Study finds CWLP plants should close
GOVERNMENT | Bruce Rushton
Both sides agree.
Two aging coal-fired generators owned by City Water, Light and Power are akin to automobiles that are getting on in years. At some point, the owner must ask: Should I continue spending money on repairs and maintenance or should I walk away?
Supporters of keeping the plants in operation say that it would be foolish to shut down the generators that aren’t broken. But, according to a report released last week by the Sierra Club, it’s time for the city to pull the plug on the plants built in 1968 and 1972 that have proven a drain on CWLP coffers.
The time to decide is now, Sierra Club officials say, given that the city is poised to spend $10 million on retrofitting the plants so that they can be started up with natural gas instead of diesel, which would allow the plants to meet coming federal pollution regulations.
For about the same amount of money, CWLP can shutter the plants, the club says, which would stop a financial hemorrhage that has cost ratepayers at least $41 million between 2008 and 2013. The problem, according to the club, is simple: A prolonged downturn in the power market coupled with looming environmental regulations makes it impossible to run the plants at a profit.
The solution, according to CWLP and aldermen who support keeping the plants on line, is to wait out the market slump. The price of electricity, they predict, will go up once federal pollution regulators force other plants to shut down and the city will then be in a position to cash in.
“It’s a supply-and-demand situation,” Mayor Mike Houston said at a Monday press conference. “That price (of electricity) is going to come up. … I think I can tell you it’s not going to go down.”
Betting that the city can compete with other utilities that have unprofitable coal-fired plants is risky, according to the Sierra Club report that was prepared by Synapse Energy Economics, a Massachusetts consulting firm that counts as clients dozens of state, federal and municipal agencies from across the nation. Other utilities may well adopt the same wait-it-out plan as the city, according to the study’s authors who warn of a “multi-state game of chicken” that CWLP can’t win, given its rickety finances and need to comply with future environmental regulations.
Under CWLP’s most optimistic projections, the aging generators wouldn’t break even until 2027, Synapse reported. Furthermore, the firm found, CWLP has based its prediction of profits on unrealistically low prices for coal while ignoring the costs of complying with pollution regulations.
“(T)he choice to retrofit or retire is complex,” the report’s authors wrote. “It is a decision that should be considered over the context of the next 20 or more years and should be guided by rational expectations of the future, not speculation.”
The city doesn’t need the two aging plants to meet the needs of Springfield residents and businesses. Rather, the plants are supposed to generate power that can be sold on the open market when power prices rise, with the revenue helping to keep rates low for city ratepayers. Even if CWLP had to occasionally purchase power if the aging plants were shut down, the price would be less than the cost of owning, operating and maintaining the generators, Synapse found.
Ward 8 Ald. Kris Thielen rejected the notion that CWLP should scale back its power-generating capacity and serve only businesses and residents within the city.
“If all we were interested in doing was generating enough for the native load, then everyone can expect their rates to go up,” Thielen said.
The alderman rejected the Sierra Club’s call for shuttering the plants as well as the report.
“Honest to God, I think it’s fuzzy math,” Thielen said. “I have a tendency to believe the budget and accounting people from the city. Thielen says that CWLP wouldn’t be having financial problems if not for a deal with the Sierra Club that requires the utility to purchase unneeded wind power. The 2006 deal, cut so that the Sierra Club wouldn’t sue to block construction of the city’s biggest generator, has cost ratepayers more than $70 million, Thielen said. He said he believes CWLP projections that the plants can earn $1 million a year.
“When you’ve got a car and you’ve been investing every year in parts and labor and you’ve got everything going and the car’s running perfectly and you have to replace the water pump, you don’t turn around and sell the car because it needs a water pump,” Thielen said.
Andy Knott, campaign representative for the Sierra Club’s Beyond Coal program, also compared the aging generators to a car.
“At some point, repair costs are going to make it uneconomical to continue,” Knott said. “That’s the discussion that Springfield needs to be having, and it’s not. … When they close the plants down, they will immediately start saving money. In this case, you don’t even need a new car.”
Thielen said that he believes most aldermen support keeping the plants in operation, but Ward 7 Ald. Joe McMenamin says that he wants more information. McMenamin noted that a city-commissioned study in 2013 found that the generators were economically marginal but could still be operated at a profit. That study, however, was prepared by an engineering firm that stands to benefit from design work on retrofits if the plants stay open, McMenamin said, and so the city should commission a study from experts who have nothing to gain.
“It’s very complicated,” McMenamin said.
That’s why we need advisers we can trust.”