OCA holds meeting in Galion about Prairie State, AMP responds
By Matt Echelberry
Editor’s note: At the Sept. 19 public meeting, many of the audience members were not up to speed on the main details of Prairie State Energy Campus, an energy source that Galion invested in. Several past issues of the Inquirer have explained the project and Galion’s share of it in detail. Those stories can be found in the Aug. 29, Sept. 1 and Sept. 15 issues or online (enter “prairie state” into the search bar). AMP’s refuting information is in brackets. [ ]
In a nutshell, Prairie State Energy Campus is a coal-fired generation plant located in Illinois with a coal mine on site. Peabody Energy Corporation was the initial developer of the project and, in 2005, sold 95 percent of the plant to six power agencies and two cooperatives.
The power agencies then sold shares of power to a total of 234 communities and co-ops in nine states. One of those agencies was American Municipal Power, a Columbus-based, non-profit wholesale power supplier. Galion entered into a Power Sales Contract with AMP in 2007 to invest in the PSEC project at 9.95 mW. This contract is good through 2057 and copies of it and other related legislation are on file at the Galion Municipal Building.
Construction of PSEC began in 2008 and scheduled to begin full commercial operation by the end of 2012. The project was divided into two units; Unit 1 began operation in June and Unit 2 is scheduled to be online by December of this year.
•A public meeting about PSEC was held Sept. 19 inside the Galion High School gymnasium. Sandy Buchanan, executive director of Ohio Citizen Action, coordinated the public meeting with the help of Galion citizen Don Faulds. According to its website, OCA is a non-profit organization founded in 1975 and lobbies for pro-environment causes; it has a history of opposing coal plants.
Faulds welcomed everyone that evening, saying the purpose of the meeting was to get everyone on the same page as to what Prairie State is because Galion and the other participant communities had been having trouble with getting information.
“I think by the end of tonight’s presentation, more people are going to understand what the concerns have been, why we have been so interested in getting to the bottom of this and what alternatives we have,” Faulds stated.
Buchanan spoke next, explaining that OCA is the state’s largest environmental consumer organization with 80,000 members statewide. It was also involved in lobbying against other coal plant projects such as the Meigs County Generation Plant that was shut down due to unsatisfactory financial costs (see box for details).
The keynote speaker for the meeting was David Schlissel, from Boston, one of three authors of a report published on Aug. 29 of this year: “The Prairie State Coal Plant: The Reality vs. the Promise.” The other authors were Tom Sanzillo and Lisa Hamilton; all three belong to the Institute for Energy Economics & Financial Analysis. In addition, Schlissel has spent 38 years as an attorney and consultant on electric energy and environmental issues.
[On Sept. 20, AMP President/CEO Marc Gerken released a detailed memorandum in response to the allegations made in the IEEFA study, which he claims is “misleading and erroneous.” The memorandum was sent to representatives from all the participant communities and Galion residents can obtain a copy by calling the Municipal Building at 419–468-1857.
Gerken first says the “report is simply not credible and its authors and sponsors—anti-coal groups with an agenda and a handful of others tied to these groups—were not interested in seeking the facts. Most telling is that the authors made no attempt to contact Prairie State Generating Company or AMP for information.” He goes on to say that in the study, there is not a lot of information as to where its featured data comes from.
“By contrast, AMP has always shared sources of information. The feasibility studies done by R.W. Beck (now SAIC) contain exhaustive information as to how both cost projections and market forecasting is done.”]
During the public meeting, Schlissel presented a slide show to highlight the findings of the study. First he explained that IEEFA was formed in 2011 with a mission to “accelerate the United States’ transition to a clean, diverse, sustainable and profitable energy economy.” However, he also noted, “We understand that the transition [to renewable energy sources] will take a long time, decades.”
[According to Gerken, IEEFA is strongly biased and it is unclear on where all of the organization’s funding comes from, but it does appear to be associated with the Rockefeller Family Fund’s Power Plant Finance Project, another anti-coal group.
Authors Sanzillo and Schlissel both have a lack of credibility and actively opposed a previous AMP project, the Meigs County Generation Plant, several years ago. “Their opinions and studies of that project were soundly refuted by AMP, and in Mr. Schlissel’s case, the Ohio Power Siting Board.”]
Schlissel explained that several promises were made to the communities that got involved with the project: PSEC would provide affordable, low cost electricity and controlled power costs; communities would avoid purchases on the volatile, wholesale power market; and electricity from the plant could be resold for a profit.
“$41 per megawatt hour is what AMP told communities in 2007 they would have to pay for power—that you would have to pay for power—from Prairie State…If you were to buy power on the open market this year, you could buy power for about $40/mW hr versus the $74 you’re paying with Prairie State,” Schlissel stated. He added that AMP is not currently making public what communities are being charged for all costs associated with the project.
He went over the other broken promises and explained that his study found that the price of power from PSEC will not be cheap in the future and no one, including AMP, disputes that fact. He showed several charts showing projected costs from the plant each year through 2025 compared with open market price projections.
He estimates that, in total, Galion will pay $8 million “in excess power costs through 2025” versus purchasing from the open market (based on AMP’s estimate that PSEC will operate at 85 percent capacity). If it operates at a lower capacity, then the cost to purchase the power will increase due to supply and demand.
[Gerken said in his statement that much of the data presented in the study is a “snapshot in time” because the projected peak loads for the participant communities and PJM market costs have already changed.
Also, the $41/mW hr figure is incorrect. “With full debt service and both units operating the R.W. Beck feasibility study projected the Prairie State cost of about $48 /mW hr in the project’s first full year of operation.”]
Another point Schlissel made was because of the high costs of generating power, communities would only be able to resell unneeded power at a loss. “AMP signed with the 68 communities what are called take-or-pay contracts. Which is [sic] completely misleading.” He claimed that the participant communities did not understand what these contracts were at the time, nor did AMP properly disclose information about the risks of entering into the agreement.
[On those points, Gerken maintains that AMP did not mislead communities, citing the “incredible amount of due diligence that went into decision making at the local level.” He said AMP never recommended that communities invest in the project in order to resell the power for a profit.
Take-or-pay contracts were not invented by AMP. “It is a well-established contract mechanism that allows the project to be financed at the lowest possible rates—thereby reducing the cost of the project to participants,” Gerken stated. He also noted that many other AMP projects are financed through take-or-pay contracts, including: AMP Fremont Energy Center, Belleville Hydroelectric Plant, AMP Wind Farm and a new solar project in Napoleon.
In terms of risk disclosure, he said the feasibility studies that communities (including Galion) received about the project make market and cost projections, not any “promises” that the IEEFA study refers to. Those studies “contained a great deal of information on potential ranges of costs for power out of the project based on a number of risks.]
Schlissel also looked over the presentation from the Aug. 28 Galion Finance Committee meeting that City Manager Gene Toy and the finance department put together, showing a cost analysis of what Galion has paid to date for the project. He conducted his own analysis and reported his conclusions during the meeting.
Schlissel said the cost comparison of PSEC versus current prices from alternate energy suppliers in that presentation was inaccurate. He found that the listed $61/mW hr and $60/mW hr that Galion paid in June and July were only for the power generation itself; the figure did not account for transmission and distribution charges. The figures for alternative suppliers, in the range of $65–75/mW hr, did include additional charges, making them appear more expensive than power from PSEC.
He went on to discuss the rising construction costs the plant has faced. According to him, Peabody and AMP originally promised that the cost would be $4 billion. However, until 2010, there was no fixed price contract for the engineering, procurement and construction. He said AMP should have known better because there are always higher costs associated with these projects.
An audience member asked: “So all of the communities signed contracts without a cap on the costs?” Schlissel confirmed the statement.
[Gerken said, “PSEC contruction costs are not climbing, the project is 99.7 percent completed under a fixed-cost contract with a provision for liquidated damages to be paid by the contractor if schedule is not maintained. He added there are not currently any plans for additional financing.]Another audience member asked if there was a way for communities to get out of the contract.
Schlessel suggested three options for communities: to leave things the way they are, to re-negotiate the terms of the contract, or to attempt to get out of the contract. “I can’t tell you what to do…but I will tell you that you need someone to investigate,” he said.
[Someone did investigate. Earlier this month, Fitch Ratings and Standard & Poor’s both reviewed the revenue bonds that AMP sold to its member communities for financing PSEC. Both independent rating services awarded the bonds an ‘A’ rating.
Also, Standard & Poor’s reported the total construction costs as $5 billion and that AMP’s share of it would be $1.17 billion—$200 million more than originally estimated in 2007. A press release about the reports, as well as direct links to them, can be found at AMP’s website at www.amppartners.org/newsroom/ratings-prairie-state-affirmed-rating-agencies.]
[The bottom line question for IEEFA’s authors is what do they recommend for baseload power needs? Do they recommend staying on the market—which is primarily older coal…IEEFA provides no guidance.]
Buchanan, Faulds and Schlissel all commented throughout the meeting that it was difficult acquiring information from AMP and Peabody with details on the financing and energy output of PSEC. However, Gerken pointed out in his statement that both IEEFA and OCA never contacted either company for more information.
[The Inquirer contacted AMP in August for a previous story. Kent Carson, Senior Director of Media Relations and Communications Programs, returned a phone call within 24 hours and answered several questions, giving detailed explanations. When the Inquirer emailed him about the Sept. 19 meeting, he responded within four hours with three documents attached, including Gerken’s full statement.]
Another question during the public meeting came from Andy Flock, a Painesville City Council member, as to how communities can get together to initiate an effort like a contract re-negoiation—through city council or another means. He commented that none of his fellow councilmen want to discuss the issue during meetings, at which point many audience members clapped.
Later, Cleveland City Council member Brian Cummins stood up and announced that he was on council when it decided to enter Cleveland into the project. He admitted he made a mistake by doing so but is making an effort to make it right.
Later in the meeting, Galion City Council member Walter Keib admitted he made a mistake as well. He was on council when it originally discussed the project with AMP. “If there’s one thing I learned from all this, it’s don’t believe everything you hear,” he said.
According to AMP’s 2010-11 combined financial statement, available on its website:
In November 2009, the participants of the AMP Generating Station Project voted to terminate the development of the pulverized coal power plant in Meigs County, Ohio. The AMPGS Project was to be a 1,000 MW base load, clean-coal technology plant scheduled to go online in 2014. This pulverized coal plant was estimated to be a $3 billion project, but the project’s targeted capital costs increased by 37% and the engineer, procure and construct (“EPC”) contractor could not guarantee that the costs would not continue to escalate. At the termination date, minimal construction had been performed on the AMPGS Project at the Meigs County site.
To see the full statement visit: www.amppartners.org/investor-relations/financial-reports