Recently Ward IV Councilman Paul Hach sent me an e-mail spelling out his reasons for voting for the AMPGS Meigs County Power Plant. I asked Paul if I could post the letter he sent me on the blog. and with his permission, here is his statement. One contention Paul had was when the recession started and it was the cause for the failure of the plant. Paul believes the recession hit after the final vote was taken to go forward with the plant in February of 2008. Most economists believe the recession hit in November/December of 2007.
Here is his letter, if nothing else, I give Mr. Hach credit for standing up for his convictions.
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Why I voted for the AMP-Ohio Meigs County Power Plant Project
Ann McFeatters (News Herald, July 8, 2011) wrote that “Public officials have the responsibility to pay the bills but also to plan for the future, safeguard the public’s assets and protect the environment.”
My decision almost 4 yrs ago (10/15/07) to vote in favor of the contract with the AMP Meigs County Power Plant project was planning for the future. In Painesville, we are used to cheaper electricity than our neighbors – it’s one of the pluses of living in Painesville. Our electricity is cheaper because we generate most of it ourselves – we don’t have to buy all of it off the grid like our neighbors do and live with the fluctuating cost of commodity power since deregulation. (It’s a little like locking in a fixed rate on your 30yr mortgage vs. taking your chances with a variable rate mortgage.)
But our cheap electricity will not last forever. Our power plant is 123 yrs old. The plant is very well maintained but components are becoming obsolete. So knowing that our power plant will eventually not be able to supply the base power load of the city, we on City Council were faced with the decision to either buy electricity at a much higher cost off the grid – or buy into part ownership of a new, efficient power plant which would provide us with a stable source of power at a lower rate.
The new coal-fired plant was not risky – the technology is well known, the fuel source is consistent, and the costs of running a coal fired plant are well known – again, not risky. I don’t consider a 50 yr contract for a power plant risky either – our plant has been running for over 100 years. At the time the economy was growing steadily, the projected power needs of the city were growing, residential and commercial, so that in a few years we would not be able to supply all the base power that we need. In fact, to be able to attract new business to Painesville, being able to supply plenty of power at a reasonable cost is a necessity. Doing nothing was a bigger risk.
(Until other fuels and technologies are as cost effective as coal, we have to balance the need for steady power with the need to protect the environment. The new power plant would have been cleaner and more efficient than our plant now – so to me, that was a step in the right direction.)
3 ½ years ago, on 2/19/08, Council voted again whether to continue our support of the Meigs County project. At that time, although the projected costs of the project had increased, the rate for electricity produced from the new plant would still be much less than the off-the-grid price – so it still made financial sense to continue support of the new power plant project.
Then the recession hit. Commercial demand for power dropped - this caused the wholesale cost of electricity to drop too.
1 ½ years later, after the 2nd vote, in November 2009, the projected construction costs for the new plant rose 37%. That with the drop in wholesale power costs led AMP to cancel the project. With the slow economy, the difference between the cost of electricity from the new plant and the wholesale market dropped.
Our share of the development costs of the project will be paid for with money set aside especially for contingencies like this, it will not be paid for from cost increases in utility bills. The electric fund has about $10 million which will be used to pay our share of the project costs which will be around $2 million.
My responsibility to the people of Painesville is to maintain the quality of services as cost effectively as possible. So I stand by my votes – given the national economy at the time and all the information we had, I feel they were the right decisions to keep the cost of electricity in Painesville as low and steady as possible.
So in 2007 and early 2008, I did not predict the bursting of the housing bubble, the resulting recession, and the effect on construction and utilities costs that followed. But the economy will eventually recover, the demand for electricity will increase, and our power plant will not be able to keep up with the demand. We will have to buy wholesale electricity and watch our electric bills jump, and we will reminisce about when Painesville had cheap electricity.
Paul W. Hach II
Painesville City Council, Ward 4 July 2011
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UPDATED VERSION 2.0
Why I voted for the AMP-Ohio Meigs County Power Plant Project
Ann McFeatters (News Herald, July 8, 2011) wrote that “Public officials have the responsibility to pay the bills but also to plan for the future, safeguard the public’s assets and protect the environment.”
10/15/07: My decision almost 4 yrs ago to vote in favor of the contract with the AMP Meigs County Power Plant project was planning for the future. In Painesville, we are used to cheaper electricity than our neighbors – it’s one of the pluses of living in Painesville. Our electricity is cheaper because we generate most of it ourselves – we don’t have to buy all of it off the grid like our neighbors do and live with the fluctuating cost of commodity power since deregulation. (It’s a little like locking in a fixed rate on your 30yr mortgage vs. taking your chances with a variable rate mortgage.)
But our cheap electricity will not last forever. Our power plant is 123 yrs old. The plant is very well maintained but components are becoming obsolete. So knowing that our power plant will eventually not be able to supply the base power load of the city, we on City Council were faced with the decision to either buy electricity at a much higher cost off the grid – or buy into part ownership of a new, efficient power plant which would provide us with a stable source of power at a lower rate.
The new coal-fired plant was not risky – the technology is well known, the fuel source is consistent, and the costs of running a coal fired plant are well known – again, not risky. I don’t consider a 50 yr contract for a power plant risky either – our plant has been running for over 100 years. At the time, the economy was growing steadily, the projected power needs of the city were growing, residential and commercial, so that in a few years we would not be able to supply all the base power that we need. In fact, to be able to attract new business to Painesville, being able to supply plenty of power at a reasonable cost is a necessity. Doing nothing was a bigger risk.
(Until other fuels and technologies are as cost effective as coal, we have to balance the need for steady power with the need to protect the environment. The new power plant would have been cleaner and more efficient than our plant now – so to me, that was a step in the right direction.)
Take or Pay contracts are very common – in food commodities and especially the energy industry. There is no other way to finance huge capital projects that benefit many customers. Not many design and construction companies could finance a multiyear, multibillion dollar project all on their own. Take and Pay contracts are written to benefit both sides and to share the risks. There was nothing unusual in the Take or Pay clause in the project contract.
2/19/08: 3½ years ago Council voted again whether to continue our support of the Meigs County project. At that time, although the projected costs of the project had increased, the rate for electricity produced from the new plant would still be much less than the off-the-grid price – so it still made financial sense to continue support of the new power plant project.
Then the recession hit. Commercial demand for power dropped - this caused the wholesale cost of electricity to drop too.
12/08: It’s easy to say we knew in 2007 the recession had started in December of 2007 – but it’s just not accurate. Yes – in December of 2008 (10 months after the 2nd vote), the National Bureau of Economic Research said that we had been in a recession since December of 2007 – but it took a year of economic data to make it officially a recession rather than a shorter “downturn”. And yes - some industries felt it earlier than others. But others were not affected then - I know our business and my wife’s were still busy in 2007 and 2008.
11/09: 1½ years later, after the 2nd vote the projected construction costs for the new plant rose 37%. That with the drop in wholesale power costs led AMP members to cancel the project. With the slow economy, the difference between the cost of electricity from the new plant and the wholesale market dropped.
Our share of the development costs of the project will be paid for with money set aside especially for contingencies like this, it will not be paid for from cost increases in utility bills. The electric fund has a reserve fund which can be used to pay our share of the project costs which will be around $2 million. We don’t know what the final expense cost will be yet - AMP and we as one of its members are still fighting to recover some of the expenses.
My responsibility to the people of Painesville is to maintain the quality of services as cost effectively as possible. So I stand by my votes – given the national economy at the time and all the information we had, I feel they were the right decisions to keep the cost of electricity in Painesville as low and steady as possible.
In 2007 and early 2008, I did not predict the bursting of the housing bubble and the effect it would have on construction and utilities costs– unfortunately, no crystal ball was available. But the economy will eventually recover, the demand for electricity will increase, and our power plant will not be able to keep up with the demand. We will have to buy wholesale electricity and watch our electric bills jump, and we will reminisce about when Painesville had cheap electricity.
Paul W. Hach II
Painesville City Council, Ward 4 July/Aug 2011
