Peabody Energy’s recent announcement that it would sell its 5.06-percent share of the Prairie State Energy Campus does not affect Batavia’s or Geneva’s investment in the downstate electricity generating plant, according to a spokeswoman for Peabody.
The cities, through their membership in the Northern Illinois Municipal Power Agency, bought shares in Prairie State to provide decades of stable energy prices for their municipal electric systems.
Peabody, one of the world’s largest private-sector coal companies, announced it would sell its Prairie State interest to Wabash Valley Power Association for $57 million. Peabody’s original investment was $247 million, officials said.
The closing is anticipated to occur before the end of the second quarter, Peabody spokeswoman Kelley Wright wrote in an email.
“Peabody’s divestment of Prairie State is part of the company’s emphasis on portfolio optimization and is the latest in a series of actions to reshape Peabody’s portfolio,” the email stated.
But Sandy Buchanan, executive director of the Institute for Energy Economics and Financial Analysis, said Geneva and Batavia will be among 200 municipalities “left holding the bag on this huge amount of debt they have to pay back in the form of higher electric rates.”
“They are stuck,” Buchanan said. “All these communities were promised that the cost of power from Prairie State was less than market [price], and the reverse has happened.”
Buchanan said electricity is selling for $30 to $40 each megawatt hour on the open market, while Prairie State electricity costs $60 to $70 each megawatt hour.
Geneva officials referred questions to Prairie State spokeswoman and manager of government affairs Alyssa Harre. In an email, Harre disagreed with Buchanan that Peabody’s sale would affect the municipalities.
“Each owner of the Prairie State Energy Campus individually manages its interest in the campus,” Harre wrote. “This includes the debt service, transmission of the electricity and the rate setting of the electricity for its members.”
Harre also disagreed with Buchanan’s comments about the cost of Prairie State’s energy.
“Sound long-term forecasts show electricity costs from Prairie State will be competitive with other fuels over the anticipated 30-plus-year life of the facility,” the email stated. “Among coal-fired power plants greater than 500 megawatts, Prairie State ranks in the top 5 percent for lowest operating cost per megawatt hour.”
Batavia City Administrator Bill McGrath also said Buchanan’s analysis was incorrect.
“They are not an unobjective organization – they are anti-coal,” McGrath said of the Institute for Energy Economics and Financial Analysis.
“What Peabody did – it does not mean anything,” McGrath said of the sale of its interest in the energy campus. “It’s really clear that Peabody, as a company, is under huge pressure. When the stock price of the company is going down, it’s common for a company to shed assets.”
McGrath said Batavia, like the other municipal electric utilities, wanted to invest in the power generation plant as a hedge against future energy costs.
“Things moved incredibly quickly … with the downturn in the economy and natural gas being cheaper than coal,” McGrath said. “The price of electric power is historically linked to the cost of natural gas. It puts pressure on what can be charged for coal.”
At the time the project was created, the partners paid what was then a good price for coal and the cities were fixing the price, hedging against future increases, McGrath said.
“The plant cost more to build than planned,” McGrath said. “The cost of operation construction, materials – which was paid in advance – all contribute to the price that has to be charged to the partners. And we are doing what we can to work with that asset in the long run, hoping – but not waiting – for the market to come back.
In January, Batavia hired Jenner & Block partner Michael Scodro to go through all the city’s documents relating to the Prairie State Energy Campus with the goal of broadening the city’s energy portfolio.
City attorney Kevin Drendel had said then that Scodro would review the city’s transition from a regulated electric market into an open market – and advise how to achieve a balanced and diversified energy portfolio.
McGrath said the law firm has not yet issued a report.
A class action lawsuit against Prairie State and some consultants still is pending in federal court, McGrath said.