The Paducah Sun Sunday editorial KEY ISSUES PPS should heed city, seek out expert advice The Paducah City Commission took a step in the right direction Tuesday night regarding Paducah Power Systems disastrous investment in the Prairie State Energy Campus. The commission passed a resolution urging the PPS board to hire independent specialists to look into the original decision to invest in Prairie State and to evaluate the utilitys current financial obligations. We think that language translates into looking at two key questions. One is whether Paducah Power was materially misled by Prairie States marketers or PPS own consultants when it made the decision to invest in Prairie State. The second is whether PPS has taken on so much debt through its investments in Prairie State in Illinois, a gas-fired peaking power plant in Paducah and a power contract from a hydroelectric plant in Smithland that it is insolvent. As weve mentioned in the past, the historical record at least suggests PPS was misled about the risks and potential for the Prairie State project. PPS officials originally stated publicly that the Prairie State venture would lower local power rates by 10 percent. Later, the representation was that rates would not be lower, but flat and very stable, increasing perhaps one percent a year. Then came the announcement between December 2012 and April of this year of base rate increases totaling more than 20 percent. And then on top of that came the recent Power Cost Adjustment or PCA, which resulted in a surcharge of more than 30 percent on the base rate earlier this year. This outcome doesnt square with the original representations made to the public about what the Prairie State investment would mean. PPS officials clearly expected a different outcome, which leads to the obvious question: What exactly was PPS told by its consultants and Prairie States marketers, and was it misled? The bigger question - the elephant in the room in fact - concerns PPS debt. The utility and its partner, Princeton Electric Plant Board, took on more than $500 million in debt to finance their investment in Prairie State. PPS borrowed in excess of $100 million more to finance its seldom-used peaking power plant here in Paducah. It also has a commitment to buy power from a hydroelectric plant in Smithland that will come on line next year. Add it all up and you have a small utility of 22,000 customers carrying debt well over one-half billion dollars and contracted to buy way more power than it can use or profitably resell. It was debt, not the problems with Prairie States operating efficiency, that led to the 20 percent increase in the base rate over the past couple of years. Even if the efficiency issues at Prairie State are resolved (which seems unlikely, given the lower-than-expected quality of the coal from the mine the plant is built on) and the PCA declines, the fixed costs that drove the base rate increases arent going to go away. The problem now is that power rates in the city limits are so high relative to rates in the county and surrounding counties that they destroy any incentive to build or locate in the city. In fact they create incentives for existing businesses and residents to leave. Given this scenario - staggering debt, a likely declining customer base and PPS overcommitment to power purchases - we think expert advice on restructuring options, including bankruptcy, is needed. The commissions resolution also called on PPS to work on finding a successor to PPS manager Dave Clark, who plans to retire next August. We think PPS should accelerate that process, by asking Clark to leave now. We were particularly struck by Clarks comment when asked Tuesday by Mayor Gayle Kaler if PPS was misled about buying into Prairie State. Clark said, No one could guarantee us. Its like if you came to me and asked how much snow were going to have this December. I cant answer that. That begs the question, if Clark was that uncertain about the outcome of this investment, why did he commit a half-billion dollars of ratepayers money to it? The reality is, Clark led PPS into this mess, and we think the utility needs new leadership to lead it out.
Posted on: Sun, 28 Sep 2014 22:47:14 +0000
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