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Cleveland Public Power ponders the future of energy

Marc Lefkowitz  |  02/23/08 @ 1:47pm

Cleveland Public Power is preparing to make a 50-year commitment to a 1,000 megawatt coal power plant despite a blunt warning delivered yesterday by Cleveland City Council's consultants who looked at the deal in the context of trends in the energy industry.

Speaking before council's Public Utilities Committee, CPP chairman Ivan Henderson warned that without a new source of power, the municipally owned utility would face a shortage that threatens its very existence. Later, committee chair Matt Zone wondered whether CPP's "stagnation"-it hasn't charted growth during the last five years-was an indication that the projected shortfall might actually turn into a glut of power if the utility continues to lose customers.

Addressing that scenario, Ion Consulting found that buying into a coal plant increases CPP's "risk exposure" since its portfolio will be less diverse and its costs could skyrocket, a situation that would be made worse if it loses customers.

"This is the riskiest time in history to build a coal plant," said Ion Consulting Managing Partner, Brian Walshe. Energy analysts such as Walshe expect the U.S. to adopt legislation limiting carbon emissions, but uncertainty over when is halting a number of new investments in coal plants.

"Future exposure to environmental regulations is of strategic importance," he said. "This is a significant financial risk that needs to be recognized. Many utilities are adopting a strategy of deferring any capital commitments."

Sixty coal plant projects were cancelled in 2007 because of uncertainties in the energy industry, Walshe said. Three of the nation's largest banks recently concluded that carbon taxes are coming and will set new rules for financing carbon trading.

CPP's municipal ownership structure-unlike investor-owned utilities like First Energy-allows the company to pass on the increased cost of carbon to its customers in the form of higher rates, which could further erode its customer base, Walshe said.

Once carbon prices go into effect, residential consumers could expect to see an increase in their bills. Carbon pricing could raise the cost of building the new coal plant by $60-$90 per megawatt. By committing to buy 80 megawatts, CPP would be ordering one-quarter of its power from the new plant.

Henderson said that CPP is anticipating growth-it's courting 19 new commercial customers. But, he did admit CPP is in fierce door-to-door competition with FirstEnergy for Cleveland customers.

Opponents of the deal want council to invest in clean, renewable energy such as the proposed wind farm on Lake Erie.

"How come no data was developed on alternatives?" asked Ohio Environmental Council board member Peter Greisinger. "We have an opportunity to make national energy policy right here in Cleveland."

"There are a lot of other alternatives," said EarthWatch Ohio publisher Stephanie Spear, citing the city's ongoing study of a co-generation plant as a way to meet CPP's baseload needs.

"Is it moral for this (council) to decide what's right for the next two generations?" Jeff Buster asked.

AMP-OH, the consortium of muni-owned utilities that wants to build the estimated $3 billion project in Meigs County on the Ohio River, told council that the new plant will be more efficient and emit tons fewer pollutants than a 50-year-old plant it operates. But, the 50-year length of the contract concerns both opponents and a number of councilman, including Zach Reed and Mike Polensek.

"Fifty years is like a millennium in the context of changes in technology," Polensek said.

Elisa Young, a resident of southern Ohio near where the plant is being proposed, says Meigs County is already the site of three coal plants and the environmental impacts are escalating. In addition to air pollutants area residents have seen their drinking water degraded from coal mining and premature deaths on the rise.

Other comments included reading of statements by NASA climatologist Jim Hansen that a coal plant will produce 68 millions tons of carbon in the course of 50 years.

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