This might be amusing if it weren't for the billions caught in the violent gyrations...
quote.bloomberg.com
U.S. May Face Power Shortages as Fewer Plants Built (Update1)
By Mark Johnson
Houston, Dec. 30 (Bloomberg) -- Electricity producers' plans to curtail expansion, aimed at reassuring investors rattled by Enron Corp.'s collapse, are raising concerns that the U.S. may face power shortages in the next few years.
Mirant Corp., NRG Energy Inc. and some rival generators shelved or postponed billions of dollars in projects this month to bolster their credit ratings after downgrades helped push Enron into bankruptcy.
A decline in electricity prices has further reduced the incentive to build plants. The slowdown in construction may lead to tight power supplies as the U.S. economy recovers from recession, possibly next year, and energy demand picks up, investors and analysts say.
``When the economy snaps back we're going to have howls again asking, `Why didn't we build more power plants?''' said Donald Coxe, manager of the $352 million Harris Insight Equity Fund. ``In 12 months people will once again be predicting an energy crisis and asking why we were so stupid not to build more.''
Delayed Spending
Enron filed for Chapter 11 protection Dec. 2 after investors grew concerned the company, formerly the largest energy trader, was hiding debt at affiliated partnerships. Customers defected as the company's credit rating was cut to junk status and it couldn't raise cash needed to back trades.
To avert similar downgrades, Atlanta-based Mirant is slashing capital spending by 40 percent and Minneapolis-based NRG is delaying $900 million in spending on generators. Dynegy Inc., based in Houston, will spend less than $1.5 billion on projects, down from a budgeted $1.7 billion.
``The last thing the market wants to see is a huge expansion program that requires huge cash flow,'' said Jeffrey Gildersleeve, an Argus Research analyst. ``Management is going ahead with what's on the table now. The later stuff is being delayed.''
Shares of power traders and producers have fallen as investors fearful of an Enron-like meltdown shy away from debt- laden companies. In the past two months, Mirant has slid 43 percent, Calpine 36 percent, Dynegy 34 percent and NRG 14 percent.
Enron's stock, which began the year at about $82, ended it at 60 cents.
Gildersleeve projected about six months ago that about 320,000 megawatts of generating capacity would be built in the U.S. in the next five years. He now expects 150,000 to 200,000 megawatts.
At least 185,000 megawatts must be added by 2010 to meet U.S. demand, the U.S. Department of Energy forecasts. A megawatt is enough power for about 1,000 typical U.S. homes.
Low Prices
The deregulation of electricity markets in the U.S., first in New England and later in the mid-Atlantic states, California and parts of the Midwest, spurred developers such as Calpine and utilities like Dominion Resources Inc. to break ground on new power plants in the past few years.
Calpine, based in San Jose, California, added 16 plants in the year that ended in the third quarter, quadrupling revenue in the period to $2.92 billion. Duke Energy Corp., the biggest U.S. utility owner, boosted third-quarter net income by 50 percent to $796 million as power sales rose.
Profit from electricity sales is now falling amid a slowdown in the U.S. economy, in part because of caps imposed by federal regulators in the West to stem soaring prices that drove California's two biggest utilities to the brink of insolvency.
This quarter, electricity prices at the California and Oregon border dropped to an average of $26.91 a megawatt, down 89 percent from $244.80 in the year-earlier period.
Calpine said it's now reviewing the company's plan to increase generating capacity to 70,000 megawatts by the end of 2005, a level that would make it the nation's biggest electricity producer.
Power Lines
Even with the cutbacks, many energy company executives and analysts say they aren't worried about shortages. The industry will build plants where needs arise, they say. The western U.S. has added about 5,000 megawatts of capacity this year, an increase of 3 percent, with almost half coming in California.
``If the players still see a need for power, the plants will get built,'' said Thomas Capps, chief executive officer of Dominion, owner of Virginia's largest utility.
A lack of transmission lines is more likely to lead to shortages than a dearth of power plants, said David Schanzer, a utility analyst with Janney Montgomery Scott LLC. In some cities, such as New York and Boston, power lines can get overloaded and possibly cause blackouts during a heat wave.
Consolidated Edison Inc. place generators around New York City this summer to supply power that couldn't be transmitted from plants further away.
``If there is significant reduction in construction there will still be enough power for the next five to 10 years,'' Schanzer said. ``It's a question of getting it to right places.'' |
