Chicago Tribune expose explodes myths about Prairie State coal plant

It isn’t “clean” coal, it won’t “sequester” carbon emissions, it won’t be built for $2.4 Billion and the power it produces won’t cost $35 MW - all as originally claimed. It will cost over $4.4 Billion to build which is twice as much as they claimed, and the estimate for the cost of power from Prairie State is $64.40 per MW and still rising! As of June 2010 Peabody admitted the plant is only 48% finished. See Prairie State’s own press release: Prairie State Coal Plant coming right along ...it’s just not “coming right along” very well.

More breaking news for the Prairie State true believers: There is no Tooth Fairy.

The details of the July 12, 2010, Chicago Tribune story, Clean coal dream a costly nightmare, by Tribune reporter Michael Hawthorne, had to be wrenched out with a Freedom of Information pry bar. The resulting disclosures punctured the heretofore unquestioned puffery that has been spewing out of the Prairie State public relations department since this project was first proposed in 2001. Hawthorne’s story set off a frenzy of coal-partisan counter stories and local fall-out stories in newspapers all over the Midwest from shocked Prairie State town governments that had invested in the plant. Some stories quoted embarrassed deeply-in-denial city administrators who were caught with their pants down exposing the “I ♥ Prairie State” tattoos on their gullible butts.

The Tribune missed the bigger story

The Tribune story however, focused on the financial damage the uncontrolled Prairie State costs will have on the municipalities in and around the Chicago area, i.e. Naperville, Batavia, Geneva, St. Charles and Winnetka, that were suckered into signing contracts either to invest in the plant as owners entitled to a share of the output or that contracted for the power and actually believed the PR spin that the lowballed quotes on cost of construction and cost of power was real and that every multi-million dollar cost overrun would be the last.

In order to find the financing for this environmental black elephant, Peabody had to use not just the five Illinois municipalities in the Tribune story but municipalities and municipal associations in several states in the Midwest to raise the billions necessary to finance the over-ballyhooed “clean-coal” plant. As the billions in cost overruns secretly accumulated more towns and municipal associations from Virginia, Indiana, Illinois, Ohio, Missouri, Michigan and Kentucky had to be sucked in as investors to cover runaway costs.

The mind boggles at the large numbers of impaired elected officials who bought into this scam without a blink and with no due diligence. Having voted for a Prairie State contract ought to be grounds for automatic impeachment.

Project investor/owners now include: American Municipal Power, Illinois Municipal Electric Agency, Indiana Municipal Power Agency, Kentucky Municipal Power Agency, Northern Illinois Municipal Power Agency, Peabody Energy, Prairie Power Inc. Southern Illinois Power Cooperative and Missouri Public Utility Alliance, a.k.a. MJMEUC or MoPEP.

Peabody now owns only 5% of Prairie State having sold off 95% of the liability to the above named schmucks.

By Friday, July 23, Prairie State executives were no longer answering questions or taking phone calls. Rumors could not be confirmed that the PS executives and their PR department had bunkered-up in their much publicized coal mine next to the unfinished Prairie State plant that is "coming right along" at a 50% cost overrun with only 48% completion.

The peasants are revolting...

The crap storm created by the original Tribune story had reached such velocity that to quiet the gasps of shock and outrage from city officials, who were finally beginning to suspect they had sold their towns a bill of goods by encouraging them to make direct equity investments in the mythical $35MW Prairie State pricing, panicked Prairie State officials began throwing bread over the walls to the angry peasants by promising price caps on their over-sold, under-priced product.

In a July 23, 2010 follow-up to the Tribune story, also by Hawthorne on Chicago Breaking News, Coal plant developer feels pressure, caps costs, Peter DeQuattro, chief executive officer of the Prairie State Generating Co., said, “This agreement will provide greater price stability and economic predictability, which will benefit Prairie State owners and the customers they serve. The company did not respond to questions.” That devious line about “price stability and economic predictability” in the far distant future is an over-used sales line that Prairie State officials and their minions have long fed the unsuspecting communities they’ve roped into this specious long-term investment. Prices can be 10 times a higher than that of the commercial competition and technically still be “stable and predictable!”

The Tribune story explained that only the “construction budget” will be capped. “Without providing details of the new agreement, the management company in charge of overseeing the plant said it had brokered a new deal capping the construction budget at "approximately $4 billion. That amount does not include the project's total costs, including nearby coal reserves, mine development and transmission lines. Because we don't know the details it's possible that a huge amount of the costs of the project could be shifted over to the “nearby coal reserves, mine development and transmission lines.” And who pays for the "nearby coal reserves, mine development and transmission lines?" You’ll notice that they said nothing about capping operating costs or that they wouldn't shift a variety of costs to the post construction operating charges. After all who's to know?

But Ma! They said it was "Clean" Coal!

In a similar and naturally uncritical story off the PR Newswire, Jul. 23, 2010, Prairie State and Bechtel Announce New, Fixed-Cost EPC Agreement Providing Greater Economic Stability, obligingly repeated by iStockAnalyist on the deal to cap costs of construction between Bechtel Power Corporation and Prairie State Generating Company, LLC, Prairie State President and CEO Peter DeQuattro said, “The agreement supports our mission of delivering low-cost, reliable and environmentally responsible electricity.” DeQuattro added, "This remains a good investment for our owners and the customers they serve. Equally important, the project will invest approximately $1 billion in 21st century technologies, making it among the cleanest power plants of its kind anywhere in the nation.” DeQuattro pointed out that Prairie State’s “carbon dioxide emissions will be approximately 15 percent lower than the typical U.S. coal plant.”

DeQuattro's statement is breathtaking in it's duplicity. US coal plants produce 52% of the enormous amount of electricity used in the US. Of that 52% coal plants belch out carbon dioxide and other greenhouse gases that are suspected to cause climatic warming and they are also a source of sulfur oxides, nitrogen oxides, fly ash and mercury which are harmful to human health and may be largely responsible for acid rain.

Alex Gabbard, author of Coal Combustion: Nuclear Resource or Danger? and other scientists and engineers believe that although not as well known, fly ash and other releases from coal combustion contain naturally occurring radioactive materials--mainly, uranium and thorium and they believe that “those living near coal-fired power plants are exposed to higher radiation doses than those living near nuclear power plants that meet government regulations.”

For DeQuattro or any other advocate of “King Coal” to blandly say that this plant is among the “cleanest power plants of its kind anywhere in the nation” is a feeble accolade. When he says “Prairie State’s carbon emissions will be 15% lower than the “typical U.S. coal plant” it’s like saying sewage effluvia filtered though panty hose is 15% more drinkable than unfiltered sewage. It may have fewer lumps but it’s just as noxious and still deadly.

Why they're getting "hosed this bad”

The best quote of all in the stories was this one from Bruce Nilles, director of the Sierra Club’s national coal campaign: “We predicted four years ago that this was going to be a bad deal for ratepayers. But we never envisioned they would get hosed this bad even before Prairie State generates a watt."

In the same PR Newswire, Jul. 23, 2010 press release disguised as a real news story, DeQuattro also declared that, “construction costs of all types of power plants – whether coal, nuclear, natural gas or wind – have significantly increased since work began on the new plant. Rising commodity prices, along with labor costs and other factors, have increased the cost of new power plants by 130 percent between 2000 and 2008, according to IHS Cambridge Energy Research Associates.” That’s the first halfway correct statement we've read from him.

China is breaking ground for a new coal plant EVERY WEEK! India is ramping up to that volume and other power-starved countries in the Pacific Rim also with explosive economic growth are not far behind. For at least a decade it has been widely known that these countries, particularly China, are major importers of our raw construction materials and even import Western construction companies and engineers. In 2003 coal-fired power plants were estimated at over $2 billion and hundreds were being planned. By 2008 costs had doubled, accelerating risk made insurance impossible to obtain, smart banking money was backing off and plants in half a dozen states were being canceled. Only one dramatic event was needed to put a stake through the heart of the fossil-fuel power industry.

The stake came in the form of the June 11, 2007, U.S. Supreme Court landmark decision on the 1977 Clean Air Act in the Justice Department case against American Electric Power (AEP). The $4 Billion fine on October 2007 forcing the polluter to install anti-pollution equipment on all its plants and pay other damages downwind sealed the deal against King Coal. Wall Street bankers withdrew their financial support from power plants with such huge environmental liability and uncontrollable costs. Plants were canceled in a half dozen states as regulatory commissions woke up to the high construction costs and environmental risks. Now most coal-fired plants under construction have a $4 billion price tag and counting.

Construction costs don’t increase that much faster in a single sector than over the general economy in such a short a time unless there are targeted and uncontrollable economic factors such as China and India buying up wood, concrete, steel, mechanics and other components necessary for their mega power plants, giant dams and other construction projects. Even coal is being shipped from our Powder River to China by….oh yes… our good friends at Peabody Coal, the originators of the Prairie State power plant!

Can you break a contract on grounds of stupidity?

Now the only way “King Coal” can survive financially is to victimize small municipalities like Martinsville Virginia, Naperville Illinois and the MoPEP cities of Missouri by conning them into “investing” or bankrolling these behemoth high-risk plants with false reports on costs and soothing lies about “stabilizing” their soaring energy costs in the far distant future.

We predict that when the revealed bills for their foolishness exceeds their red faces, city officials, who pushed these investments in coal-fired power plants to their elected officials who don't like to read "all that legal stuff," will be planning lawsuits to get out of, what they were telling their citizens just recently, was the smart play of securing future pie-in-the-sky megawatts against future rising prices.

What will be their grounds to get out of a contract they willingly, even enthusiastically signed? In the first place these were equity investments i.e. stock purchases, just as if the city was investing in the stock market or buying into Joe’s Bar and Grill. Municipalities, school boards and other public entities aren’t allowed to invest public tax money in private businesses and stocks because if they were allowed to do anything so bird-brained all our public institutions would have long since been bankrupt. There is, unfortunately, never a shortage of dunderheads serving on elected boards that have a “hot tip” in the market and think it's a good idea to invest the city's reserves in it.

Second, this was an investment and the investors (even though those investors shouldn't have been investing) – that’s not just the elected officials but the citizens of those victimized communities are supposed to be given a prospectus with a full disclosure of the risks involved in the investment and a lot of other due diligence information. Does it sound like Peter DeQuattro ever disclosed the risks of Prairie State and coal-fired plants to any of these people?

Fashioning a rod for your own back

Someone from an environmental group pointed out the irony inherent in sucking these towns in as default 'bankers' for an industry that is no longer credit-worthy in the real world. Once the municipalities have been gulled –however ignorantly and illegally- into investing in these over-priced, high-risk coal plants it is simple for the coal power industry, in it's many guises, to turn them into mass lobbying shills for and are wound up and set off to lobby in full hysterical mass to oppose any state or federal legislation designed to promote alternative energy sources or reduction of coal emissions which would reduce the pollutants that are detrimental to their own health and welfare!

You’ve got to hand it to the King Coal boys. It’s not every industry that can get people who want both power and clean air to pay a premium user fee for the power and at the same time get them lobby for the privilege of choking to death on the smog belched out by the power plants which generate the outrageously priced kilowatts they're paying for to toast their muffins and dry their jockey shorts.

Duncan Kincheloe’s next investment…"The Love Canal Bottled Water Co?"

No matter what all the “Clean Coal” commercials say coal-fired plants aren’t ‘clean’ they’re just different degrees of dirty. Over the last ten years coal-fired plants have sprung up in the Prairie states like noxious multi flora rose. The reason they’re being built in the Midwest is that we don’t have the strict emissions laws that were developed over the previous decades on the East and West coasts to limit smoke-belching power plants. They’re way ahead of us in environmental protection legislation and in the influence of large and powerful environmental lobby groups. Midwestern states typically have out-dated, flimsy regulations for coal-fired plants so when it came to laws to protect the environment we were standing out here on the prairie buck naked – perfect targets. Supplying the Midwest states and the Rust Belt with electricity wasn’t the prime reason for this proliferation of coal-fired plants. The real reason was to supply the more lucrative East and West coast power markets. National environmental protection groups like the Sierra Club, Environmental Defense and the St. Louis-based, Great Rivers Environmental Law Center, are making progress but they are, pretty much, our only line of defense.

In October, 2007, the U.S. Justice Department settled a landmark case against American Electric Power (AEP) for $4.6 billion. AEP will finally be forced to invest in new pollution controls at its existing plants and they must pay various cash amounts to the plaintiff states downwind of the Ohio plants. The EPA, twelve environmental groups and the eight states, Connecticut, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont, accused American Electric Power of rebuilding coal-fired power plants without installing pollution controls as required under the Clean Air Act. The EPA brought suit against the company in 1999, just when Kincheloe was getting ready to launch his great MoPEP scheme.

For years AEP and other old polluting plants had been “grandfathered” and exempted from compliance with updated air quality standards. But when they renovated and expanded their old plants, the Justice Department and several downwind states pounced on the non-compliance of the “new” plants. AEP refused to comply claiming the EPA didn’t have the authority to decide what dirty air was - the battle lasted six years. AEP lost that fight and the $4.6 billion AEP settlement was the largest single environmental settlement in history and it will no doubt work just like the tobacco lawsuits. Once the tobacco nut was cracked, every other state used the landmark case to file and quickly “settle” to get its share of the tobacco lawsuit pie…as easy as picking overripe fruit. The AEP settlement was a warning to the industry and to all coal-fired investors. One of those investors was Duncan Kincheloe who at that moment was busy selling over a BILLION dollars in revenue bonds to buy stock in as many coal-fired plants as possible. How many states downwind of all these new MJMEUC coal-fired plants are just waiting for Kincheloe and his fellow investors to fire up the boilers so they can file a lawsuit and pick up their multi-million dollar damage settlements?

Four months before the settlement on June 11, 2007, the U.S. Supreme Court ruled that, oh yes, the EPA did so have the authority to regulate greenhouse emissions from new motor vehicles, coal-fired plants and any other emissions if the EPA finds that greenhouse gases "may reasonably be anticipated to endanger the public health or welfare." This Supreme Court decision and the EPA suits had been in the works since 1999; they were not footnotes in some obscure legal history, they were watershed events, big headlines in the power industry and in every major and most minor newspaper in the country. The consequences of a dirty industry finally being forced to comply with Clean Air Act had been the topic of industry articles and lobbyists workshops for years. It was not possible that Duncan Kincheloe didn’t know about these looming decisions and understand the risk in investing in coal-fired plants just as all this was coming to a head, yet he went right ahead during those six years from 1999 to 2007 creating The MoPEP Machine.

Investments in coal-fired plants are not for amateurs like Duncan Kincheloe and his consortium of baffled and confused utility linemen turned investment moguls. Kincheloe, a former Gov. Ashcroft aid, member of Governor Blunt’s Personnel Committee, Enron investor and long-time Republican sycophant will find his political and environmental landscape changing drastically after January 2009. No matter which party wins, a real national energy policy, which is decades overdue, will be based upon drastically reductions in carbon emissions that will hopefully impact global warming. The political impact on Kincheloe’s MJMEUC/MoPEP coal-fired, carbon-emitting investment portfolio will not be a pretty one. The financial impact of Kincheloe's carbon-belching investment portfolio will be devastating to his unwary, small town MoPEP investors.

The fall-out begins. This week several readers and one electric company executive sent me the following articles. The first is an announcement by Associated Electric Cooperative, Inc. that they are canceling plans for their coal-fired plant in Norborne near Kansas City, Missouri. This plant would have emitted over 6.8 tons of carbon dioxide and other toxic materials annually and emitted over 340 million tons over the 50-year life of the plant. AEC board member, Dan McQuitty, said, “Although AEC has received state approval to build a 780-megawatt coal-fired plant, the co-op's 12-member board voted Friday to delay the project indefinitely.” The expected cost of the project has nearly doubled from $1 billion, McQuitty said. Also, “the utility anticipates the Democratic majority in Congress to push for carbon dioxide emission controls and tougher federal regulation of greenhouse gases.” See there McQuitty and the AEC are smart enough to figure out that there is going to be a political sea-change.

The second news article, "Wall Street Shows Skepticism Over Coal" is an announcement by the three biggest banks on Wall Street that they no longer consider the so-called “clean coal” to be a good investment. Citigroup Inc., J.P. Morgan Chase & Co. and Morgan Stanley have concluded that the U.S. government will cap greenhouse-gas emissions from power plants sometime in the next few years. In future, these bell weather banks "will require utilities seeking financing for coal-fired plants to prove the plants will be economically viable even under potentially stringent federal caps on carbon dioxide, the main man-made greenhouse gas.” They also said they expect all three presidential candidates to move government policies away from coal toward alternative energy initiatives. See there, everybody knew this but Kincheloe and the MJMEUC/MoPEP guys. Banks are naturally risk-adverse and they don't want to be involved with debt that will go bad as a result of government emissions caps that require the power plants they finance to buy large numbers of extra pollution ‘allowances.’ They also don’t finance businesses that have a liability settlement history of shelling out $4.6 billion to everyone living downwind of their smoke plume. If the three biggest banks in America say investing in coal-fired plants is too risky for them with their trillion dollar assets, what are little towns like La Plata, Hermann and Rolla doing plunging into these high-risk investments? When Citigroup Inc., J.P. Morgan Chase & Co. and Morgan Stanley say the coal-fired party is over…it’s over.

Hal Clark, co-chair of Citi’s power-sector investment banking division said that when utilities apply for financing for coal-fired plants, the banks will use "somewhat conservative" assumptions about future caps. The banks say they will consider the possibility that utilities will have to pay for their (pollution) allowances -- an idea the utilities are fighting and it’s a fight they will lose. If utilities have to pay huge penalties for their pollution “allowances” they would pass those costs on to their customers which would make their power prohibitively expensive. Mark Brownstein, an Environmental Defense official, says if utilities have to pay for emission allowances, "the days of conventional coal really are over." One bank official conceded that some conventional coal-fired plants might pass muster for financing if the utility showed it could raise its rates to cover the higher cost of polluting.

That last ominous comment about the utility or its investors showing that they could raise rates to cover the higher cost of polluting is very bad news for everyone trapped in MoPEP. It's bad enough that in the MJMEUC contracts that bought ownership shares in the five to seven power plants Kincheloe and MJMEUC/MoPEP have already agreed to force each MoPEP city utility to raise its rates as often and as high as necessary to cover all costs of the MJMEUC contracts with their punishing “life-of-unit, take-or-pay and step-up” provisions but now all Kincheloe and MJMEUC have to do is throw the new multi-million dollar carbon emissions penalties imposed on their coal-fired plants into the MoPEP “direct costs” bills that each MoPEP member gets on a monthly basis. They assume that all their MoPEP-tied city utilities will just pass the multi-million dollar carbon 'allowance' fines on to their unfortunate retail customers as well. Their assumption that there is no limit to their "pass-along" billing machines is wrong. You simply can’t get blood out of a stone and with people on fixed incomes and the poor there is an absolute limit to how much they can pay. When houses and then towns start to empty out who will pay MoPEP’s overpriced bills? If MoPEP cities just stop paying Kincheloe's over-inflated bills how is he going to make them pay? Will he use his first-lien power and take over their failing utility revenues in their failing little towns as people move away to towns with reasonable rates?

Was this what Duncan Kincheloe had in mind when he acted as Judas Goat and led 31 impoverished and befuddled little towns into a BILLION+ dollar investment? The handwriting was on the wall six years ago. Banks had already begun to back away from financing these mega billion dollar power projects, that’s why the power industry developers were pimping clueless little municipalities like MOPEP members to provide financing through MJMEUC’s tax-free municipal revenue bonds.

The AEP $4.6 BILLION settlement was not a great surprise coming on the heels of the historic U.S. Supreme Court decision on the Clean Air Act in June 11, 2007. The question is this, if Duncan Kincheloe is the business genius who is going to lead them to the Promised Land as his MoPEP utility guys seem to think he is, why didn’t he anticipate (as other pros in the industry did) this adverse event anytime from 1999 to 2007 when these cases were filed and decided? It was from 1999 to 2007 that he was building his MJMEUC/MoPEP Machine and gobbling up every coal-fired investment he could find. Other pros in the industry knew their days of telling the public that they had to accept dirty air as the price of having power were over. The public is no longer swallowing “the ends justify the means.” How was it that Kincheloe was the only one who didn’t catch on?

Why didn’t Kincheloe take the conservative, prudent approach and stay away from what was, later if not sooner, going to become a cascading series of bad news events for this dirty industry? We can only speculate that it was because Kincheloe is a political apparatchik he is not a business expert. As a long-time political operative he evidentially believed the 1994 propaganda of the Republican Party and Newt Gingrich that they would rule for 40 years. They assumed that a natural result of their dominance would be that their uber-conservative appointees to the Supreme Court would continue to bail out the old polluting industries. What Kincheloe apparently didn’t consider was that Newt and the Republican Party could be wrong and that Supreme Court Justices, as elevated and as Republican as they may be, prefer to breathe clean air.

From 2000 to 2007, while the coal-fired power industry was floundering, Kincheloe, the MJMEUC business guru, has been busily tying down 31 little dumb towns on the railroad tracks. Well, if the wheels start coming off Kincheloe’s investment wagon he only has to resign his several lucrative CEO-ships and move somewhere that has PSC-regulated utilities. The little rural towns will be left behind with this mess wondering what coal-fired train hit them.

Duncan Kincheloe and the MJMEUC board belatedly decided to diversify their investment portfolio a little so they plunged another $8,715,000 into a soybean ethanol plant in Laddonia, Missouri. They thought they were going to get in on what the Bush administration erroneously perceived to be one answer to the oil crisis. However, anyone who has looked deeply into this experimental industry knows grain-based fuels use nearly as much oil to produce as their ethanol output and even worse, grain-based fuels play havoc with grain-based food prices. In short, grain-based ethanol is a dead end. In the general enthusiasm for what sounded like an easy "no-pain" solution to the clever idea of growing our own fuel, few have examined the second fatal flaw in the ethanol ‘miracle’ – water. Ethanol processing plants, are little more than giant moonshine stills and they use too much precious water, a commodity that is becoming scarce and someday will be as costly as oil. Without massive ethanol subsidies, which mostly benefit giant agricultural corporations, grain-based ethanol will be left in the dust as rapid R&D advances began to catch up with our wasted fuel policy years.

If the Ladonia plant quickly becomes ‘old tech’ due to innovations in energy R&D or because of changes in energy politics and policies, who will pay off Laddonia’s $8,715,000 debt? Who will pay for the mega-million dollar cost of converting it to some other type of production - if that is even possible? The owners –that’s you - will pay of course. The opportunities for failure in Duncan Kincheloe’s “Business Plan for Billion Dollar Energy Plant Investments in Dirty or Dead End Technology” are legion. Wise old African say: “First dumb Wildebeest to cross river become dinner for crocodile.” They should have let some other dumb beast feed the ethanol crocodile before investing in a technology that was obsolete and impractical before the first ethanol still was built.

So much for the penetrating business insight of Kincheloe and his MJMEUC puppet board. Just as Kincheloe and the board had pushed 31 nearly bankrupt small rural towns into a BILLION dollar investment in dirty old coal, the environmental worm turned as the Supreme Court ruled against smokestacks and the three biggest banks in America announced that King Coal was dead. Can bad business judgment and bad timing get any worse than that? Kincheloe’s answer was to ‘diversify’ their investment portfolio into an impractical and politically unsustainable investment in a giant soybean still. With Kincheloe’s business acumen the next investment he will recommend to his coterie of utility linemen-turned-equity-investors will be the "Love Canal Bottled Water Company."

But that’s not the only bad business idea Kincheloe has pushed these people into. Next we will explain The Great Generator Scam that made Duncan Kincheloe a household word in the power industry…but not in a good way.