Will the Taylorville Energy Center raise rates?
Tenaska Inc is busy trying to convince people that the coal gasification and carbon capture plant proposed in Taylorville won't raise electric rates. They have to try very hard because all evidence indicates that it will. To get the real story, you have to ignore what they're telling the general public and instead look at what they're telling investors and regulatory agencies.
Tenaska is betting that the public and reporters won't read the sourcing tariff for the TEC (Taylorville Energy Center). The document with all appendixes is over 90 pages long so I won't be uploading it on my blog. Luckily, the company gave a presentation at the Gasification Technologies Conference that's online and easier to understand. It includes a lot of juicy info about rates and taxpayer subsidies that you aren't likely to hear at a large public hearing or press conference.
Two provisions relate most directly to rates. The first, to quote Tenaska's own presentation,
"Requires electric utilities and other electric retail suppliers in Illinois to purchase 100% of the electric output from clean coal facilities under 30 year Sourcing Agreements. Contracting with these electricity providers provides a built-in customer base for the plant."
That's important because Illinois is already producing more power than it uses. They also pushed to have clean coal included in the state renewable energy portfolio. Apparently, utilities would have to buy energy from the TEC first even when cleaner power is available from wind and solar.
The second relevant provision allows Tenaska to base rates on their capital investment and cost of generating power, regardless of market prices.
"Legislation allows TEC to pass through all operating costs on a monthly basis."
What happens to consumers if the cost of carbon capture turns out to be astronomically more expensive than expected? After all, that's why DOE and private investors pulled out of FutureGen.
Consumers will be forced to buy all power produced by this plant for 30 years, no matter how much it costs, and no matter how many cleaner, cheaper alternatives become available. What a scam!
What's being done to Illinois citizens was stated plainly at a 2006 conference on coal gasification.
That included a call for utilities and their ratepayers to be willing to accept more risk than they are accustomed to assuming. Regulators should be willing to provide greater assurances for recovering both development and operating costs. That means added risk for customers, who must also be willing to tolerate potential additional costs. Taxpayers should continue to vigorously subsidize IGCC plants and fund R&D for various gasification, carbon capture and sequestration technologies, attendees were told.
Higher rates for consumers and massive public subsidies is their real agenda, no matter how nice of a public face they put on it in Taylorville.
Last year, Ameren and ComEd objected because they believe TEC won't produce energy at competitive rates. The Illinois General Assembly punted by forming a task force to examine whether it would create rate increases. It's pretty sad that it takes two utility giants who recently hiked their own rates to make legislators take notice of rate increases on consumers. How bad does it have to be before Ameren starts to care how much we're paying?
The Taylorville Energy Center is seeking an air permit from the Illinois EPA, and a guaranteed loan from the US Department of Energy. Both agencies are taking public comments, so let them know what you think.
If you want to comment on the air permit, which doesn't actually require them to capture any carbon or limit CO2, contact the Illinois EPA by November 20th. If you want to comment on the Environmental Impact Statement being conducted for the federal loan to finance this boondoggle, contact the US Department of Energy by email TEC-EIS@hq.doe.gov.
Comments
Will,
You’ve raised some important issues. As someone who has been working with the company as a consultant for more than three years on this project, let address some of your concerns.
Unlike the nuclear plants of the 80s, the legislation under which the Taylorville Energy Center is being built ensures that consumers are not surprised with a big bill later.
From the very beginning of Tenaska’s involvement with this project, the company has worked with the Citizens Utility Board (CUB) – the state’s leading consumer watchdog – to develop a financing structure and rate approach most beneficial for consumers. Because of this approach and the long term positive effects on electric rates from adding the type of baseload power that TEC will provide, CUB has been supportive.
Developers of the Taylorville Energy Center have worked closely with Attorney General Lisa Madigan’s office to develop legislation that limits the effect this project could have on consumer electric rates to a benchmark of no more than 2.015%. Under the terms of the legislation, in addition to review of the project costs and rate impact by the legislature, it will also be reviewed by the ICC and Federal Energy Regulatory Commission.
I’d also like to clear up a common misconception. Many people think 30 year contracts are somehow bad for consumers. The opposite is true. 30 year contracts allow the company to amortize the costs of the project over a very long period of time. You wouldn’t want to finance your house with a three year mortgage and you can’t privately finance the $2.5 billion construction costs of this project with a three year loan either.
Fortunately for consumers, Taylorville got some good news earlier this year. After competing with other projects around the country, they won the right to participate in a Federal loan guarantee program which will reduce borrowing costs considerably. But these benefits don’t go to the company. Instead, they pass directly through to consumers, saving approximately $50-60 million per year.
I hope this information helps.
Thanks.
Dave
Posted by: Dave Lundy | November 14, 2009 8:51 AM
Dave, thanks for your comment. I'm glad to see you acknowledge that the plant will result in a rate increase, even though you believe the increase will be limited. That contradicts claims I heard at both public hearings that it won't raise rates for consumers.
It's unfortunate that CUB has abandoned it's role as a consumer advocate in this case. I was saving that for another blog post. To suggest that carbon capture, which has never been done on this scale, can produce power at competitive market rates is ridiculous. If the plant were capable of producing affordable power without massive subsidies then there would be no need for the fixed rates and guaranteed contracts the company is seeking. Why else has the company said they can't move forward without these guarantees? It's because the plant isn't economically feasible without price supports and subsidies. Saying that a group of state legislators taking contributions from the coal industry will "review" cost impacts doesn't provide much comfort. Someone, somewhere is going to have to pay and the company is making sure it won't be them.
I'd be happy to see binding documents that ensure reasonable rates for consumers, as you claim, because that isn't included in the sourcing tariff Tenaska is seeking approval for.
It's interesting how you switch from writing about 30 year contracts to writing about 30 year loans. They're two separate issues. If the plant were a sound financial investment then the fixed 30 year power contracts wouldn't be needed in order to secure a long term loan and major investors. Other power plants are able to secure long term loans without these special deals. And how can we be sure that the entire cost of the loan won't be unloaded onto the state of Illinois after 30 years, since Tenaska is seeking the right to do so?
No, Taylorville is not competing for a federal loan guarantee. Tenaska Inc is. The only way the plant can lower rates is through public subsidies, which consumers are still paying for in tax dollars.
This is a horribly costly distraction from proven, more affordable clean energy alternatives. It's a real disservice to central Illinois to pretend that we can bring back the good old days of the coal industry instead of helping the region create a new energy economy.
Posted by: Will | November 14, 2009 3:33 PM
Will,
I don’t want to get into a tit for tat here, but you may want to review the legislation on the rate impact issue as it is quite clear.
Also, you mentioned that somehow federal loan guarantees represent taxpayer subsidies. To clarify, loan guarantees cost taxpayers nothing unless the project defaults on its financing. With long term contracts, that can’t happen. So all the loan guarantees do is lower the cost of financing and therefore the cost of power for ratepayers.
Finally, you mentioned that “other power plants are able to secure long term loans without these special deals.” By special deals you were referring to long term contracts.
In fact, since the state changed its regulatory environment more than a decade ago, no new baseload plants have been built. Prior to the switch, all large power plants were built using a cost of service approach with guaranteed power purchases.
Baseload plants are those that dispatch power first because of their lower variable cost and run nearly continuously. To put this into perspective, the average wind plant dispatches power no more than 30% of the time. The average solar project has approximately a 12-14% dispatch rate. Coal and nuclear dispatch upwards of 85-90% of the time. This isn’t the result of coal state legislators pushing coal and nuclear out first. It is how power is dispatched everywhere in this country by the regional transmission organizations.
That’s why organizations that care about keeping long term rates low are in favor of projects like this because they recognize the best way to control rates is to ensure low carbon baseload projects are built.
By the way, the wind industry has also begun seeking 30 year contracts for its projects.
Posted by: Dave | November 15, 2009 12:47 AM
If you don't want to get into details then a reference or link to which section of the legislation, or even a specific description of other measures designed to keep rates low, would be a good start. Vague promises from a company seeking to make billions at public expense isn't a credible argument. Setting up a coal-friendly panel to "review" costs isn't credible reassurance. That's all I've seen from Tenaska so far. Their only answer for how to make the plant more affordable is to get more government help.
Your description of the power grid leaves out some important facts. Large new plants with lower variable costs have been built, including CWLP's plant 45 miles from Taylorville going online this year, plus the Prairie State plant is under construction. In fact, the new CWLP coal-fired plant will have lower emissions for some pollutants than what's allowed in the permit for Taylorville. Neither of these projects required provisions to sell power at non-competitive rates, nor many of the other special provisions and subsidies sought by Tenaska.
What we really need on the grid are additional power sources more compatible with wind. Coal fired plants and nuclear don't fit the bill because they can't quickly adjust to wind fluctuations. Solar and natural gas are much better compliments to wind generation. The Tenaska plant will become a barrier to a clean energy future by making the grid less compatible with wind and by diverting resources away from more realistic solutions.
By "special deals" I was referring to the entire plethora of subsidies and unusual favors Tenaska is seeking from taxpayers. Please don't pretend that the DOE loan and 30 year contracts are the only public supports Tenaska is taking. Maybe you missed my last blog post: http://www.thereisaway.us/2009/11/who_will_pay_fo.html
Tenaska is setting up a scenario that could result in taxpayers taking on the entire cost of the loan. And let's be honest that the DOE loan can only be called a savings for consumers *IF* the state allows Tenaska to pass on their capital costs onto utilities. We could save customers even more money by forcing Tenaska to either sell power at competitive market rates or not at all.
Coal-fired plants are cheap under the current system, but that's not what this discussion is about. That's a common bait-and-switch used by the coal industry. Your arguments about low cost baseload power don't apply to an expensive gasification and carbon capture experiment that has never been done on this scale. It's not cheap and it's not what we need when better, cleaner alternatives are available.
Posted by: Will | November 15, 2009 3:01 PM