Tenaska and Exelon Tangle over Taylorville IGCC Plant in Illinois

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Energy giants Exelon Corporation (NYSE:EXC) (Chicago, Illinois) and Tenaska Incorporated (Omaha, Nebraska) are facing off over legislation in the Illinois House of Representatives that would provide critical support for construction of the Taylorville Energy Center (TEC), a $3.5 billion integrated gasification combined cycle (IGCC) project scheduled to be built near Springfield, Illinois. The project will turn local Illinois coal into gas, to be burned by a 716-megawatt (MW) generator. The project would cut Illinois' net emissions of sulfur dioxide (SO2) and oxides of nitrogen (NOx) by 11,000 tons per year. TEC also will have pre-combustion carbon capture and sequestration (CCS) equipment that will capture at least 50% of the project's overall carbon emissions.

TEC could be online by 2017--providing the Illinois House approves S.B. 678, the "Comprehensive Energy Efficiency and Investment Act," which has already passed the Illinois Senate. A vote is expected in the Illinois House sometime this month. The bill would compel Illinois utilities to purchase all of the electricity produced by TEC for 30 years. The bill mandates that the plant's owners absorb 67% of any cost overruns. Who absorbs the remaining 33% of any cost overruns would be decided by the Illinois Commerce Commission (ICC) (Springfield), the state's utility regulator.

S.B. 678 is opposed by a coalition of business and environmental organizations led by Exelon. The group, the Stop Tenaska Overpriced Power (STOP) Coalition, says Taylorville will saddle the state's businesses and residents with billions of dollars of excess power costs over its lifetime.

In a previous Illinois legislative session, Tenaska failed to win passage of legislation supporting TEC. For more on that issue, see January 13, 2011, article - Tenaska Reassesses Taylorville IGCC Project After Losing Illinois Senate Battle.

However, S.B. 678 is "very different" from prior legislation supporting the IGCC plant, Tenaska spokesman Dave Lundy said in an interview. In addition to supporting TEC, the bill now before the Illinois House significantly expands the state's energy efficiency programs, fixes a problem with the state's renewable portfolio standard (RPS) that has limited windpower construction in the state, and expands the distributed generation market, including rooftop solar power.

"S.B. 678 is about three times the length of the prior legislation supporting TEC," Lundy told Industrial Info. "This is not your father's Tenaska bill. It's a game-changer for energy efficiency and windpower in Illinois." The bill is supported by several labor, renewable-energy and environmental organizations. However, other environmental groups, including the local chapters of the Sierra Club (San Francisco, California) and Natural Resources Defense Council (New York, New York), oppose the draft bill.

"This is a big battle," the Tenaska spokesman continued. Exelon is opposing S.B. 678, because its passage would deprive the utility of "hundreds of millions of dollars, perhaps billions of dollars, in capacity and energy payments" over the lifetime of TEC, he alleged. "The Exelon-funded STOP report is built on fictions. In fact, the authors of the report overlooked a number of factors" that increase TEC's competitiveness, including:

• Dramatically low interest rates, which would lower the all-in cost to build the project compared to years-earlier estimates
• TEC's $417 million federal investment tax credits, awarded July 2010
• Dramatically rising prices for generation capacity in the Illinois market
• A faster-than-expected closure rate for coal-fired plants

About 50% of Illinois' electricity comes from coal, but 40% of the state's coal plants are scheduled to close by 2021. Tenaska sees the problem as simple: Fewer coal plants means less coal-fired electricity, leading to higher electric prices. Lundy said S.B. 678 will reduce the state's electric demand and increases the state's electricity supply, thus moderating or offsetting future electric price increases.

Tenaska is angling for a vote in the Illinois House before it adjourns April 26. The $417 million federal tax credit imposes an April 30, 2012, deadline for TEC to have its air permit and order its steam turbine generator. As yet, TEC has neither. Lundy told Industrial Info that TEC "would be viable without the tax credit."

Lundy said TEC is "very different" from other IGCC plants like the Edwardsport Generating Station being built by Duke Energy Corporation (NYSE:DUK) (Charlotte, North Carolina) and the Kemper County Power Station being built by Mississippi Power Company (Gulfport, Mississippi), a unit of the Southern Company (NYSE:SO) (Atlanta, Georgia). "We're using proven technology that significantly lowers the technology and integration risks," said Lundy.

Today's low natural gas prices are not an obstacle to TEC either, he asserted: "If you look at the history of natural gas prices, you can see it's a very volatile fuel. Today's gas prices are ridiculously low, which is a function of supply and demand, which is itself being driven by two things: the gold rush to hydraulic fracturing and the non-existent winter we've just had. I live in Chicago and I used my snowblower once during the winter."

Click on the icon at right to see natural gas prices in Chicago from 2001 to 2011. Gas prices have declined significantly since April 2011, the last data included in the chart.

A very warm winter, coupled with a weak economy, has cut demand for gas, leading to higher rates of storage and falling prices. Natural gas futures are hovering at $2 per million British thermal units (MMBtu) in front-month futures contracts traded on the New York Mercantile Exchange (NYMEX).

"Natural gas is great today, and it will probably be great tomorrow, but I'm not sure it will be great in 2017, when TEC comes online," Lundy continued. "TEC's opponents want people to ignore everything that has happened before to gas prices and everything that will happen in the future to gas prices. People who say, 'Why not just burn natural gas?' are yelling against history-- gas prices go up and down. Gas prices are low today, but you can't rely on gas forever."

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