Dynegy Rips System Operator for Power Plant Closures

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Merchant power generator Dynegy Inc. (NYSE: DYN) said on Tuesday that it will shut down three of its Illinois coal-fired stations by March of 2017 because the units failed to recover their basic operating costs in the most recent Midcontinent Independent System Operator (MISO) capacity auction. Dynegy had earlier said it will close a fourth Illinois station for similar reasons.

In all, the four closures comprise 2,800 megawatts of generation capacity in Illinois, or about 30% of the generating capacity in the southern part of the state. Dynegy also noted that the three plants slated for closure earlier this week support nearly 4,000 direct and indirect jobs and $1 billion in annual economic activity in the region.

A report in the Belleville News-Democrat claims about 122 jobs will be lost at the two plants in Baldwin. Nearly 50 jobs will be lost at the Newton station, according to the Effingham Daily News. The earlier closure of the Wood River station caused 90 job losses.

According to Dynegy, MISO is responsible for the failure of the plants to recover their operating costs:

Competitive generating assets in MISO Zone 4, regardless of fuel type, are unable to support their operating costs in the existing MISO market design. Generators are compensated in two ways – through the capacity market and through the energy market. The out-of-state utilities offer their capacity into the annual auction at little to no cost since they are more highly compensated through their home state regulatory process, putting competitive generators at a tremendous disadvantage.

After adding details too arcane for mere mortals, Dynegy concludes, “If Newton and Baldwin were located in PJM [Independent System Operator], as northern Illinois plants are, or Zone 4 was regulated as the other MISO generators outside of Illinois are, no shutdowns would occur.”

Dynegy reported a first-quarter loss on Wednesday, but the stock price has risen on the announcement of the closures of these money-losing plants. Shares traded up 4.3% in the noon hour Thursday, at $18.66 in a 52-week range of $7.20 to $34.50.