We’ve found that the cancellation of the AECI plant in Norborne near Kansas City announced the first week in February is only one of many. In a hot-off-the-press report titled "The Risks of Participating in the AMPGS Coal Plant" - February 13, 2008, by David Schlissel of Synapse Energy Economics, Schlissel found that since late 2006, more than 20 plants have been cancelled! Synapse was commissioned by the Natural Resources Defense Council to assess the risks of the American Municipal Power Ohio’s (AMP-Ohio) proposed 960 MW coal-fired power plant in Meigs County, Ohio. The picture that emerged in the report is a grim one for investors in coal-fired power. The report said, “Since late 2006, more than twenty proposed coal-fired plants have been canceled. More than three dozen others have been delayed. State regulatory commissions in Oregon, Florida, North Carolina, Oklahoma and Washington State have rejected proposed power plants. The Secretary of Health and Environment of the State of Kansas has rejected permits for two 700 MW coal-fired power plants.”
Is it the environmental costs? The Midwest has the largest concentration of old, dirty coal-fired power plants in the nation. Illinois, Indiana, Iowa, Michigan, Ohio and Wisconsin account for one fifth of the carbon dioxide emissions in the United States, helping to give the Midwest the dubious distinction of being responsible for more global warming pollution than any single nation on the planet other than China, India, Japan and the former Soviet Union. Energy companies have been working frantically to build even more “old technology” coal plants throughout the Midwest. In 1977, when Congress amended the Clean Air Act in 1977, it "grandfathered-in" older power plants exempting them from compliance. They figured the older facilities would be closing down soon and the new regs would apply to the new plants that replaced them. The bureaucrats underestimated the capitalists. The companies kept their old smokers flying under the 1977 exemption with partial “renovations” of the “old” plants. At present, 65 percent of the coal-burning power plants operating in the United States were built before Jimmy Carter took office.
This is why the June 11, 2007 decision by the U.S. Supreme Court on the 1977 Clean Air Act, the AEP $4.6 BILLION settlement and the public’s abrupt change of opinion about Global Warming was a mega billion dollar shock to the Big Power Boys who thought they could slick their way out of compliance forever by telling the public they had only two choices, live with filthy air or freeze. Recently the public has decided they want more choices and somebody better start coming up with them fast.
In a last roll of the dice to find a technological miracle to solve their CO2 emissions problem, the highly touted new emissions technology to produce “clean” coal-fired plants (they’re still telling bald-faced lies about “clean coal” in industry TV commercials and web sites) fell through when the Bush Administration pulled the plug on the “FutureGen” project. FutureGen was a $1.5 billion demonstration plant that was to be built in Mattoon, Illinois. After two terms of assiduously ignoring our environmental and energy dependence problems, FutureGen was a last-minute, legacy-salvaging attempt by the Bush Administration to build and operate a “clean” coal-fired plant. It was supposed to incorporate a ground-breaking new method of storing greenhouse gases underground thus making the still “dirty” emissions “clean” because the dirty stuff would be tucked out of sight and out of mind underground. The problem with underground sequestration of emissions is that it was just a shoot-from-the-hip idea by some wistful optimist but no one actually knew how to do it or whether it would work. Energy Secretary Samuel P. Bodman cited mounting cost estimates and other possible technologies as the reason for backing out of the project. Uh huh.
Under the circumstances you could be forgiven for thinking it was pollution mitigation costs that are killing coal-fired plants but surprisingly they are being killed by something much less exotic. They are toppling like dominoes not because of corporate sensitivity to clean air concerns but because of the surprisingly rapid acceleration of the cost of building coal plants. What has done them in is their corporate lust for globalism. The benefits of globalism have come back to bite them in their collective fat asses; China and India are eating up their construction resources!
Contractors are not willing to give customers a fixed price for a project when the volatile costs for alloy pipe, steel, copper, concrete as well as a tight construction labor market keep pushing prices up. China and India are competing in the construction of these plants which has caused the capital costs for new generation to climb by more than 50% in the past three years, with a more than 70% of this increase resulting from engineering, procurement and construction (EPC) costs. As the president of the Siemens Power Generation Group told the New York Times, “There’s real sticker shock out there.” This is why we’re seeing articles such as “Wall Street Shows Skepticism Over Coal” and the three leading banks, “Citigroup Inc., J.P. Morgan Chase & Co. and the bad boys at Morgan Stanley all backing away from financing coal-fired projects because they no longer consider so-called “clean” coal to be a good investment.
The AMP plant in Meigs Ohio, subject of the Synapse report, “The Risks of Participating in the AMPGS Coal Plant,” had been given the green light by the engineering firm R.W. Beck, (a firm often used by Missouri utilities) but the Synapse report found that R.W. Beck had seriously under-priced the construction costs. Costs of the plant had skyrocketing from $1.2 billion in October 2005 to nearly $3.4 billion (with financing costs) – an increase of more than 180% – in less than 30 months! NRDC staff attorney Shannon Fisk was quoted in the Kansas City "infoZine" as saying “$3.3 billion never looked this bad. For that kind of price tag, AMP should be offering cutting edge technology. Instead, all they are giving you is a dirty plant running on outdated technology. They can do far better before tapping into ratepayers’ wallets for the next 50 years.” The article quoted AMP officials who “conceded they will be unlikely to secure a fixed price construction contract. This means that as construction prices continue to grow, the cost escalations will be absorbed by municipalities and ratepayers.” AMP officials didn’t blink at the idea that they would be squeezing municipalities and ratepayers to pay for escalating and unlimited costs. What awful news for the Ohio municipalities who seem to have walked blindly into this power financing scheme for the AMP plant that sounds like a twin of MoPEP. Both will result in killer utility rates because of bad business planning and uncontrolled costs.
Just when you think it can’t get worse, last week Forbes magazine reported that coal prices will likely double by 2009! The Wall Street Journal this week reported that some coal futures on the New York Mercantile exchange have doubled since 2007 and Chinese demand is likely to push prices by up to 40 percent in the coming months. AMP has acknowledged that they will likely use an eastern blend of coal to fuel the plant. Much of this coal would come from Central Appalachia, where coal is often ‘mined’ by blasting the top off mountains.
While the real world of banking and finance is retreating at top speed from coal-fired plants and while the cost of the plants are accelerating out of all reason, Duncan Kincheloe and his MJMEUC/MoPEP boys are out buying up more stock in more coal-fired power plants that are rapidly becoming the buggy whip factories of the power world. When are the MoPEP municipalities, who by their laziness and gullibility got their citizens and utility ratepayers into this monumental open-ended mess, going to get off their fat elected asses and demand a public accounting from Kincheloe of what the additional costs are expected to be involved in building the five or six plants MJMEUC has invested in? Do they have fixed price contracts or not? Even if they do, what are the chances that the contractor will stick to the prices if it means he has to swallow huge price increases for materials? Kincheloe has been getting regular reports on this subject. Who is he sharing this information with, his MoPEP Committee lap dogs, the cities that signed his contracts or no one?
With the lies that have already been told by MJMEUC’s board and management about the ‘benefits’ of their investment scheme, and the skimpy, and/or non-existent examination by the various municipal auditors, the only objective answers we are likely to get will come from the State Auditors office. It’s time State Auditor Susan Montee started paying attention to the carnage that’s ripening right under her nose. This is not going to go away so it’s either cut off MJMEUC’s run-away debt machine now at the $1.2 billion mark or she and the next Governor and the Secretary of State may be up to their hip boots in bankrupt small communities.
