CHICAGO — Ratepayers from a Chicago suburb plan to file a lawsuit as soon as Tuesday seeking compensation for steep energy rate hikes they've paid due to cost overruns at the bond-financed Prairie State Energy Campus.
Public utilities in Illinois, Indiana, Kentucky, Missouri, and Ohio issued $4.5 billion of debt, some it under the federal Build America Bond program, to finance their ownership in the coal-fired energy plant now estimated to have cost at least $5 billion. Peabody Energy Inc. initially sponsored the project and still owns a small stake along with two rural power cooperatives.
The project in Washington County, Ill. has come under fire for construction delays and cost overruns that drove up the cost by more than $1 billion. As the project's price tag rose, so have the rates paid by the local government customers of the public utilities. The campus includes an adjacent mine and a plant that generates 1600 megawatts of power.
The Childress Duffy lawyers for the Batavia ratepayers said the lawsuit will seek monetary compensation and will name as defendants consultants to Batavia. It will seek through the discovery process documents from Peabody, the city, and others.
Additional defendants could be named in the future in an amended complaint filed in the state courts. Lawyers declined any further comment until the filing of the lawsuit which will seek class action status.
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Batavia in 2007 approved a "take-or-pay" contract with the Northern Illinois Municipal Power Authority to purchase 55 megawatts of power generated by the plant. The class action website reports that last year Batavia's electric rate was substantially above the "presented" price of $46 per megawatt-hour with the average cost of power from Prairie State at $94 for the first 11 months of 2013. It hit a high of $179.92 in the November. The average monthly cost has been $90 for the first three months of 2014.
In recent months, city officials have dipped into Batavia's $2 million electric reserve funds and raised both the city's sales tax and its electric rates to offset the rising cost of power. City losses have been heightened due to open market conditions as local governments with excess power to sell have received less than originally expected.
Batavia previously considered selling its share in the project but canceled the plan due to a lack of acceptable offers.
The expected litigation is the latest in a series of developments tied to discord or questions over the project's costs and impact on local governments, calls for more regulatory scrutiny of the project and how it was represented to local officials, and efforts by some communities to escape their contracts.
American Municipal Power Inc., one of the public utility owners, disclosed last year it had received a subpoena from the Securities and Exchange Commission tied to the project, according to city of Cleveland public documents obtained by an environmental group by Ohio Citizen Action.
In a letter to Illinois Attorney General Lisa Madigan earlier this year, state Rep. Timothy Schmitz urged an investigation "into the practices by which Peabody Energy enticed communities, cooperatives and the state of Illinois through the Illinois Finance Authority to follow a disastrous path to financial challenge and generation instability."
Earlier this year, Prairie State Energy Campus announced one of its two power generating units was damaged due to the accidental high release of steam. Also this year, PSGC's president resigned and was replaced by an interim president Duncan Kincheloe.
A report from Fitch Ratings last week affirming AMP Ohio's Prairie State bonds said since returning to normal operation in May 2014 Units 1 and 2 achieved an equivalent availability factor of 67.4%, which compares favorably to 2013 when the EAF averaged 62.7%. "With all major start-up issues resolved and initial maintenance completed, Fitch expects the units to exhibit a high degree of availability and capacity factors," the report said.
Rating agencies have said even with the higher than expected costs, the project offers financial benefits over the long term as it provides a stable price and reliable source of energy. Bond investors remain protected by the sturdy protections afforded by the 28-year take or pay contracts. The project boasts of state of the art pollution controls but environmental critics counter it will still be a major contributor of greenhouse gas emissions.
