Don't use tax-exempt bonds for coal plants: N.Y. official

WASHINGTON (Reuters) - Building coal-fired power plants has "significant and unprecedented financial and environmental risks," and construction should not be funded by tax-exempt bonds, New York City's comptroller wrote in a letter released on Monday.

"Though the energy sector constitutes a relatively small percentage of the tax-exempt program, they are clearly among the most costly on a project-by-project basis and fast becoming more expensive," William Thompson wrote to the U.S. Treasury Department in a letter dated June 6.

Thompson called on the federal government to investigate how tax-exempt bonds are used in building the plants because current plans are "based on outdated assumptions and a suspension of disbelief that the risks will be managed or wished away."

Thompson singled out American Municipal Power of Ohio's interest in Prairie State Energy Campus Project's power plant as a matter of concern. On Thursday, the 37-year-old affiliation of 81 public power systems plans to sell $300 million of revenue bonds to permanently fund a 25 percent ownership in the future plant.

In assessing the nonprofit issuer's power plant, Moody's Investors Service said that currently Prairie State has put in place "advanced environmental controls which meet current standards for pollution control."

But Moody's, which gave the bonds a "A1" rating, also warned that there are "no assurances that environmental regulation will remain the same. Any federal legislation that addresses greenhouse gas emissions could have an adverse impact on the cost of coal-fired generation."

Changing environmental regulations, including limits on the pollutants, or greenhouse gases, released into the atmosphere, is one threat to all coal plants' viability, Thomson wrote.

"Plants constructed under current rules will incur new financial obligations to curb greenhouse gases," he wrote.

He also said that AMP-Ohio is "proceeding based on the assumption that ratepayers will simply pay any price increases without question." Problems could arise if they rebel against the increases.