...continued New Prairie State Energy Campus to power five Midwestern states

Chicago to Cairo at the southern tip of the state.
   Derrell Carter, spokesman for Peabody Energy, developer of the project, said discussions are being held with additional prospective partners and that the current ownership percentages could change as some partners decide they want more power and others less. Peabody expects to retain approximately five percent.
   Ninety percent of the power that will be generated by the plant will be sold under long-term contracts with the individual partners. According to Colin Kelly, president of Prairie State Generating Company LLC, it would be very difficult to finance a new power plant without these kinds of long-term power purchase agreements.
   "If a power plant would cost $50 million," Kelly said, "I think people would be more willing to do it on a speculative basis. But when it costs $3 billion to $4 billion, that's a lot of money to put out there in hope that the market will come to you."
   Carter said the agencies and companies that came into the partnership were seeking to secure long-term supplies of power at relatively stable rates. Rates on the real time electric market - electricity purchased for immediate use - can vary wildly, according to Kerry Sloan, president of the Southwest Electric Cooperative headquartered in Greenville, Ill. Sloan said prices can range anywhere from $20 per megawatt hour (MWH) up to $150/MWH hour or more, all in the same day. The price changes every five minutes. He said the highest he's aware of was $10,000/MWH in California during that state's energy crisis about six years ago, but it's not uncommon for it to hit $500/MWH on a hot summer day in the Midwest. These figures compare to approximately $65/MWH set by the reverse auction held last September in Illinois.

   According to David Kolata, executive director of the Illinois Citizens Utility Board, Illinois enjoys a power surplus, called a "reserve margin," of about 17 percent to 18 percent. Kolata says that Illinois, in fact, is a net exporter of power. Prairie State should expand the state's position as a power exporter.
   Sloan says that the way Prairie State was financed will probably be the way of the future under deregulation. Under the regulated system, he says, the power company would go to the Illinois Commerce Commission and explain the need to build a power plant. The ICC would analyze the proposal and - if the commissioners were convinced - it would authorize development of the plant and, more importantly, an immediate rate hike to pay for it.
   "The banks out there on Wall Street knew that the power company had captive customers and that the Commission had already approved a rate increase to pay for the power plant," Sloan said. "Therefore, the risk of them not getting a return on their investment was extremely low…in fact, maybe in some cases nonexistent.
   "But," said Sloan, "after competition came into play, all of that went out the window. That's not the way it works anymore. The way it works now is the power company has to go out and try to pre-sell the consumption of that power plant before anybody on Wall Street is going to loan it a penny."
   Kelly said the $2.9 billion Prairie State price tag is being financed by the individual partners in accordance with their percentages of ownership. He said the partners are going to the Wall Street bond market now, and that the reception has been good.
   Sloan expressed concern over the limited number of power plants being built and the time it takes to build them. Prairie State has taken six years to move from inception to the start of construction, and will take another four to five years to complete. Numerous regulatory reviews, public hearings and permits had to be undergone and received.
   "All of the environmental groups are fighting hand, tooth and claw to stop anything from being built," Sloan said. "I'm telling you and I hope, I really hope that I'm wrong, but I promise you I think in 10 years we're going to see some major problems in this country when it comes to the electric rate. There's just not enough being built and there's not enough improvement in efficiency to lower the consumption to the point where what we've got is enough to supply us."

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