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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: russwinter who wrote (6612)	1/31/2004 5:54:39 PM
From: yard_man	Respond to of 110194

you make a good pt. How is the output gap calculated?? To be honest, I'm ignorant and could use some education in that area. Regarding the specific item you mentioned -- gas unit out of the money -- I do have some expertise. I do know that even with 5.50 nat gas prices -- or the 4.00 price as of that report, there truly IS excess capacity in gas-fired generation, russ. That cannot be disputed. It is a result of two things -- the easy money and panic brought about by liberlization of the generation markets. 6 months ago there was NO market for such capacity -- now I hear of some projects finally having the potential to "go back to the banks." You have to realize there was a huge bubble in these gas fired units -- calpine, enron and others locked up huge numbers of machines -- to be sure, many were never built, but some were and the volatility in the electric markets that justified the "merchant only" model for the plants imploded. We partnered with a well-known utility and now we are considering what we would accept to take the machines back. That's a fact, jack. <g> The money was too easy and it created a bubble -- I understand what you are saying -- but I honestly don't believe that the calculation is done the way you imply. I don't think even the plants owned by marketers are counted as idled capacity if they are fired up more than once per year -- what you need to realize is at best the most efficient combined cycle plants are only gonna run at perhaps a 40% capacity factor -- the simple combustion turbines at less than 10% capacity factor -- it's in the assumptions when they were purchased and I am sure they are not considered as idled capacity for 60% or 90% respectively -- it would make no sense.