Report: Prairie State plant not fulfilling promise of cheap power

Aug 29 - McClatchy-Tribune Regional News - Jeffrey Tomich St. Louis Post-Dispatch

Cities that agreed to buy power from the Prairie State coal plant in southwestern Illinois are paying higher prices than promised by the plant's developer and will continue to pay above-market rates for electricity for the next decade, according to a report issued Wednesday by the Institute for Energy Economics and Financial Analysis.

The group, which does financial analysis for environmental groups and has previously challenged coal plants in Ohio and Texas, estimates that the municipalities and electric cooperatives across an 8-state swath of the Midwest and Mid-Atlantic are paying 40 percent to 100 percent more for power in the plant's first year than prices cited when they agreed to long-term contracts.

Tom Sanzillo, the lead author of the report, said the plant hasn't been the provider of low-cost, stable source of electricity that it was supposed to be.

"None of those promises are being kept by the Peabody-Prairie State project to date," he said during a conference call with reporters Wednesday morning.

The report cites cost overruns and delays that have plagued the Prairie State project and driven its ultimate price tag to $5 billion, double what was estimated when the plant was conceived by St. Louis-based Peabody Energy Corp. a decade ago.

The first of two 800-megawatt operating units at Prairie State went online in early June, about 6 months behind schedule. The second unit, which is supposed to be operational by August, is now estimated to be running by the end of the year.

The Missouri Joint Municipal Electric Utility Commission, a state-chartered entity that buys bulk power for dozens of municipal utilities, owns 12 percent of the Prairie State plant. Kirkwood, Columbia and Hannibal are a few of the 40-plus cities and towns across Missouri that have contracts to buy some of the plant's output.

Cities in Ohio and Missouri that get power from Prairie State will pay $3 million to $56 million in excess power costs through 2025 under the contracts, according to the study.

Sanzillo, a former deputy comptroller for the state of New York, said the estimated losses were calculated using data from bond filings by the plant's owners as well as energy data from public and proprietary sources.

The group's projections assume natural gas prices that range from $3 to $6 per thousand cubic feet through 2025, estimates which are in line with the Energy Department's long-term price forecast. Gas prices are a key driver for wholesale electricity prices and will play a big part in determining the economics of power generated from coal plants as well as renewable energy sources.