OCA holds meeting in Galion about Prairie State, AMP responds

By Matt Echelberry

Inquirer Reporter

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.

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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.

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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