A 2004 electricity contract is causing problems for the Marceline.  The City signed an agreement to purchase most of their power from Prairie State Energy Campus in 2004.  A series of delays to the project, which led to a significant increase in cost, have put a strain on the city’s budget.  They have lost almost $1.4 million to the rising price.  The City’s total budget is only $8 million.

City Manager Lewis referred to the investment as a “toxic asset” in a February letter to the City Council.  He also recommends the Council “pursue all avenues for eliminating any further public funding” of Prairie State.

Letter to the City Council from City Manager Luke Lewis

MARCELINE – Small Communities are constantly reviewing their financial position and monitoring their budgets in order to maintain financial stability. The City of Marceline is no different. We use our budget as a working document to monitor our revenues and expenditures daily. The City of Marceline has a small operating budget of approximately $8 million, and we especially review large expenditures that affect our financial stability. Due to these constant changes the City has concluded from our own projections to date, the cost for 4MWfrom Prairie State will exceed our funds by the end of this FY 2012-2013.

Our calculated projections are as solid as any we have received from Consultants, Advisors, MPUA, or Prairie State. All the information that has provided to the City of Marceline since 2004 has led us and prior administration to believe that Prairie State is a good investment and that very well could be the case in 15 to 20 years. On November 10, 2005MPUA and Prairie State stated their experts’ project Natural Gas to skyrocket and Coal will drop… However, the opposite has occurred, and projections indicate it will remain this way for an additional 10 to 15 years…. Unfortunately, the City ofMarceline with its small $8million dollar operating budget cannot sustain this for two years, let alone 10 years. After discussing this with multiple consultants, one had suggested we would need to raise our electric rates in order to cover the loss.

Let me make this perfectly clear… This IS NOT a solution, we cannot, nor will we even consider recommending the possibility of an electric rate increase. This would hinder the City’s ability to compete with other municipalities State wide for any economic incentive for future growth and development. And, most importantly larger businesses (Walworth, Hurt Fab, 8760, Moore Fan, School District, and all small businesses) would be under distress. The following information is based on all documentation pertaining to Prairie State, MJMEUC and MPUA through public record of open minuets from 2004 to present:

On May 18, 2004 former City Manager Liz Cupp gave an overview of the PS project. PS was partnering with Peabody Energy to build a power plant scheduled to go online in 2009. The power plant is to sit on a coal mine with a lifespan of 40 years, with no transportation charges, and municipalities have an option of buying into the plant with a letter of intent due by July 2004.

On July 20, 2004 Duncan Kincheloe from MPUA gave a presentation on PS to construct two 1500 MW coal fired generators on the mouth of a coal mine located in IL. MPUA/MJMEUC was contacting their members for involvement in this project, and stated contracts must be in place by September 2004.

On August 17, 2004 former City Manager Cupp outlined the proposed contract for base load power, and iterated that the deadline for MG allocation was September 30, 2004. The contract is for the life of the power plant, with municipalities being owners of the plant and sharing expenses; On September 15, 2004 in a called special meeting, John Grotsinger of MJMEUC/MPUA gave a brief overview of the draft power purchase contract. The contract was based on the life of the plant, with a cost of 3.2 cents per KW, and stated on August 3, in a Memorandum that projected power costs would be between $32 – 35 per MW… A commitment agreement will provide financial assistance funded by MJMEUC, interest accruing, and with no payment due until the plant is online in 2009. Costs associated with the project before the end of 2004 are $24,000, with additional costs being incurred monthly during the construction process. MJMEUC advised they would amend the contract to include a withdrawal clause before construction begins in October 2005; On
September 21, 2004 An Ordinance authorizing execution of a unit power purchase agreement between MJMEUC and the City, for the purchase and sale of energy from PS was voted on by three councilmen present… On June 19, 2007 another ordinance was passed for an amended and restated unit power purchase agreement between the City and MJMEUC for the purchase and sale of energy from PS; December 18, 2007 Marceline Citizens question what would happen if PS does not pan out.

PS was to be online in 2009, then it was pushed back to 2010. When I took over in 2011 I was told that it would be the end of 2011 or first of 2012… Here it is 2013 and these units are just now coming online, but with multiple delays, and break down of equipment. PS was to be online by 2011/2012 and the risks for these delays are being forced onto all municipalities. MJMEUC/MPUA including PS was adamant and guaranteed that ALL associated costs including future EPA regulations had been calculated for and had been included in the original price of the 1.5billion dollar project… Now, the cost has risen to over 4 billion. As I confirmed to date from our consultant, No operating permit has been issued or drafted for PS. The Units if and when operating will be operating under the original construction permits. Since 2004 the City of Marceline has spent a total of $1,044,334 of taxpayer money, and received revenue from the 4 MW in the amount of $174,346 as a revenue credit.

As of last week the City is projected to spend $1,708,300 in this year’s fiscal budget for the contractual agreement of 4 MW from PS…. The City is projected to receive revenues from the sale of 4MW on the MISO spot market in the amount of $344,713 in this year’s fiscal budget…. That is a LOSS of $1,363,587 in public funds…. Today, PS costs are higher and benefits are lower, and are expected to remain this way for the next 10-12 years.

This is a substantial loss of public funds that cannot be sustained… Over the past two years I have made budget cuts in order to maintain our balanced budget. Now, we are currently operating our utility funds in the red which I do not agree with, and will be working with department heads to find more cuts… However, even with more cuts and layoffs, that amount still would not be enough to offset the substantial loss of revenue… Despite the intentions of others who viewed this as a good investment. Due to cost over runs and near doubling of price per MW, the financial loss hinders the City’s budget and our ability to provide full services to the community. If we continue this current path, it will lead the City into financial instability… Hence, my conclusion of the City’s investment of Prairie State is that of a toxic asset in which the City does not physically own, nor does the City have any control over Prairie State. It is with that, I make the recommendation to the City Council to pursue all avenues for eliminating any further public funding or increased risk of Prairie State.