IN HOCK (Friday editorial) Perhaps PPS should consider bankruptcy Ray McLennan’s resignation Monday as chairman and as a member of the Paducah Power System board was appropriate and necessary. McLennan, who served 18-plus years in the chairman’s role, was the only remaining board member from the group that shepherded PPS into its disastrous investment in the Prairie State Energy Campus. At the start of Monday’s meeting the PPS board was presented with a letter signed by Mayor Gayle Kaler and all of the city commissioners calling on McLennan to leave the board. At first McLennan only resigned his chairmanship. But as the meeting progressed and it became clear that he had lost the support of other board members, McLennan announced his departure. McLennan for much of his tenure on the PPS board sought to expand the utility from its traditional role as an electricity buyer-distributor into something more entrepreneurial. At one juncture he led a charge for PPS to get into the cable TV business. That initiative was abandoned after it came under heavy criticism from this newspaper, among others, as too risky and not an appropriate role for PPS. Later, under McLennan, there was a run at getting into the residential fiber optic broadband business. Again under criticism for the risk involved, PPS scaled back its ambitions, building a fiber optic trunk in the city and selling space on it, but stopping short of a full-scale retail business. But then, largely under the radar, McLennan led PPS into a trio of investments in the power generation business, where the utility is now getting financially crushed. With those ventures came more than $600 million in debt, plus commitments to buy more power than the city needs in the failed hope that the excess power could be sold on the open market at a profit. Paducah Power and its partner, Princeton Electric Plant Board, sold bonds totaling $512,760,000 to finance their participation in the Prairie State Energy Campus. PPS also signed a “take or pay” agreement that requires it to buy its entire commitment from Prairie State even if the plant fails to generate it. The plant has suffered shutdowns and has never operated at capacity, forcing Paducah Power to pay for power it does not receive plus buy power on the open market. The result has been some of the highest if not the highest power rates in Kentucky for Paducah Power’s customers. And it doesn’t stop there. Paducah Power also invested more than $100 million in a gas-fired peaking power plant that sat idle 95 percent of the time during its first three years of operation because it was not profitable to run. And PPS has committed to buy yet more power from a 72-megawatt hydroelectric plant in Smithland when it comes on line next year. One can only wonder whether, like Prairie State, PPS will be obligated to buy that power and sell it at a loss, pushing rates up even higher. We think it is a fair question given this mountain of debt and the losses PPS is taking on its power sales to ask if PPS is a candidate for Chapter 11 bankruptcy (or the municipal equivalent). If so, that would be one way for the utility to jettison its power contracts and restructure its bonded indebtedness. If it’s legally doable, PPS needs to do it, because with current power rates the very economic viability of the city is threatened. One can foresee a future in which, absent relief on rates, there is an exodus of businesses and an acceleration of the population loss already plaguing the city, creating a deadly downward spiral on the PPS customer base. New PPS Chairman Hardy Roberts said Monday he wants to seek outside expertise to see if there is a viable path out of the terrible fix PPS finds itself in. We think as part of that a conversation with someone with expertise in bankruptcy and defaults would be appropriate. Paducah was obviously led down the primrose path on Prairie State, and bankruptcy might be one way to force the players to the table on fairer terms.
Posted on: Fri, 26 Sep 2014 15:53:57 +0000
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