New (RRI) plant poised to sell power
Dec 29 - Las Vegas Review - Journal
Reliant Bighorn, a new gas-fired power plant near Primm, is expected to start commercial power sales by March, if not sooner. But the 550-megawatt plant will come on line during a soft market and has yet to sign contracts for any of its capacity.
Reliant is talking with various potential customers about so- called forward, or long-term, contracts but would only be able to sell into the spot market if it were to start commercial operations today, Dan Hannon, president of Reliant Energy's west region, said in a recent telephone interview.
Hannon acknowledged that Reliant's financial difficulties, as well as those of some potential customers, make it harder to enter forward power supply contracts now.
"At the same time, it's not insurmountable, either," he said, noting that Reliant has entered into long-term power supply contracts for plants in other areas of the country.
"We haven't ruled out the possibility of selling to Nevada," he said. "You do have to sell at different terms to a lesser credit than to stronger credits."
Reliant, however, sold power to Nevada Power during the summer of 2002 after the utility suffered a devastating rate case decision. Nevada Power Co. recently disclosed that it has been discussing the prospect of buying electricity from the Bighorn plant. An updated comment wasn't immediately available from Nevada Power.
Even if Reliant doesn't sell power to Nevada Power, experts say the plant will improve the reliability of the Southern Nevada power grid. It will also help Southern Nevada's economy by providing full- time employment to 23 workers.
Conditions, however, have changed since 2001, when Reliant began planning and designing the Bighorn project. At the time, power prices were around $100 a megawatt hour as power shortages caused a Western crisis.
"When all the pencil work was being done, the prices were very high," said Jim Querner, editor of Enerfax Daily, which reports on the energy markets.
Wholesale power at the Palo Verde delivery point in Arizona was selling in the range of $30 to $40 a megawatt hour prior to the holiday period, according to Enerfax Daily. Prices dip during the holidays as some large industrial users stop operations, but Querner expects them to bounce back in early January.
At current market prices, Bighorn could cover its operational costs but will not return a profit on the company's investment in the facilities, Hannon said.
"Bighorn will cover its ongoing cash costs at current market conditions. It will not make a profit. We're not going to earn a return on capital (investments in plant) in the near term," he said.
"Clearly, you have an opportunity to stop construction," he said. "It did not make economic sense for us to suspend construction (of Bighorn)."
By contrast, Duke Energy Corp. stopped construction of the 1,200- megawatt Moapa Energy Facility at the Apex Industrial Park north of Las Vegas when it was half complete. Duke said it would resume construction when market conditions improved.
In November, Reliant reported that it would mothball old generation plants with 824 megawatts of generating capacity in California. Reliant said it would offer those 824 megawatts of power generation capacity in September and would reopen the plants if it receives bids above its projected cash costs, as part of a settlement in a federal regulatory case.
In the previous month, Reliant announced it was retiring two power plant units with 264 megawatts of capacity at Rancho Cucamonga, Calif., rather than incur the expense of adding required pollution controls.
Reliant hopes to be well positioned to profit when market conditions for wholesale power prices rebound.
"Things could turn around in the next couple of years, also," Querner said.
Depending on which expert is talking, wholesale power prices will turn up sometime between 2006 and 2008, Hannon said. He expects wholesale prices to bottom out next year.
Meanwhile, wholesale power prices will vary with gas prices, he said.
The company also could benefit if Nevada regulators allow large commercial and industrial customers to buy from competitors of Nevada Power, which industry executives call direct access. The Public Utilities Commission has considered applications from numerous large commercial and industrial customers but so far has determined that none met its conditions for exiting the regulated utility.
"We're very supportive of direct access, and we think it's the right answer for Nevada and for elsewhere," Hannon said. |
