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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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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Geneva OKs resolution on Prairie State lawsuit

GENEVA – “Aldermen unanimously approved a resolution for a common interest agreement between Geneva, Batavia, Rochelle and the Northern Illinois Power Agency.

Monday’s vote followed a half-hour closed session, which authorized city attorney Charles Radovich execute the agreement on Geneva’s behalf.

Batavia, Geneva and Rochelle are named respondents in discovery in a lawsuit filed in August by Batavia businessman Joe Marconi over the city’s investment in the downstate Prairie State Energy Campus.

In 2005, the Northern Illinois Municipal Power Agency, of which Batavia, Geneva and Rochelle are members, agreed to a long-term contract to purchase electricity from Prairie State.

Radovich said the defendants petitioned the Seventh Circuit Federal Court to take the case instead of having it heard in Kane County. The request is pending, he said.

“The common interest agreement … will really help the city attorneys that are members of NIMPA coordinate and discuss any discovery requests that they may make if the case comes back to state court – and there is no certainty that it would come back,” Radovich said.

The resolution states that any party can withdraw from the agreement at any time.”


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Utility’s new GM promises effort to get rate relief

PADUCAH, KY — “By the end of his first day on the job as Paducah Power System’s interim general manager, Mark Crisson made two things abundantly clear.

First, his top priority is to choose a new and better qualified marketing company to manage the utility’s portfolio. Second, he doesn’t want to make such decisions hastily, but knows he must make them “with dispatch.”

Crisson retired from the American Public Power Association earlier this year after serving as president and CEO since January of 2008. Before that he spent almost 30 years with Washington Public Utilities in Tacoma, serving as its CEO for 15 years.

Crisson accepted the position as interim GM for Paducah Power on Tuesday and began work Thursday. He will serve as GM for the utility for an estimated five months while the board searches for a permanent replacement for former GM Dave Clark, who resigned two weeks ago.

Crisson joined Paducah Power in a time of widespread criticism. PPS has come under intense scrutiny in the wake of the poor performance of the Prairie State Energy Campus, its chief power supplier; the costs of its debt as a Prairie State owner/investor; and the impact of those costs on electric rates, believed to be the state’s highest.

Thursday night Crisson and PPS board chairman Hardy Roberts spoke to a group of Paducah residents gathered for the West-End Neighborhood Association’s fall meeting.

“We’ve got a number of objectives for the next few weeks, but at the top of the list is improving our financial and operating performance,” Crisson told the group.

Responding to a question about obtaining some rate relief in the near term, he said, “I don’t want to raise hopes in that area. It took a while to get into this predicament, and frankly my goal right now is to try to stabilize things a little bit. If we can stabilize things, then there’s a prospect for reversing course and backing off on the level of rates.”

Crisson explained that the company Paducah Power currently has on retainer to market, buy and sell power is not the most qualified. Securing better management for the utility’s portfolio is the first step to stabilizing PPS’ financial situation, he said. The power marketing company now on retainer has a contract with PPS that is up at the end of the year. Crisson is determined to secure a new company as soon as possible to take its place.

“The company we currently have has primarily gas market experience,” he said. “I really would much rather them understand the power markets. These companies we’re talking to are power marketing experts.”

Crisson said he’s narrowed options for a new marketer down to two companies, both of which will optimize the portfolio of Paducah Power by buying and selling more efficiently on the market.

“These are two very well-respected, very well-funded companies,” Crisson said. “The challenge really is to make a choice between the two, and that’s what we hope to do in the next three to four weeks.”

One West-End Neighborhood Association member brought up the Paducah Power peaking plant. Crisson replied that the under-utilization of the plant is at the core of his concerns of how Paducah Power’s portfolio is being managed. He thinks more savvy management could be a key to a financial turnaround for Paducah Power.”


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TVA monthly fuel cost, power rates decrease

PADUCAH, KY — “The Tennessee Valley Authority’s total monthly fuel cost is the lowest in four years and its wholesale rates have dropped, in contrast with rates charged by Paducah Power System believed to be the highest in Kentucky.

TVA produces electricity across the seven-state Tennessee Valley region. The electricity is purchased by 155 local power companies. Paducah’s power previously was obtained from TVA.

This November’s total monthly fuel cost for TVA will be 1.896 cents per kilowatt-hour, according to Scott Brooks, a TVA spokesman. That is approximately 17 percent lower than the three-year average November figure of 2.297 cents per kwh. The fuel cost accounts for about 30 percent of the wholesale rate TVA charges its customers.

“This is the lowest total monthly fuel cost in nearly four years (since we’ve been calculating the full cost of fuels),” Brooks said.

According to Brooks,  TVA (wholesale) rates are down 9 percent since May, even with the 1.5 percent increase in the fixed portion (approximately two-thirds) of the wholesale rate approved by the TVA board in August, which went into effect Oct. 1.

TVA’s average wholesale rate last May was 7.7 cents per kwh, compared to November’s 7.01 average of cents per kwh, Brooks said.

Fuel is approximately 30 percent of TVA’s expenses, and includes costs for coal, natural gas, purchased power and other fuels. The rate companies that buy power from TVA charge their customers varies, depending on their costs. Each local power company could list charges differently on customers’ bills.

Paducah Power System officials made the initial decision to leave TVA in 2004 and invest in the Illinois-based Prairie State Energy Campus. Reasons cited were concern for TVA’s aging equipment, among other things, and the perceived savings on fuel costs since the Prairie State coal-fired plant was sitting on an estimated 32-year supply of coal.

However, increased construction costs and operation problems since Prairie State’s two generating units went on line in 2012 increased costs and resulted in a spike in PPS’ power cost adjustment, which is passed on to customers.

The poor performance of Prairie State, the cost of PPS’ debt as an owner/investor, and the impact of those costs on electric rates have sparked outrage in the community and led to the recent resignations of two top utility officials.

A reorganized PPS board has vowed to consider all options in determining how to proceed and provide rate relief.”


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Law Prohibits Paducah Power Customers From Tapping Another Provide

The PPS Board has been getting its power from Prairie State Energy Campus in southern Illinois, of which the board is a part-owner. Prairie State has been under-producing its expected wattage supply and in turn caused customers’ bills to inflate.

Recently, several key board members have stepped down from leadership following criticism from the public and municipal government officials. However, officials say prices won’t be falling anytime soon.

According to Public Service Commission Spokesman Andrew Melnykovych, customers in the Paducah municipal utilities district can’t find an alternative due to state law.

He says KRS statute 278.017, known as the Territorial Act, effectively prohibits customers from drawing power from a competing electric provider outside of their established exclusive service territory.

‘In exchange for essentially being protected against competition, electric utilities are granted service territories and within those service territories they’re obligated to serve every customer who meets those conditions of service, in other words pays their bills on time and so forth,’ said Melnykovych. ‘So in a situation like this, if you live in Paducah and you’re served by Paducah Power, that is really your only option.’

Excluding municipal utilities, there are 7 electricity service retail districts in our listening area.

Credit Kentucky Energy and Environment Cabinet



Although, the PSC does not regulate municipalities like Paducah, Melnykovych says the state law applies to those areas as well…

Commission’s efforts to lower PPS energy rates appreciated

letterPADUCAH SUN – “EDITOR: Please allow me to use your media to thank the commission and attorney who are actively working with Paducah Power to lower our energy rates.

The time has long passed for an “Oh, well” attitude. If industry is complaining, think how mere citizens feel. We all have budgets that have limits.

In my experience, very little positive change occurs until someone cares enough to do something different. Remember – insanity is doing the same thing and expecting something different.

Again, thank those who care through their action. May they and we all be blessed real good.”

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COUNSEL PPS should seek out restructuring advisor


PADUCAH SUN – “Accounts of last week’s lengthy Paducah Power System board meeting leave us with a couple of impressions. One is that the board grasps the urgency of exploring every option for dealing with runaway power rates resulting from a series of disastrous investments by PPS. The other is that on the operating cost line, things are getting worse and not better.

We found particularly ominous the board’s discussion about the Power Cost Adjustment – a surcharge applied to the base rate. The PCA is designed to offset the difference between what the utility is paying to buy wholesale power and what it receives from the sale of power it generates from Prairie State. The differential is partly the result of the fact that Paducah Power pays for its full allotment of power from Prairie State even though Prairie State is not producing the full allotment, and partly because of unfavorable differences between the price PPS gets at the Illinois power hub where it sells Prairie State power and the Indiana hub where it buys wholesale power for Paducah. (PPS doesn’t actually get power from Prairie State. It sells power produced by Prairie State and uses the proceeds to buy power elsewhere.)

The PPS board was advised that based on a cost analysis, the PCA needs to be raised from the current 2.15 cents per kilowatt-hour to 3.223 cents for the fourth quarter, an increase of 50 percent. The board opted to hold the PCA at the current level for the month of October, in hopes the picture would look a little better next month.

We think the board did the right thing, although perhaps not for the right reason. We wonder whether it might not be a proper move for the board to simply hold the line on rates or even dump the PCA altogether and start generating losses at PPS.

In that vein, we think that the best way for PPS to explore its options in seeking a way out this complicated mess is to hire a restructuring advisor. Many troubled companies in the private sector do this, and we suspect there are firms with specific expertise in the power generation industry that could be helpful. A restructuring advisor would look at the whole array of options – bankruptcy, a strategic default on debt, sale of assets and/or sale of the entire operation.

Short of bankruptcy, which we think would be the most effective option but may not yet be legally viable, we think asset sales are an avenue that could be explored. One suggestion we have heard has to do with PPS’ little-used peaking power plant. PPS has more than $100 million in bonded indebtedness on the plant, which sat idle 95 percent of the time during its first three years of operation because it was not profitable to operate.

The suggestion is to sell that plant to a major utility like TVA. Even if sold at a loss, the proceeds could be used to substantially reduce PPS’ more than $600 million in debt and thereby reduce the cost of debt service, which is built into the current base rates. That one strikes us as a no-brainer. As it sits now, the plant represents more than $100 million of stranded assets that are making little to no contribution to the bottom line.

A restructuring advisor could put real numbers on that option and guide PPS through the sale process if such a move makes sense.

Also in the vein of finance, we note that Mayor Gayle Kaler says she is interviewing potential replacements for PPS board member Ray McLennan, who resigned under pressure last month. We think it is incumbent on the mayor to select a board member with a strong financial background – preferably someone with experience with restructurings and financial workouts – to help guide the board through this process.

We do commend the PPS board for its newfound sense of urgency on the rate issue. We firmly believe the board has options, and that there are ways to makes things less bad, if the board engages the help of the right kind of professional advisors.”

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Prairie State project topic of Batavia event


kane co chronicle

BATAVIA – “The city’s investment in the downstate Prairie State Energy campus will be the topic of discussion in a presentation at 7 p.m. Oct. 13 at the Batavia Public Library, 10 S. Batavia Ave., Batavia.

Batavia resident Betsy Zinser will speak at the presentation, which is being sponsored by the Sierra Club. Earlier this year, Zinser spoke at a similar meeting. Zinser said she supported a recent recommendation by aldermen that the city should ask Attorney General Lisa Madigan to investigate Prairie State Energy Campus.

‘I feel an investigation needs to happen,’ Zinser said.

The action follows on the heels of Batavia businessman Joe Marconi recently filing a class-action lawsuit in Kane County Circuit Court over the city’s investment in the downstate campus.

In 2005, the Northern Illinois Municipal Power Agency, of which Batavia is a member, agreed to a long-term power contract to buy electricity from Prairie State. Geneva and Rochelle are other members…

Zinser noted the group Batavians for Clean Energy and Conservation had raised financial concerns about the project in 2007 as it was moving forward. Zinser was a member of the group at the time…”