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June 2012
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Power plant's erratic operation socking customers in Paducah

BY DAVID ZOELLERdzoeller@paducahpower.com

Paducah Power System's residential electric rates are among the highest - if not the highest - in the state due mainly to the poor performance of its chief power supplier, Prairie State Energy Campus.

In a comparison with 10 other electric utilities in Kentucky and southern Illinois, factoring in base rates, fuel cost adjustments and other related charges, the Paducah rates are the highest by a sizable margin.

Both of Prairie State's 800-megawatt generating units in southern Illinois have been off line for periods of time as the power plant has gone through an extended shakedown since opening in 2012. To compensate for Prairie State's underperformance, Paducah Power has to buy energy on the open market while still paying full price for the power it is contracted to buy from Prairie State. 

Paducah Power has a 30-year, "take or pay" agreement with Prairie State, which means it must pay for all of its contracted share of power whether or not it receives it. Even if the plant operates at less than 50 percent of capacity, or not at all, Paducah Power is obligated to pay for its full share.

"We're at the mercy of Prairie State," said Paducah Power General Manager Dave Clark, who also is a Prairie State board member.

Prairie State's erratic performance is the primary factor in the utility's fluctuating Power Cost Adjustment, a billing practice used by utilities to ensure they are collecting enough to cover wholesale power costs without changing the base rate every month. Paducah Power reviews its PCA on a quarterly basis.

The PCA, combined with the base rate, determines the total customers pay. The PCA rose sharply to 3.59 cents per kilowatt hour last February.  It was lowered slightly to 3.57 cents May 1, and lowered to 2.15 cents per kilowatt hour July 1.

Currently, Paducah Power's base residential rate is 11.153 cents per kilowatt hour, making the combined rate 13.303 cents per kilowatt hour.

While the PCA earlier this year added 30 percent to customers' bills, it now tacks on an additional 17 percent to customers' bills. Both Clark and David Carroll, director of finance and administration, see the PCA trending down.

"What's killing us is the performance of the plant," Carroll said. "We're not out of the woods yet. Is it (the PCA) where we want it to be? No. I think better performance is ahead."

Clark said the board will review the PCA next on Oct. 1 and hopes to be able to lower it further. The PCA is applied to every kilowatt hour in every rate classification, both residential and commercial, according to Andrea Underwood, Paducah Power director of community relations and marketing. The lone exception is the incentive industrial rates for new commercial customers, which do not include a PCA for the first five years.

The Prairie State facility is still not operating with the efficiency it should have at this point, Clark said. Although the interruptions are of a shorter duration, he told the PPS board of directors last week it may take another five to six months to get the plant operating at a more consistent capacity.

Over the last 14 months, Prairie State's operating performance was above 75 percent only once. Its 14-month average operating capacity was 58.3 percent.

Clark said he expects Prairie State should be operating at closer to 85 percent. When asked what an industry-wide operating average would be, "I would expect 90 percent for a modern plant," he said.

Before committing to Prairie State almost 10 years ago, the local utility purchased its power from the Tennessee Valley Authority. According to Clark, the decision to switch was made for several reasons, including TVA's aging equipment as well as anticipated changes in the federal rules and regulations regarding coal-fired plants. Another reason for the decision was that Prairie State sits on its own fuel supply, about 50 square miles of coal.

Prairie State developer Peabody Energy sold all but 5.06 percent interest in the project to eight municipal power generation and transmission entities, which include 217 municipalities in several states and 17 electric cooperatives. One of those entities is the Kentucky Municipal Power Agency, comprised of Paducah Power System and the Princeton Electric Plant Board. KMPA has a 7.82 percent ownership in Prairie State.

Paducah Power officials maintain the decision to take a stake in Prairie State was made for long-term rate stability. But two unanticipated factors have made the move look dubious: much cheaper natural gas as a result of the fracking revolution and continued operating problems at the Prairie State plant.

Paducah Mayor Gayle Kaler was a new city commissioner when the city voted to leave TVA.

"I voted for it because of all the facts given at the time, it seemed like the right thing to do," Kaler said.

As a homeowner and a business owner, Kaler said she is concerned about the high cost of power.

"To be frank, it's very hard on us homeowners."

Kaler said she sympathizes with people who are having trouble paying higher power bills, especially those on fixed incomes. She attended last week's board meeting where ways to help lower-income customers were discussed. She said Clark and Carroll have demonstrated they are willing to meet with anyone about the issue.

While it still may take more time, "I do think in the long run it will prove to be a good decision," Kaler said.

Ronnie Goode is president of Cole Lumber Company, which has seven locations in western Kentucky. He sees a big rate disparity between his electric bills in Paducah and the company's stores elsewhere.

"They're (the rates) the highest around, and they're not going to get any better," he said. "We've gone from the cheapest rates in the country to the highest in the state."

Goode admits he is a proponent of TVA because, among other things, it invested in the local community over the years. He also believes there is no incentive for Prairie State to operate efficiently because every bit of power has been sold at whatever it costs to produce. Liability for potential accidents, as a part-owner of a power plant and coal mine, is also a concern, he said.

In addition, Goode thinks the high electric rates will cause prospective homebuyers or homebuilders to look outside of Paducah when deciding where to locate.

"It's a bad, bad deal all the way around," Goode said, maintaining that none of the reasons Paducah Power was given at the time to invest in Prairie State have proven to be true. "I can't figure out how they can say this has been a good deal for the people of Paducah."

The long-term commitment to Prairie State means Paducah Power customers will be paying for a long time, Goode said.

"My kids and grandkids are going to pay for it," he said.


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