HB1834ham002 95TH GENERAL ASSEMBLY

Rep. Gary Hannig

Filed: 4/26/2007

09500HB1834ham002 LRB095 10034 MJR 35480 a

AMENDMENT TO HOUSE BILL 1834

AMENDMENT NO. ______. Amend House Bill 1834, AS AMENDED, by replacing everything after the enacting clause with the following:

"Section 5. The Public Utilities Act is amended by adding Article XXI as follows:

(220 ILCS 5/Art. XXI heading new)

ARTICLE XXI. CLEAN COAL DEVELOPMENT PROGRAM LAW

(220 ILCS 5/21-101 new)

Sec. 21-101. Short title. This Article may be cited as the Clean Coal Development Program Law.

(220 ILCS 5/21-105 new)

Sec. 21-105. Findings. The General Assembly finds that:

(a) Growth of the State's population and economic base has created a need for new baseload electric generation capacity in Illinois.

(b) Illinois has considerable natural resources that are currently underutilized and could support development of new baseload electric power at an affordable price.

(c) The development of new baseload electric generating capacity is needed if the State is to continue to be successful in attracting new businesses and jobs.

(d) Certain regions of the State, such as central and southern Illinois, could benefit greatly from new employment opportunities created by development of baseload electric generating plants utilizing the plentiful supply of Illinois Basin coal.

(e) Technology can be deployed that allows high sulfur Illinois Basin coal to be burned efficiently while meeting strict State and federal air quality limitations. Specifically, the State shall encourage the use of advanced clean coal technology, such as Integrated Gasification Combined Cycle (IGCC) technology.

(f) The development of new baseload electric generating plants, as contemplated in the Clean Coal Development Program Law, will create benefits to all consumers of electricity in the State by reducing market energy prices and electric capacity prices through increased supply. Such benefits will include lower and more stable prices for electricity.

(220 ILCS 5/21-110 new)

Sec. 21-110. Definitions. For the purposes of this Article, the following terms shall be defined as set forth in this Section.

The terms defined in Section 16-102 of the Public Utilities Act have the meanings ascribed to them in that Act.

"Actual total capital costs" means, as more specifically set forth in the service agreement or agreements for a clean coal project, the total initial capital costs recoverable by such clean coal project pursuant to its wholesale sales tariff upon completion of such clean coal project.

"CCN" means a certificate of convenience and necessity.

"Clean coal project" means any existing or planned electric generating project that has a wholesale tariff pursuant to the Federal Power Act and that is designed (1) to have a nameplate capacity of no less than 400 megawatts gross, (2) to be directly interconnected with a participating electric utility, (3) to utilize integrated gasification combined cycle technology, and (4) to utilize as its primary fuel or feedstock coal having high volatile bituminous rank and greater than 1.7 pounds of sulfur per million Btu content and for which a final air permit has been issued that describes the project as having a designed nameplate capacity of no less than 400 megawatts gross. When warranted by the usage, "clean coal project" shall mean the owner, operator, or lessee of a clean coal project.

"Core plant construction cost ceiling" means, as more specifically set forth in the service agreement or agreements for a given clean coal project, $2,500 per kilowatt of net design capacity (excluding for this purpose any power required for carbon capture) of a clean coal project expressed in January 2007 nominal dollars, adjusted for inflation using the producer price index published by the U.S. Bureau of Labor Statistics to the date upon that the core plant construction cost quote for such clean coal project is expressed.

"Core plant construction cost quote" means, as more specifically set forth for a clean coal project in the applicable service agreement or agreements, a price quote or estimate prepared by a reputable engineering and construction services firm (or group of firms) for the costs payable to one or more contractors or suppliers for the engineering, procurement, and construction of the core plant facilities comprising a clean coal project. Such core plant facilities shall include all civil, structural, mechanical, electrical, control, and safety systems associated with the following major core plant functional areas: air separation, coal grinding and slurry preparation, gasification and high temperature synthesis gas cooling, low temperature synthesis gas cooling, acid gas removal, sulfur recovery, tail gas treatment, combined cycle power block, coal fines and slag handling, and water and wastewater treatment at the plant site. The quote or estimate shall be based on detailed design work sufficient to permit quantification of major categories of materials, commodities, and labor man hours, and receipt of quotes from vendors of major equipment packages. The costs shall be expressed in nominal dollars as of the date of the estimate and shall be exclusive of construction financing costs, taxes, insurance, and an escalation in materials and labor beyond the date as of which the core plant construction cost quote is expressed, costs associated with non-core plant interconnection facilities for electric transmission, natural gas supply, water supply and coal delivery, and other non-core plant costs. For purposes of Section 21-145, the core plant construction cost quote shall be expressed in nominal dollars per kilowatt of net design capacity of the clean coal project by dividing the core plant construction cost quote by the net design capacity of the clean coal project.

"Department" means the Department of Commerce and Economic Opportunity.

"FERC" means the Federal Energy Regulatory Commission, an independent regulatory commission within the Department of Energy established by Section 401 of the Department of Energy Organization Act, or any agency succeeding to the powers thereof under Section 205 of the Federal Power Act.

"Final air permit" means a Prevention of Significant Deterioration of Air Quality (PSD) Construction Permit issued on or before December 31, 2010.

"Formula rate" means a formula used to calculate a cost-based rate for the sale of electric capacity and associated energy from a clean coal project set forth in the applicable wholesale sales tariff.

"FutureGen demonstration project" means a 10-year demonstration project sponsored by the United States to create a zero-emissions electricity and hydrogen power plant that is:

(1) not otherwise eligible to participate in the Clean Coal Development Program;

(2) designed to include all of the following:

(A) have a nameplate capacity of not greater than 300 megawatts gross;

(B) be directly interconnected with a participating electric utility; and

(C) utilize as its primary fuel or feedstock coal having high volatile bituminous rank and greater than 1.7 pounds of sulfur per million Btu content; and

(3) has a planned construction start date not later than December 31, 2010.

"Participating electric utility" means any Illinois electric utility as defined in the Public Utilities Act that as of the effective date of this Act provides delivery services to more than 100,000 electric customers in Illinois.

"Service agreement" means a service agreement for the sale of electric capacity and associated energy from a clean coal project substantively identical to the pro forma service agreement contained in the applicable wholesale sales tariff.

"Total capital cost target" means the net design output of the clean coal project (excluding for this purpose any power requirements for carbon capture), expressed in kilowatts times $3,850, as adjusted in accordance with the following:

(1) such amount shall be increased by any reasonably estimated increase in any total capital costs per kilowatt that results from the core plant construction cost quote, as approved by the ICC, being higher than the core plant construction cost ceiling;

(2) such amount shall be decreased or increased, as the case may be, by the amount, if any, by which actual total capital costs per kilowatt are decreased or increased due to positive or negative price escalation provided for under the applicable contract or contracts for the core plant construction, with any escalation in commodity prices being based on published indices;

(3) such amount shall be increased by the amount of any additional capital costs per kilowatt that are justly and reasonably incurred due to a change in law or regulation enacted after the date the applicable service agreement is executed by the participating electric utility; and

(4) such amount shall be increased by any increase in total capitalized financing costs per kilowatt resulting from a clean coal project not receiving Illinois moral obligation bond financing or tax exempt finance volume cap allocation in the amounts preliminarily approved for such clean coal project by the Illinois Finance Authority or not receiving state grants equal to at least 15% of the total capital cost ceiling.

"Wholesale sales tariff" means a schedule of rates, terms, and conditions for the sale of electric capacity and associated energy from a clean coal project filed with FERC by the owner, lessee, or operator of that clean coal project and allowed by FERC to become effective pursuant to Section 205 of the Federal Power Act and Part 35 of FERC's regulations.

(220 ILCS 5/21-115 new)

Sec. 21-115. Clean coal development program.

(a) Each participating electric utility shall purchase electric capacity and associated energy from the owners, lessees, or operators of clean coal projects pursuant to service agreements in accordance with the provisions of Section 21-115 of this Article.

(b) Upon receipt of an offer from a clean coal project to sell capacity and associated energy pursuant to a wholesale sales tariff, the participating electric utility shall, within 30 days after receipt of the pro forma service agreement contained in the wholesale sales tariff, execute the service agreement and file the executed service agreement for informational purposes with the Commission, provided that no participating electric utility shall enter into a service agreement if the amount of capacity to be purchased under such service agreement, together with the aggregate amount of all capacity purchased under other service agreements executed previously or contemporaneously by the participating electric utility from all clean coal projects other than a FutureGen demonstration project, exceeds 5% of the participating electric utility's coincident peak delivery services load, expressed in kilowatts, for the calendar year immediately preceding the effective date of this Article.

(220 ILCS 5/21-120 new)

Sec. 21-120. Characteristics of the wholesale sales tariff. Subject to the jurisdiction of FERC with respect to the wholesale sales tariff, in order to fulfill the purposes of the Clean Coal Development Program, it is desirable that the formula rate and service agreement have characteristics that are adequate and appropriate to support the long-term investments necessary for the construction and operation of clean coal projects. It is the intent of the General Assembly that:

(1) With respect to the formula rate, the following characteristics are adequate and appropriate:

(A) the use of a cost of service methodology employing a level capital recovery component;

(B) the use of a hypothetical capital structure, as such structure is used by FERC pursuant to Sections 205 and 206 of the Federal Power Act, that assumes a capital structure for a clean coal project of 45% equity and 55% debt;

(C) (i) with respect to the first clean coal project that has a wholesale sales tariff made effective pursuant to Section 205 of the Federal Power Act and part 35 of FERC's regulations, the use of a return on equity that is fixed for the term of the service agreement at a rate equal to 11.5%; and (ii) with respect to any subsequent clean coal projects, the use of a return on equity that is fixed for the term of the service agreement at a rate equal to a rate of between 9% and 11% (with a single fixed rate being set forth in the service agreement); and

(D) the use of an incentive or penalty mechanism such that (i) if the actual total capital costs of a given clean coal project exceeds the total capital cost target, then the return on equity applicable to the portion of the actual total capital costs in excess of the total capital cost target (a) shall be reduced by 300 basis points (with there being 100 basis points in each percent of return on equity) for the first $80 per kilowatt of such excess total capital costs, (b) shall be reduced by 600 basis points for the next $80 per kilowatt of such excess total capital costs, and (c) shall be reduced to zero for any excess capital costs over $160 per kilowatt, and (ii) if the actual total capital costs of a given clean coal project are less than the total capital cost target, then the return on equity for an amount equal to the amount that the total capital cost is less than the total capital cost target shall be increased by 300 basis points.

(2) With respect to the service agreement, the following characteristics are adequate and appropriate:

(A) a provision setting forth a term of 40 years commencing on the date upon which the clean coal project achieves commercial operation;

(B) a provision incorporating the duties and obligations of the clean coal project and the participating electric utility with respect to the notice and termination mechanism set forth in Section 21-145 of this Article;

(C) a provision to the effect that a change in law, regulation or market conditions is not a basis for termination or reduction in payments by the purchaser;

(D) provisions for a plant availability target of 85% from and after the third full calendar year of operation and an incentive structure for meeting such target, provided that the total bonus in any year for exceeding the target in any year shall not exceed an amount equivalent to 10% of the total return on equity for such year and the total penalty for falling short of such target in any year shall not exceed an amount equal to 15% of the total return on equity for such year; and

(E) a provision pursuant to which at the end of the 40-year contract term the clean coal project will, upon the request of the Commission or other agency of the State of Illinois authorized to make such request, be transferred for the benefit of ratepayers to a trust or other entity nominated by the Commission or other agency in return for no consideration other than the assumption of the obligation to retire the clean coal project and remediate the site when the clean coal project reaches the end of its useful economic life.

(3) With respect to the standard of review under the Federal Power Act of the wholesale sales tariff, it is adequate and appropriate that absent mutual written consent of the participating electric utility and the owner, operator, or lessee of a clean coal project any proposed changes under Sections 205 and 206 of the Federal Power Act to the wholesale sales tariff, including without limitation the formula rate and service agreement, are subject to the "public interest" standard of review as such standard of review is applied by FERC pursuant to sections 205 and 206 of the Federal Power Act.

To the extent, if any, that a wholesale sales tariff as allowed to be effective by FERC has characteristics in addition to, or different from, those set forth in this Section, such additional or different characteristics shall not alter a participating electric utility's obligation to purchase capacity and associated energy pursuant to wholesale sales tariffs as set forth in this Article.

Nothing in this Article shall be deemed to limit the participation of the State, or any agency or political subdivision thereof, or any elected or appointed official of the State of Illinois or any agency or political subdivision thereof, in any FERC proceeding related to a wholesale sales tariff.

(220 ILCS 5/21-125 new)

Sec. 21-125. Disposition of capacity and energy.

(a) Each participating electric utility that executes a service agreement pursuant to the Clean Coal Development Program Law shall resell the capacity and associated energy purchased from a clean coal project to wholesale purchasers in the wholesale capacity and energy markets available to the participating electric utility. The participating electric utility shall use its best efforts to obtain the highest prices for the capacity and associated energy sold pursuant to this Section so as to minimize the costs passed through to the participating electric utility's delivery service customers pursuant to Section 21-130.

(b) The participating electric utility shall be in compliance with this Section if:

(1) the prices obtained by the participating electric utility are no less than the prices available for the capacity and associated energy if sold into the day-ahead and real time capacity and energy markets administered by a regional transmission organization to which the applicable qualified clean coal project is interconnected; or

(2) the participating electric utility otherwise sells the capacity and associated energy pursuant to a plan set forth in a tariff approved by the Commission pursuant to Article IX of the Public Utilities Act.

(220 ILCS 5/21-130 new)

Sec. 21-130. Pass-through of clean coal development benefits and costs.

(a) Because a participating electric utility is required to accept an offer from a clean coal project to sell capacity and associated energy pursuant to a wholesale sales tariff as provided in Section 21-115 of this Article, the participating electric utility is entitled to recover the costs less benefits from its purchases pursuant to the wholesale sales tariff in its retail rates. Each participating electric utility shall pass-through to its delivery services customers the benefits and costs of the Clean Coal Development Program without mark-up as set forth in this Section.

(b) Within 60 days after the effective date of this Article, each participating electric utility shall file with the Commission a rider to such utility's tariff that complies with this Section. Such tariff riders shall be subject to Article IX of the Public Utilities Act; provided, however, that the period of suspension of such rider shall not extend more than 75 days beyond the time when such rider would otherwise go into effect and such period of suspension shall not be extended by the Commission. Any proceeding initiated pursuant to Article IX with respect to such rider shall be limited to making a determination that, as a matter of law, the tariff rider complies with the requirements of this section and any such proceeding may not exceed 120 days in length.

(c) In order to comply with this Section, a tariff rider shall:

(1) apply to all customers to which the participating electric utility provides bundled retail services or retail distribution service;

(2) be incorporated onto the participating electric utility's customer bills in the same manner in which the participating electric utility, as of the effective date of this Article, incorporates charges pursuant to Section 6-5 of the Renewable Energy, Energy Efficiency and Coal Resources Development Law of 1997; and

(3) use an automatic rate adjustment methodology, as such methodology understood pursuant to the Public Utilities Act, having the following characteristics:

(A) a "CCDP factor" defined as the factor calculated as set forth in this subsection (c) to represent the net benefit or cost of the Clean Coal Development Program;

(B) a "determination period" defined as the calendar month for which a CCDP Factor is determined for the participating electric utility's delivery services customers;

(C) an "effective period" defined as the monthly billing period occurring 2 months after the determination period, during which the CCDP factor is applied to kilowatt-hours of energy delivered by the participating electric utility to its delivery services customers;

(D) "accrued CCDP expenses" defined as the sum of accrued expenses incurred by the participating electric utility during the determination period pursuant to executed service agreements with clean coal projects;

(E) "accrued CCDP revenues" defined as the sum of accrued revenues recorded by the participating electric utility during the determination period associated with the sale of capacity and associated energy by the participating electric utility pursuant to Section 125 of this Article;

(F) "automatic CCDP balancing factor" defined as the cumulative debit or credit balance, if any, resulting from the application of the CCDP factor from the effective date of the tariff rider through the determination period;

(G) "forecast usage" (expressed in kilowatt-hours) defined as the forecast by the participating electric utility of the total energy that the participating electric utility expects to deliver to its delivery services customers during the effective period; and

(H) a formula for the determination of the CCDP factor that divides the sum of the CCDP accrued revenues, CCDP accrued expenses, and automatic CCDP balancing factor by the forecast usage.

(d) Each participating electric utility shall submit its CCDP factor to the Commission in an informational filing at least 3 business days prior to the start of each effective period during which it is to be applied. In addition, each participating electric utility that is purchasing capacity and associated energy pursuant to a service agreement during a calendar year shall prepare and submit to the Commission an annual report for each calendar year during which such purchases are made, containing the details of the calculation of its CCDP factor on or before the last business day of April of the following calendar year.

(220 ILCS 5/21-135 new)

Sec. 21-135. Affiliate transactions. Notwithstanding any other provision of this Article, if an electric utility or an affiliate of an electric utility has an ownership interest in any eligible facility, Article VII of this Act shall apply.

(220 ILCS 5/21-140 new)

Sec. 21-140. Certificates of convenience and necessity.

(a) If a CCN is required from the Commission for the construction of transmission or pipeline facilities necessary to support interconnection or supplemental fuel supply of a clean coal project, the Commission's order shall be entered (1) within 180 days after the date on which an application for such a CCN has been filed pursuant to Section 8-406 of this Act without a request for an order pursuant to Section 8-503 of this Act; or (2) within 270 days in the case of an application with a request for an order pursuant to Section 8-503 of this Act.

(b) In any proceeding conducted by the Commission with respect to a CCN filed pursuant to this Section, intervention shall be limited to parties with a direct interest in the requested CCN and any statutory consumer protection agency as defined in subsection (d) of Section 9-102.1 of this Act. Parties with a direct interest shall include each owner of record of the land that would be crossed by the proposed transmission or pipeline facilities unless the Commission determines that such owner has acquired the land solely for the purpose of becoming a party to the CCN proceeding, and all utilities and railroads whose lines will be crossed by the proposed transmission or pipeline facilities or whose lines will be paralleled within 200 feet by such proposed facilities. Any application seeking rehearing of an order issued in response to an application for a CCN filed pursuant to the Section shall be filed within 10 days after service of the order.

(c) The construction of transmission and pipeline facilities necessary to support interconnection or supplemental fuel supply of a clean coal project is in the public interest, and in determining whether to issue an order granting a CCN for construction of such facilities, the Commission shall liberally construe the provisions of this Section in favor of granting a CCN for construction of such facilities.

(220 ILCS 5/21-145 new)

Sec. 21-145. Termination mechanism. Because (i) the core plant construction cost quote will not likely be known at the time when the applicable service agreement is executed by the participating electric utility and (ii) the clean coal project will likely incur significant costs related to the engineering and design services performed to obtain the core plant construction cost quote, and in order to provide a mechanism for the Commission to review and approve any increase in the anticipated core plant construction costs quote, the following termination mechanism shall apply to all clean coal projects participating in the Clean Coal Development Program:

(1) Upon completion of the core plant construction cost quote for a given clean coal project, the clean coal project shall compare its core plant construction cost quote to the inflation-adjusted core plant construction cost ceiling and determine whether its core plant construction cost quote is in excess of the inflation-adjusted core plant construction cost ceiling.

(2) If a clean coal project determines that its core plant construction cost quote is in excess of the inflation-adjusted core plant construction cost ceiling, then the clean coal project shall file with the Commission a pleading summarizing its determination that its core plant construction cost quote is in excess of the inflation-adjusted core plant construction cost ceiling and any calculations and work papers related to such determination.

(3) Upon receipt of a filing pursuant to Section 21-145 of this Article, the Commission shall promptly commence an investigation pursuant to Article X of this Act to determine whether it is in the public interest for the clean coal project to be constructed given the determination that the core plant construction cost quote is in excess of the inflation-adjusted core plant construction cost ceiling. The Commission shall make such public interest determination after hearing evidence limited to the issue of whether the purposes of the Clean Coal Development Program, as set forth in Section 21-105 of this Article, shall be frustrated by the fact that the core plant construction cost quote for the applicable clean coal project is in excess of the inflation-adjusted core plant construction cost ceiling. Any proceeding initiated by the Commission pursuant to this Section may not exceed 120 days in length.

(4) If, and only if, the Commission determines that the purposes of the Clean Coal Development Program will be frustrated by the fact that the core plant construction cost quote for a given clean coal project is in excess of the inflation-adjusted core plant construction cost ceiling, then each participating electric utility that executed a service agreement with such clean coal project shall enforce its right to terminate such service agreement and reimburse the clean coal project as a termination fee the amounts paid by the clean coal project to unrelated third parties to obtain the core plant construction cost quote. In the event that more than one participating electric utility has executed a service agreement with such clean coal project, then the termination fee applicable to each service agreement shall be allocated in proportion to the amount of capacity contracted for relative to the total capacity contracted for pursuant to all service agreements applicable to such clean coal project. The aggregate of termination fees paid by participating electric utilities to a clean coal project pursuant to this Section shall not exceed $8,000,000.

(5) If a participating electric utility terminates a service agreement as contemplated in Section 21-145 of this Article, the participating electric utility shall treat the termination fee paid to the clean coal project as an accrued CCDP expense and recover such termination fee pursuant to the tariff rider set forth in Section 21-130 of this Article.

(220 ILCS 5/21-150 new)

Sec. 21-150. Participation by a FutureGen demonstration project. A FutureGen demonstration project may elect to be deemed a clean coal project and participate in the Clean Coal Development Program as set forth in this Article and as modified by this Section. A FutureGen demonstration project shall be deemed to have made such election on the date that the FutureGen demonstration project files its wholesale sales tariff at FERC pursuant to Section 205 of the Federal Power Act.

No participating electric utility shall enter into a service agreement with a FutureGen demonstration project if the amount of capacity to be purchased under such service agreement, together with the aggregate amount of all capacity purchased under other service agreements executed previously or contemporaneously by the participating electric utility with any FutureGen demonstration project, exceeds 1% of the participating electric utility's coincident peak delivery services load, expressed in kilowatts, for the calendar year immediately preceding the effective date of this Article.

Subsections 21-120(1) (other than Subsection 21-120(1)(D)) and 21-120(2) shall not apply to the wholesale sales tariff of a FutureGen demonstration project that elects to be deemed a clean coal project. Subsection 21-120(1)(D) and Section 145 shall apply to a FutureGen demonstration project. With respect to a FutureGen demonstration project that elects to be deemed a clean coal project, it is the intent of the General Assembly that the wholesale sales tariff of a FutureGen demonstration project recognize that (i) the FutureGen demonstration project may be operated based on objectives different from a baseload generating plant, and (ii) a FutureGen demonstration project is likely to be funded by government appropriations and contributions from non-profit organizations for which traditional ratemaking concepts such as return on invested capital are not appropriate.

Section 99. Effective date. This Act takes effect upon becoming law.".