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Posted May 23, 2014 | comments Leave a comment

Front Royal to pay $500,000 for unfinished project

By Alex Bridges

Front Royal owes at least $500,000 in "stranded costs" for an out-of-state power plant project that was mothballed before its completion.

Town Council at its meeting Tuesday plans to consider taking action to pay American Municipal Power Inc. to cover Front Royal's share of the costs incurred by the non-profit corporation as it developed a coal-fired, electrical generation plant in Meigs County, Ohio. American Municipal Power cancelled the project in 2009 after years of development.

Front Royal officials have recommended that council approve a payment plan of $3,000 per month, at an interest rate of 1 percent, over 15 years. Town Manager Steve Burke said Friday any payment would come out of Front Royal's Department of Energy Resources fund. The impact of such costs on the town's low residential energy rates has not been determined, Burke said.

"Unfortunately, when the project was nearing completion, the designers' estimated cost of construction increased by a significant with limited justification and, at that time, AMP decided not to proceed with the project," Burke explained.

A press release on American Municipal Power's website issued in November 2009 stated that corporation's board of trustees and the participants in the project "determined it was in the best interest of the member participants to give termination notice to the engineer-procure-construct contractor, emission control and other equipment vendors on pulverized coal construction and equipment." The decision came after the contractor's capital cost for the project increased by 37 percent over the estimate provided in May.

"Stranded costs are those incurred by AMP specific to any equipment that had been ordered, design costs, permitting costs, that are now being distributed to those municipalities that committed to participate in the project," Burke said. "All of those communities that had committed to participate are now being assessed their share of those costs."

More than 80 American Municipal Power communities in Ohio, Michigan, West Virginia and Virginia participated in the project, according to the 2009 press release. The total amount of stranded costs is approximately $145 million, according to information from Burke.

Once it cancelled the project, American Municipal Power began the process of seeking payment from the participants. In April, participants decided that members needed to start repaying the project's net liability cost. American Municipal Power President and Chief Executive Officer Marc S. Gerken advised Burke in an April 16 letter that the town's liability for stranded costs held on the corporation's revolving line of credit is $500,270. Stranded costs, Gerken stated, are subject to change, including future borrowing costs on the line of credit.

The town discussed payment options with American Municipal Power. Any plan would include a 1-percent interest rate. Staff members recommended the town pay approximately $3,000 per month for 15 years to the corporation until the town completes a study of its municipal electrical power rate and determines the impact on the fund balance of paying off the debt in full.

The town was able to include some of the stranded costs from the cancelled endeavor into American Municipal Power's Fremont Energy Project, Burke said. These costs are included in the calculation for the current cost share of the town in the Fremont Energy Project. AMP Fremont Energy Center is a natural gas facility in northern Ohio that supplies intermediate and peaking power.

Contact staff writer Alex Bridges at 540-465-5137 ext. 125, or abridges@nvdaily.com


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