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

Posted: 9/10/2012

From 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."

Original here.