Prairie State Discussion and History
This is a generalized history of the events that led to the City’s involvement in NIMPA the Northern Illinois Municipal Power Agency, and Prairie State, the nickname for the coal-fired power plant located in Southern Illinois with which the City is involved, the construction and ramping up of which has put intense pressure on electric rates here in the City. It is a primer to help understand the material that follow, including FAQ’s from the last discussion, as well as new ones submitted by the City Council and residents. You are invited to email questions to City of Batavia. We cannot respond individually, but questions (not identifying the name or email address of the asker) will be responded to on the FAQ page. Hopefully this will be an efficient way of learning about this important issue, in addition to the public meetings held by the City Council, which residents are of course invited to attend and participate. While there will most likely be status reports at each meeting, please consult the Agenda published on this site to see whether specific items are planned for action. We will also be publishing the FAQ’s that were developed when the last general discussion took place. There will be a special Committee of the Whole Meeting on Monday September 28, 2015 in the City Council chambers to hear more questions and generally discuss this topic.
Please understand that on the advice of counsel, because of the existence of legal proceedings, and certain confidentiality agreements, it may be extremely difficult if not impossible to respond to all inquiries in a manner deemed satisfactory to everyone. The City Council and staff are bound to make sure that no information is shared which could negatively impact its future decisions. It causes a very difficult situation in governance, and we will do our best to share as much as possible to aid in understanding.
One note: City staff simply does not have the time to monitor all the social networks in order to get information out and respond to comments. We will be maintaining the City website as our main manner of media communications as well as our e-blast. We urge you to direct your friends and neighbors here. Thank you.
This item started on 9-2-15. Later content will be added to the top of this area
September 2, 2015 - Relation with Prairie State Energy Campus
Batavia’s relationship with the Prairie State Energy Campus, finalized in 2007, and involving issuance of bonds by the partnership it formed with the Cities of Geneva and Rochelle, has been the topic of much discussion. The costs of the plant, much higher than expected, the ramp up of the plant which has taken longer than expected, and the amount of power the City contracted for have all come together in the perfect electrical storm.
The City’s power usage had been on the rise along with the economy, during the period in which the Prairie State project as well as others were looked at by the City, as electric power had been "deregulated” by the State legislature, and no longer could the City enter into “all requirements “ contracts. Those contracts require a power provider to furnish as little or great an amount of power as the City needed at any time. The new industry required municipalities which owned their own electric utilities to purchase power in blocks of time, and in amounts which tried to compromise between the price of security of a guarantee of a certain level f power, while affording the freedom to either not pay for contract power it wouldn't use, or to take advantage of the daily market for power. Electricity had become a commodity much like corn or soybeans, except that since power couldn’t be saved, there was actually buying and selling decisions being made based upon the forecast in whether ahead of time.
The blocks of energy were related to the times during which electricity is used in different amounts. There is a 24 x 7 block, known as “base load” which is the power the City believes will be used all day, every day regardless of weather or work day. Because this is the firmest power to purchase it is the cheapest generally. The next block is 5 x 18, which reflects the increased usage by the City during the work week. This is power over and above the base load, and again the City tries to buy just the right amount. The third block is called "peak power" which is the amount of power the City needs when it exceeds the amount of power it has contracted for in any single day and this can be extremely weather dependent. For example, on a hot day when we would exceed the amount we have purchased by contract we have to buy in the open market, and if we use more we automatically pay for whatever we used at the then-market price. If there is a hot day in the entire area, the price shoots up as everyone needs more. If it a cold day, conversely, utilities are trying to sell of their excess power and the prices generally go down.
Prior to deregulation then, the City didn’t have to worry and the power suppliers like Exelon (then Com Ed) or other suppliers assumed the risk of the under or over supply and the consequences. Afterward, the risk shifted to the users, including cities like Batavia. It was because of this change that the actual ownership of power generating plants was seen as being wiser than previously. Cities had been organizing in power agencies and co-ops across the country for many years, and purchasing such generation as coal-fired plants, hydro-electric facilities (dams) and back then some gas-fired "peaker plants" which could be turned on when electric priced were at their highest and be run more economically allowing the owner to "shave" some peak. If they could generate their own, they wouldn’t have to go to the market and pay for expensive power, OR in some cases turn it on and sell into a high-priced market. The agencies could manage their generation and enter into contracts as a group, though the market and economy still had to be contended with from time to time.
As the communities grew, so did the electric loads, and with deregulation there was even more interest and justification for purchasing generation. The City of Batavia had been a member of Illinois Municipal Electric Agency, but departed along with Geneva and Rochelle to explore such opportunities. Other coal plants were looked at, wind farms (just beginning to gain a little traction) and opportunities for hydro as well. Communities with utilities positioned themselves to deal with the changes.
It was a long course of actions, almost 3 years, that resulted in NIMPA (and thus Batavia) committing to Prairie State. Many of the actions that occurred are now being looked at retrospectively and part of the current dialogue is a review of these actions to try to understand how Batavia reached its current position. Through this portion of the City website as well as meetings residents will have an opportunity to ask questions to try to reach an understanding, though many of the elected officials and staff who were here at the time are no longer in office or work for the City.
Organizing efforts began roughly in 2004. As investigation continued the City was required to make some deposits toward the work. This involved not only learning about the potential project but the notion that the NIMPA partnership would have to issue bonds (borrow) for its share in the project. The City consulted with bond attorneys, financial professionals retained by it and retained by NIMPA on the borrowing side, and professional engineering firms and other agencies which had power plant ownership.
Ultimately NIMPA purchased into the project with an ownership interest of 7.5% in Prairie State, requiring it to pay for that share of the total construction costs and to purchase that share (equaling 120 Megawatts) of power. Batavia pays for 45.8% of that 7%, equal to 55 megawatts of power and that prorated share of the construction costs. These costs were paid for by the loan (bond) proceeds, and the payments due on the borrowing are passed along to each of the 3 NIMPA members each month as part of their respective contracts to purchase power from NIMPA.
Cost overruns caused NIMPA to have to borrow more than first intended. The City’s total payment each month is comprised of its share of the loans, its share of the cost of power produced by Prairie State, its share of any power it is required to purchase in the market, if any, as well as the cost of getting the electricity delivered through the national electric transmission system, owned by different companies, in our area, Com Ed. There are also fees associated with transmission.
In Batavia’s case, if electric use is less than that purchased from Prairie State, it must sell that power into the market and either make a profit or take a loss if the cost in the market is less than that paid to obtain it from Prairie State.
Other Developments Impacting the Prairie State project
There were 2 developments which heavily impacted the project and Batavia’s status: the “Great Recession”, aided by the collapse of the housing market and rise of China as a manufacturing powerhouse, and the development of "fracking" to secure natural gas.
Like many communities, Batavia’s growth spurred increases in electric use, especially by industry. Because of the customer service and reliability of the system, with local employees and a stronger loyalty to its customers/owners, many companies with heavy electric use and sensitivity to outages began locating here, as elsewhere in the Tri-Cities. They included world leaders in plastic consumer goods, candles and steel can production among others.
Batavia’s projections of future electric needs were created in-house but reviewed by a number of outside consultants. However, as we know, the rate of growth fell sharply and thus Batavia was left with too much power, which again, because it cannot be stored, had to be sold into the market if not all used on a particular day. The cost to Batavia was higher than first expected because of the construction cost increase.
The second event was the explosion in fracking and the abundance of natural gas in the United States. Regardless of reasoning, the market price of electricity has always been related t the price of natural gas, and as the flood of newly mined gas pushed the price down, the price of retail electricity in the market fell as well, so when Batavia had (and still has) to sell excess power into the market, it received (and still receives) a hugely depressed price for it. The market price for gas remains very low. The City and the Electric Utility has responded by a series of rate increases and imposition of an additional sales tax to try to blunt the impact to its electricity users.
We will be adding new materials as we receive them.