How much will Plant Washington really cost?

Guest Blog | November 8, 2010 | Coal, Energy Policy

In 2008, ten Georgia Electric Membership Corporations (EMCs) joined under the banner “Power4Georgians,” and went public with a proposal to build a new coal-fired power plant in Sandersville, GA, known as Plant Washington.  From our perspective, this has been a bad deal for EMC members and the environment from the start, but considering recent trends, the deal is looking worse and worse.

Costs are rising and demand is falling – both of these trends put EMC members at even greater risk of high rates.  Many U.S. utilities are forecasting much lower growth rates due to the economic downturn; Power4Georgians has yet to revise their growth projections for an accurate update since 2008.  The official price tag for meeting this unclear energy need with a coal plant?  $2.1 billion. That estimate – more than two years old – sounds like a lot of money,  and it is.  Considering recent trends in coal plant construction costs, you know this is one of those “too good to be true” deals.

Power4Georgians needs to update the price tag of this coal plant and immediately revise demand growth projections.

Nationally-renowned energy forecast expert David Schlissel reviewed Power4Georgians’ single-page Cost Analysis document.  He found that Power4Georgians was low-balling their cost estimate:

“A number of factors suggest that this Cost Analysis was heavily biased in favor of a coal plant and against renewable alternatives…. The range of coal plant construction costs used by Cobb EMC was unreasonably low compared to recent cost estimates for other proposed coal-fired power plants.  In particular, there is no reason to expect that Plant Washington will be able avoid the soaring price increases being experienced by other coal-fired power plant construction projects.” Read the whole report

The estimate may have been low to begin with, and with nearly two years passed since the original cost projection, we’re more than a bit suspicious that $2.1 billion is outdated.

Rising costs, customers paying the priceampohio1

Costs at  other coal-fired construction projects have continued to rise.  For example, the projected cost of building AMP-Ohio’s proposed 960MW coal plant in Meigs County skyrocketed from $1.2 billion in 2005 to nearly $4 billion in Nov. 2009 before it was cancelled.  Fortunately, with cancellation, the bulk of those costs were averted – but the 81 communities that originally signed on are still trying to figure out how to pay the $200 million already spent on development.

In one case where a new coal-fired plant did make it to completion, the Michigan Public Service Commission (PSC) decided in July 2010 that customers of We Energies, a Wisconsin utility, will pay $23 million for it, despite arguments that demand trends have changed and the power is not needed.  That works out to a rate increase for customers of 18%.

A few short months before, the Michigan Department of Natural Resources and Environment denied the air permit for another plant based on the PSC’s assessment that it would have raised rates 60%.

Unfortunately, Georgia’s PSC does not regulate EMCs so members can’t count on oversight. Because EMCs are “self-regulating,” it is up to the members of these co-ops to stop Plant Washington before the costs rise any further.

Uncertainty makes costs worse

Uncertainty about the cost of construction is a major factor. Construction costs are rising due to increased demand for materials and expertise worldwide.  As one utility exec said, “When equipment and construction cost estimates grow by $200 million to $400 million in 18 months, it’s necessary to proceed with caution.”  Contractors are reluctant to sign a fixed-price contract knowing that material costs are rising.

A utility that insists on finding a contractor to sign a fixed-price contract pays a price premium for transferring risks to the contractor.

Then there’s regulatory uncertainty, with a wide range of pollution-cutting enforcement measures under consideration in Washington.  New, tougher regulations will soon be implemented for ozone, sulfur dioxide, mercury, carbon dioxide, and even coal ash waste.  That’s a good thing for communities and our planet, because it will make utilities pay more of the actual costs associated with coal pollution so that less will be borne by citizens who are getting sick and facing the consequences of climate change.

These tighter standards also create a financial incentive for clean energy like wind and solar and energy efficiency, placing them on a more even playing field as utilities decide where to invest in a new generation of power supply sources.  Schlissel found in the case of Plant Washington that a price on carbon could double the cost of electricity (read report).

Wall Street investors consider the risks associated with construction costs and financing costs, and the low-cost financing that gives publicly owned utilities an edge becomes a lot harder to obtain. Wall Street investors are leery of new coal investments, given that no one knows just how much it will cost in the future to emit carbon dioxide.  In August 2010, credit ratings agency Moody’s downgraded its rating of Southern Company, one of the most coal-dependent major utilities, due to “longer-term pressures from potential carbon controls and renewable portfolio standards.”  For Georgia co-ops, high risk assessment by private lenders translates to higher interest rates on loans and, ultimately, higher total cost.

emptypocketsMembers’ bills on the line

Members of the remaining EMCs invested in Power4Georgians (Central Georgia EMC, Cobb EMC, Snapping Shoals EMC, Upson EMC, and Washington EMC) would likely foot the bill for Plant Washington.  But they don’t need to pay an exorbitant bill for a coal plant that will add 50 more years of air, water, and climate pollution to our state. Alternatives are available: these EMCs haven’t fully maximized the cost-saving power of energy efficiency and clean, cost-competitive renewable energy.

Power4Georgians needs to come clean about an updated price tag and immediately revise demand growth projections.  New coal wasn’t worth it at $2.1 billion, and the further we go down this path, the worse this deal gets for Georgians.

For more cautionary tales and a handy piece of info to pass out to your friends, check out SACE’s new fact sheet on the costs of coal for Georgia EMCs.

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