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Report: Paducah Power's Costs Not Likely to Drop

Report: Paducah Power's Costs Not Likely to Drop
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By Bill Hughes
Oct. 28, 2014 | PADUCAH, KY
By Bill Hughes Oct. 28, 2014 | 02:13 PM | PADUCAH, KY
A report from an industry specialist is confirming what others have speculated lately - that Paducah Power System and its customers are facing high electric costs for quite some time.

David Schlissel, Director of Resource Planning Analysis at the Institute for Energy Economic and Financial Analysis, released a memorandum analyzing the utility's billing from Kentucky Municipal Power Agency between January 2013 and August 2014, and has concluded that Paducah Power paid $40 million more for electricity from Prairie State Energy Campus than they could have bought it from wholesale electric markets.

He said that figure would have been even higher if it included the $6.8 million in debt service costs from March, April and May 2013 that KMPA hasn't yet billed, or if it included the higher costs PPS paid for Prairie State Power in 2012.

Adding more worry to customers, Schlissel's report says it's likely Paducah Power and its customers will continue to pay Prairie State more for electricity over the next ten years, compared to other wholesale suppliers, "even if the plant operates properly and its costs and performance are in line with the owners' current claims." The cost will probably be over $150 million higher than market value between 2015-2024.

Schlissel said there is no relief in sight, even if the plant reaches peak capacity, and it is likely electricity will continue to be more expensive beyond 2024. He cited two main reasons for the bleak future: debt service costs due to KMPA's 7.835 percent ownership share of the $5 billion start-up cost, and the plant's poor operating performance since it went into service in June 2012. About 56 percent of what PPS paid between January 2013 and August 2014 was debt service to plant construction costs. Schlissel said costs can't drop unless the utility gets out of their purchasing contract with Prairie State or re-finances their interest rates.

When asked at a Paducah City Commission meeting in September, Prairie State Interim CEO Mark Gerken implied that they would not have predicted the plant could operate at 85 percent this quickly after its June 2012 start-up (the plant operated at 64 percent through August). But Schlissel cited reports prepared by Prairie State for potential investors and buyers like KMPA that boasted 85 percent capacity operation within the first year. He added that a consultant firm, R.W. Beck (now called Leidos) provided those estimates, and is still a paid consultant, in spite of wrong forecasts and bad advice to Prairie State.

Paducah Power System's Board of Directors has hired an interim general manager, Mark Crisson, to replace David Clark, who resigned in September. Board chair Ray McLennan resigned about a week before that, and Mayor Gayle Kaler has yet to name a replacement board member. Board member Hardy Roberts was named board chairman.

At an October meeting, the board heard from a financial consultant who said the utility's volatile situation and potential interest rate penalties would not make re-financing bonds feasible for now. A representative from Hilliard Lyons said if the credit market sees things calm down, re-financing could be done in the future, possibly saving $390,000 per year on debt related to investment in Prairie State's start-up.

Paducah Power System was contacted Tuesday afternoon for comment on the report, but they have not yet responded.

On the Net:

IEEFA Complete report
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