the 166 MW of gross electricity generated annually at the FutureGen facility over a 20-year period.

The ICC’s determination could offer a path forward for a project that has, at several points, stumbled over the last nine years. With roots in the first George W. Bush Administration, DOE officials had initially pitched FutureGen in 2003 as a new-build 275 MW integrated gasification combined cycle plant with pre-combustion capture in east-central Illinois, but after years of delays and spiraling costs, Bush moved to kill the project in 2008. At the urging of several political figures, most prominently Sen. Dick Durbin (D-Ill.), the Obama Administration revamped the program in 2009 using $1 billion in stimulus funding and a new project design—an oxy-combustion retrofit on a 200 MW oil-fired unit at Ameren’s Meredosia power plant in western Illinois.

Project officials once again found FutureGen on the brink of failure last fall when estimates of large cost increases were made public and Ameren announced that it would be walking back its role as utility lead on the venture. Since then, officials at the FutureGen Alliance have aimed to salvage the now $1.65 billion project by applying for novation with DOE under a single cooperative agreement, negotiating an option to purchase the electric generating unit at Meredosia from Ameren and conducting additional engineering work to identify areas of potential cost savings.

ICC Ruling to Precede Key DOE Determinations

Next week’s ICC ruling could ultimately determine whether the Alliance is able to move forward on any of those fronts. In addition to greenlighting a long-term revenue source for the project, a positive vote from the ICC is also expected to prompt a trio of determinations from DOE that will ultimately decide the project’s fate. DOE is expected to soon rule on the Alliance’s novation request, as well as its agreement with Ameren to purchase the Meredosia generating unit. But perhaps most importantly, DOE will also determine whether to approve the industry consortium’s Phase II applications for the capture, transport and storage ends of the project. An affirmative outcome there would allow the project to begin roughly 16 months of front-end engineering and design (FEED) work. DOE has been reviewing those applications since this summer. “Certainly [DOE] has been at the due diligence process for a fairly long period of time, so I would anticipate that they will be able to respond pretty quickly to the ICC’s ruling,” FutureGen Alliance CEO Ken Humphreys said in an interview this week. DOE did not respond to requests for comment.

Ultimately, timing remains key for the project, which anticipates coming online in 2017. Already months behind, developers are under a tight timeline to spend the federal money allocated to FutureGen while still meeting DOE-mandated benchmarks. As with all projects funded under the stimulus bill, the Alliance must spend its stimulus dollars before Sept. 30, 2015, when all unused funds must be returned to the Treasury. In an interview earlier this year, Alliance Chairman of the Board Steve Winberg said he is optimistic that the federal money can be spent in time while also meeting all DOE benchmarks. However, several logistical issues related to timing could surface as many major equipment purchases for a project like FutureGen are only possible during the back end of construction.

Humphreys, in an interview earlier this fall, said he was confident the project could stay on track as long as the ICC and DOE grant the project all needed approvals by the end of the calendar year. This week, Humphreys was less definitive. “It’s certainly important to have full and timely approval from both the ICC and DOE,” he said. “At the end of the year we’ll take stock on how each of those agencies have made their decisions and from there determine what the most viable path forward is.”

Project Receives Support of Many in Ill. Congressional Delegation

For now, tensions remain high as the ICC debates the procurement plan. In recent weeks, FutureGen has garnered the support of several prominent Illinois politicians. Durbin and his counterpart in the U.S. Senate, Mark Kirk (R-Ill.), wrote a letter to the ICC Nov. 19 offering their “strong support” for the project’s inclusion in the state’s procurement plan. The pair said the project would create roughly 2,000 direct and indirect jobs and ensure the state’s leadership in ‘clean coal’ technology development. “FutureGen is critically important for our energy future, for Illinois coal and for our country,” Durbin and Kirk wrote in the letter. Reps. Jerry Costello (D-Ill.) and Aaron Schock (R-Ill.), whose Congressional district houses the project, also sent a letter to the Commission last month urging the body to approve the PPA. “FutureGen 2.0 has the potential to deliver great benefits to Illinois, and the project is certainly important to the state,” the letter read.

ICC Judge Recommends Voting Against Sourcing Agreement

However, the project also has many detractors within the state, most nobly the ICC’s Administrative Law Judge, who makes recommendations to the Commission ahead of all major decisions. In a draft order sent to the ICC last month, Larry Jones recommended that the body reject the project’s sourcing agreement, saying that the cost of power produced from the plant during the proposed project period (2017-2037) would be too expensive. “Based on information provided in the [procurement plan], Staff concludes that it has yet to be demonstrated that the proposed procurement of electricity from FutureGen2.0 will contribute to the objectives set forth in [state law], which require a showing that the proposed procurement will ‘ensure adequate, reliable, efficient and environmentally sustainable electric service at the lowest cost over time, taking into account any benefits of price stability,” the draft order said. Jones added that the sourcing agreement is currently “not sufficiently developed to warrant approval.” 

Approving a sourcing agreement for FutureGen, Jones continued, “highlights a tension” between competing elements of state law. Under current statutes, the ICC is required to pass an annual procurement plan that “ensure[s] adequate, reliable, affordable, efficient and environmentally sustainable electric service at the lowest total cost over time, taking into account any benefits of price stability.” However, Illinois in 2009 also adopted a Clean Coal Portfolio Standard, which includes the goal that one-quarter of the state’s electricity is generated by ‘clean coal’ facilities by 2025. If the ICC does authorize the sourcing agreement with FutureGen, Jones said, the body should adopt steps “to ensure that FutureGen2.0’s prices are just and reasonable.”

‘Competitive Balance’ a Concern for Some Generators

The trade group representing competitive retail electric suppliers, the Retail Energy Supply Association, has also spoken out against including FutureGen’s sourcing agreement in the procurement plan. “The concerns RESA has have nothing to do with the plant or the technology,” RESA spokesman Bryan Lee told GHG Monitor. “It has to do with whether or not the commitment to any project will affect competitive balance in the marketplace. Retail suppliers are on a very different footing than utilities when it comes to absorbing those costs. We want to maintain a vibrant, competitive market that works to the benefit of consumers.”

In the Alliance’s filing in response to Jones’ proposed order, the consortium argues that rejecting the project’s sourcing agreement would disregard the state’s Clean Coal Portfolio Standard and ignores the fact that the project “is the least cost clean coal project” currently under development in the state.

Humphreys this week said the Alliance is “relatively hopeful” that the ICC will rule in FutureGen’s favor. “A favorable ruling by the Illinois Commerce Commission is central to the project’s ability to proceed,” he said. “It provides long-term revenue certainty associated with electricity sales, which is a prerequisite to securing the commercial financing that’s associated with the project.” He added: “We believe the evidence is very clear that this is the most affordable path forward on ‘clean coal’ for Illinois, and we’re hopeful that our legal arguments are found to be compelling by the ICC commissioners.”