Would you pay $14 for a gallon for gasoline? Would you pay $8 for a dozen eggs? Would you pay $12 for a cup of coffee? Of course you wouldn’t. At least not when you can easily competitively source the identical product elsewhere for a small fraction of the price.
However, Cleveland Public Power is on the verge of paying a similarly obscene premium for electricity through the $126 million LEEDCo Icebreaker wind farm project.
My company, Brakey Energy, provides comprehensive energy management services to large users of energy. We exclusively serve our clients’ facilities located in the state of Ohio. We pride ourselves on being the foremost expert on Illuminating Company (CEI) and Cleveland Public Power (CPP) rates, and are highly attuned to the prices and trends in power markets. This provides us a unique perspective to evaluate the proposed Icebreaker project.
CPP has agreed to purchase power at a not-to-exceed price of $181.57 per megawatt-hour (MWh) for the first year the Icebreaker project is online, with a 16-year annual 1 percent price escalator. I recognize most people are not familiar with the going rate for electric power like they may be for gasoline, eggs, and coffee. Therefore, evaluating the competitiveness of the project without a point of comparison can be difficult.
Power is traded on the futures market just like other commodities, so price discovery is straightforward. At the time this was written, a one-year strip of power in northern Ohio could be purchased for less than $33 per MWh. In other words, the rate CPP is contracting for is 550 percent higher than prevailing market rates!
But what about 16 years of price certainty with only a 1 percent escalator? Isn’t there value in establishing a rate ceiling? Not really.
Power markets are actually in a state of backwardation right now. That’s a fancy way of saying the price goes lower – not higher – when you go farther out in time. Power prices a few calendar years out can be purchased for less than $32 per MWh.
In all fairness, the wholesale prices I am quoting are from conventional generation sources, not renewable wind power. However, the market for renewable wind power has become quite affordable. The premium one needs to pay to contract power from 100 percent wind sources equates to only a few additional dollars per MWh.
Given the clear economic case against the project, what on earth (or water) is CPP thinking? How could CPP be making such an objectively poor decision?
Unfortunately, CPP has a long track record of making poor decisions on behalf of its customers. The utility saddled itself with millions of dollars in stranded costs for a Meigs County coal plant that was never built. CPP then went on to make an investment in the Prairie State coal plant that resulted in it paying tens of millions of dollars in above-market power costs.
CPP certainly deserves blame for these poor decisions, but it perhaps could be forgiven. Expectations and reality do not always align in the energy business.
What is unforgiveable is that CPP knows how overpriced the Icebreaker power will be. If reality aligns with CPP’s project expectations, the result will be further inflated electric bills for its customers.
If you are a customer of CPP, you obviously have a vested interest in how much this Icebreaker project is going to unnecessarily raise your electric bill. However, even if you aren’t a CPP customer, you will most certainly be paying for the project in various hidden ways.
For example, Cuyahoga County has agreed to switch buildings that are served by more competitive CEI to CPP in order to have access to this absurdly expensive Icebreaker power. These higher costs will be borne by county residents. A similar shell game has already been played with city of Cleveland properties.
We at Brakey Energy are in favor of any customer that chooses to source its power from renewable sources. Indeed, this is something we have helped many of our clients accomplish. But at a price premium of 550 percent, the Icebreaker project will be another economic failure for not just CPP and its customers, but also the region as a whole.
Matt Brakey is president of Cleveland Heights-based Brakey Energy.
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