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To: yard_man who wrote (38373)	9/18/2003 12:22:35 PM
From: Gemlaoshi	Read Replies (1) \| Respond to of 74559

Tippet, Your post is an excellent primer on the economics of power systems with a mix of generation, large domestic load, and rates based on the long run average costs (LRAC) of the system. High fixed costs of such systems are manageable because of the normally reliable cash flows from the large domestic load. This set of economic conditions still characterizes most integrated, non-deregulated utilities in the country. However, the fly in the ointment are the merchant power and IPPs. Their economics are quite different in that they normally are dependent upon simple CT or combined cycle gas Combustion Turbines, have little or no domestic load, and sell into the spot or short-term markets which are driven by short-run marginal costs (SRMC). The buildup of IPPs in the late 90s, combined with a softening national economy, has resulted in a situation where a generation surplus exists in many parts of the country, and SRMC have fallen below LRAC (California doesn't count because as we all know, the Laws of Economics don't apply in California!!). That essentially means that IPPs are often willing to sell into the spot market as long as they can cover their variable costs. Most are making no contribution to fixed costs, but are dependent upon rolling over their debt as it matures. They also have the financial crunch of financing long-term generation assets with relatively short-term (3-5 year) debt. They stay alive only as long as their creditors are willing to restructure their debt. So, to compare the IPPs with integrated electric utilities is really an apples and oranges comparison. Their business structures are quite different even though they produce the same end product - electricity. Dave

To: yard_man who wrote (38373)	9/18/2003 7:03:05 PM
From: Haim R. Branisteanu	Read Replies (2) \| Respond to of 74559

Thanks tippet I had no chance to read it yesterday. As to profit margin I referred to the difference between operating profit & fuel to the price sold For example if combined cycle is $45 to $65 per MWh and variable cost are around $5 per MWH then total cost is something in the range of $50 to $70 per MWH. (5 to 7 cent KWh) The question is for how much you sell a MWH (not peak as I know that is expensive) Financing cost for a combined cycle is around TNX+ 30 bp to 50 bp for a 10 year line. Cost of combined cycle is around $700K per MW or $700 per KWh Now Solar or wind power cost around $2,500 per KW In NYC as a retail consumer I pay the outrageous price of 17.6 cents per KWH