"RUNAWAY" del shannon

I found this interesting newspaper article over the weekend. Along with the failed Meigs County – AMP – OHIO deal, it seems we also have something called Prairie State. Read the article… if this keeps up, Painesville’s electric rates will soon be higher than First Energy's. Funny how municipal power plants can't show a profit yet have all the same pitfalls as a for profit power company. This should be another wake-up call to our city manager as well as many in the administration to cut all ties with AMP-OHIO. I lay the blame for all of this at the city manager’s feet for recommending these deals with AMP-OHIO. Wonder what their losses are? (Oh yeah, slipped my mind – they’re a non-profit and don’t have to worry about showing a profit) In case you are wondering, Painesville’s future power is 18% share of peak demand… almost 10,000 MW. Enjoy!

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Cities on hook for power plant’s costs

By Dan Gearino


The Columbus Dispatch Sunday April 29, 2012 10:33 AM


The coal-fired Prairie State power plant in Illinois is over budget and still not ready to produce electricity for the 60 Ohio cities that invested in it.

Electricity customers in Galion are part-owners of a $5 billion power plant that is behind schedule and might lead to years of high utility bills.

The city of about 11,000, about 60 miles north of Columbus, is one of many in Ohio whose city-owned electric companies have chosen to invest in the Prairie State Energy Campus, a coal-fired power plant being built in southwestern Illinois.

Among the other investors: Cleveland, Bowling Green, Hamilton, Jackson, Prospect and 54 other Ohio cities.

The plant’s operators have gone far beyond their budget and missed a December target to begin generating electricity. Now, they have postponed a June ribbon-cutting. They say the delays are a normal part of a complicated undertaking.

While the plant’s owners wait, they are preparing for decades of payments on the bonds that financed the project. The bills will need to be paid, even if the project fails to produce the promised results.

The weight of debt is one reason that electricity from the plant will cost at least 25 percent more than today’s price on the open market.

“Now, the red flags are flying,” said Roberta Wade, a Galion City Council member.

She was on the panel when it approved the investment, although she doesn’t remember any briefing about the risks that now are coming to light. She is the only council member now asking for more scrutiny of electricity contracts.

The city’s involvement in Prairie State came as a result of its relationship with American Municipal Power of Columbus, a nonprofit company that manages energy purchasing for city-owned utilities in six states.

AMP is a big player in the world of public power — taxpayer-owned electric companies that answer to their local elected officials. In those places, electricity is a city service, like parks and trash pickup.

Marc Gerken, AMP’s president and CEO, says he has no regrets about Prairie State. “I think this is a great plan for our members,” he said.

His company has 129 members in seven states. Of that total, 68 chose to invest in the plant, 60 of which are in Ohio.

Prairie State is designed to produce 1,600 megawatts, which is enough to serve about 800,000 households. AMP owns nearly one-fourth of the project, which is the largest share of any owner.

The city-owned utilities in Columbus and Westerville are AMP members, but they chose not to invest in the Illinois plant.

Westerville’s City Council had concerns about the long-term environmental expenses of coal power, said Andrew Boatright, director of the city’s electric utility.

Columbus’ utility has shied away from long-term commitments in recent years. Because of this, city leaders never seriously considered Prairie State, a spokeswoman said. The Columbus Division of Power and Water has about 13,000 electricity customers, mainly in older neighborhoods, while the rest of the city is served by a for-profit utility, Columbus-based American Electric Power. AMP and AEP are not affiliated.

Prairie State is one of the largest examples of AMP’s decision to dramatically increase its spending on power plants. The change was a reaction to members’ frustration with the recent volatility of the electricity market, Gerken said. Officials in the member cities hope that if they own the power plants, the prices will be more stable.

“We base our planning on the long term, not today or this afternoon or last week,” said Gene Toy, Galion’s city manager.

His city purchased an unusually large share of Prairie State relative to the city’s needs. Galion’s portion is enough to meet more than 40 percent of its peak electricity demand. Only one other community, New Bremen, also exceeds 40 percent. These are the places where the project’s twists and turns will have some of the greatest effect.

Electricity from Prairie State will cost $57 per megawatt-hour this year and average about $65 for the life of the plant, AMP has said. This covers almost all aspects of power production and the debt to build the plant. It does not include delivery costs.

Today, an Ohio buyer can get electricity on the wholesale market for less than $35 per megawatt-hour, plus a capacity charge of less than $10 for a total of less than $45.

This does not directly correspond to the prices available to city-owned utilities, which generally sign multiyear supply contracts, but it provides a rough sketch of a market in which the going rate is much lower than power from Prairie State.

AMP officials say it is misleading to compare today’s low market prices with the price of power from a long-term asset.

Market prices have dropped largely because of the low price of natural gas, which reduces the cost of power from gas-fired plants and is a key driver of the nation’s electricity costs. This is a departure from a few years ago, when volatile gas prices contributed to wild swings in electricity costs.

“Things have changed,” said Venkat Suravarapu, director of North American power forecasting for IHS Cambridge Energy Research Associates in Massachusetts.

His long-term projection of natural-gas prices is much lower than a few years ago, a shift that is tied to the development of natural gas from shale deposits. Even if natural-gas prices make a leap from current lows, he doesn’t see wholesale electricity prices averaging higher than $50 per megawatt-hour for at least the rest of this decade, and potentially longer.

If forecasts like his hold true, Prairie State’s owners will need to wait a long time to see their investment produce power that costs about the same as the market.

The best rationale for building a coal plant might be that its output likely will have stable prices that can act as a “hedge” against an unforeseen surge in natural-gas prices, said Robert Burns, an Ohio State University researcher and utility-rate expert. At the same time, he questions the wisdom of betting heavily on coal.

“When you do a hedge, you don’t bet the farm on a hedge,” he said.

When asked about price forecasts, Gerken said his company has commissioned its own study that shows the project’s electricity would be less expensive than the market for every year the plant is in service. He showed a chart with these figures, but he declined to provide a copy or any specifics about how the chart was generated.

The $65 average price doesn’t include extra costs that might occur if the government passes a carbon tax. Concerns about such regulations are one reason that few coal plants are being built.

Gerken notes that Prairie State is a “supercritical” plant, which refers to technology that is more energy efficient than previous generations of coal-burning plants. This will reduce its exposure to a carbon tax, he said.

The plant was started by Peabody Energy, a coal-mining company that later sold most of its stake. Construction began in 2007, with a budget of $2.9 billion and a plan to open in 2011. The work started just as the prices of key components began to soar, including steel and concrete. The budget rose to about $5 billion.

To cover its share of costs, AMP has obtained $1.7 billion by selling bonds, which will be repaid from 2013 to 2047. Critics say the terms of the bonds and the price of Prairie State’s power make this look like a bad mortgage. The difference is that cities cannot walk away from their commitments the way so many homeowners have walked away from mortgages.

Environmental groups, such as Ohio Citizen Action, say AMP members have signed up for overpriced, dirty power.

“You’ve got the market shifting out from underneath them,” said Sandy Buchanan, the group’s executive director. “At the same time, you’ve got communities locked into long-term financial deals that say they have to repay no matter what. That’s the nightmare scenario.”