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IL: Coal plant could wallop consumers with higher-than-expected rates

By   /   August 29, 2012  /   2 Comments

Cost overruns at the Prairie State Energy Campus, a coal-fired power plant in Marissa in southern Illinois, will cause higher rates for consumers, according to a report released Wednesday.

By Jayette Bolinski | Illinois Watchdog

SPRINGFIELD — Illinois communities that bought into the promise of cheaper rates from a clean-coal plant in southern Illinois may experience buyers’ remorse when their bills arrive, according to a report unveiled Wednesday.

But others say the report’s findings are flawed because they are based on comparisons to current market rates, which are low because of decreased demand for power.

The Prairie State Energy Campus, a 1,600-megawatt coal-fired plant in rural Marissa about 40 miles southeast of St. Louis, has experienced project delays and increased construction costs, more than doubling the price tag to nearly $5 billion. Original estimates put the cost at $2 billion.

The increased costs will be passed on to consumers, raising rates by at least 40 percent more than what investors originally expected them to be, according to a report by the Massachusetts-based Institute for Energy Economics and Financial Analysis, which researches environmental and energy issues.

The costs are “real, immediate and likely to continue,” said Tom Sanzillo, one of the report’s authors.

More than 200 municipalities and electric co-ops, serving 2.5 million customers in eight states, invested in the project, which was spearheaded by St. Louis-based Peabody Energy. The municipalities and co-ops signed 30-year contracts to obtain power from the plant on promises it would be a less-expensive, stable power source.

The Prairie State Energy Campus is “an unnecessary financial burden on ratepayers and local governments rather than the much-needed financial relief that was promised,” Sanzillo said.

At least one community, Hannibal, on the Mississippi River in central Missouri, this summer approved a 3 percent rate hike for customers to offset the added construction costs and delays.

“We’re in almost a million and a half bucks, and we don’t have a dime of revenue,” Bob Stevenson, director of the Hannibal Board of Public Works, said in a June St. Louis Post-Dispatch report. “All I can say is, I had other plans for that money.

The Illinois Municipal Electric Agency owns a 15 percent share in the project. Phillip “Doc” Mueller, vice president of government affairs at the agency, said the IEEFA report is flawed.

“The study seems to fundamentally misunderstand the place that Prairie State holds in our total energy portfolio,” Mueller said.

IMEA represents 32 Illinois communities that own and operate their own utilities. The agency’s main responsibility is to provide long-term electricity at wholesale prices through various means, such as owning portions of power plants in other states, contracting with Midwest energy company Ameren, buying off the market and investing in Prairie State.

Mueller said IMEA members are not going to see power costs that are at least 40 percent higher, as the report predicts.

“What (the report’s authors) have done is compare the current market price of power with Prairie State, and the only way the report makes any sense is if you buy all of your power off the market all the time. But if you do that, then you open yourself up to the higher market prices as they go up and down through the year and as they go up over time,” he said.

“Our job, and this little piece of Prairie State that we’ve got, is actually intended not to hurt our people. It’s intended to provide a cost hedge for the long term because inevitably the market prices we’re seeing out there now are not going to hang around. When natural gas goes up and the market goes back up, the market prices will follow.”

Sandy Buchanan, executive director of Ohio Citizen Action, the state’s largest consumer and environmental organization, said ratepayers there have not been given full and complete information about the Prairie State project, its operations, the financial risk and the cost.

“What today’s report shows is that the coal plant is turning out to be the financial nightmare many of us feared when the plant was proposed,” she said.

Peabody announced plans for the Prairie State Energy Campus in 2001, when the economy was better and the demand for electricity was higher. The company currently has a 5 percent stake in the project.

Peabody spokeswoman Meg Gallagher on Wednesday said the company still is reviewing the report but found its assertions biased and lacking important facts.

“Among other issues, the report makes a number assumptions on costs of competing fuels and uses this to make flawed estimates for a plant that will be in operation for decades. Even so, the cost of coal for Prairie State is less than half the cost of natural gas at a time when gas is at historically low levels this year,” she said in an email response.

“Ultimately, when the scorecard is complete, we firmly believe Prairie State will continue to provide reliable, clean low-cost electricity for the benefit of millions of customers in multiple states for decades to come.”

One of the plant’s two 800-megawatt generators went online in June, and the second one is expected to go online by the end of the year. The plant includes an associated underground coal mine at Lively Grove that will produce an estimated 6 million tons of high-sulfur coal each year.

IEEFA researches various energy and environment issues. The organization’s mission is “to accelerate the United States’ transition to a diverse, sustainable and profitable energy economy and to reduce the nation’s dependence on coal and other non-renewable energy resources.”

Sanzillo, finance director for the group, is a former deputy comptroller for the state of New York.

Contact Jayette Bolinski at jayette.bolinski@franklincenterhq.org. Find Illinois Watchdog on Facebook and follow us on Twitter @ILSthouseNews.

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  • DDinMO

    Cities in Missouri
    were never approached by MJMEUC or Peabody about this project. City Councils
    did not vote to authorize involvment in the Prairie State
    joint venture. No city was provided feasibility reports or financing documents.
    Our elected officials must vote on specific projects – especially those
    with billion-dollar price tags. Appointed officials or utility employees do not
    have the power to indebt any city.

    Just how did the bond agencies approve each
    MJMEUC/MoPEP town’s use of its electric revenues to back revenue bonds if there is no evidence that
    elected officials actually voted on this coal plant? There was a very generic
    wholesale electricity agreement in 2005 with MJMEUC/MoPEP. Surely that
    agreement cannot be considered a full and open disclosure of the Prairie State project. It seems that Peabody and MJMEUC preferred to keep elected officials and citizens in the dark.

    This mess appears to be an abuse of power. I would
    like to see MJMEUC/MoPEP’s joint venture documentation vigorously investigated.
    Without those specific municipal authorizations, I just don’t believe this was
    legal. Could be that Missouri
    cities can pull out should citizens demand accountability or if any of the
    regulatory agencies perform due dilligience.

  • Patriot

    The 3% rate increase in this article pales by comparison to rates certain industrial users will pay in Peru, IL.
    Peru’s new “Economic Development Rate” as codified by city ordinance is hammering local industry with rates that range form slightly lower than prior rates to 85%…yes 85%…higher. This increase is under the guise of “pass-through” demand charges which the Illinois Municipal Energy Agency charges the municipalitiy.
    What is the demand-related rate increase for residential users?
    ZERO
    Why?
    Industry doesn’t vote for City or State officials…residents do.
    But be wary, citizens. Many of us/you are employees of the stricken industries, and will pay in the long run.
    This is clearly abuse of a protection afforded by state statute and serves to scare aware manufacturing from these areas.
    With the current environment of opening up the electrical market to consumers and municipalities, the ability of municipalities to outright deny customers competitive pricing is inexcusable.
    The message we send to manufacturers is… “stay away from these poisonous areas in our state.” Is that what we want to do to our tax base?
    This treatment is short-sided…and worth fighting. And we are.