Citing high costs, the small, northern Missouri town of Marceline announced last month it wants out of its power contract with the Prairie State Energy Campus. Those developments are being watched closely in Hannibal, which also has a power pact with the coal-fired power plant in Illinois.
“We recognize Marceline has a real problem,” said Robert Stevenson, general manager of the Hannibal Board of Public Works. “What’s different between them and us is Hannibal bought enough capacity (20 MW) off of that plant to replace a third of its needs. Marceline went out and bought enough of Prairie State to cover its whole load. They bought 100 percent. It was too big of a bite.”
The St. Louis Post-Dispatch reported in March that Marceline, a community of 2,200 residents, is expected to lose almost $1.4 million this year.
At the time, City Manager Luke Lewis was wanting to negotiate an exit with Prairie State but didn’t rule out defaulting on the contract. A default by Marceline wouldn’t have a ripple effect in Hannibal, according to Stevenson.
“The way I’m seeing it right now we’re pretty much immune to whatever might happen at Marceline,” he said. “Marceline’s share of the Prairie State campus is 4 MW out of 1,600 (MW). A failure there, even though it would be regrettable, should not mathematically do much to effect the remainder.”
If Marceline’s Prairie State power were to become available, Stevenson believes it would attract interest.
“There’s a good possibility that one of the other participants, or some new participant that missed out on getting in in the first place, may step up and buy that capacity from Marceline. I wouldn’t rule that out,” he said.
Stevenson declined to speculate if Hannibal would have interest in Marceline’s share of Prairie State.
“Financially, even though I believe it would be a great investment, sometimes you can’t act on good investments because you’ve got nothing to invest with and that’s kind of our deal right now,” he said. “If we were to even consider picking up a fraction of that or all of it, I’m not real sure what we’d pay for it with.”
Marceline continues to buy all its electricity from Ameren and will do so through 2016. The city is reselling its share of Prairie State generation back to the grid at a substantial loss.
Like Marceline, Hannibal does not use a single watt of power generated by Prairie State. Under terms of its current power supply contract with Ameren Energy Marketing Company that runs through May 2017, Hannibal cannot use any of the Prairie State power it owns. And like Marceline, Hannibal is selling its Prairie State power on the open market, but is not earning nearly enough to cover its $600,000 a month payments. Between Feb. 13 and March 13 the city took in $182,000 through the sale of its Prairie State electricity.
Page 2 of 2 - Despite the fact Prairie State is currently a money-losing venture for Hannibal, Stevenson believes the power plant investment, which was undertaken before he was hired as the BPW’s general manager, will pay off in time.
“I’ve said since I’ve been here that ultimately this is going to be a swell investment,” he said. “I’ve tried to say repeatedly that buying into this plant is just like buying a new house. Initially your monthly payments on that house are higher than what you previously paid for rent because early in a mortgage the bulk of your payment is going to interest on your mortgage, but at the end of the day you end up owning a house that has a real value. That’s exactly what we’re doing with this plant, we’re buying in.
“It’s unpleasant for people to ride out the high costs up front, but ultimately it’s good economics. Even though this plant costs more than was originally advertised and it came on later than originally advertised, it’s still a good deal. I still believe that.”
The plant in southwest Illinois ended up costing about $4 billion to develop - twice the original estimate.
“One of the reasons the plant got more expensive and got delayed was because of what everyone recognizes today as merit-less lawsuits,” said Stevenson.
According to figures the BPW’s GM has seen, “frivolous lawsuits” accounted for from $1.5 billion to $2 billion in extra costs at the plant.
“People tried to stop the plant in the first place with the argument of, They’re lying to you about what it’s going to cost.’ It then became a self-fulfilling prophesy because they set about making sure it was going to cost more than was planned with these lawsuits,” said Stevenson. “I think it’s morally repugnant for a very small minority of people to impose their will on the rest of us and then turn around and try to blame somebody else for the costs associated with their will. That’s what’s happening. It makes us angry.”