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Ratepayers face higher electricity bills

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When it comes to electricity, Indiana politicians, from Mitch Daniels on down, have a mantra: coal is cheap and renewables are expensive. But costs of wholesale electricity from the nation's newest coal plant have skyrocketed to as much as double the current market rate, according to a report issued in August. And that could mean higher electricity bills for ratepayers in 52 Indiana communities, possibly for decades.

"There's no question this is going to have a significant effect on ratepayers," says Kerwin Olson, executive director of Citizen's Action Coalition, an Indianapolis-based environmental and ratepayer-advocacy group.

The coal-fueled electricity from the Prairie State Energy Campus now costs between 40 and 100 percent more than Peabody Energy, the nation's largest coal company and the project's original developer, originally promised, raising electric bills for 2.5 million ratepayers and costing hundreds of Midwestern towns millions of dollars apiece, according to the report, which was released by the Institute for Energy Economics and Financial Analysis, a small Belmont, Massachusetts-based organization that works with environmental groups to reduce the nation's dependence on coal.

Peabody proposed the 1600 MW plant in 2001. But they were soon working aggressively with state power agencies, including the Indiana Municipal Power Agency (IMPA), to persuade communities to sign long-term contracts to buy coal-fired electricity from the plant. Today, 217 towns and 17 electric co-ops, most of them in Ohio, Indiana, Illinois and Missouri, have signed on to buy this electricity. Among them are 52 Indiana communities, ranging in size from tiny villages like Advance and Jamestown up to mid-size cities like Richmond and Anderson.

These towns and cities get wholesale power through IMPA and they're on the hook for the project's rising costs. In 2004, Peabody said the Prairie State Energy Campus would cost $1.8 billion to build. Estimated costs had skyrocketed to $4.1 billion by 2007 and to $4.9 billion by 2010.

When selling communities on buying electricity from the plant, Peabody Energy and municipal power agencies promised them low-cost electricity for years, starting on day one of commercial operations, Sanzillo said. But the cost of wholesale electricity is over $80 per megawatt hour (MWh), when you take into account the additional payments made earlier this year, the group reported. Prairie State Generating Company said in a statement that it's $50-$55 per MWh. In any case, the going rate for wholesale electricity in the region is $41 per MWh, according to the report.

And the cost of wholesale power from Prairie State will exceed projected market costs of power for the next decade, Sanzillo said. "Our analysis shows that the project will lose money for each participating community at least until 2025," Sanzillo said.

When asked how this was all going to play out in Indiana, IMPA spokesperson Niki Dick emailed a copy of a statement by Prairie State Generating Company, which blamed "anti-coal advocates" for $1 billion of the cost increases because commodity prices were rising while the project was delayed by anti-coal litigation.

They said that communities that own the plant will get a stable supply of electricity at a stable price. And they hit back, saying that "the 'study'... was paid for by an organization that has a stated mission of getting rid of coal as an energy source. It was conducted by a consultant who is not an energy expert, but who consults regularly for the Sierra Club."

Nevertheless, wholesale electricity prices are still twice the market price, Olson says. His group, Citizens Action Coalition, has begun investigating to see how much electricity bills will rise in the affected Indiana communities.

When asked how the higher costs were going to affect Indiana residents, IMPA did not reply.

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