New power plant poses high costs, risks for western Kentucky ratepayers

Residents of many mid-west towns, including Princeton and Paducah in western Kentucky, are beginning to face the sticker-shock of paying for the new Prairie State project, a 1600 MW coal-burning power plant developed by Peabody Energy. The plant, which is close to completion, has been called “the last of its kind in this country” by the New York Times.

Over the past decade, Peabody Energy aggressively marketed the project to mid-western municipal utilities and rural electric cooperatives. More than 200 towns and 17 member-run electric co-operatives purchased ownership shares in the power plant and a nearby coal mine. After a Michigan-based utility pulled out of the deal, the Kentucky Municipal Power Agency took out a $500 million bond to purchase a 7.8% share in the project. The electricity will be sold to municipal utilities in Paducah and Princeton, which together have a population of about 31,000 residents. Peabody itself kept just a 5% stake in the overall project.  

Unfortunately for residents in participating communities, the costs and the risks associated with the project are coming in far higher than the developers promised. The per-megawatt costs of power in the first months of operation far exceed the average cost of power on regional wholesale markets. In fact, according to a new report, released yesterday by the Institute for Energy Economics and Financial Analysis (IEEFA):

“Instead of being a source of low cost electricity, the first year cost of power from Prairie State is 40 to 100 percent higher than the current cost of power in the Midwest wholesale markets and is expected to remain higher than market prices for the next ten to thirteen years, if not longer.”

The higher initial costs are largely due to delays and cost over-runs in the construction of the plant. But the report also details several additional risks facing the project that could cause headaches in the future for ratepayers in Paducah and Princeton as well as for the other 2.5 million affected ratepayers across the Midwest. These risks stem from the fact that towns that purchased ownership shares in the Prairie State project also took an ownership interest in the Lively Grove coal mine that is the source of fuel for the plant, along with an interest in a nearby coal ash landfill. There are indications that both the mine and the landfill may have less capacity and shorter lifetimes than projected.

Specifically, the mine that provides coal for the Prairie state plant has been cited by the federal Mine Safety and Health Administration for operating with an unapproved ventilation plan and unapproved roof control plan. While those violations are still under appeal by the company, the proposed plan to resolve the safety problems would increase costs of production and decrease the amount of recoverable coal from the mine.

In addition to presenting serious concerns for the lives and safety of the mine workers, those conditions mean ratepayers in participating communities face the risk of additional future capital and operating costs at the mine. And, since many of the towns that bought into this project – including Paducah and Princeton – signed “take-or-pay” contracts, their customers are on the hook for those costs whether the local utilities use the power from Prairie State or not.  

The report concludes with a set of questions that local elected officials, ratepayers and participating public utilities can use as they seek answers to important questions about the costs and economic risks of the Prairie State project. 

Below are a number of links to more information about the Prairie State Project, along with recent news stories:

§  The Prairie State Coal Plant: The Reality vs. the Promise, Institute for Energy Economics and Financial Analysis, August 29, 2012.

§  Report: Prairie State plant not fulfilling promise of cheap power, St. Louis Post Dispatch, August 29, 2012.

§  Delays, cost overruns blemish Illinois coal project, St. Louis Post Dispatch, June 17, 2012.

§  Report says Nation’s newest coal plant isn’t as cheap as promised, WFPL FM, August 30, 2012.

§  Prairie State Coal Plant Tracker, a website dedicated to “uncovering the financial and environmental risks to municipalities and ratepayers from the Prairie State coal plant.”