Towns pay a high price for power

Across the nation, cities are taking advantage of deals for cheaper electricity made possible by low-cost natural gas. But not in five Chicago suburbs and more than 200 other Midwestern towns that made a big bet on coal.

Almost every month, Batavia, Geneva, Naperville, St. Charles and Winnetka are among dozens of municipalities feeling the sting of their decisions to finance the Prairie State Energy Campus in southern Illinois.

The promised savings simply have not materialized.

"Now THAT was expensive," a Winnetka village engineer wrote in an email responding to a recent power invoice.

Representatives of the affected cities say they still expect investing in the coal plant will pay off in the long run. But with Prairie State's construction costs totaling $5 billion and natural gas prices expected to remain relatively low, these communities likely will pay higher prices for electricity for another decade, according to analyses for Batavia and the city of Cleveland.

Batavia, which signed up for more electricity than it ended up needing, will be selling excess power from the coal plant at a loss for years to come, according to a report prepared for city officials.

"In retrospect, we should have focused on a little more diversity in our portfolio," said Gary Holm, the city's director of public works.

The costly deals are affecting more than 2.5 million residents in Illinois, Indiana, Kentucky, Michigan, Missouri, Ohio, Virginia and West Virginia whose cities belong to municipal power agencies that bought shares of the coal plant six years ago.

At the time, municipal officials saw Prairie State as a reliable, affordable source of electricity and locked themselves into 28-year contracts with a company formed by Peabody Energy, the nation's largest coal producer. Peabody ended up with just a 5 percent stake in the plant after shifting most of the costs — and nearly all of the financial risks — to towns as small as 1,200 people.

The arrangement has drawn the attention of the Securities and Exchange Commission, which this year subpoenaed Peabody and municipal power agencies for more information related to Prairie State.

Today, many of the communities that bought into the coal plant are paying far more than neighboring cities for electricity, records obtained by the Tribune show.

According to monthly invoices obtained under the Freedom of Information Act, Naperville has been paying a monthly average of $75.04 a megawatt hour this year, for example.

By contrast, Chicago pays about $56 a megawatt hour through a deal city officials negotiated after voters approved a proposal for bulk purchasing of electricity, or municipal aggregation. Many other communities have secured even cheaper rates.

"Given current market conditions and forecasts, there is no question that Prairie State is not turning out to be a good deal for these communities," said David Kolata, executive director of the Citizens Utility Board, a nonprofit group created by Illinois lawmakers to represent residential utility customers. "They locked themselves into power at a very high price when they could be doing a lot better out on the market."

Homeowners and other ratepayers have largely been kept in the dark about the higher costs. Municipal contracts with the coal plant's operator require "any information of a technical, commercial or business nature" be kept confidential from all but a few officials. Meeting minutes show that discussions about the plant mostly take place in closed-door executive sessions.

Critics contend that elected officials didn't know enough about the project to make informed decisions, leaving cash-strapped communities struggling to cover years of extra costs while waiting for benefits to materialize.

"These people are car mechanics and insurance salesmen, not energy experts," Batavia resident Betsy Zinser said of municipal officials. A former commercial banker, she has persistently raised questions about the coal plant at public meetings. "They were bamboozled by Peabody and the municipal power agencies," she said.

Prairie State's government investors continue to defend the project. In May they released an annual report that stated "the future of energy is here," described critics as "cynics" and called the coal plant a "reliable, low-cost and stable source of electric power that is produced in a safe and environmentally responsible manner."

In a statement, Peabody said it is cooperating with the SEC investigation and called Prairie State "one of the most transparent projects of its kind." The company also predicted the power plant will be cheaper than other providers in the long run because its municipal owners avoided transportation costs by purchasing a coal mine next to the plant.

"After performing extensive research and investigating all options for new long-term power sources, they concluded that Prairie State was the right project and took an active role in the development of the facility," wrote Vic Svec, a Peabody spokesman.