Energy Deregulation Puts Heat on Small Producers

by Elaine Hopkins

This methane is a pollutant, a greenhouse gas, that must be eliminated from landfills. It can be flared (burned off), but it still pollutes. Or it can be used to generate electricity.

In that case, though, someone has to buy the power -- and that's the problem. Until now, state law required the electric utilities to buy it at the so called "retail rate," to add to their power grids. That's changing.

On Aug. 1, the state's electric utilities are free to pay the generators only a penny or two per kilowatt hour for this power. An obscure part of the state's new deregulation bill changed the payment requirements, and could force the small scale generators into bankruptcy.

In Peoria, a new methane-to-electricity plant opened in May at the Peoria City/County Landfill No. 1. The operator, Chicago-based Resource Technology Corp., has been busy developing these plants throughout the state.

But now the Peoria plant may close or revert to municipal ownership when RTC is no longer able to sell its power to the local utility, Central Illinois Light Co. for enough money to stay in business.

A provision was included in the electric deregulation bill that on Aug. 1 eliminated state tax credits connected with small scale generation, said RTC vice president Kevin Werner.

The tax credits, which actually work out to be a no-interest loan, were set up to encourage an environmentally beneficial industry. RTC feels betrayed, Werner said. "We were assured (the legislation) would have no effect on methane-to-energy" production, Werner said.

"We trusted them," he said, only to find out the utilities, especially Commonwealth Edison, arranged to kill the tax credits when the bill was written.

Commonwealth Edison also has informed RTC the purchase price will be slashed, Werner said. RTC has spent $21 million to construct four plants in Illinois, and has several more planned. The four plants now generate enough power to electrify 15,000 homes, the company stated.

Werner noted the irony of the large utilities driving small producers out of business by refusing to pay an adequate rate while having to ask consumers to conserve power during the current heat wave.

ComEd just now is paying $5 per kilowatt hour and more to power brokers to meet demand, he said. CILCO buys power from two of RTC's plants, in Peoria and Springfield, Ill. Commonwealth Edison buys power from the other two in Illinois.

Asked about a motive for the tax credit cutback, Werner replied the large utilities consider the small producers a nuisance.

Moreover, he said, "if they bankrupt us, they can purchase us for 10 cents on the dollar, then say they're environmentally friendly," for generating electricity from methane, which otherwise is a pollutant.

"We could absorb the loss but it wouldn't be prudent for us to do, so we're going to exercise those changes," Johnson said.

The Peoria municipal landfill has budgeted up to $100,000 yearly in expected royalties from the energy sales, money needed for landfill operations.

If RTC goes out of business, the city and county, which own the landfill in a joint agreement, "would have to try to run" the methane system, said landfill consulting engineer Pat Sloan. The system would revert to the municipal landfill if it cannot operate, he said.

Or up to $100,000 in equipment could be installed to burn off the methane, a pollutant which must be removed from the landfill, he said.

RTC had planned to build five plants at landfills in the territory of Illinois Power, plans that now may be scrapped.

Illinois Power spokeswoman Molly Hall said RTC could sell its power and transmit it over the lines just as the large utilities do. "These folks are free to sell to whomever they want. They can sell to someone else," she said.

"That would be great," said Werner except for the fact that RTC's contracts apparently require exclusive sales to the utilities, even at prices that can't sustain the operation.

Some large landfill operators, such as Waste Management, also operate methane generation equipment. They're also losers in the power game, but have the financial resources to hang on to wait for better days, Werner said.

Discussion is taking place in the governor's office, and an effort is underway to gain administrative rules to protect the small producers or modify the law during the fall veto session of the Illinois General Assembly, Werner said. He's not sure whether RTC can hang on that long, given the debt it owes.

The Illinois governor's office did not respond to a request for comment.