Cleveland Councilman Matt Zone pushes forward a brochure for the first "eco-village" built in the country. It's in his ward. "I've defined myself as the environmental councilman," he says. "Ask anybody."

Zone then begins to discuss the recent vote allowing Cleveland Public Power to enter a deal to begin in 2012 drawing energy supplies from a brand-new coal-burning plant in Southern Ohio - a vote that has sparked much criticism. So Zone wants to be clear.

"The easy vote would have been no," he says. He's well aware that burning fossil fuels like coal releases carbon into the atmosphere and is the primary culprit behind global warming. But, he explains, there were other factors to consider, not the least of which was the history of poor planning at CPP. A year's worth of strategic planning efforts - the first in the public utility's 100-year history - had produced only an either-or situation: either buy energy from the new coal plant, or on the open market where prices are volatile. No other options had been presented.

The coal-plant debates also revealed that CPP's electric rates were just a hair's breadth below those of its rival, Akron-based First Energy Corp. This meant CPP was failing its core mission, to provide a meaningful low-cost alternative to private utilities.

If CPP was to survive bitter competition with First Energy and be a progressive utility, everything needed to change. As CPP's Commissioner Ivan Henderson told the Public Utilities Committee, which Zone chairs, in February: "To be clear, the battle we're in is the battle for CPP's survival."

The coal plant was the immediate answer, Henderson explained at the time. It would provide the cheap, stable rates that would allow CPP first to subsist, then to create the foundation for long-term, tide-shifting change. City Council voted 19-2 to approve the coal plant.

Now, an ambitious $66 million effort is in full swing to expand CPP's capacity and increase its customer base throughout the city. At the urging of Zone and Mayor Frank Jackson, CPP is also nurturing green- energy projects in an attempt to make them viable within the next few years.

"What I have told CPP is okay, we did the dirty deal, but no more," Zone says. "Now we're moving forward."

The revolutionary thinking that went into Cleveland Public Power's founding in 1906 has been missing as of late. Referring to privately owned and operated power companies, then-Mayor Tom Johnson said, "If you do not own them, they will in time own you." A public utility, generating its own power, could charge customers only what it costs to produce that power.

Electric plants slowly went up across Cleveland. In 1941, CPP invested in its fourth and largest plant. This Lake Road generating facility was also CPP's last. As all of CPP's plants aged and became expensive to maintain, they were shut down. Since the late-'70s, CPP has purchased most of its baseload power on the open wholesale energy markets. (Baseload refers to typical daily usage; during peak usage periods, like heat waves, CPP can generate some of its own power.) But the open markets run in short cycles - just a few years. A decent price can be difficult to lock in.

Then there's also CPP's rickety and overloaded infrastructure of transmission lines and substations. The shrinking client base - a peak of 80,000 in 2000 has been declining ever since and is now below 78,000 - has had to bear the burden of these fixed costs (separate from the cost of energy), resulting in electric bills only a few cents lower than First Energy's.

"It's never had a business approach," says Zone of CPP, which for decades was staffed and managed by patronage hires. And now the toll of years of neglect is becoming too obvious to ignore.

"Historically, the planning process that CPP has used has been problematic," says Richard Stuebi, a longtime executive and consultant in the energy industry who is now the BP Fellow for Energy and Environmental Advancement at the Cleveland Foundation. Stuebi works to promote advanced energy development in the Cleveland area.

Its old way of doing things has "so far been adequate," Stuebi says, "because CPP hasn't had to make such a huge capital investment in a long time. CPP hasn't been pushed to move into a more refined way of thinking about power-supply needs. The city probably hasn't spent a lot of time trying to build CPP's planning staff."

Industry experts like Stuebi say CPP should have done an Integrated Resource Plan, standard practice for large utilities (Zone agrees and says it was a mistake that an IRP was never produced). This would have forced CPP to not only assess future energy needs - including how energy efficiency and conservation programs could affect projected demand � but also study different ways to meet demand. The city would also have had the chance to weigh different supply strategies against other criteria, like future costs, emissions levels, jobs and economic development, and air pollution - all important but vastly different from one another.

HENDERSON

Though he didn't have firsthand knowledge of CPP's planning, Stuebi's observations, through council hearings and CPP presentations, are that the public utility didn't use the most sophisticated approaches, didn't rank the various criteria, and was "non-comprehensive" in the few portfolios it analyzed.

"There was no agreement beforehand on how to weight these criteria to come up with a decision," Stuebi says. "The city and CPP never came up with a consensus on what's important."

As a result, Cleveland is now in a 50-year contract to buy 80 megawatts of coal-fired power, no matter what, from a new coal plant that is scheduled to come online in 2012.

When CPP Commissioner Henderson talks about CPP's participation in the new coal plant, he speaks of inevitability and the lack of choices. Energy-supply contracts were expiring in a few years; by 2012, there would be huge gaps in his power supply. He needed a filler, and fast, if he was to keep his existing customers. Buying on the open market wasn't an option - prices were too unstable. Ownership stakes in local power-generating plants was key. So Henderson's eyes focused on a planned 1,000-megawatt coal plant to be built in Meigs County. The developer was American Municipal Power-Ohio (AMP-Ohio), from which almost 100 public utilities buy power. CPP is a member.

(In the absence of an IRP it's impossible to know what other solutions might have been available.)

The new power-generating station (also known as AMPGS) will provide CPP with about half of its current baseload energy demands (80 megawatts out of a total portfolio of 155 megawatts). The remainder of CPP's power supply will come from capital investments in an AMP-Ohio hydro project (considered to have low environmental impact) and a second AMP-Ohio coal plant currently under construction in Illinois. All three are 50-year contracts. CPP must pay for the combined 163 megawatts whether it uses all that power or not, whether the AMP facilities produce all that power or not, whether power prices escalate or not, or whether the coal plants are ever built or not.

This clause is a testament to the risky business of building new coal plants these days. It is almost certain that federal caps on carbon emissions and taxes on excess carbon are on the way. The AMPGS will be a pulverized coal plant (an age-old technology, using a coal-dust boiler system, that has dominated the coal plant industry worldwide) with the ability to retrofit technology that can sequester tons of carbon dioxide otherwise churning into the atmosphere, liquefy it and store it underground.

Because of this, AMPGS is dubbed a "clean coal" plant - a term that masks the uglier aspects of coal extraction, along with the fact that such carbon-capture technology is not yet proven at large power plants and could take at least 10 more years before it's commercially adaptable.

In the event of a technology retrofit, construction costs of AMPGS will surely rise. (These costs have already gone from $2.5 billion to nearly $3 billion, not counting an additional $500 million in financing costs.) If and when carbon emissions caps become law but AMPGS's carbon-capture features fail to do enough, then penalties could follow - charges that will raise the price of energy and likely get passed on to ratepayers. (Other unpredictable costs could also be the ongoing and potentially expensive process of sequestering and storing CO2.)

As one outside energy consultant, hired by Cleveland City Council, noted, "The most significant risks that will affect the economic performance of the plant will be the impact of CO2 penalties and potential construction cost increases."

(Investment banks have cut off financing for new coal plants in the private sector. There are too many unknowns, JP Morgan and the like argue, that jeopardize the billions it takes to build such plants. Public utilities, on the other hand, face no such restrictions. Lenders are happy to buy taxpayer-backed government bonds - which is how AMPGS will be funded.)

CPP's Henderson is undettered. "We had three sets of consultants [separately hired by AMP, CPP and City Council] and they all said that even under the worst-case scenarios, AMPGS will be a more cost-competitive option," he says. In fact, ION Consulting, hired by City Council, said that while some commitment to AMPGS (in terms of megawatts purchased) was prudent, it had to be based on the "worst-case scenario" of losing customers, not keeping them or gaining them.

It's perhaps why CPP finally signed off on buying 80 megawatts, versus the previously proposed 175. The rationale Henderson provided during City Council hearings was that even if CPP were to lose all its commercial clients, residents and businesses alike, the city and county governments would remain loyal customers and provide enough demand to pay for 80 megawatts drawn from AMPGS over the next 50 years.

There's another reason Henderson says he lowered CPP's take, and it has to do with renewable energy.

In November, as CPP was reducing its commitment to AMPGS, Mayor Jackson announced renewable energy standards for the city's public utility. As of 2015, CPP will have to draw from clean energy sources. But do the combined investments in two AMP coal plants leave much room in CPP's portfolio to meet the mayor's Advanced Energy Portfolio (AEP) goals?

Ironically, Jackson administration officials and Henderson all claim that that's exactly what the reduced AMPGS mega-wattage frees CPP up to do.

Jackson's AEP has seven forms of renewable sources, including wind and solar. Left out are coal and nuclear plants. (Jackson's AEP is a more progressive platform for green energy than what Gov. Ted Strickland and state legislators are now setting in their proposed energy bills. Strickland's plan doesn't ask utilities to bring any renewables online until 2025, and it counts "clean coal" plants like AMPGS toward that eventual benchmark.)

JACKSON

Cleveland Public Power, however, must meet 15 percent of Jackson's AEP by 2015, 20 percent by 2020 and 25 percent by 2025. (City council has yet to approve this AEP.) If judged by this portfolio today, CPP would fail. About 70 percent of CPP's power supply is from coal plants. Four percent is from a dam. The rest is a fluctuating mix of coal, hydro, nuclear and natural gas.

While Jackson's AEP goals were announced in November, Henderson knew about them before he asked city council to sign the two clean coal contracts with AMP. So why didn't CPP start moving toward its 15-percent benchmark immediately?

Part of the problem lies in timing. CPP's current matrix of 10 power supply contracts were bought on the open market and each expires within the next few years. The two AMP coal plants - providing 105 megawatts for the next 50 years - replace one set of contracts. But this was a decision forced upon city council, according to Stuebi of the Cleveland Foundation. Council had to buy into AMPGS by March 1 - the final opt-out deadline imposed by AMP-Ohio, and CPP's 2006 strategic business plan had only presented this solution to council. There simply was no time left to think through other substitutes.

Desipte the bad planning, Stuebi compliments Henderson, who's been commissioner since mid-2006. "Ivan seems to recognize that he inherited a staff and organization that has atrophied over many years. He's taken great steps to reinvigorate [CPP]." Similarly, Scott Sanders, the executive director of Cleveland's Earth Day Coalition, credits Henderson for being attuned to environmental stewardship. Henderson "has a very real commitment to energy conservation and renewable sources," Sanders says.

Besides, Stuebi says, there's no denying the lack of commercially viable - and affordable - renewable energy supplies. Without a quickening in the pace of wind and solar power development, new coal plants such as AMPGS are almost certain.

Andrew Watterson, the city's sustainability program manager, seems devoted to the green energy revolution. Before getting the job in 2006, Watterson worked for environmental nonprofits and helped rehab the old Lorain Avenue Bank Building into the new Cleveland Environmental Center, the first commercial green building retrofit in Ohio.

To hear Watterson tell it, AMPGS was a project "that is now and real and we can bank on. There are [green] opportunities that aren't as mature but will be able to fill in CPP's gaps in the future."

Additional CPP power supply contracts will continue to expire in 2010, 2011 and 2012. Councilman Zone says that city council, with its vote in favor of AMPGS, also mandated CPP to conduct an Integrated Resource Plan. "We don't want to be in an either-or situation again in 2013," Zone says. "We're not excluding opportunities for [green energy]. We're going to need that power."

The city is currently spearheading two green-energy pilot projects. One monitors off-shore and inland wind speeds to find possible sites for wind power. The other is studying municipal solid waste to see if a gasification process can turn non-recyclable materials into steam to power turbines and generate electricity. No one knows when or even if those sources might come online. Watterson says that the AMPGS deal buys CPP time to find ways to meet Jackson's AEP goals.

The 80-megawatt stake in AMPGS also gives Henderson chairmanship over AMP's "participant's committee." This, he says, gives CPP an important voice in determining the plant's construction and energy-production costs, and also allows him to nix the plant if construction or other expenses spiral out of control.

(An analysis commissioned by Ohio Citizen Action, an environmental activist group, concluded that this committee's authority was limited and may turn out to be "neither meaningful nor enforceable." Others argue that CPP should have continued shopping on the open market for five more years, giving it time to analyze oncoming carbon regulations, the success of carbon-capture technology, the impact of energy efficiency and conservation programs, and the emerging renewable market - things the planned IRP would lay out.)

The rest of CPP's dilemma is having enough demand to require an energy- supply portfolio that goes beyond the most recent AMP allocations. CPP's Henderson says that the utility's demand grows at an average of 1.5 percent annually or 1 megawatt per year (from existing customers replacing analog TVs with hi-def flat screens or using their computers more). At that rate alone, the public utility's demand will go from 155 megawatts today to 163 megawatts in 2013, just as 163 megawatts from AMP-Ohio comes online. So even with additional contracts expiring in coming years, in the short term - 20 to 25 years - CPP does not have the space to add renewables in a major fashion.

Unless there's a sudden surge in demand. By Henderson's calculations, that's exactly what's about to happen. A more accurate picture of energy demand by 2013 is approximately 215 megawatts, Henderson says. This additional 50 megawatts represents almost 20 businesses hoping to become CPP customers. With these promises lined up, CPP's final challenge is now to actually reel the big fish in.

Cleveland Public Power is one of very few public utilities in the nation with door-to-door competition. And CPP's historic selling point - rates 20 to 30 percent lower than First Energy's - has been lost, according to Bill Callahan, a local activist and CPP customer (and occasional contributor to the Free Times) who testified before city council in February.

"For at least the last five years," Callahan stated, "CPP's residential rates have been essentially the same as CEI." (The Cleveland Electric Illuminating Company is First Energy's Cleveland subsidiary.) His November bill for CPP was $41.73, Callahan said. Had he been a First Energy customer, his bill would have been only 32 cents higher. "Overall, a Cleveland household has nothing to gain economically by switching from CEI to CPP," Callahan said.

Simultaneously, CPP is hemmed in by its own limitations. The last time CPP expanded was in 1990 to include large swaths of Cleveland's East Side. Its reach was extended into 60 percent of the city and its customer base enlarged from about 50,000 to 80,000. Since 2000, however, that number has been declining. CPP only serves half of the residences and businesses inside its footprint (the rest are First Energy customers). And its 350-megawatt distribution system is maxed out and cannot handle any additional demand. Customers interested in CPP power have been routinely turned away. None of this helps CPP's bottom line, one plagued by chronic losses.

That's why, by 2010, Henderson wants to build a transmission line and substations to support new customers and then continually market to those in CPP's grasp. The focus is on large commercial and industrial clients, to increase revenue and spread the pain of fixed costs through more customers.

AMPGS The new coal plant will go live in 2012.

As of March, city council had passed four separate ordinances to realize Henderson's expansion. Bond issues worth $66 million are currently being sold to finance the project.

A new transmission line and substation in the southern part of CPP's service area will allow it to find customers on both the East and West sides of Cleveland, including the airport (which is a First Energy customer). Downtown will get its own substation, giving CPP more flexibility in meeting business demands. Finally, an interconnection with an existing First Energy substation along CPP's eastern border will reduce overloaded substations elsewhere in the system.

But in order to see a dramatic turnaround in its fortunes, and drastically lower its rates, CPP needs more than these upgrades and the anticipation of cheap energy from AMPGS. For that, Henderson is gambling on a belief that, in 2009, First Energy's rates will go through the roof, thanks to deregulation policies to be decided in Columbus.

In 2001, the Ohio legislature dabbled in electric-utility deregulation. It loosened a few controls and negotiated deals with private power companies in the hopes that competition would enter Ohio's markets and keep rates low. That hasn't happened. In northern Ohio, for example, First Energy owns the transmission lines and substations. Independent suppliers could never move enough power into Ohio at competitive rates.

One of the key changes made 10 years ago was the ownership of power plants. If private companies kept them, then their electricity production rates would be subject to regulation by the Public Utilities Commission of Ohio (PUCO). However, if a company off-loaded generating facilities to an affiliate, still under its wing, versus an independent third party, then it could escape PUCO oversight.

Another rule let utilites recover "stranded" costs for fuel and construction through customers. In First Energy's case, the private utility was allowed a surcharge that helped pay off its nuclear plants.

As First Energy's rates rose and competition failed to materialize, state officials looked in 2005 to strike a deal. Private utilities agreed to under-market rates that were nonetheless higher than a fully regulated price. This did not foster the stable rates of effective competition, but did provide a healthy revenue stream for private utilities. (First Energy was able to continue to collect stranded costs.) Called the rate stabilization charge, it's set to expire in December. Once it does, companies like First Energy will be able to charge full market rates. (In Ohio, public utilities' rates are set by city councils and not regulated by the state government.)

Gov. Strickland is currently battling Republican legislators over what happens next. Strickland wants mechanisms in place that would moderate rate increases. Bills can go up with the costs of energy production, Strickland has said, but the government must be able to say stop - a form of partial regulation. Republicans, led by House Speaker Jon Husted, want a scenario as close to deregulation as possible. Utilities should be able to set market-based rates, they argue. PUCO can set a lower rate bar of sorts, and then tell the utilities which rates are preferable.

Whatever the compromise in Columbus, it's more than likely that First Energy's rates will go up, say many industry watchers. Even with Strickland's bill, which is more favorable to customers, "rates will go up, but in moderation," according to Carl Wood, the national regulatory affairs director for Utility Workers Union of America who also served as a state energy commissioner during California's 2000 rate crisis. Wood is an advocate of Strickland's proposal.

David Rinebolt, the executive director of Ohio Partners for Affordable Energy, which represents 60 nonprofits that help low-income homeowners with utility bills, also supports Strickland's energy bill. "First Energy's rates will go up," Rinebolt says. But with Strickland's plan, the difference between the private utility and CPP will be minimal, he says. While under Husted's current vision, First Energy's rates could skyrocket.

In either scenario, CPP would indeed be able to offer lower rates. Whether the public utility can return to the glory days of bills 20 to 30 percent lower than First Energy's will depend on what the private company is allowed to do. Henderson is optimistic. Combined with CPP's new infrastructure and a sizeable renewable portfolio in coming years - and assuming that AMPGS's costs don't have an adverse impact - CPP could even position itself to be not just cheaper, but also a reliable and progressive alternative, wooing customers away from its rival.

But would First Energy jeopardize its market share in Cleveland?

Mark Durbin, a spokesperson for First Energy, won't speculate. "Comparing our price to their price? I don't know the answer to that. Until legislation is passed in Columbus, we're not sure what the rate climate will be."

Rinebolt thinks Cleveland's probably just a dot on First Energy's coverage map. "The number of customers between CPP and First Energy is not enough to make First Energy lower their rates (to be competitive with CPP)," Rinebolt says. After all, First Energy holds the rest of Northeast Ohio captive.

"I think CPP has a good bet here," Rinebolt says. "If history is our guide, then First Energy's rates have never gone down, they've only gone up." The only question now is by how much.