Illinois power plant at center of Midwest rate fights

AP News
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Posted: Feb 08, 2015 12:37 PM

COLUMBUS, Ohio (AP) — High electric bills and environmental skepticism in towns across the Midwest are causing customers to wonder if they've been duped as power suppliers work to recoup investments in a financially troubled Illinois generating plant and coal mine.

Rate increases and equipment breakdowns were the opposite of what dozens of municipalities that invested in the Prairie State Energy Campus were promised: low-cost, reliable energy for decades to come.

Now, customers in Galion, Ohio, have threatened ballot action. They want the city to repay overcharges they allege were amassed to mask high electricity costs from the Washington County, Illinois, project.

In Batavia, Illinois, another group of customers filed class-action litigation alleging city-paid consultants misrepresented financial risks associated with the complex, constructed by coal producer Peabody Energy.

The municipal power provider in Paducah, Kentucky, contemplated bankruptcy after its customers blamed its decision to invest in Prairie State for some of the state's highest electricity rates.

When Prairie State's 1,600-megawatt generating operation, mine and landfill went on line in 2012, its development had cost $4.9 billion — more than twice the original estimate. That forced rate hikes and fees called power adjustments in many of the 217 municipalities and 17 electric cooperatives that invested in the project.

Prairie State's defenders say it was expensive because it's one of the country's cleanest, most efficient power plants. As one of the few coal plants built in the U.S. in 30 years, it faced unanticipated costs in meeting tough, modern carbon emissions standards proposed by the Environmental Protection Agency that have vexed older coal-fired plants.

Many of the 68 Ohio municipalities that belong to the American Municipal Power cooperative signed stringent "take or pay" contracts that obligate investors to pay for their full contracted share of power — whether or not they receive it — for 50 years. Many customers now feel duped.

"For us, it absolutely makes no sense that we would place that kind of a gamble to the extent that we did. We've sold the family farm," said Roberta Wade, a former law director and city councilwoman behind the proposed ballot issue in Galion. She sat on the council when the Prairie State deal was signed but has said little information was available.

Michael Childress, lead attorney in the Batavia suit, said Peabody and the Indiana Municipal Power Authority staged a "road show" across the Midwest in 2007 to sell the idea of investing in a plant. He alleges the project was conceived as a long-term vehicle for Peabody coal.

"At the time, these towns are trying to figure out how they're going to get access to safe, cost-efficient, inexpensive, secure, theoretically environmentally clean power, and they're presented with this notion that they can have all of this through Prairie State," he said. "So you can understand why they'd investigate it."

On Wall Street, the unbreakable nature of the take-or-pay contracts has been viewed as the strength of the Prairie State deal. However, the U.S. Securities and Exchange Commission has been investigating the financing deal after complaints from members of Congress and local officials across the region.

AMP spokesman Kent Carson, whose company holds the largest share of ownership in Prairie State, said long-term power purchase arrangements are nothing new. He said the plant is a solid long-term investment and the onsite coal mine eliminates financial risks of transportation and fuel costs when power companies ship coal from elsewhere.

Carson said it is primarily anti-coal environmentalists who are fanning the Prairie State controversy, who compare rates for this long-term asset to the short-term hourly electricity market.

That's "apples-to-oranges and extremely misleading," he said.

Galion Mayor Tom O'Leary did not return repeated calls seeking comment. In the wake of ballot threats, he recently proposed hiring a second consultant to review city electricity rates with an eye toward reimbursing residents for any confirmed overcharges.

Cities besides Galion have also taken steps to avoid high rates, in some cases through a process called stabilization.

Jennifer Karches, a concerned citizen in Bowling Green, Ohio, said stabilizing rates now only pushes the financial impacts of what she sees as a poor investment into the future.

"I don't know if I want to say it's dishonest, but a lot of people don't realize what's going on," Karches said. "It just boggles my mind that we're invested in this totally outdated, polluting operation. My husband said it: it's like investing in whale oil at the turn of the century."