Peabody Energy Company found a way to make money from their high-sulfur coal reserves by developing plans to build a high-cost coal-fired power plant in Southern Illinois while transferring  virtually all of the financial and environmental risks to municipalities across the Midwest.  After initially developing the plans for the Prairie State coal plant in 2001, which included use of a Peabody-owned mine for the coal and a Peabody-owned landfill for coal ash disposal, Peabody, through its wholly owned subsidiary Lively Grove Energy, sold 95% of the ownership interest in the project to eight municipal power and generation and transmission agencies in Midwest states, including:

• • American Municipal Power (AMP);
  • Kentucky Municipal Power Agency (KMPA);
  • Northern Illinois Municipal Power Agency (NIMPA);
  • Missouri Joint Municipal Electric Utility Commission (MJMEUC);
  • Illinois Municipal Electric Agency (IMEA);
  • Indiana Municipal Power Agency (IMPA);
  • Southern Illinois Power Cooperative (SIPC); and
  • Prairie State Power, Inc. (PPI)

Now, hundreds of municipalities are on the hook for:

• • the costs of construction, which rose by over $1 billion;
  • the fuel supply risks, because the existing mine, while permitted for a 30 year supply of coal, may not be sufficient to meet the requirements of the project;
  • the risks and expense for coal ash disposal;
  • the high cost of power from the plant, which has come on-line at almost double the current wholesale market cost of power;
  • any continued operational problems which make it difficult for the plant to run reliably.

Resources:

1. Chronology of the development of the Prairie State Coal plant: 2001-2010, 2011-12
2. Project Management agreement between Prairie State Generating Company and power agencies
3. Project Participation Agreement among the power agencies
4. Chart of Bond Issuances for Prairie State Coal Plant
5. Glossary of Municipal Securities Terms
6. Glossary of Cost Terms
7. Large Generator Connection Agreement
8. RW Beck Consulting Engineer’s Report, March 24, 2009
9. NY City Comptroller William Thompson sent a letter to the U.S. Department of the Treasury in June 2008 questioning the wisdom of using tax-exempt bonds for coal plants, particularly mentioning the Prairie State plant:

• Letter from NY City Comptroller William Thompson to U.S. Department of the Treasury, June 6, 2008
• “Don’t use tax-exempt bonds for coal plants: N.Y. official,” Reuters, June 16, 2008
•  American Public Power Response to Thompson letter, June 19, 2008