September 21, 2020 (IEEFA) — Long-term contracts with American Municipal Power (AMP) have stuck 83 communities in 41 counties across five states with extraordinarily high electricity prices for half a century, according to a briefing note released today by the Institute for Energy Economics and Financial Analysis.
The largest AMP member, Cleveland Public Power (CPP), has already paid an extra $106 million more for power from two projects than it would have cost to buy power and capacity from wholesale markets. Like other members in Kentucky, Michigan, Ohio, Virginia, and West Virginia, the utility is locked into 50-year contracts to buy power and capacity from projects that include the Prairie State coal-fired plant in Illinois and the AMP Combined Hydro Project on the Ohio River. Both stand out as particularly bad deals, according to David Schlissel, the study’s author.
“The electricity that AMP communities get from the Prairie State and Combined Hydro Project is very expensive compared to buying the same power from PJM or the competitive market,” said Schlissel, “and ratepayers are unlikely to find relief any time soon.”
“It’s surprising that no one has yet sued AMP for mismanaging these coal and hydro projects,” Schlissel added.
The trouble for AMP customers began in the mid-2000s, when it began building its own power plants, financed with multibillion bond deals. AMP studies predicted that the costs of power from Prairie State and the Combined Hydro Project would be stable and cheaper than purchasing electricity from the competitive wholesale markets.
The average cost of purchasing power from Prairie State, however, stood last year at $60.97 per megawatt-hour (MWh), much higher than the $50.26/MWh estimate that AMP provided to the Cleveland City Council in 2007 and almost double the actual $33.49/MWh price for purchase available from the wholesale markets.
The Combined Hydro Project (made up of the Smithland, Cannelton, and Willow Island plants on the Ohio River) has been an even worse deal. The average 2019 price for CPP customers was $178.58/MWh, almost triple the $67/MWh estimate provided in 2007 and quadruple the $43.93 actual cost for purchasing electricity from the wholesale markets.
Costs have escalated for three predictable reasons, according to IEEFA, and cost overruns have plagued both plants. The Prairie State facility, which was originally expected to cost $4 billion, wound up with a $5 billion price tag. The Combined Hydro Project was budgeted at $4,360 per kilowatt (kW) in 2007 while actual costs soared to more than $10,800/kW.
The projects have also failed to produce as much power as promised. AMP said Prairie State would produce 11.8 million MWh annually between 2012 and 2019. Instead, it has averaged only 9.6 million MWh per year. The Combined Hydro Project has also fallen short of estimated production.
Finally, both projects suffered delays in construction. Prairie State’s completion took an extra six to 12 months, and the Combined Hydro Project was delayed at least two to three years.
For a full list of the affected communities, read the report: Long-Term Power Plant Contracts Saddle AMP Communities With High Electricity Prices
David Schlissel ([email protected]) is IEEFA’s director of resource planning analysis.
Vivienne Heston ([email protected]), +1 (914) 439-8921
The Institute for Energy Economics and Financial Analysis (IEEFA) examines issues related to energy markets, trends and policies. The Institute’s mission is to accelerate the transition to a diverse, sustainable and profitable energy economy.