Failed clean coal projects cost Illinois taxpayers tens of millions

Illinois is attempting to become ground zero for clean coal projects. That effort cost state taxpayers millions of dollars for failed coal plants that will never be built. I recently filed a Freedom of Information Act request with the Illinois Department of Commerce and Economic Opportunity (DCEO) to find out how much their Office of Coal Development (OCD) gave to several proposed coal plants that were abandoned.

The OCD boasts of spending more to support the coal industry than any other state in the union. In 2011 their three primary coal programs spent $408.5 million in state taxpayer funds. Much of that spending is for coal mines and aging plants. For this post, I’ll focus on their support of four failed projects based on the results of my FOIA request and the DCEO grant tracker.

Tenaska’s Taylorville Energy Center

I haven’t seen an official announcement that Tenaska is abandoning the Taylorville Energy Center, but it’s definitely down for the count. After repeatedly failing over several years to pass a special rate-hike bill through the legislature, they scaled back their plans from a coal gasification and sequestration project to a natural gas plant. That appeared to cost them support from coal-friendly legislators without gaining the additional votes they needed. In July, their construction permit was withdrawn after US EPA took issue with its failure to require carbon sequestration. Without a permit and little chance of getting supportive legislation, this project hasn’t got a pulse.

The Coal Demonstration Program gave Tenaska $18 million in 2010. That came after Tenaska spent $2.5 million in grants given in ’06-’07. State taxpayers spent $20.5 million in direct grants for the Taylorville Energy Center. That comes out to a  little over $1,800 for every resident of Taylorville.

As if that weren’t enough, Tenaska expected to qualify for $30 million to $60 million per year in clean coal tax credits included in the federal stimulus bill.

The company also received preliminary qualification for a $2.579 billion federal Department of Energy loan guarantee. Their application was strongly supported by area Congressman John Shimkus. He even sent a member of his staff (who’s currently running for Congress) to speak at a public hearing in favor of the loan guarantee. Later, Shimkus was outspoken in hearings criticizing the loan guarantee Solyndra received from the same Department of Energy program. In Shimkus’ view, a loan guarantee for a failed solar project is worth holding hearings over, but a loan guarantee five times bigger for a failed coal project in his own district is never mentioned.

Power Holdings of Illinois

Aurora-based Power Holdings sought to build a plant in rural southern Illinois that would convert coal to synthetic natural gas. It’s difficult to tell how serious they were since the company never had the finances or expertise to complete it on their own. They did manage to get the coal-friendly Illinois legislature to pass a bill forcing several utilities into 10-year contracts to buy the plant’s output.

Power Holdings received three OCD grants for studies and early engineering work in 2006 and 2010 totaling $4.05 million. Additionally, an economic empowerment zone was extended to provide the owners a variety of state and local tax breaks, despite objections from residents neighboring the proposed site.

Power Holdings finally declared defeat when they were unable to find enough investors who thought it was a good idea to create a very expensive, dirty way to produce synthetic natural gas from coal at a time when regular natural gas is plentiful and cheap. The market wouldn’t support this bad idea, even with mandatory contracts and millions in subsidies.

Leucadia

On Chicago’s south side, another coal-to-gas plant was proposed in an area already suffering from environmental public health threats. Governor Pat Quinn vetoed a bill that would have guaranteed profits for Leucadia and potentially cost consumers billions of dollars in rate hikes. That forced the company to give up, acknowledging that it can’t continue without special manipulations of the market.

Leucadia was awarded $250,000 in 2009 for a feasibility study. The next year they were granted $10 million more for additional studies and cost estimates. Millions of dollars in taxpayers funds were awarded in the early stages of the project when the company had not even applied for an EPA permit, had no legislative approval they needed to proceed, and faced significant community opposition.

FutureGen Episode 1: The Phantom Hope

The George W. Bush administration started FutureGen as a research project to demonstrate the viability of clean coal and carbon sequestration. Mattoon, Illinois won a competition to host the plant, but the federal Department of Energy soon abandoned the effort due to escalating costs. That failure wasn’t taken as signal about the viability of clean coal, so a new “FutureGen 2.0″ is now proposed in Meredosia, near Jacksonville, Illinois.

The first incarnation of FutureGen proposed in Mattoon was given three Coal Competitiveness Program grants totaling $1.32 million. Coles County invested millions and extended an enterprise zone to exempt FutureGen from paying many local taxes. The community was left devastated and angry when FutureGen was scuttled.

Demonstrating the persistence of Wile E. Coyote, FutureGen 2.0 was already granted $850,000 earlier this year. That totals $2.17 million in Illinois DCEO funds awarded directly to FutureGen. That number is tiny compared to the billions of dollars in federal support, but that’s a topic for another blog.

Shortly before Morgan County was selected for FutureGen 2.0, DCEO gave the Christian County Development Corporation $7,500 to compete for the project. They gave $10,000 to the city of Vandalia to compete against Christian county. Plus $10,000 more to Tuscola. Jacksonville got $18,000 to push for Morgan County. In total, DCEO awarded $45,500 to four communities so they could fight each other for the same project.

The grants provided an inducement for each community to offer the FutureGen Alliance their own package of incentives on top of federal and state dollars. Dividing up the money between competitors, instead of creating a unified state plan, seems like an uncoordinated waste. But, I can’t imagine a better way to boost local support, and encourage communities to overlook potential negative impacts of the project, than egging on a competition between small towns desperate for any jobs they can get.

The FutureGen Alliance told communities that cost, including donated land, and an expedited permitting process were important criteria for picking a site. Morgan County helped to find land, just as Coles County had.

A cost not included in these grants is the amount of taxpayer-funded staff time and department resources spent promoting coal to elected officials and economic development bodies. In the case of these plants, many local citizens saw that state employees were using their tax dollars to promote a coal plant they didn’t want.

When successes are failures

These failures are in many ways better than OCD’s successes. They gave tens of millions to Peabody’s new Prairie State coal plant as well. Peabody turned to public bodies to find investors because many private investors were skeptical. They sold municipalities and co-ops on the idea that coal would produce affordable energy and jobs.

The reality turned out to be something else. Illinoisans and residents in seven other states are getting hit with large rate increases because their electrical provider invested in Prairie State. Its completion is long delayed and its costs far over budget.

It’s not difficult to convince local officials in Illinois coal country that coal is a cheap fuel source. Peabody was aided by years of state economic development officials preaching the gospel of economic development through cheap coal. When construction on the plant began, Governor Rod Blagojevich bragged, along with the heads of DCEO and the Illinois Finance Authority, about working in partnership with Prairie State.

By subsidizing the plant and helping to promote the promise of cheap coal to local officials, DCEO shares the blame for Prairie State rate hikes. They helped Peabody make the sales pitch for a lemon coal plant.

It’s common in coal country to hear talk of clean coal being a “bridge fuel” to use until we can build new energy sources. Wind and solar are already being built on a large scale at competitive prices right now. Clean coal has never been done on a large scale in America and can’t compete on its own in the market. Let’s build more wind and solar quickly as a bridge fuel while we wait for the coal industry to pursue their clean coal pipe dreams.

© 2012 Willinois. This article is reproduced by permission of the author. All rights reserved.