New Illinois coal plant looks like less of a bargain
Jul 11 - McClatchy-Tribune Regional News - Michael Hawthorne Chicago
Tribune
Sold on a promise of cheap, clean electricity, dozens of communities in
Illinois and eight other Midwest states instead are facing more
expensive utility bills after bankrolling a new coal-fired power plant
that will be one of the nation's largest sources of climate-change
pollution.
As the Prairie State Energy Campus rises out of a Downstate field, its
price tag already has more than doubled to $4.4 billion -- costs that
will largely be borne by municipalities including the suburbs of
Naperville, Batavia, Geneva, St. Charles and Winnetka.
The communities are locked into 28-year contracts that will require
higher electricity rates to cover the construction overruns, documents
and interviews show. Municipal officials told the Tribune they expect
costs to soar even higher before the plant begins operating next year.
Then there are the environmental costs of the project, which was
designed by St. Louis-based Peabody Energy, the world's largest private
coal company, to burn fossil fuel from one of its nearby coal mines.
Though the company and its partners promote the plant as a
national model for environmentally friendly "clean coal" technology,
Prairie State will be the largest source of carbon dioxide built in the
United States in a quarter-century.
Each year, it will churn more than 13 million tons of heat-trapping
gases into the atmosphere, an amount equivalent to adding 2 million cars
to the nation's highways. Most U.S. power plants emitting that much
climate-change pollution date to the 1960s and '70s.
The pollution also could make the plant more expensive to operate.
Climate and energy legislation pending in Congress would slap a price on
greenhouse-gas emissions, requiring Prairie State's owners to spend
hundreds of millions more a year. Local officials didn't account for
those costs when buying into the plant.
It is difficult to estimate what the tens of thousands of households in
the five suburbs ultimately will pay for electricity. But even without
any carbon-related costs, the Prairie State plant will drive up energy
costs for communities that have long prided themselves on keeping rates
lower than ComEd and other competitors, according to records obtained by
the Tribune under the Freedom of Information Act.
"We don't know yet if we've been sold a bill of goods," said Ray Pawlak,
a Geneva alderman who was one of the few Chicago-area officials to vote
against the project. "But why should we take a risk like this?"
One indication of how rates might rise is buried in files from the
Illinois Municipal Electric Agency, or IMEA, an association of 33 cities
that owns a 15 percent stake in the plant. Naperville, St. Charles and
Winnetka all buy electricity through the agency.
In documents filed last year for a bond issue, the agency predicted its
electric delivery rates to member communities will increase to $63.40 a
megawatt hour in 2013, up 30 percent from 2007. Agency officials
attribute the rate increase to their investment in the Illinois project
and a smaller, less expensive coal plant in Kentucky.
Officials said additional cost overruns for the Prairie State project
will force them to borrow more money and boost rates even higher to pay
off the debt. What customers pay will be decided by each municipality
after local officials tack on expenses to operate and maintain their
electric distribution networks.
Doug Krieger, Naperville's city manager, declined to speculate how
construction overruns and potential carbon regulations may affect rates.
"That's anybody's guess," he said.
"We still feel good about our decision," Krieger said. "IMEA's volume
purchasing power, combined with ownership in Prairie State and other
generation, will allow us to continue our price advantage over ComEd."
St. Charles officials said their 2007 decision to invest was based on
the best information available at the time. "It's still a good deal for
us in the long term," said Mayor Donald DeWitte. "There's no way the
cost of our power is going up 30 percent."
But elected officials in Geneva are having second thoughts. Along with
neighboring Batavia, the suburb belongs to a separate municipal group
that owns a 7.6 percent stake in Prairie State. Mayor Kevin Burns told
the Tribune he recently ordered his staff to study whether the city can
limit paying for the project's skyrocketing costs.
"We thought this would insulate us" from electricity price spikes, Burns
said. "Until we have all the figures in, it's premature to say whether
that remains the case now."
Officials in Batavia and Winnetka declined to comment. "There's nothing
to be said about this now," said Eldon Frydendall, chairman of Batavia's
public utilities committee.
When officials decided to invest in the plant and adjacent coal mine,
they saw the project as a hedge against volatility in the energy market.
Since Prairie State won't be their only source of electricity, they
said, cities will be shielded from the full brunt of the project's
costs.
"This is just one piece of a larger portfolio," said Phillip "Doc"
Mueller, IMEA's vice president for government affairs and management
services. "Nobody likes to see costs increase, but this will have a
relatively small impact on the system."
Prairie State will be a major source of air pollution, but for the
amount of electricity it generates, it will be cleaner than most of the
nation's existing coal plants, some of which date to the 1940s and '50s.
Federal Clean Air Act regulations required Peabody to install equipment
that will reduce lung-damaging smog and soot, and curb emissions of
toxic mercury that makes fish unsafe to eat. Because the mine is next to
the plant, the project will avoid greenhouse gases that otherwise would
have been emitted by coal trains and trucks.
"Prairie State was a winner a decade ago, it is a winner today and
Prairie State will be a winner decades from now," Peabody spokesman Vic
Svec wrote in response to questions.
Flanked by a high school band and people waving black and white Peabody
banners, company executives unveiled their plans for the Prairie State
plant in 2001 on the steps of a 19th century courthouse in Nashville,
Ill., about 50 miles southeast of St. Louis.
Peabody said the plant would cost $2 billion and pump millions into a
regional economy reeling from a decades-long decline in coal mining
jobs. The plant's pair of 800-megawatt turbines would generate enough
electricity to power 2.5 million homes. It would be fueled by Illinois
coal, create 3,000 construction jobs, add 500 permanent workers and
eliminate transportation costs.
The company found an enthusiastic ally in then- Gov. Rod Blagojevich.
Eager to court southern Illinois voters, the Chicago Democrat offered
the company millions of dollars in tax breaks and other subsidies. He
pushed for quick approval of the necessary environmental permits,
brushing aside questions about how he could embrace a new coal plant
while condemning the Bush administration for failing to limit
climate-change pollution.
The decisions by various cities to help pay for Peabody's project
garnered little attention at the time, and prompted only a smattering of
objections from citizens and environmental activists. Minutes from city
council meetings where the project was discussed show Prairie State's
municipal backers agreed with coal company representatives who promoted
it as a low-cost power provider.
"We believe the Prairie State project is in the long-term strategic
interests of Winnetka," village officials wrote in a March 2007 memo
urging elected officials to approve the deal.
Yet around the same time cities were signing contracts with Peabody,
private investors were starting to abandon dozens of similar coal-plant
projects nationwide, scared off by rising construction costs and the
likelihood of tough limits on greenhouse gases that would make
carbon-rich coal less attractive.
In April 2007, the U.S. Supreme Court ruled that carbon dioxide and
other heat-trapping gases can be regulated as air pollution.
Governors in Florida and Kansas scuttled proposed coal plants, urging
utilities to find cleaner ways to meet future energy demands. In a deal
with environmental groups, one power company canceled eight of 11
coal-fired plants planned for Texas in favor of investing in wind
energy.
Along with aggressive opposition from environmental groups, ballooning
costs for trained workers, steel and other materials discouraged dozens
of companies that once flirted with new coal plants. Only 31 projects
remain in the works nationwide, an abrupt shift from the 150 proposed a
few years ago.
By the time construction began on the Prairie State plant in 2007,
Peabody had raised the price tag to $2.9 billion. Since then, the
estimated cost has risen to $4.4 billion, forcing municipal investors
throughout the Midwest to borrow more to cover the overruns.
Peabody ended up with just a 5 percent share of the project, limiting
its liability for the additional costs.
To cover its latest share, the Indiana Municipal Electric Agency is
seeking approval for $122 million in new debt. State regulators in 2004
approved an $850 million bond issue that was supposed to be enough to
finance three power plants. Now more than three-quarters of the cash is
going to Prairie State, according to documents filed with Indiana
regulators.
Analysts for a state agency that represents Indiana consumers concluded
that Prairie State now costs as much as a coal gasification plant, which
would have been significantly cleaner and readily adapted to capture
carbon dioxide emissions. Peabody had rejected calls to make Prairie
State a gasification plant, arguing it would be too expensive.
"(O)ne has to wonder if these projects would be considered viable
alternatives today if hundreds of millions had not already been
invested," Duane Jasheway, an analyst for the Indiana Office of Utility
Consumer Counselor, testified in February.
Now that they are paying for the Prairie State plant's escalating costs,
officials in dozens of small Midwestern towns have been enlisted as
lobbyists against climate legislation. For Peabody, they've become
potent allies in an aggressive campaign to block the legislation or make
it less onerous for coal interests.
Twenty Illinois communities involved in the Prairie State project sent
representatives to a February rally in Washington where municipal
officials urged members of Congress to back down from a House-approved
climate bill.
"It is undeniable that this bill will increase our customers' costs,"
IMEA president Ronald Earl wrote in a letter urging Illinois lawmakers
to "mitigate the worst aspects of this legislation."
The letter doesn't mention the other cost increases associated with the
project.
"These cities and towns are captive buyers at the mercy of Peabody and
its ever-increasing costs," said Howard Learner, president of the
Environmental Law and Policy Center, a group that fought the plant.
"People are going to pay higher rates for more pollution. That isn't a
winning formula."
mhawthorne@tribune.com
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