Former Galion law director says refund issue will be on ballot

The charge was led by Don Faulds, Roberta Wade, and John Smella. These Galion residents have been at the forefront of the AMP/Prairie State issue since the beginning. They held a public meeting at the Galion Public Library Tuesday night in an attempt to share their information with the broader Galion public.

They were joined in presenting by Andrew Flock, Neocles Leontis, and Sandy Buchanan who have similar stories to tell about AMP/Prairie State from other communities.

The tenor of the meeting was education and unity for the residents of communities footing the AMP bill, and unity among the constituent communities as they look to confront the issue.

wade o'leary press conferenceWade in particular promised an issue forcing the city to refund overcharges would be going on the ballot after the first of the year. Wade indicated the reasons for the proposed ballot issue are intertwined with the wider AMP/Prairie State story; but the specifics have to do with the government of the City of Galion.

This lawsuit would seek to restore to the residents of Galion some $4 million in what Wade claims are overcharged electric rates. In what Wade termed the “money grab of 2009,” the group says that a Power Cost Adjustment (means through which electrical rates are adjusted) grossly overcharged the residents of Galion until 2012. They added that during this period the electrical fund balance went from approximately $3.5 million to $7.5 million, and that this rate adjustment was done in an underhanded fashion.

Wade cited her time as a member of City Council in this era, which was also when the city tried to double sewer and water rates. These measures were carried out in the light of day, and as such were defeated by Wade and other members of council. Wade alleges the PCA was not done in such open circumstances and this is how it got through.

‘We know the PCA overcharged you,’ Wade said, ‘You’re owed a refund for that money you were overcharged, it’s that simple.’…..

Flock is a city council member in Painesville, and AMP customer; Leontis is a professor at Bowling Green State University, and Bowling Green is an AMP customer; and Buchanan is an executive director with the Institute for Energy Economics and Financial Analysis. Flock and Leontis outlined how their respective communities have dealt with similar situations in regard to their power. Buchanan spoke of other constituent communities who have begun to take action against the group.

Of particular encouragement was the story of Marceline, Mo. This city had a mayor that swore, ‘I’m not going to let this destroy our community.’ This mayor was able to work a deal with AMP to settle out of the contract. This apparently was enough to inspire Paducah, Ky, to attempt something similar.

‘If they succeed in making a deal, every other city should make a deal,’ Buchanan said.

The meeting ended with plans for another meeting after the first of the year, tentatively for Jan. 20. Wade reiterated her commitment to the proposed ballot issue regarding the PCA funds, as well as an allusion to ‘other’ ballot initiatives. Wade stated that she has received feedback from the community that all they do is talk. She made it quite clear that the time for action has now come.”

by Gary Ogle & Andrew Walsh, Crawford County Now

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No power rate relief seen before next July

PPS

Ed Hely (left), Paducah Power System’s newest board member, listens as Mark Crisson, interim general manager, speaks at a PPS meeting Wednesday afternoon.

PADUCAH – “A plan approved by the Paducah Power System board Wednesday will hold the Power Cost Adjustment at its current level but isn’t expected to bring any relief to ratepayers before July.

The board says it will stabilize its finances by eliminating its PCA deficit, which is projected to be $4.7 million by the end of June 2015. The PCA deficit has grown because the percentage being charged to ratepayers produced less revenue than actual power costs.

The board plans to lower the PCA from its current rate of 2.15 cents per kilowatt hour to 0.52 cents by July 1.

With the 2.15-cent PCA currently added to bills, Paducah Power customers are paying what are believed to be the highest electric rates in Kentucky.

Low cash reserves and the PCA deficit triggered a recent negative rating watch by Fitch Ratings, according to a presentation to the board Wednesday by Mark Crisson, interim general manager.

‘We were under-collecting,’ said Crisson. ‘The (power) costs were higher than expected.’

The board plans to reduce its power costs from Kentucky Municipal Power Agency, a joint agency that includes Princeton’s utility, by using a surety bond to replace KMPA’s debt service reserve funds and reduce KMPA’s debt service by $2.7 million in this fiscal year.

Additionally, the board plans to use a surety bond to free up reserve funds to be applied toward debt payments for 2015 through 2018.

Crisson called the plan approved Wednesday ‘an important first step.’

‘This plan is a living plan. It’s organic in that it’s going to be evolving and changing over the next few weeks and months,’ he said. ‘We commit to you as this plan evolves and changes we will communicate not only with our board but to the public.’

Crisson said in considering the best course of action, ‘we’re not taking anything off the table.’

‘Under the circumstances we think we need to be looking at everything,’ Crisson said. That includes responding to an ongoing open records request from local attorney Mark Bryant regarding how the decision to invest in Prairie State was arrived at.

‘Another thing I would mention, we’ll even take a look at the issue of bankruptcy,’ Crisson said. ‘There’s been some talk about that. I just want to say we have been doing some ongoing research and due diligence to try and better understand that option and that process. There’s a lot of uncertainty about what that would mean for a municipal organization like Paducah Power. We are looking at that.’

The board approved hiring American Municipal Power as its portfolio manager beginning in January. That move is expected to save some $2 million in net power costs from Jan. 1 through June 30, 2015.

Other ongoing programs to assist customers include: providing free home energy checks and developing a home energy audit program; implementing a ’round-up’ program to help low-income customers; an updated customer bill format to include more information to help customers track their usage; and reviewing commercial customers with higher than needed demand service, and recommending ways to reduce costs.

Local business owner Ronnie Goode was among those who addressed the board regarding its relief plan. ‘I appreciate the time and energy that was put in on this,’ Goode said. ‘In the community, we have to look on this plan with a high degree of skepticism because of the fact for the last three years, honestly, we’ve been hearing this.’

‘I think the plan now, the way I understand it, is buying insurance on the cash reserves we’ve got and using those cash reserves on operating and paying debt to help us get the rates down,’ Goode said. ‘The plan sounds good, and I think a lot of time was put in on it. And, God help us, I hope it works. Because if it don’t, the cash reserves are gone and I don’t know what happens.’

Board member Jeff Pedersen attempted to clarify what has been done in the past.

‘What you’ve been hearing effectively for the last three years, I think, is that our projected capacity of functionality at Prairie State has been 85 percent. That’s what we put in the budget two years ago, and (we believed) was going to do it for us,’ Pedersen said.

‘These other options had been there, we just didn’t consider them to be important because of the belief and, quite frankly, the hope or perhaps confidence that we put in the functionality of the Prairie State plant.’

The projections going forward, referenced in Crisson’s presentation to the board, are based on a 77 percent capacity factor of the Prairie State plant…

‘Some of them were out there but we didn’t have the leadership, the management expertise to package these together in a comprehensive way that hopefully will bring some confidence,’ Pedersen said. ‘I understand your concerns about looking back, but this is a whole different situation in terms of management, leadership and expertise than what preceded it in recent years in my opinion.'”

By David Zoeller, Paducah Sun

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view PPS’s rate recover plan presentation here

THIN ICE Bond publication article underscores PPS problems

PADUCAH – “A recent article about Paducah Power System in a publication for bond investors offers some new insights into the local utility’s predicament, and raises some concerns. In fact it suggests Paducah Power’s financial situation may be more tenuous than has generally been reported.

Specifically, the article in The Bond Buyer suggests that the recent decision by PPS not to raise its Power Cost Adjustment charge (PCA) has put the utility at risk of violating bond covenants on debt service coverage.

The PCA is an add-on charge to the base rates charged Paducah Power’s customers. It is a product of Paducah Power’s star-crossed investment in the Prairie State Energy Campus. PPS sells power it gets from its interest in Prairie State and uses the proceeds to buy power for PPS customers. Because Prairie State is not producing the amount of power that developers had promised, and because PPS gets a lower price for the power it sells from Prairie State than what it pays to buy power for its customers, it has been forced to assess the PCA to make up for its losses. The PCA surcharge has at times exceeded 30 percent of the base, stoking furor among Paducah customers, who now pay some of the highest electric rates in the state.

A formula PPS uses to calculate the PCA called for another increase in October, but the utility’s board opted not to put it into effect. The Bond Buyer article says that, “in not making the adjustment, the board leaves itself in danger of not meeting debt service coverage levels.”

The article goes on to say that PPS is considering taking on more debt in the form of surety bonds as a way to free up cash.

It quotes PPS Interim General Manager Mark Crisson as saying, “What we want to do is to try to identify steps we can take to support leaving the PCA at the current level while maintaining debt service coverage and adequate cash balances. We intend to present a plan in a couple of weeks to achieve those objectives.”

We don’t find that encouraging. If we read it correctly what it says is the best PPS hopes to achieve through financial engineering is holding rates at the current level. While that may seem better than the alternative, rates at the current level are not tolerable. A story in the Sun last week detailed the impact the current rates are having on local businesses. Baptist Health Paducah has seen its power bill increase by $800,000 this year due to rate increases and PCAs Paducah Power has already imposed.

Local businessman David Perry was forced to shut down a laundromat his company has operated since the 1950s due largely to the soaring power costs. He says he is considering relocating his dry cleaning facility outside the city as well because of the high power rates in the PPS service area.

We suppose you have to start somewhere but in the end just stabilizing rates is not enough. If businesses start shutting down or leave the city because rates are prohibitive – as is already beginning to happen – a sort of death spiral begins, as fewer and fewer customers force the utility to keep raising rates to make ends meet. The magnitude of this crisis is hard to overstate.

Another interesting tidbit in The Bond Buyer article has to do with PPS’ little-used peaking power plant. The plant has long been represented and reported as an investment of $100 million. Turns out it’s a lot more than that. According to the article, PPS has $164.25 million in outstanding bonds largely issued to build the peaking plant.

We have in the past urged PPS to retain experts to sell the peaking power plant. As it stands it is a $160 million stranded asset. We’ll further opine that if PPS cannot operate this plant profitably (right now it barely operates it at all) and cannot sell it at a price that substantially retires its bonded indebtedness, then PPS truly is bankrupt. If so it should face that reality and act accordingly.

PPS does say it will present a recovery plan to the community soon, and we await that with interest. But we continue to believe in the end PPS must restructure, at the very least shedding assets like the peaking plant. Stabilizing rates at current levels is not enough. The utility must substantially reduce its debt. That’s the only route to permanent rate relief.

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Prairie State costs fuel turmoil at Kentucky’s Paducah Power

BRADENTON, Fla. – “When an attorney in Kentucky suggested that the Paducah Power System file for bankruptcy to get its ratepayers relief from high electric bills, the suggestion made sense to some utility customers.

The suggestion also caught the attention of rating agency analysts monitoring Paducah Power’s finances and debt, most of which funds 80% of its power needs from the troubled Prairie State Energy Campus in Illinois.

“Why don’t we immediately bankrupt this company and start getting our rates down quickly?” local attorney Mark Bryant suggested to Paducah City Commissioners during a Sept. 23 meeting.

Paducah Power has $32 million in assets and about $600 million in debt, he also said.

Like other communities that bought into Prairie State, Paducah has seen higher than anticipated costs from the coal-fired generating plant in Washington County, Ill., which has been more expensive to build and operate than owners anticipated. …”

— SHELLY SIGO, BOND BUYER.COM

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Paducah Power bills bruising businesses

PADUCAH, KY — “Paducah businesses large and small are feeling the impact of hefty electric bills as Paducah Power System searches for a way to bring relief to ratepayers.

Power costs at Baptist Health Paducah have increased about $800,000 this year, which represents a 20 percent increase, despite the hospital’s investment in conservation upgrades the past two years, according to Michelle Hayden, executive director of finance.

“For a not-for-profit hospital, that’s $800,000 we cannot reinvest into our operations and services to benefit our community,” Hayden said. The costs are not passed on to patients, she said.

Meanwhile, a long-time Paducah business has shut down part of its operation due to unaffordable electric costs. …”

– DAVID ZOELLER, PADUCAH SUN

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Batavia calls for investigation into energy plant

Batavia, IL – “The city of Batavia formally requested that Attorney General Lisa Madigan investigate whether there was anything “inappropriate” about its deal with Prairie State Energy, the city’s energy provider.

In a unanimous vote, and to a round of applause from the audience, the council approved Monday night a resolution that reads:

‘… The City respectfully requests the Illinois Attorney General to conduct an investigation and audit of the Prairie State Project agreements and contracts and the communities currently obligated under them to determine the following: 1. whether the City of Batavia was given full and accurate information about the Prairie State Project prior to the time it entered into the agreements, 2. whether any affirmative, material misrepresentations or material omissions were made in the presentation of information to the City of Batavia with respect to the Prairie State Project …’

The letter to Madigan states that Batavia, as a member of the Northern Illinois Municipal Power Agency, was not given as much time to consider signing on to the project as other partners elsewhere. Batavia, along with Geneva and Rochelle, belong to the agency, which has a long-term deal to purchase power from Prairie State, a Southern Illinois coal plant.

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— ALEXA AGUILAR, CHICAGO TRIBUNE

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Editorial: URGENCY PPS can’t just wait, hope things improve

PADUCAH, KY – “The Institute for Energy Economics and Financial Analysis is a group with an agenda. It makes no secret of its preference that the U.S. move away from coal-fired power plants in favor of wind, solar and other renewable energy sources. It has been a critic of the Prairie State Energy Campus since long before Paducah Power System’s half-billion dollar investment in the venture imploded.

Because of that history, we naturally view information provided by the group with a grain of salt. But that doesn’t mean we reject it out of hand. And we think there is more than a little substance to a recent report by the group that suggests that absent some remedial action, PPS customers will continue to pay well above the market rate for power during the next 10 years.

The IEEFA estimates that between January of 2013 and August of 2014 PPS has had to spend $40 million above wholesale market rates for power because of its investment in Prairie State. The above-market cost is attributed to multiple factors. For one, IEEFA says more than half the present power cost is a function of debt service on bonds PPS sold to finance its Prairie State Investment.

A second factor has been the poor performance of Prairie State itself. It has never reached the 82.2 percent operating capacity investors were counting on, and it is well past the time in the history of the plant when that benchmark was supposed to be achieved.

A third negative factor has to do with the power grid itself. PPS doesn’t get its power directly from Prairie State. Rather, it sells its share on a section of the grid close to the power plant and then buys power off the grid at points closer to home. The economics of that, which one would have thought PPS would have examined prior to entering this arrangement, are that PPS gets less for the power it sells than what it pays to buy power for its customers.

IEEFA projects that over the next 10 years, even if Prairie State achieves the 82.2 percent efficiency that is the basis for its business model, Paducah Power’s customers will pay $150 million above market rates for power. Even if market conditions turn more favorable, PPS customers still will be out an extra $100 million, the IEEFA says. …”

— PADUCAH SUN EDITORIAL

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Editorial: REALITY Current power rates will kill development

PADUCAH, KY – “Former Paducah Mayor Albert Jones says if he were still in office, he would encourage Paducah Power System to file bankruptcy posthaste. “You can fool around for months and months,” he said. “Just file it.”

Current Mayor Gayle Kaler, and her predecessor, Bill Paxton, say not so fast. Kaler says that although a PPS bankruptcy filing would not affect the city directly – PPS is an independent entity – she fears a filing would reflect poorly on Paducah and could hurt future economic development.

For his part Paxton thinks the new board chairman and interim general manager should be given time to seek out temporary rate relief while hoping that longer term things get better with PPS’ star-crossed investment in the Prairie State Energy Campus.

We come down in the middle of all of that. We continue to encourage the PPS board to hire a restructuring advisory firm that would look at all options – everything from a combination of asset sales and refinancing to a bankruptcy filing, and lay out the best options for the utility.

We don’t think PPS should file bankruptcy before exploring other ways to reduce its crushing debt burden, which is a primary driver of its soaring power rates. But we don’t think that waiting and hoping things get better is a solution either.

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— PADUCAH SUN EDITORIAL

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Press release: Prairie State Generating Company names Chief Executive Officer

MARISSA, IL – “The Prairie State Generating Company (PSGC), announced today that the Board of Directors has appointed Donald Gaston as President and Chief Executive Officer (CEO).  Mr. Gaston has an extensive professional background in supercritical fossil generation, comprehensive safety programs, environmental controls technology and marked performance in improving power plant reliability throughout his more than 30 years in the electric generation industry.”

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Batavia residents renew call for investigation into electric project

BATAVIA – “Residents at Monday’s Batavia City Council meeting repeated their call for the city to ask Attorney General Lisa Madigan to investigate Prairie State Energy Campus.

“The details of who knew what [and] when is still not known today,” said resident Betsy Zinser, in addressing aldermen. Zinser and others presented a letter to aldermen signed by more than 1,000 residents calling for an investigation.

Aldermen at a Joint Committee of the Whole meeting in September unanimously recommended the city should ask Madigan to conduct an investigation. Mayor Jeff Schielke said the city attorney is in the process of drafting the language for the request for an investigation. He said the full City Council is set to vote on the request for an investigation at its next meeting in November.

“We expect that this action will be taken in the very near term,” Schielke said. That statement received loud applause from audience members.

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— ERIC SCHELKOPF, KANE COUNTY CHRONICLE

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