Sanzillo and Schlissel: There’s a Better Way Out of This Mess Than What Paducah Power Proposes

By Tom Sanzillo and David Schlissel — 

The recent plan proposed by Paducah Power System to reduce high electricity costs for residents and businesses will neither bring rates down to a manageable level nor stabilize the utility’s finances.

The good news: There’s a better way forward.

To see through the bad offer on the table, it’s helpful to understand some of the background on how Paducah today has the highest electricity rates in the state and pays far more than it should.

For most of the history of Paducah Power, ratepayers were charged reasonable rates. That all began to change when the utility agreed in 2005 to buy more power than it needed from the Prairie State Energy Campus in a deal that locked the utility-and its customers-into an expensive long-term commitment that benefitted the builders and financiers behind Prairie State at the expense of PPS’ customers.

Natural gas is abundant and inexpensive today, and power prices are low and affordable in regional competitive power markets-which is where Paducah should be buying its electricity. Paducah residents and businesses, by all rights, ought to be paying much lower rates now and into the foreseeable future.

That’s not what’s happening, though, because Prairie State is producing absurdly expensive electricity, and through deals like those it has with Paducah, has pushed ratepayers into bearing the brunt of that expense.

The rate-reduction plan Paducah Power rolled out last month might provide some relief, but that relief will be small, temporary and costly in the long run. It pushes short-term costs onto future ratepayers, and it kicks the can down the road by promising-through unproven assertions-that millions of dollars can be saved just by bringing in a new salesman to help PPS sell its share of the excess and overpriced electricity it has to buy from Prairie State.

The heart of Paducah Power’s problem is that it has too much debt. That’s because the utility was recruited into investing in Prairie State with promises of stable, low-cost power.

Paducah was enticed somehow into buying too big of a stake in the plant, which was constructed at a cost of $5 billion, twice what was initially estimated. Paducah Power’s electricity is unaffordable today because of those overruns and because of Prairie State’s fundamentally weak business model.

What to do?

Paducah Power executives, and some of the city’s elected leaders, want citizens to shoulder the burden themselves. That’s the core of the utility’s recent proposal.

This is wrong.

Peabody Energy, Bechtel Corp., various investment bankers, assorted bond dealers, bondholders and several law firms have profited or continue to profit from what was plainly a mistake.

They can afford to share this load. The bondholders who own the debt Paducah is paying for have assets worth a combined $6.7 trillion.

Three of those bondholders—Invesco, Franklin Templeton and Nuveen Investments—hold approximately 66 percent of the debt. They and their subsidiaries are worth $2.4 trillion. Peabody, even with its recent dismal financial performance, is worth $2.4 billion. Bechtel, which billed for the cost overruns, is one of the largest companies in the world, with annual revenues of $37.9 billion in 2013.

The underwriters for the bonds—those who engineered the deal and collected big fees on it—included Hilliard Lyons, J.P. Morgan & Co., Wells Fargo, Raymond James Securities and Edward Jones.

Paducah Power took a risk, to be sure, but so did the other players. Anytime a public power project is financed, it has many stakeholders by design, so that risk is distributed equitably. The way forward in Paducah is to implement a debt-relief plan that requires all parties to contribute and that offers an honest assessment of Prairie State’s operating viability.

While workouts like these are rare, they do occur. Just in the past two years, for example, Jefferson County, Alabama, and the city of Stockton, Calif., have gone through bankruptcy proceedings in which bondholders in each case ended up forgiving some of the principal value of debts.

In the 1990s, Troy, N.Y., renegotiated lower interest payments with bondholders to avoid bankruptcy, and the distressed Washington State Public Power Supply System worked out a deal in which bond investors received between 10 and 40 cents on the dollar. There are many other instances of public entities reaching new arrangements with creditors to spread financial fallout fairly.

The Prairie State plant is not producing affordable electricity for Paducah, even though that’s what the city was supposed to get for its multi-decade commitment to the plant through 2041.

It was, and is, a bad deal for Paducah, and those who have gained from it should be compelled to join the public dialogue on how to find a solution. The idea that residents and businesses alone should bear all the costs of a shared mistake is hogwash.

Tom Sanzillo is the director of finance for the Cleveland-based Institute for Energy Economics and Financial Analysis. David Schlissel is IEEFA’s director of resource planning analysis.

[This op-ed first appeared in the Paducah Sun on December 15, 2014]

PPS optimistic about NYC meetings

“Paducah Power System officials may not know how successful this week’s trip to New York to meet with bond insurance companies and rating agencies was until next month.

Interim General Manager Mark Crisson said he believes the meetings were productive and the utility will be treated fairly.

Crisson, Board Chairman Hardy Roberts and Dave Carroll, director of finance and administration, will return today from New York, where they met with six firms.

‘What we hope to accomplish is to get competitive bids or proposals from one or more bond insurance companies for a surety bond to free up our debt service reserve, and reaffirm and/or maintain our current bond rating,’ Crisson said by phone.

‘All of the meetings went well,” Crisson said. “They had a lot of questions.’

Crisson said Paducah Power will probably hear from surety companies in January.

‘I feel optimistic about the outcome there,’ Crisson said. ‘What we don’t know is what the fee might be.’

The officials met with bond insurance companies Build America Mutual, National Public Finance Guarantee and Assured Guaranty Corp., and the three main rating agencies: Fitch Ratings, Standard & Poor’s, and Moody’s.

Crisson likened the meetings to appearing before a judicial panel, in that “it’s not always easy to read which way they’re leaning based on what they say.”

In their meetings with the credit rating agencies, with the last one scheduled this morning, ‘We made it clear we’re taking steps both to provide some rate relief and strengthen our finances,’ Crisson said, referring to the PPS board’s rate recovery plan.

‘One of the (rating) companies wanted to know the likelihood of obtaining a surety bond, and when that’s going to happen,’ Crisson said. ‘Based on those questions, they may wait to see what happens with the surety bond (before addressing the rating).’

Before the officers left for New York on Tuesday, the board passed a resolution reaffirming its commitment to the rate recovery plan approved Nov. 12 and its intent not to seek Chapter 9 bankruptcy relief.

‘If you’re contemplating bankruptcy, they’re not interested in providing any funding or help with your credit rating,’ Crisson said.

The Paducah group went through the rate recovery plan in detail in the meetings, as it did at the Nov. 12 board meeting in Paducah.

‘I don’t think there were too many surprises,’ Crisson said of the discussions.

‘There were a lot of questions on Prairie State. Some of them were more well-versed than others’ on the operations of the Prairie State Energy Campus, PPS’ chief supplier of power, Crisson said.

He said the discussion indicated the rating agencies felt Prairie State was a ‘good asset, and you’ve got to take a long-term view.’

By David Zoeller, Paducah Sun

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Commissioners discuss PPS

City leaders discussed some of the latest developments in addressing Paducah Power’s high electric rates at the Paducah City Commission meeting Tuesday.

Three months following the commission meeting where leaders from Prairie State Energy Campus and Paducah Power System made a presentation regarding the campus’ operation and the system’s rates, commissioners talked about what has been done since then to remedy the power problem.

Commissioner Richard Abraham brought up Friday’s editorial in The Paducah Sun, which criticized Paducah Power’s choice in using Louisville-based financial consulting firm Hilliard Lyons for advice on PPS’s options. The company was involved in Paducah Power’s bonding for the Prairie State Energy Campus project.

“I’m not sure if bankruptcy is the way to go, but we passed a resolution the night that Prairie State was here … that everything was on the table and (Paducah Power) was to always move in a way that is transparent,” Abraham said.

Paducah Power Board Chairman Hardy Roberts addressed the issue in a letter to the editor that was published in Monday’s edition of The Sun. Roberts stated PPS sought bankruptcy advice from a legal firm with bankruptcy experience. Commissioner Sandra Wilson suggested that the commission invite PPS interim general manager Mark Crisson for an update on the status of a rate recovery plan and options for PPS. Paducah Power officials flew to New York on Tuesday for meetings this week. They are set to meet with different companies and discuss issues such as an insurance policy and bond ratings relating to the rate recovery plan.

In November, the Prairie State campus performed at its highest operating capacity to date. City Manager Jeff Pederson, who is a member on the PPS Board, said over the past three months combined the capacity of the plant was the highest of any three-month period. “Those are encouraging notes,” he said. “Those are very strong and very encouraging indicators, and that’s a part of the financial recovery too, the improved operation of that plant. Combined with other things that we’re doing, clearly things are looking positive and the ship appears to be turning in the right direction.”

At Monday’s PPS Board meeting, the board approved a plan to provide no- or low-cost energy audits for residential customers. The audits provide customers with suggestions on ways to save energy. Mayor Gayle Kaler said Tuesday that PPS should offer the audits at no cost. “There are many ways you can save power,” she said. “I think it should be provided at no cost.”

Pederson said he would invite Crisson to attend next Tuesday’s commission meeting.


By Lauren Duncan, Paducah Sun. No Link. Subscription required

PPS officials head to NYC as next step in financial plan

Paducah Power System officials are flying to New York today to meet with bond insurance companies and rating agencies as they proceed with a rate recovery plan they hope will stabilize the utility’s finances and provide rate relief.

Interim General Manager Mark Crisson, Board Chairman Hardy Roberts, and Dave Carroll, director of finance and administration, will take part in meetings through Friday. They will carry with them a resolution approved by the board Monday which reaffirmed its commitment to the plan and specifically states its intent not to seek Chapter 9 bankruptcy relief.

“We’ve planned this trip for some time (in anticipation of the rate recovery plan being approved) because our recovery plan has an essential element to it, which is an insurance policy which would free up what’s called a debt service reserve for the bonds we hold,” Crisson said.

To get the insurance policy, “you have to demonstrate you have strong credit,” he said. “Insurance companies like to avoid or minimize risk, so to get the most competitive bid on the (one-time) fee for the policy, it’s important to make our case first-hand. So, we’ll be meeting with three bond insurance companies.

“We’ll also have a set of meetings with the three major ratings agencies. We currently have an (A minus) bond rating for both Paducah Power and Kentucky Municipal Power Association, our joint action agency, and we want to get that rating reaffirmed and, if possible, strengthened,” Crisson said. “So, we’re positioned to refinance all or a portion of our debt service going forward, which again will reduce our costs and stabilize our finances and give us the ability to reduce rates.”

In addition to reaffirming its commitment to the rate plan, the board Monday approved a plan to provide no- or low-cost energy audits for residential customers.

According to Andrea Underwood, PPS director of community relations and marketing, the home audit program is designed to supplement the free home energy checks that have been conducted since October. The checks are helpful for 90 to 95 percent of PPS customers, she said.

The audits provide more detailed information on ways to save energy, according to Underwood. The cost of the vast majority of audits is approximately $250, and some can cost as much as $550. Under the proposal, PPS would pay $250 for each audit done, and customers would be asked to pay the difference if the amount is higher.

Crisson also updated the board on the recent operation of Prairie State Energy Campus, its chief supplier of power.

“I’m pleased to report that Prairie State set a new record with its equipment availability factor of 90 percent as of November,” Crisson said. “That continued until yesterday (Sunday) when they had a tube leak in one of the boilers on Unit 2, so that one is temporarily down until they can fix that.

“But for the last three months, Prairie State in fact has operated right around 85 percent which is where we want it,” he said. “If we can continue to expect operation like that going forward, it will help our finances and our ability to market some of our assets.”

Regarding the resolution on bankruptcy, Crisson said it is not an option because Paducah Power is solvent.

“I think it’s important that the board be clear, both to the community and the credit markets, about where we are with bankruptcy,” Crisson said. “I think we fulfilled the board’s commitment to look at all available options.”

Crisson said after consulting with specialists on the subject, “It was pretty clear, by any objective measurement, that we are not a candidate (for bankruptcy).”


By David Zoeller,  Paducah Sun. No link subscription required

FALLS SHORT PPS consultations on bankruptcy flawed

“Paducah Power System says it is not a candidate for Chapter 9 bankruptcy. It says it plans to adopt a resolution to that effect at its next board meeting.

The troubled local utility made the announcement in a three-paragraph news release it sent out several days ago. The release said the board reached the conclusion after consulting with “financial and legal experts with Chapter 9 bankruptcy experience.”

The news release did not identify the parties the board consulted. But it has since been learned that that the financial advisor is Louisville-based Hilliard Lyons, and that the consultations took place in Hilliard Lyons’ Louisville corporate offices. The American Public Power Association, a power industry trade group formerly headed by PPS Interim General Manager Mark Crisson, provided the legal advisors the PPS board spoke with. That telephone conference also occurred in Hilliard Lyons’ offices.

For Paducah Power System to present this as an objective exercise is a stretch.
Hilliard Lyons was the lead manager on the sale of many of the very bonds that would be compromised by a PPS bankruptcy filing. According to a June 2010 article in Louisville Business First, the placement of a $184 million bond issue that year as part of the financing of Paducah Power’s interest in the Prairie State Energy Campus was one of the largest public financing placements in the history of Hilliard Lyons.

The firm was also the “bookrunner” on the deal, which means it controlled the allocation of the bonds to other investment banks that participated in the placement. In most deals, the bookrunner retains the majority of the bonds for its own inventory and markets those bonds to its retail customers.

The notion of the board going to the entity that sold PPS’ bonds, in what was one of the firm’s most important deals ever, and asking, “Gee, do you think we should declare bankruptcy and default on these bonds,” is somewhat comical. It’s just not a serious exercise.

Likewise, we have concerns about the board getting advice from attorneys supplied by an industry trade group that is by and large concerned with promoting a positive image for community-owned public power systems, and that’s what APPA does. It just seems that the answer to the question of should we file bankruptcy is preordained in this context.

The PPS board made a commitment to the public that it was going to seriously explore all options for rate relief, including bankruptcy. We don’t think the exercise in Louisville quite measures up.

Certainly we as a newspaper are not pounding the table for a bankruptcy filing. We don’t know if it is a viable option, now or in the future, and we retain an open mind. However, we continue to think PPS would do well to hire independent restructuring advisors to explore all options for reducing debt and providing rate relief. Such advisors might recommend an array of choices, and bankruptcy may or may not be among them.

For now, the appearance is that PPS sought out advisors who would give it the answer it wanted so it could dismiss one of the hard choices and proceed with its recovery plan. We don’t think that’s what the ratepayers were promised.

We understand the pressure PPS is under from bondholders, ratings agencies and even Mayor Gayle Kaler to renounce bankruptcy. But the PPS board shouldn’t be beholden to them. Their duty is to the ratepayers, some of whom are sitting in cold houses in overcoats right now because they can’t afford the heating bill. PPS has a duty to seriously explore all options for rate relief, and the recent exercise in Louisville just doesn’t measure up.”

Paducah Sun

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Ideas for rate relief from another city facing high power bills

WPSD Local 6: Your news, weather, and sports authority

BATAVIA- Paducah Power customers pay one of the highest rates in the state for energy. It’s an issue we’ve been tracking since last winter, when residents and business owners started getting bills two and three times bigger than expected.

The problem boils down to a decision Paducah Power board members made to invest in a new, coal-fired power plant in 2005. Now, Paducah Power System gets the majority of the city’s energy from The Prairie State Energy Campus in southern Illinois, but the business deal hasn’t worked out like they thought it would.

Mayor Galye Kaler has described the cost of energy as the biggest problem facing the city since the great flood, but Paducah isn’t the only town looking for ways to fix the Prairie State problem….

By Briana Conner, WPSD News

Full article

Painesville City Council talks AMP-Ohio agreement

PAINESVILLE – “Painesville City Council members again discussed the arrangement that the city has with a power company that provides access to higher streams of energy during peak times.

Debate surrounds the price negotiated between the city and American Municipal Power Inc. in the power purchase agreement the city entered into in 2007.

Ward 1 Councilman Andrew Flock said at the presentation given by AMP-Ohio that the agreement, which runs 30 years, set the price at roughly $48 per megawatt hour….

Earlier this year, business leaders in Batavia, Illinois filed a class-action lawsuit against the power companies who persuaded the city to buy into the Prairie State project, according to reporting by the Kane County Chronicle and The Chicago Tribune….

Flock, as in previous meetings, suggested that council draft a resolution asking for a letter to be sent to the Ohio Attorney General to see if he could look into the deal. He said there are too many questions left unanswered regarding the projects AMP-Ohio brings to its members….

“I think what (council) wants is a monthly presentation as we go forward on those levelization costs,” McHugh said. “At some point the AMP members are going to decide that we can’t keep supporting this. The plant’s going to have to stand on it’s own.”

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

Full article

No power rate relief seen before next July


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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