October 24, 2013

Exelon, Enviros Agree on Law Change to Spur Green Energy

Exelon Corp., Illinois' largest power generator, and environmental groups have reached an agreement in principle on legislation to jump-start the state's stalled clean-energy industry.
More solar power projects would get built in Illinois under the proposal, which seeks to fix what environmentalists say is a broken Illinois renewable energy law.
The pact outlines a potentially controversial financing mechanism requiring the bulk of the money to be spent on clean-power projects to come from power suppliers serving households and small businesses. Exelon and other companies that mainly provide electricity to midsized and large commercial customers would get a significant break from their clean-energy obligations under the current law.
The draft agreement, the product of negotiations overseen by state Sen. Don Harmon, D-Oak Park, and a former senior aide to House Speaker Michael Madigan, also would assist owners of Illinois wind farms who this year hadn't received full payment on their 20-year power-purchase contracts with the state of Illinois because of unforeseen wrinkles in the state's clean energy law. Those contract holders include Invenergy LLC, a Chicago firm owned by ultra-wealthy Chicago energy magnate Michael Polsky.
The particulars of the deal to reform the state's 2007 “renewable portfolio standard” are laid out in a “term sheet” being circulated among interested parties, which Crain's obtained. Proponents expect a draft of legislative language to circulate soon in hopes that the General Assembly will act in its current veto session, which resumes Nov. 5.
A spokesman for Exelon emailed: “Exelon has long been a proponent of clean energy and we supported the law that established the Illinois RPS in 2007. While we routinely engage with interested stakeholders concerning a variety of important state energy policies, we can't comment on potential changes to the RPS law until there is a final proposal in place.”
A representative for the Environmental Law and Policy Center, the environmental group that's led the negotiations with Exelon, declined to comment.
Sources, however, say that both Exelon and the environmental center will support this proposal. Backing also is expected from the city of Chicago. (A spokesman for Mayor Rahm Emanuel didn't respond to an email requesting comment.)
Opposition likely will come from other power suppliers, which say they either will see their razor-thin profit margins narrowed considerably or will have to raise prices for consumers. Kevin Wright, president of the Illinois Competitive Energy Association, which represents power suppliers, declined to comment.
Other affected parties also are reserving judgment. David Kolata, executive director of consumer advocacy group Citizens Utility Board, said he's reviewing the proposal.
The renewable energy law, enacted six years ago, requires Illinoisans to use gradually increasing amounts of clean power until the percentage statewide reaches 25 percent in 2025. But dramatic changes in the energy marketplace here halted the development of renewable projects, a key goal of the 2007 law.
Specifically, as the vast majority of households that used to get power from Commonwealth Edison Co. migrated to competing suppliers in the past two years, the state agency that buys power on behalf of utility customers statewide didn't have much procurement to do. As presently constructed, the law requires the Illinois Power Agency to play a key role in buying power from new energy developers.
But, since the IPA wasn't conducting general energy procurements, tens of millions of dollars building up in its renewable energy fund couldn't be spent. Environmentalists backed legislation that would have imposed a surcharge on all electric bills to fund new clean energy projects in Illinois. Exelon and other industry players balked.
Under the alternative approach, power suppliers serving households and small businesses would have to meet 75 percent of their annual clean-energy obligations under the law by paying into a fund to be managed by the IPA. They will be able to meet the remaining 25 percent of their obligations by purchasing cheap “renewable energy certificates” issued by owners of wind farms and other clean energy projects out of state.
Suppliers to larger businesses will be able to meet 100 percent of their obligations under the law by purchasing from the out-of-state developers.
Under current law, suppliers to any kind of customer, large or small, can meet half their clean-energy requirements by paying into the fund and the other half by purchasing from out-of-state developers.
Suppliers say this will raise their costs in serving households by 45 cents per megawatt-hour. Many of the municipal deals such suppliers have to provide power to residential customers are done on profit margins of less than $2 per megawatt-hour. So this could cut their margins by 25 percent unless they raise their prices. (Existing contracts aren't affected by this proposal.)
Meanwhile, Exelon, which is one of the biggest retail electricity suppliers in the country, mainly serves large commercial customers and not households, so it stands to benefit.
The approach is expected to generate at least $80 million a year for clean energy. That's enough to finance new solar panels — and the proposal gives preference to “brownfield” sites for some of those initiatives — but probably not to make long-term commitments to new wind farms, a key goal of the wind industry here.
Exelon has been adamant that it doesn't want new wind farms in Illinois, which it blames for reducing profits at its five nuclear power stations in the state.
Gov. Pat Quinn, an enthusiastic supporter of the wind industry, pushed the IPA in 2010 to enter into 20-year purchase agreements with developers of several new wind farms. Those contracts, however, subjected developers to the risk — considered remote at the time — that customers would flee ComEd for cheaper suppliers and leave the IPA with a far smaller power portfolio to manage. A cap on how much utility rates could rise due to the renewable mandate forced the agency this year to reduce how much it could pay the wind developers under the pacts.
The new legislative proposal would ensure that holders of contracts with the state get paid what they're owed before the state enters into new energy deals.
The proposal also keeps the 2007 law's cap on utility rate hikes in place.

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