Think how close Cleveland, Case, UH and MCCO Leaders came to getting this headline: "Clean coal dream a costly nightmare"

By Michael Hawthorne, Tribune reporter

July 12, 2010

Sold on a promise of cheap, clean electricity, dozens of communities in Illinois and eight other Midwest states instead are facing more expensive utility bills after bankrolling a new coal-fired power plant that will be one of the nation's largest sources of climate-change pollution.

As the Prairie State Energy Campus rises out of a Downstate field, its price tag already has more than doubled to $4.4 billion — costs that will largely be borne by municipalities including the suburbs of Naperville [5], Batavia [6], Geneva [7], St. Charles [8] and Winnetka [9].

The communities are locked into 28-year contracts that will require higher electricity rates to cover the construction overruns, documents and interviews show. Municipal officials told the Tribune they expect costs to soar even higher before the plant begins operating next year.

Then there are the environmental costs of the project, which was designed by St. Louis-based Peabody Energy, the world's largest private-sector coal company, to burn fossil fuel from one of its nearby coal mines.

Though the company and its partners promote the plant as a national model for environmentally friendly "clean coal" technology, Prairie State will be the largest source of carbon dioxide built in the United States in a quarter-century.

Each year, it will churn more than 13 million tons of heat-trapping gases into the atmosphere, an amount equivalent to adding 2 million cars to the nation's highways. Most U.S. power plants emitting that much climate-change pollution date to the 1960s and '70s.

The pollution also could make the plant more expensive to operate. Climate and energy legislation pending in Congress would slap a price on greenhouse-gas emissions, requiring Prairie State's owners to spend hundreds of millions more a year. Local officials didn't account for those costs when buying into the plant.

It is difficult to estimate what the tens of thousands of households in the five suburbs ultimately will pay for electricity. But even without any carbon-related costs, the Prairie State plant will drive up energy costs for communities that have long prided themselves on keeping rates lower than ComEd and other competitors, according to records obtained by the Tribune under the Freedom of Information Act.

"We don't know yet if we've been sold a bill of goods," said Ray Pawlak, a Geneva alderman who was one of the few Chicago [11]-area officials to vote against the project. "But why should we take a risk like this?"

One indication of how rates might rise is buried in files from the Illinois Municipal Electric Agency, or IMEA, an association of 33 cities that owns a 15 percent stake in the plant. Naperville, St. Charles and Winnetka all buy electricity through the agency.

In documents filed last year for a bond issue, the agency predicted its electric delivery rates to member communities will increase to $63.40 a megawatt hour in 2013, up 30 percent from 2007. Agency officials attribute the rate increase to their investment in the Illinois project and a smaller, less expensive coal plant in Kentucky [12].

Officials said additional cost overruns for the Prairie State project will force them to borrow more money and boost rates even higher to pay off the debt. What customers pay will be decided by each municipality after local officials tack on expenses to operate and maintain their electric distribution networks.

Doug Krieger, Naperville's city manager, declined to speculate how construction overruns and potential carbon regulations may affect rates. "That's anybody's guess," he said.

"We still feel good about our decision," Krieger said. "IMEA's volume purchasing power, combined with ownership in Prairie State and other generation, will allow us to continue our price advantage over ComEd."

St. Charles officials said their 2007 decision to invest was based on the best information available at the time. "It's still a good deal for us in the long term," said Mayor Donald DeWitte. "There's no way the cost of our power is going up 30 percent."

But elected officials in Geneva are having second thoughts. Along with neighboring Batavia, the suburb belongs to a separate municipal group that owns a 7.6 percent stake in Prairie State. Mayor Kevin Burns told the Tribune he recently ordered his staff to study whether the city can limit paying for the project's skyrocketing costs.

"We thought this would insulate us" from electricity price spikes, Burns said. "Until we have all the figures in, it's premature to say whether that remains the case now."

Officials in Batavia and Winnetka declined to comment. "There's nothing to be said about this now," said Eldon Frydendall, chairman of Batavia's public utilities committee.

When officials decided to invest in the plant and adjacent coal mine, they saw the project as a hedge against volatility in the energy market. Since Prairie State won't be their only source of electricity, they said, cities will be shielded from the full brunt of the project's costs.

"This is just one piece of a larger portfolio," said Phillip "Doc" Mueller, IMEA's vice president for government affairs and management services. "Nobody likes to see costs increase, but this will have a relatively small impact on the system."

Prairie State will be a major source of air pollution, but for the amount of electricity it generates, it will be cleaner than most of the nation's existing coal plants, some of which date to the 1940s and '50s.

Federal Clean Air Act regulations required Peabody to install equipment that will reduce lung-damaging smog and soot, and curb emissions of toxic mercury that makes fish unsafe to eat. Because the mine is next to the plant, the project will avoid greenhouse gases that otherwise would have been emitted by coal trains and trucks.

"Prairie State was a winner a decade ago, it is a winner today and Prairie State will be a winner decades from now," Peabody spokesman Vic Svec wrote in response to questions.

Flanked by a high school band and people waving black and white Peabody banners, company executives unveiled their plans for the Prairie State plant in 2001 on the steps of a 19th century courthouse in Nashville, Ill., about 50 miles southeast of St. Louis.

Peabody said the plant would cost $2 billion and pump millions into a regional economy reeling from a decades-long decline in coal mining jobs. The plant's pair of 800-megawatt turbines would generate enough electricity to power 2.5 million homes. It would be fueled by Illinois coal, create 3,000 construction jobs, add 500 permanent workers and eliminate transportation costs.

The company found an enthusiastic ally in then- Gov. Rod Blagojevich [13]. Eager to court southern Illinois voters, the Chicago Democrat offered the company millions of dollars in tax breaks and other subsidies. He pushed for quick approval of the necessary environmental permits, brushing aside questions about how he could embrace a new coal plant while condemning the Bush administration for failing to limit climate-change pollution.

The decisions by various cities to help pay for Peabody's project garnered little attention at the time, and prompted only a smattering of objections from citizens and environmental activists. Minutes from city council meetings where the project was discussed show Prairie State's municipal backers agreed with coal company representatives who promoted it as a low-cost power provider.

"We believe the Prairie State project is in the long-term strategic interests of Winnetka," village officials wrote in a March 2007 memo urging elected officials to approve the deal.

Yet around the same time cities were signing contracts with Peabody, private investors were starting to abandon dozens of similar coal-plant projects nationwide, scared off by rising construction costs and the likelihood of tough limits on greenhouse gases that would make carbon-rich coal less attractive.

In April 2007, the U.S. Supreme Court [14] ruled that carbon dioxide and other heat-trapping gases can be regulated as air pollution.

Governors in Florida [15] and Kansas [16] scuttled proposed coal plants, urging utilities to find cleaner ways to meet future energy demands. In a deal with environmental groups, one power company canceled eight of 11 coal-fired plants planned for Texas [17] in favor of investing in wind energy.

Along with aggressive opposition from environmental groups, ballooning costs for trained workers, steel and other materials discouraged dozens of companies that once flirted with new coal plants. Only 31 projects remain in the works nationwide, an abrupt shift from the 150 proposed a few years ago.

By the time construction began on the Prairie State plant in 2007, Peabody had raised the price tag to $2.9 billion. Since then, the estimated cost has risen to $4.4 billion, forcing municipal investors throughout the Midwest to borrow more to cover the overruns.

Peabody ended up with just a 5 percent share of the project, limiting its liability for the additional costs.

To cover its latest share, the Indiana Municipal Electric Agency is seeking approval for $122 million in new debt. State regulators in 2004 approved an $850 million bond issue that was supposed to be enough to finance three power plants. Now more than three-quarters of the cash is going to Prairie State, according to documents filed with Indiana regulators.

Analysts for a state agency that represents Indiana consumers concluded that Prairie State now costs as much as a coal gasification plant, which would have been significantly cleaner and readily adapted to capture carbon dioxide emissions. Peabody had rejected calls to make Prairie State a gasification plant, arguing it would be too expensive.

"(O)ne has to wonder if these projects would be considered viable alternatives today if hundreds of millions had not already been invested," Duane Jasheway, an analyst for the Indiana Office of Utility Consumer Counselor, testified in February.

Now that they are paying for the Prairie State plant's escalating costs, officials in dozens of small Midwestern towns have been enlisted as lobbyists against climate legislation. For Peabody, they've become potent allies in an aggressive campaign to block the legislation or make it less onerous for coal interests.

Twenty Illinois communities involved in the Prairie State project sent representatives to a February rally in Washington [18] where municipal officials urged members of Congress to back down from a House-approved climate bill.

"It is undeniable that this bill will increase our customers' costs," IMEA president Ronald Earl wrote in a letter urging Illinois lawmakers to "mitigate the worst aspects of this legislation."

The letter doesn't mention the other cost increases associated with the project.

"These cities and towns are captive buyers at the mercy of Peabody and its ever-increasing costs," said Howard Learner, president of the Environmental Law and Policy Center, a group that fought the plant. "People are going to pay higher rates for more pollution. That isn't a winning formula."

mhawthorne [at] tribune [dot] com

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Think how close Cleveland, Case, UH and MCCO Leaders came to getting this headline: "Clean coal dream a costly nightmare"

Clean coal dream a costly nightmare

Five Chicago suburbs and dozens of other Midwest towns in power-plant deal now face the prospect of rising electricity bills