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Taking Green Private

How merchant funding is remaking the rules for renewables.

Fortnightly Magazine - March 2010

sourcing agreements.

Driven into a corner by the demands of merchant financing, Tenaska in effect has signed a deal with the devil. On one hand, Tenaska gets an assured market for clean-coal power in the form of mandated purchased power contracts. But on the other hand it now becomes beholden to the state lawmakers and regulators for return on capital. The state law that seals the deal, known as the Illinois Clean Coal Portfolio Standard Law , signed in January 2009 ( Ill. Pub. Act 95-1027 ) even sets a ceiling of 11.5 percent on the Taylorville plant’s wholesale ROE.

Thus, despite its jurisdiction granted by the Federal Power Act, FERC is literally driven out of the picture, as Hill explains further in the Exelon protest:

“The Illinois General Assembly of course has no power whatsoever to set rates for sale of power at wholesale … however, the General Assembly reserved to itself the determination of a fair rate for the PPAs …”

So unless the Illinois legislature acts, Hill adds, Tenaska and CCG would have a FERC-filed rate but no way of cajoling utilities or retail suppliers to buy the plant’s above-cost output:

“Such a rate would be of no use … and the proposed TEC would not be built.”

This case must surely mark one of the very few in current wholesale power practice where state regulatory interests hold sway over FERC jurisdiction. Nearly all parties in the case suggest that any attempted FERC action now would be pointless. In fact, the Illinois attorney general appears to have won an informal agreement from Christian County Generation and Tenaska to hold off on its filed request at FERC, and to stand and wait for further action from the Illinois General Assembly to cement the terms of the expected 30-year purchased power agreements. (See Unopposed Motion by Illinois Attorney General to Hold Proceedings in Abeyance, FERC Docket No. EL10-27, filed Feb. 4, 2010.)

In this case, at least, the merchant money will have to cool its heels.