Dirty Coal Blamed for High Electric Rates

GENEVA, Ill. (CN) - In a class action, residents of a far west Chicago suburb claim they are overcharged for electricity because a slew of utility companies and agencies misrepresented the problems of producing power with polluting, high-sulfur coal.

Lead plaintiff Joe Marconi, on behalf of the residents of Batavia, sued the Indiana Municipal Power Agency, IMPA Services Corp., CEO Rajeshwar Rao, and Sargent & Lundy and Skelly and Loy, consulting firms, in Kane County Court.

Eighteen other companies and agencies, including Peabody Energy, Bechtel Corp., Science Applications International Corp., and Batavia are named as respondents in discovery in the tangled, 37-page lawsuit.

"Beginning in the 1990s and continuing into the 2000s, Peabody mines in southern Illinois began exporting high-sulfur coal, which was unsaleable in the United States, to China and other Asian countries," the complaint states.

"In 2001, Peabody announced plans to construct a mine-mouth, pulverized-coal-fueled power generating facility with two unites adjacent to its existing high-sulfur coal reserves in southern Illinois called the Prairie State Energy Campus (PSEC). The construction of PSEC was part of a scheme by Peabody to create a market for its high-sulfur, high-ash coal reserves in Southern Illinois."

Peabody marketed the project as an affordable, long-term source of electricity, prompting the Indiana Municipal Power Authority (IMPA) to acquire a partial ownership in facility, the complaint states.

Batavia then hired IMPA to suggest electric supply options for the city, and IMPA recommended participating in the PSEC project - allegedly without disclosing its own stake in the plant.

At IMPA's suggestion, Batavia signed an agreement obligating it "to purchase from NIMPA [Northern Illinois Municipal Power Authority] 50 megawatts of electric capacity and energy which was to be generated by the to-be-built PSEC. ...

"Under this agreement. Batavia ratepayers are charged for Batavia's pro-rata costs of PSEC and related debt whether PSEC produces power or not.

"Under this agreement, if PSEC is not providing NIMPA its entitlement share of electricity. NIMPA must purchase additional power from a separate source, and Batavia is required to pay for that additional power in addition to its pro rata share of PSEC costs and debt payments.

"Under this agreement, if Batavia does not need all of its entitlement share of electricity, it must sell it. If Batavia is forced to sell electricity from PSEC, it generally must do so at a loss, as the cost of the electricity from PSEC is more expensive than the price at which Batavia can sell that electricity in the wholesale market at any given time," according to the complaint.

By 2006, Batavia had spent $1.8 million on the project, and could not withdraw without all losing its money, the residents say.

They claim the price of power generated by the plant is significantly more than the $46/megawatt-hour represented to the city when it entered the contract, and that the price for building the plant escalated drastically over a 10-year period.

"The estimated total coast of construction for PSEC has increased from $2.754 billion in 2004 to $4.095 billion in 2007, to $4.933 billion in 2010, and to $5.1 billion as of 2013. The current estimated cost of construction for PSEC is unknown," the lawsuit states.

"These increased reflect the industry-wide experience where, starting in the years before 2005, the costs of constructing new coal-fired power plants began to increase significantly, and was thus known to defendants in 2007 when defendants were pressuring Batavia to finalize its commitment to the PSEC project.

"Specifically, during 2007, while defendants were pressuring Batavia to finalize its commitment to the PSEC project, several major industry reports warns of the skyrocketing construction costs of coal plants. While these reports were no doubt closely watched by industry insiders, defendants did not provide this information to Batavia."

PSEC has never achieved full capacity, and operated a net 60 percent capacity in 2013, the class claims.

"Additional capacity for storage of the coal ash wastes produced by PSEC will also be required. The cost of acquiring this additional ashfill capacity will be passed on to Batavia's ratepayers and will mean further increases in the cost of power from PSEC," the residents claim.

"Contrary to what Batavia was told, it was known to defendants that the poor quality of the high sulfur, high ash, unwashed coal would lead to shutdowns and reduced operational efficiency. On information and belief. the poor quality of the high sulfur, high ash, unwashed coal has indeed led to such shutdowns and reduced operational capacity."

Plaintiffs seek class certification and punitive damages for negligent misrepresentation.

They are represented by Michael Childress with Childress Duffy, of Chicago.

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