Rep. Dennis Kucinich, D-Ohio, is calling for a FERC investigation into a series of deals surrounding investments in the coal-fired Prairie State Energy Campus in southern Illinois.
Kucinich noted in a Sept. 19 statement that a report was released Aug. 29 detailing how ratepayers in 217 municipalities across the Midwest, including Cleveland Public Power in Ohio, will bear the “exorbitant” cost of deals that were designed to make the municipalities bear the risk of the multibillion dollar coal plant. One unit at the 1,600-MW plant went online in June, with the other unit expected online in the next few months.
“In order to build a new coal plant in southern Illinois, the Peabody Energy Corporation looked past private investment because new plants are a known financial risk,” said the statement by Kucinich’s office. “Instead, they turned to regional power agencies like American Municipal Power, who, along with their member municipal agencies like Cleveland Public Power, could fund them with bonds. Nine regional power agencies were convinced to become partial owners. The deals specified that the municipalities could get stuck funding the plant even if it never produced electricity.”
Now, after foreseeable and preventable cost overruns and subpar performance, ratepayers are forced to buy electricity from the plant even though the cost of energy on the open market is much cheaper, Kucinich said. Cleveland Public Power alone is now expected to pay at least $19m more than if they had not invested in it, he added. Kucinich is demanding an investigation from the Federal Energy Regulatory Commission (FERC). Kucinich has asked FERC to step in to investigate “any and all agreements between the owners of the Prairie State Generating Company (PSGC), such as American Municipal Power (AMP), and the owners’ member municipalities such as Cleveland Public Power.”
Kucinich said in the letter to FERC that it was widely known late last decade that new coal plants were a bad risk and that Peabody (NYSE: BTU) and AMP both canceled plans to build other coal plants because of rising costs between 2004 and the present. That is a reference to a 1,000-MW AMP coal plant proposed in Ohio that AMP pulled the plug on in 2009, and a power plant in western Kentucky that Peabody was once developing that would have been very similar to Prairie State.
The report that Kucinich cites was released Aug. 29 by the Institute for Energy Economics and Financial Analysis (IEEFA). IEEFA has a self-described mission to accelerate a U.S. transition to a diverse, sustainable and profitable energy economy and to reduce dependence on coal and other non-renewable resources.
AMP’s latest statement on Prairie State was issued Sept. 7 and said that the company recently received continued confirmation of the strength of the project from Fitch Ratings and Standard & Poor’s. Both S&P and Fitch published news releases affirming their ‘A’ rating for the debt AMP issued to finance its part in the project. Each of the ratings agencies also confirmed the ratings as stable.
On behalf of the 68 AMP member communities participating in the project, AMP is the largest equity owner of the 1,600-MW plant and adjacent mine in southern Illinois. AMP owns an approximately 23%, or 368 MW.
Both news releases pointed out several factors that contributed to their affirming the rates in the ‘A’ category, AMP noted:
- take-or-pay contracts secure the bonds;
- despite some unexpected cost increases, diversified power portfolio for project participants expected to make the impact on retail rates manageable;
- project economics are expected to remain favorable for participants for the long-term;
- local control of rates and project step-up provisions mitigate default risk;
- low fuel supply risk due to adjacent minemouth operation and 30-year supply of coal;
- credit strength of the top participants; and
- AMP’s sophisticated management team and efforts to assist and monitor members.
The affirmed ‘A’ ratings from S&P and Fitch are significant and timely as the Prairie State project nears completion with Unit 1 beginning commercial operation in June and Unit 2 expected on-line in December, AMP noted. AMP has undergone several bond sales to finance its portion of the project cost. Offerings in July 2008, March 2009 and September 2010, raised $1.7bn through the sale of a combination of taxable, tax-exempt and Build America Bonds.