"Stevenson termed that power price as 'mind-blowing cheap'."
Since Bob's brains have now splattered everywhere, Hannibal needs to find itself some functioning minds so it doesn't repeat its power purchasing mistakes of the past. Because when you contract in haste, you are bound to repent at leisure.
In 2007, Hannibal BPW entered into an agreement with the Missouri Joint Municipal Electric Utility Commission (MJMEUC) to purchase an ownership share in a coal-fired electric generating station in neighboring Illinois. Hannibal's share was 20 megawatts.
At the time, then BPW General Manager Jack Herring seemed to also have blown his mind over the opportunities of Prairie State:
"We believe that a project like Prairie State is the best way for us to secure a substantial portion of our members' needs for an affordable, long-term source of electricity. The project offers us cleaner energy from a convenient source located just across the river," said Duncan Kincheloe, general manager and chief executive officer of MJMEUC, in a press release.
Except that's not what happened. Prairie State was plagued with cost overruns and construction delays. Even when it came online, it was often operating way below its full capacity. In addition, power prices have fallen way below even those promised prices. Meanwhile, Prairie State's costs have ballooned to as much as $.07573 in 2014. And municipal utilities who signed up for Prairie State's mind blowing deal aren't so happy.
“We’re in almost a million and a half bucks, and we don’t have a dime of revenue,” said Bob Stevenson, director of Hannibal’s Board of Public Works. “All I can say is, I had other plans for that money.”
Hannibal is raising rates for residential customers by 3 percent next month to offset the effect of construction delays.
“The only reason we’re having to do this is this problem we’re having with Prairie State,” Stevenson said.
Beware unregulated companies pushing power purchase schemes, Hannibal! As history demonstrated with Prairie State, you ratepayers need to look out for yourselves and can't trust your BPW to make smart power choices on your behalf. And you can't afford another Prairie State!
Clean Line offered Hannibal electricity priced at $.02. Except Clean Line isn't a generator, and owns no generation resources. Clean Line can't offer Hannibal any electricity, at any price, because Hannibal could never contract with Clean Line to purchase electricity at a certain price. The best Clean Line could offer is that Hannibal could sign a power purchase agreement with an un-built third-party generator in a far off place. That hypothetical generator would set its own price and contract with places like Hannibal, independent of Clean Line's promises, in order to finance its own construction. Except that's nowhere close to happening. Fictional power purchase agreements at mind-blowing prices don't exist.
Clean Line offered Hannibal capacity on its proposed transmission line. The transmission line isn't built yet either. What good is capacity on a transmission line that doesn't exist to a generator that also doesn't exist? Just like Prairie State, a purchase of transmission capacity is "take or pay."
The “take or pay” contracts, standard for large-scale power projects such as Prairie State, are favored by lenders and credit rating agencies because they provide assurance that the borrower pays its debts. They also require end users, in this case municipal utility customers, to make debt payments regardless of whether the plant is operational. And if any of the cities default, a “step-up provision” in the contract requires remaining cities to pick up that city’s share of the payments.
Clean Line has also offered Hannibal a $12.5M "investment" in its transmission project. In exchange for $12.5M, Hannibal BPW could own a tiny portion of Clean Line's project, if it is ever built.
And that's just the problem. By the time the Prairie State investments were made by Missouri municipalities, the project was approved and under construction. Clean Line's project still faces several permitting hurdles, including approval by the Missouri PSC, who turned the project down once already last year. The project is under appeal in Illinois, where state regulators made a grave legal error approving it. There's no guarantee that Clean Line's project will be approved in a timely fashion, if at all. Even if approved, Clean Line must still find financing to build the project before beginning. Clean Line has no customers to use as collateral. None. Potential wind farms cannot sign contracts with Clean Line until they have their own financing guaranteed by signing contracts with buyers of their own. No utilities want to engage in that kind of double-layered risk to sign "take or pay" contracts for generation and transmission that has yet to be approved or built. Instead, Clean Line is sniffing around Missouri municipalities to scrounge up some cash so it may present the mutilated bodies of Missouri municipalities to the PSC during future permitting proceedings with the hope that the PSC will feel an obligation to bail out in-state municipalities who may go belly-up if their investment in Clean Line disappears.
When Clean Line runs out of money, it's done. There is no chance it may recover the money it has already spent. An investment in Clean Line is one that can be lost in its entirety.
Any municipality thinking about making a deal with Clean Line should only gamble with what they are comfortable losing.
Clean Line may end up being a bigger loser than Prairie State.