Over two million ratepayers in eight Midwestern states can expect higher utility bills thanks to higher-than-promised costs from a deal with a coal plant. A total of 217 municipalities and 17 electric membership cooperatives in Illinois, Indiana, Kentucky, Michigan, Missouri, Ohio, Virginia and West Virginia made deals to buy power from the Prairie State Energy Campus (PSEC), in part because of the promise of cheap power. PSEC is a 1,600 megawatt (MW) coal-fired power plant and coal mine under construction in southern Illinois. A report by the Institute for Energy Economics and Financial Analysis (IEEFA) found that the cost of power for the PSEC’s first year of operation will be 40 to 100 percent higher than the current cost of power in the Midwest wholesale markets. Unfortunately, the costs are expected to remain higher than market costs for the next 10 to 13 years, and maybe longer.
Peabody Energy Corporation began developing PSEC in 2001 “to maximize the use of its high‐sulfur Illinois Basin coal reserves,” the report states. In 2007, Peabody’s subsidiary Prairie State Generating Company (PSGC) acquired the necessary permits, awarded many contracts to equipment vendors and issued purchase orders for major equipment. From 2002 to 2007, Peabody, through PSGC, “aggressively marketed ownership interests and sold all but five percent of its ownership interest in PSEC,” the report contends. In 2007, Peabody sold 95 percent of its interests to five municipal power agencies.
Each of the 234 municipalities and electric membership cooperatives persuaded “many of the communities they serve to enter into long term purchase power agreements,” according to IEEFA, to buy power from Prairie State for periods of 30 to 40 years. PSEC, which has not produced power yet, has construction costs estimated to be up to $4.9 billion, well above the original projection of $1.8 billion. PSEC, the IEEFA report believes, will not provide an economic benefit for the ratepayers in those communities until the late 2030s and 2040s, based on a cumulative annual basis.
The project developers, first Peabody and then the five power entities that bought controlling interest, made three promises to the 234 municipalities and electric coops that chose to enter into a deal to buy power. All of the promises were broken:
- Prairie State would provide affordable, low cost electricity to participating communities for 30 to 50 years. In reality, the cost will not be low or affordable. Project sponsors in 2007 promised a cost of $41 per megawatt hour (MWh), but by 2010, revised the estimates to be $57.25 per MWh, or 40 percent higher. The price of electricity in the current market is $40 per MWh. The report predicts that prices will be over $80 per MWh in 2012, or over 100 percent of the originally promised cost.
- Electricity costs would be controlled and affordable for decades if communities owned the plant. The report found that the market outlook for the plant will be consistently above the price of power on the private market for at least the next decade.
- Local municipalities could sell excess electricity on the market. Communities will actually lose money. The projected losses, according to the report, for each participating community will be $3 million to $56 million.
There are additional risks associated with PSEC. These risks include the final construction cost. Another risk has to do with PSEC’s coal source. Peabody Energy sold the Lively Grove coal mine to PSEC with a promised 30-year supply of coal for the plant. However, federal regulators have questioned the safety of the proposed mine plan, and if the plan is changed, the mining reserve could decrease to a 22 year supply, which means that PSEC will have to buy coal somewhere else.
Image credit: eutrophication&hypoxia, Flickr