Proper Planning Makes Prairie State a Winner for Kirkwood

Mark Petty

By: Mark Petty on September 5, 2012 Print This Post

Experienced utility managers know a thing or two about providing low-cost, reliable power to their customers.  The steps we took to include the Prairie State power plant into the City of Kirkwood’s power portfolio enabled us to supply power to our residents at rates that are among the lowest in the country.

Six years ago we examined our situation and made a few strategic moves that put us into the favorable position we enjoy today.  Historically, Kirkwood had been able to obtain long-term fixed price contracts for power but those opportunities disappeared with the advent of deregulated power markets.  Long-term contract offers were expensive because they were risky for power providers.  The power markets experienced large price swings and were risky for buyers.  At that point we decided to construct a power portfolio consisting of both fixed-price and variable-price assets.  Back then, the City recognized that we would need multiple power sources to supply us with the flexibility to deal with the ever-changing conditions in the energy business.

Initially, we set up fixed-price contracts and market purchases.  The fixed-price, base-load contracts stabilized our costs, and the day-to-day market purchases gave us the opportunity to save dollars.  The day-to-day purchases were hourly and of adjustable quantities so we were able to adjust our purchases to take advantage of potentially favorable market conditions and Kirkwood’s variable load.  This strategy worked for the short term, but there was no guarantee buyers could obtain long-term, fixed-price contracts and expense stabilization.  At that point we decided to obtain our long-term fixed pricing from an at-cost asset.  In January 2007, the City signed a long-term purchase power contract with the Missouri Public Utility Alliance to purchase power from the proposed Prairie State power plant and positioned ourselves to receive power from what would prove to be one of the largest stimulus projects ever undertaken in the country.

Our familiarity with power plant construction price and schedule uncertainty compelled us to maintain our fixed-price contract and day-to-day market strategy while Prairie State was being built.  We also raised our rates gradually in anticipation of the cost of the plant.  As the plant neared completion, we phased out our contracts and replaced them with more day-to-day purchases.  This strategy gave us the flexibility to remain agile and adjust to anticipated delays in the start date of the facility.  Finally, in mid-June of this year, we began taking power from the plant.

Today, Kirkwood Electric has a power portfolio comprised of a long-term, fixed-price Prairie State contract and variable-market purchases.  Our strategy has enabled us to have a positive margin over the last 18 months and stable rates since July 2010.  Although we’re paying about 11 percent more than we anticipated for our fixed-price power, our market power cost 50 percent less than anticipated.  Our rates continue to be among the lowest in the country, and our power expenses continue to be at or below our budgeted levels.  When changes take place in our industry, we’ll be agile enough to take advantage of those developments.  Proper planning has helped make the power plant project a winner for us in today’s turbulent energy markets.

Mark Petty has served as the Director of Kirkwood Electric since April 2006.



Mark Petty