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June 2012
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BILKED? Legitimate question exists on whether PPS was misled

We'll grant that some of those behind a class action lawsuit related to power rates from the Prairie State Energy Campus may have ulterior motives.

The lawsuit was filed on behalf of ratepayers in the city of Batavia, Illinois, which like Paducah invested in the power generating project and contracted to buy power from it. The suit accuses consultants on the project of misleading Batavia officials about costs and likely power rates from the Prairie State project.

Paducah Power System General Manager Dave Clark takes umbrage at the lawsuit's claims, saying the law firm leading the suit is affiliated with the Institute for Energy Economics and Financial Analysis, an anti-coal group. He says it is the latest effort by environmental groups who opposed Prairie State every step of the way to shutter the plant. Clark also says that Paducah used different consultants than the ones named as defendants in the lawsuit.

While we're generally not in sympathy with efforts by environmental groups to shut down the coal industry, we do think there is a legitimate question as to whether cities that invested in Prairie State were misled and have been harmed as a result. A trip through the archives of our news stories on Prairie State over the years certainly gives that impression as far as Paducah is concerned.

In a March 21, 2010 Paducah Sun article, Paducah Power System board chairman Ray McLennan said power rates in Paducah would decline slightly when Prairie State became fully operational. PPS at the time was buying power on the open market, having just ended its supply contract with the Tennessee Valley Authority three months earlier.

But by January 8, 2012, that narrative began to change. Clark said in a Paducah Sun article on that date that, "Starting out of the gates, our rates won't be cheaper. The good part of it is, the rates will be very stable going forward." He continued, "We're looking at the long haul. We're not expecting Prairie State power to go up but maybe a percent a year."

That story changed markedly over the next 18 months. Part of the reason was that PPS increased its power purchase commitment to more than 100 percent of its needs from Prairie State, believing it could sell the excess power on the open market for a profit. That proved incorrect.

In December of 2012 PPS announced an "interim" rate hike of 8.2 percent. Then in March of 2013 PPS announced two further rate hikes - one in April of 2013 and another for April of 2014 - totaling 12.5 percent. The increases were due to unexpected costs related to the financing and operation of Prairie State.

Then came the ruinous 3.59 cents per kilowatt hour Power Cost Adjustment in early 2014 - a surcharge of more than 20 percent on the base city electric rate. That charge stemmed largely from the PPS' bizarre contract arrangement requiring it to pay for its allotment of Prairie State power whether that power is generated or not. In this case, due to an accident at the plant, a significant portion of the power was not generated. PPS had to pay for it anyway, plus pay for replacement power on the open market. That cost was passed on to ratepayers by way of the PCA.

While PPS' purchase of the excess power capacity muddles the picture, it still strikes us from a review of this history that PPS officials were misled with regard to the financial risks and eventual cost of power from Prairie State. They obviously genuinely believed they would pay lower-than-market costs to buy power from Prairie State and even after the project ran into problems, they were publicly predicting stable rates, based we presume on what consultants were telling them.

What they got instead were some of the highest, if not the highest, power rates in the state, to the great detriment and harm of their ratepayers. PPS officials were advised all along the way by consultants who apparently persuaded them this was a good deal and a reasonable risk. That turned out to be far from the truth. While we don't believe the answer to every problem is to sue somebody, we have to ask ourselves whether there's not professional liability here against which ratepayers have some recourse.

It looks to us like Paducah Power was sold a bad bill of goods.

We think it would be appropriate for the Kentucky Attorney General's office to take a look to see if there's not legal relief to be had for local power consumers.

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