Big bet on 'clean coal' (pt. 1 of 2)
By STEVE DANIELS, CRAIN'S

MAY 26, 2008 – House Speaker Michael Madigan and Illinois Attorney General Lisa Madigan are pushing a multibillion-dollar plan that would boost the Illinois coal industry by forcing utilities to buy power from new "clean-coal" plants.

State lawmakers are expected this week to take up ambitious legislation that would require utilities like Commonwealth Edison Co. to buy an escalating percentage of the electricity from new power plants using Illinois coal, according to people briefed on the issue. By 2025, electric utilities in Illinois would be required to procure at least 25% of their power from the plants.

The not-yet-introduced bill, a draft of which was the subject of intense negotiations with the power industry late last week, also would require natural-gas utilities like Chicago's Peoples Gas and Naperville-based Nicor Inc. to buy a gradually greater amount of coal-based synthetic gas from a new group of plants on the drawing board in Illinois. These plants are said to be able to produce gas costing at least 25% less than natural gas at today's prices.

With the surprise initiative, which surfaced in the middle of last week, the Madigans are betting on a promising but costly and unproven technology designed for Illinois' abundant coal, whose high sulfur content has impeded its use. Anticipating new federal standards restricting carbon emissions to combat global warming, the technology also separates carbon during the coal-burning process for burial underground.

People briefed by the speaker's office say the plan is to move the bill through the Illinois House and Senate by the end of this week.

"Attorney General Madigan strongly supports the development of clean coal in Illinois, and she's instructed her negotiators to advance clean coal while also protecting the environment and protecting ratepayers," says Benjamin Weinberg, chief of the public interest division for the attorney general. He declines to comment further.

ComEd's stance is neutral thus far. In an e-mail, the utility says, "We are studying this proposal, and we have a number of open questions, such as the technology that would be used, the customer impact and the benefit to customers."

The legislation's most immediate impact would be to ease the way for a 600-megawatt clean-coal power plant in Downstate Taylorville proposed by Omaha, Neb.-based Tenaska Inc., as well as a synthetic-gas plant planned for Downstate Jefferson County by local developer Power Holdings LLC. A Power Holding representative did not return a call for comment. But many other such plants would have to be built to meet the bill's mandates.

The initiative is risky because clean-coal plants combined with equipment to remove and dispose of carbon are costly. Construction cost estimates have reached as high as $4,000 per kilowatt of output — in the neighborhood of costs associated with new nuclear plants. The latest estimate put the cost of the Taylorville plant at $2.5 billion.

The legislation would hedge the state's bets by requiring Tenaska to perform a highly detailed cost study of Taylorville and the price at which it could sell the plant's output. After reviewing the study, the Legislature would have to sign off again before the bill's mandates take effect.

One potential loser is Midwest Generation LLC, a unit of California-based Edison International, which owns coal plants in the Chicago area that generate much of the power consumed by ComEd customers. Those plants burn low-sulfur coal mined mainly in Wyoming.

If MidwestGen wanted to pursue one of the new plants or retrofit one of its old ones, under terms of the legislation, it would have to shutter two decades-old plants on the city's Southwest Side that for years have been the target of environmentalists. A MidwestGen spokesman didn't return calls.

Also affected would be power marketers who sell electricity to large commercial customers. They would have to meet the bill's purchasing mandates for clean-coal output, as well as the utilities' existing requirements to buy from renewable producers.



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