4/16/15 - ST. LOUIS POST DISPATCH: Metro East faces higher electricity prices

Some Ameren Illinois customers are facing a 10 percent increase or more on their electric bills after the price paid to guarantee service soared.

The price customers pay to power plant owners so they stay available to pump juice into the grid at peak times jumped ninefold in downstate Illinois from last year. So-called capacity prices, a component of the overall price of electricity, rose to $150 a megawatt-day from $16.75 a megawatt day.

The result, says Illinois’ utility customer advocate, could be as much as $150 more a year in bills for customers. And Ameren, which only charges customers for delivering power In Illinois’ deregulated electric market, is questioning why Illinois prices are so different from neighboring states.

“It’s an incredibly disturbing situation, and it has really bad implications for Ameren Illinois customers,” said Citizens Utility Board Executive Director David Kolata. “We are now in Illinois going to be paying 50 times more than neighboring states for capacity. We see no rationalization for that.”

The capacity auction is administered by the Midcontinent Independent System Operator, or MISO, which runs the grid in parts of 15 states in the central United States. The auction determines what energy providers pay to power plant owners over the coming year to make sure they’re available to deliver power when demand is highest. Results were announced this week.

The huge jump came while prices for capacity in many other MISO states fell. In Missouri, for instance, prices fell from $16.75 to $3.48 a megawatt day. In fact, $3.48 was the highest capacity price in all the other states within MISO’s footprint, making Illinois’ $150 per megawatt day a glaring outlier.

In Illinois’ deregulated electricity market, customers contract with electricity suppliers who deliver power through the wires owned by Ameren Illinois. Many residential customers are on fixed power contracts their municipalities negotiate with power suppliers, so the jump in charges won’t hit them immediately.

But Kolata said customers who aren’t immediately affected should still be worried.

“Next time you go to renegotiate your fixed price contract, this will be taken into account,” he said.

If approved by federal electricity regulators, the new prices take effect June 1 and run through May 2016.

Kolata said CUB will seek to amend MISO’s auction rules to avoid similar price disparities in the future. “Unless the rules change, it’s likely — it’s certainly the expectation that this level of pricing will continue going forward.”

It’s hard to know how many Ameren Illinois customers buy power under agreements that expose them to swings in the electricity market. About 500,000 customers buy power through Homefield Energy, the retail unit of Dynegy Inc. Dynegy operates nine downstate Illinois coal plants, including those formerly owned by Ameren. It committed 2,262 megawatts in the auction.

Spokesman Micah Hirschfield said all Dynegy’s Homefield retail customers are on fixed contracts.

However, some cities have contracts that expire soon. 

Ameren Illinois, in a statement, said it was “extremely concerned and upset” about the capacity auction results and that it would work “to resolve this inequity to our customers.”

“We plan on asking for a written accounting from MISO to get clarity on how this happened and what needs to be done to prevent it from happening again in the future,” Ameren Illinois spokeswoman Marcelyn Love said in an email.

Morningstar analyst Andrew Bischof said in a research note Wednesday that capacity auction prices cleared “well above our expectations.” He noted MISO had a “very young” capacity market, so it’s difficult to forecast prices. “What the market is reflecting is there is a need for new generation,” he said.

While some coal plants in the country may close due to environmental regulations, Dynegy’s spokesman said there were no plans to close its coal plants and they are “doing very well in Illinois.”

Nuclear power plant operator Exelon, on the other hand, has been warning some of its plants are no longer economic. One of those, its Clinton plant, is in the MISO region and committed capacity in the auction, the company confirmed.

“The auction results reduce Clinton’s economic losses, but the plant remains uneconomic and may prematurely shut down absent Illinois legislative changes to outdated policies that do not allow nuclear energy to compete on a level playing field with other zero carbon resources,” Exelon said in a statement.

The company is pushing a bill in the Illinois Legislature that would require 70 percent of a utility’s power sales to come from low carbon sources, including nuclear. That could be offset by a charge on customer bills.

Kolata said the pricing disparities in the MISO auction are “an indictment” of the system.

“We think that clearly something has gone wrong here,” he said. “When you have such a bizarre outcome I think it raises a lot of questions about the capacity regime.”

MISO said in a statement it developed its auction procedures with stakeholders that included consumer advocates.

“MISO’s resource adequacy construct is designed to facilitate reliability at the lowest possible cost,” the statement said.