Taylorville Energy Center Cost, Performance and Rate Impact Estimates Generally Confirmed by ICC Consultant's Report

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Sep 01, 2010, 05:21 ET

CHICAGO, Sept. 1 /PRNewswire/ -- A report to the General Assembly released today by the Illinois Commerce Commission (ICC) confirms key estimates Tenaska submitted earlier this year as developer of the Taylorville Energy Center (TEC), a $3.5 billion project to convert Illinois coal into clean burning substitute natural gas and electricity. Many issues raised by the ICC are at odds with policy choices made by the General Assembly, with the support of Attorney General Madigan, in passing the 2008 Illinois Clean Coal Portfolio Standard Law (the Clean Coal Law).

The ICC analysis, which was prepared pursuant to the Clean Coal Law, includes a companion report prepared by consulting firm Boston Pacific (ICC consultant). The ICC consultant's report validates Tenaska's technical approach, capital cost, rate impact projections, and assessment of environmental performance.

Facility Cost Report Findings – 1.81% Average Rate Impact Beginning 2015

Tenaska submitted the Facility Cost Report (FCR) detailing estimated plant costs, rate impacts and environmental performance of the TEC in late February 2010. The FCR was based on an extensive Front End Engineering and Design (FEED) Study of the engineering work, labor and materials required to build the plant and also included reports by leading consultants on carbon sequestration, fuel supply and other subjects to establish the feasibility of the project.

Tenaska's FCR estimated the construction cost of the project, including escalation, financing costs and contingency, at $3.522 billion. The estimated, average residential rate impact of 1.81%, or a cost of roughly six pennies a day, is well under the Clean Coal Law's mandatory rate impact cap of 2.015% for electric utilities' residential customers. No rate impact can occur until the plant becomes operational starting in 2015. The project would create nearly 2,500 construction jobs, hundreds of permanent mining and plant jobs and result in a net reduction annually of 1.9 million tons of CO2 emissions.

The Clean Coal Law requires the ICC to provide to the General Assembly a report with its analysis of the Facility Cost Report. With delivery of the ICC report today, the General Assembly is now in a position to vote yes or no on whether TEC will proceed.

Tenaska Statement

In response to the findings of the ICC and BP reports, Tenaska Vice President Bart Ford issued the following statement:

"We are pleased that, as expected, the Illinois Commerce Commission consultant Boston Pacific has validated core findings of the Facility Cost Report. In particular, the ICC consultant's report confirmed the reasonableness of our cost estimates and schedule, expected rate impact under base case assumptions, quality of our development team, expected environmental performance including carbon capture, and the fact that the Facility Cost Report provided all of the information required by the Clean Coal Portfolio Standard Law."

It is also worth noting that the report's analysis of the project's technical feasibility is consistent with the certification made by the U.S. Department of Energy as part of the recent award to TEC of an unprecedented $417 million investment tax credit.

Beyond validating the core conclusions of the Facility Cost Report, the ICC report made certain "Key Findings":

1. 'The cost associated with electricity generated by the TEC is substantially higher than that which is associated with other types of generation facilities.'

While noting that ICC consultant Boston Pacific found that TEC power would be cheaper than solar power and simple cycle gas fired power (at least on a per MWH basis), we agree that clean coal power is not currently the least cost resource. Our goal was to come in under the 2.015% limit, but not to be cheaper than conventional technology that neither uses Illinois coal nor sequesters carbon.

The premise under the Clean Coal Law of providing for an initial clean coal facility is that it is important to develop the State's coal resources in an environmentally friendly manner. No one has ever tried to tell the General Assembly that the initial clean coal facility is going to be the cheapest option.

2. 'The rate impacts on residential and small business customers will likely approach or meet the full 2.015% rate impact cap.'

The base case rate impact projected by ICC consultant Boston Pacific was very similar to our own, in fact a little bit lower. Both the ICC report and the FCR also include a "sensitivity analysis" determining what the rate impact might be if a number of things go wrong, such as construction cost overruns, higher escalation, reduced SNG (substitute natural gas) production. ICC consultant Boston Pacific's worst case scenario shows that under these unlikely negative assumptions, the rate impact would increase by a little less than half of what is projected by Boston Pacific in its base case. This is consistent with the findings of the FCR.

3. 'The likelihood that the plant could be commercially operable by 2016 is uncertain.'

There is some uncertainty on when we are going to finish because right now we don't know when we are going to start. The ICC report suggests a number of things (including a doubling of the time that it has to review the form of sourcing tariff [the power purchase agreement]) that will further slow the process. We are determined to move forward as quickly as the State will permit, but are not in control of many factors that will determine whether we will be permitted to start construction in time to be finished before 2016.

While ICC consultant Boston Pacific's report affirmed the soundness of Tenaska's construction cost and rate estimates, the ICC Report, itself, also ventured into public policy and interpretative issues considered at length in 2007 and 2008 when the Clean Coal Portfolio Standard Law was developed through the leadership of Attorney General Madigan and passed by the Illinois General Assembly, and raised a number of issues for consideration by the General Assembly. We look forward to discussing these issues with legislators during this fall's veto session as they consider whether this project and its thousands of jobs and billions of dollars for Illinois should move forward."

Specific ICC Consultant Conclusions Support FCR on Cost, Rates, Timing and Performance

ICC consultant Boston Pacific's report reached the following specific conclusions, all of which align with Tenaska's FCR:

"We have reviewed the capital cost estimate and believe the $3.5 billion estimate is a reasonable baseline estimate for the facility" (Executive Summary, page 5)
"[W]e believe [the FEED study contractor] used a methodical approach to develop the cost estimate that encouraged transparency and accuracy, " (Task 3 Report, page 2)
"We conclude that the $257 M of contingency included in the capital cost estimate is reasonable," (Task 3 Report, page 16)
"We believe Tenaska's estimate of facility availability over the long term is reasonable and achievable," (Executive Summary, page 12)
"…the predicted environmental performance is achievable and consistent with the requirements of law," (Executive Summary, page 11)
"…on an annual basis it is reasonable to expect Taylorville to exceed the 50% CO2 capture requirement," (Executive Summary, page 12)
"Regarding air emissions (other than CO2), the Taylorville facility performance is comparable to a traditional natural gas combined cycle facility (as required by the Law) and the emissions are much lower than a traditional pulverized coal plant," (Executive summary, page 12)
Regarding the features that minimize water consumption, "The Taylorville facility performs very well compared to other facilities, largely due to its dry cooling system and zero-liquid- discharge design," (Executive Summary, page 13)
"…the construction schedule prepared by Tenaska is reasonably well developed for the stage of the project and is generally achievable," (Executive Summary, page 5)
"We believe Tenaska has pulled together a qualified team," (Executive summary, page 28)
"We believe all the required content was in the Taylorville Facility Cost Report." (Executive Summary, page 28)"
"It is reasonable and typical for cost estimates to undergo reductions in scope to lower the overall cost. This effort on the part of Tenaska and Tenaska's contractor reflects their commitment to lower the overall cost of the facility." (Task 3 Report, page 10).

ICC consultant Boston Pacific's report also found virtually the same projected base case rate impact – in fact slightly lower -- as the Facility Cost Report's reference case.

The instances in which the ICC Consultant's report disagreed with the findings of Tenaska's Facility Cost Report, such as the estimate of non-fuel operating and maintenance expenses, the sufficiency of schedule contingency, and the length of the shakedown period needed to reach long term gasification island availability of 85%, were mostly matters where engineering judgments differed. These issues did not affect the central findings of the Facility Cost Report.

ICC Report Also Suggests Changes in the Clean Coal Law

In addition to providing its analysis of the Facility Cost Report as required by the Clean Coal Law, the ICC report also recommends consideration of a number of clarifications and changes in the law. Some of these changes are at odds with the basic framework of the law considered and enacted by the Illinois General Assembly and would make the TEC unfinanceable.

Ford concluded, "The clean coal law challenged us to show that we could deliver a clean coal plant with maximum economic development and environmental benefits and minimal impact on electric rates. With the extensive analysis of our Facility Cost Report and the core findings of the ICC consultant's report, there is now abundant evidence that we are meeting that challenge. Let's get to work."

About Tenaska

Tenaska has developed approximately 9,000 megawatts (MW) of electric generating capacity across the United States. Tenaska's affiliates operate and manage eight power plants in six states totaling more than 6,700 MW of generating capacity owned in partnership with other companies. Tenaska Capital Management, an affiliate, provides management services for stand-alone private equity funds, with nearly $5 billion in assets, including nine power plants (with approximately 5,400 MW of capacity), and multiple natural gas midstream assets, including storage gathering and processing facilities.

Tenaska is applying proven pre- and post-combustion technologies on a commercial scale in its two environmentally friendly clean coal projects. Taylorville Energy Center will convert Illinois coal into clean-burning substitute natural gas, use it to generate electricity and capture more than 50 percent of the plant's CO2 emissions. Trailblazer Energy Center in Nolan County, Texas, is expected to be the first commercial scale, conventional coal-fueled power plant in the world to capture a significant portion of its CO2 after combustion. This plant's success would demonstrate how existing plants in the U.S. and China could be retrofitted cost-effectively with this carbon-reducing technology. Tenaska was recently cited in benchmarking studies by the Natural Resources Defense Council as having among the very best fleet-wide records in the United States for controlling emissions. For more information about Tenaska, visit www.tenaska.com.

The Taylorville Energy Center's Integrated Gasification Combined-Cycle (IGCC) with Carbon Capture and Storage process can be seen at www.cleancoalillinois.com, along with details on the project, the technology and the law.