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June 2012
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FIRST STEP Rate reduction welcome, but PPS has work to do

Let's give credit where credit is due. The Paducah Power System made the right move in deciding to accelerate relief to local ratepayers from its Power Cost Adjustment, which has helped push customers' power bills well above rates in comparable cities in recent months.

The PCA, as it is known, will on July 1 drop 1.42 cents per kilowatt hour from the current 3.57 cents per kilowatt hour, a decrease of roughly 40 percent. That in turn drops the all-in rate for local PPS customers from 14.723 cents to 13.303 cents per kilowatt hour, which should translate to a roughly 10 percent decline in most people's power bills beginning with the July billing period.

It's progress, although as illustrated in David Zoeller's article in last Friday's Paducah Sun, more needs to be done. Even at the new rate Paducah's power cost will be well above the rates charged by municipal utilities in Murray, Princeton, Henderson and Madisonville, which have rates as much as 45 percent lower.

The PCA spike is the result of problems at the Prairie State Energy Campus in southern Illinois. Paducah Power is an investor in Prairie State and gets about 80 percent of its power from that source. The coal-fired plant is still in its shakedown phase, and problems this winter reduced output, forcing Paducah Power to buy high-cost replacement power on the open market. That expense pushed the PCA as high as 3.59 cents per kilowatt hour earlier this year.

More recently an overflow accident in a storage tank forced one of Prairie State's two generating units offline until this week, initially sparking fears that PPS might be forced to buy power on the open market during the summer peak power season. Fortunately that costly scenario did not materialize.

Paducah Power normally revises its PCA quarterly, but last week it announced it was reducing the PCA now rather than wait for the next scheduled adjustment Aug. 1. PPS says it will evaluate the rate monthly through the summer.

"We know the high PCA in the past few months has been painful for our residential and business customers, especially during the really cold months. We are doing everything we can to get Prairie State operating like it's supposed to," PPS General Manager Dave Clark said of the problems.

Providing early relief on the PCA was a good move and it is not unappreciated. But PPS is still in deep with ratepayers over its decision to get into the power generation business.

In addition to Prairie State, Paducah Power has constructed a gas-fired peak generating plant, which can provide about 10 percent of its power needs, and has also invested in a hydroelectric generation project headed by American Municipal Power that will soon come on line.

But a double-digit increase in PPS' base rate over the past year is in large part a reflection of the bonding costs of the massive cost overruns incurred in the construction of Prairie State. Initially projected to cost $2.9 billion, the price tag grew to $5.1 billion by the time the plant started to come on line in 2012. Yet unknown is whether the Obama administration's newly proposed environmental regulations for coal-fired power plants will force Prairie State to spend millions or billions more at the expense of investors like PPS.

PPS officials continue to maintain that Paducah's investment in Prairie State will pay off in the long run with reliable power at stable rates. That remains to be seen. But one thing is certain: What's happened to local power rates over the past 12 months has been extremely painful for business and residential ratepayers. If our letters to Viewpoints are any indication, patience has worn thin. If Paducah Power doesn't deliver with more competitive rates in the future, heads may roll.

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