I will
Posted on 06/23/2002 8:16:59 AM PDT by Dog Gone
THE electric power business has come out of the closet. Enron, Reliant, Dynegy and other Houston-based energy firms have become household names in recent months, though not necessarily for the best of reasons. Terms such as transparency, round-trip trades, and "gaming the market" are now part of the journalistic lexicon. Electricity deregulation, which had been a sleeper public policy issue for years, is now the subject of heated debate in Washington and many state capitals.
Unfortunately, politicians of various stripes are using the Enron debacle and its aftermath as a stalking horse for unrelated agendas. Gov. Gray Davis of California is using the alleged misdeeds of energy traders to boost his re-election campaign, when the principal problem with California's power market was an ill-conceived deregulation program. Instead of working on a national energy plan, Congress is deposing Enron and Arthur Andersen executives and considering legislation to re-regulate the trading of all energy derivatives. And several states scheduled to implement retail competition in electric power this year have put these initiatives on hold while "problems" in the utility industry are sorted out.
It is also regrettable that virtually every power trader now is being portrayed as an Enron clone. But unlike Enron, which had few hard assets, Reliant, Dynegy and most other power traders own electric generating plants worth billions and report real earnings. In fact, Reliant is the second largest merchant power producer in the United States.
What's lost in all the noise about round-trip trading and creative accounting is the fact that the United States still faces a host of energy problems but has yet to come up with any viable solutions. For example, over the next two decades, the nation will need about 1,500 new electric plants to meet projected demand. Much of this new generation will be fueled by natural gas. But in the current environment, many of the nation's utilities and power companies are unable to raise money for new facilities, raising the risk of future power shortages. Calpine recently canceled 35 orders for natural gas turbines from General Electric and delayed the delivery of another 81. General Electric, which built 284 turbines last year for the U.S. market, will build only 150 this year.
To make matters worse, the stock prices and credit ratings of independent power producers -- the companies that have built most of the nation's new power plants -- have plunged since the collapse of Enron. Witness Dynegy, which laid off 6 percent of its work force last week. And disclosures about aggressive business and accounting practices in energy and other industries have made fund-raising even more problematic.
The upgrading of the nation's transmission grid is another challenge facing power companies and regulators. Otherwise, California-type electricity shortages may occur in other parts of the country in the near future. Absent a restoration of investor and lender confidence, the huge capital outlays required to complete the infrastructure required for a national power market will not be forthcoming and electric reliability will be impaired.
Nuclear power remains another unresolved energy policy issue. Though currently contributing about 20 percent of the nation's electricity supply, no new plants have been constructed or ordered since the late 1970s. As well, the battle over disposal of spent fuel at Yucca Mountain continues, with Nevada promising to fight the federal government all the way to the U.S. Supreme Court.
Finland and several other countries, recognizing that nuclear power is the most environmentally benign process for generating electricity while reducing dependence on costly imports, are proceeding to construct new plants. By contrast, America increases its dependence on imported energy month after month while nuclear power languishes and we lose our pre-eminence in this technology.
Perhaps the most serious consequence of the post-Enron climate is the lost momentum for deregulation and retail competition in electric power. Those politicians and consumer groups beating up on the power industry and clamoring for re-regulation fail to mention that inflation-adjusted electricity prices have decreased by 30 percent for residential customers and by 36 percent for industrial and commercial customers since deregulation began in the early 1990s. But with further deregulation on hold, consumers and businesses may pay higher prices than would otherwise be the case.
Ironically, Texas -- home to many of the "sinners" in the power industry -- is generally considered to have implemented the best deregulation plan in the nation and to be a model for other states. Texas has witnessed a smooth transition to a competitive retail market while at the same time adding to generating capacity and enhancing the overall reliability of the distribution system. Indeed, Texas has the potential to become a leading exporter of electricity to other states if, and when, the United States completes a national power grid and retail competition becomes a reality.
Deregulation can't work without power trading. As recently put by Pat Wood, current chairman of the Federal Energy Regulatory Commission and former chairman of the Texas Public Utility Commission, "Well-functioning power markets depend on three key elements: adequate infrastructure; clear and balanced rules that allow efficient trading among market participants; and effective market oversight." Congress should focus on the first element and leave the other two to FERC and the state PUCs.
If deregulation is to move forward, the power industry must rebuild trust among regulators and investors. Otherwise, capital will not flow where it is needed and consumers will remain skeptical about the benefits of competition in electricity.
Weinstein is director of the Center for Economic Development and a professor of applied economics at the University of North Texas in Denton.
A little simple math tells me we need an average of 30 plants built per state. Do we need to build 30 in one year or two per year over fifteen years or one per state per year
How many do we have on line currently? How many can be upgraded?
Also, does this projection take into consideration better efficiency and materials to conserve power consumption?
I don't see a train wreck coming, maybe a pile up with a bunch of rubber neckers getting in the way.
Are you referring to the enviro-wackos laughable attempts to create serious wattage from bio-gas and the like? I don't blame the Bush admin for the appropriate level of scorn they have applied to the infantile approach of the greenies. The return in wattage per dollar spent is scandalous.
We already have the answer: nuclear power plants. The only problem is that they take a long time to build, and the crunch is sure to come before ANY solution, even small, rapid build plants (like coal and natural gas plants) could be built.
But Clinton, Gore and Richardson knew that throughout the course of their stay in DC. With all the data available to them, and the length of time required remedy the problem, is there any sincere doubt that it was arranged on purpose - driven by a byzantine, malthusian view of our society's demolition. It's a slow bullet, fired years ago, and we have yet to count the damage that a chronic series of power outages and shortages will cause.
My experience is in nuclear and coal plants, none of which are being built these days. As we all know, the basic engineering fundamentals in those types of plants don't apply to the new gas turbines </sarcasm>.
Also, I am over 50.
Furthermore, I won't travel halfway across the country and set up a second household for $19 per hour.
I have not heard of any nuclear power plants proposed in Mexico but there are efforts to build Natural gas powered generators across the California border. However there are Congressional people trying to put strigent air quality standards on them.
More interesting but longer term there are efforts to build LNG facilities at various places on the West Coast (Mexico included_) to bring in natural Gas from non US sources.
References:
California: Big play, Big risks - companies gamble billions on LNG projects worldwide
(Cal)Border energy projects take political heat
References from Calpowercrisis list..
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A while back I wrote this letter to the Transylvania Times [Brevard, NC]:
Editor--I read with interest the article "WNC death rate linked to air quality" in your May 26th edition. The piece was intended to be a summary of the GAO report written at the request of Congressman Taylor, and implied that coal-fired power plants in Tennessee were responsible for respiratory deaths in and around the Great Smoky Mountains.
During these modern times, one must expect articles such as this when a journalist writes a slanted story on a bogus report produced by accountants posing as scientists for a power-hungry politician. But before your readers in WNC run out and buy more life insurance, I hope they will spend a moment thinking of two things.
Exactly when and how did the Smoky Mountains get smoky?
The answers are simple: A smoky blue haze was hanging over these mountains millions of years ago - long before the first power plant or automobile was ever thought of, and long before mankind ever built campfires here. When the Cherokee Indians first came, they named the area Sha-co-na-qe, meaning "place of blue smoke." (The Cherokees, apparently being more intelligent than Congressman Taylor, did not blame TVA power plants or automobiles on the Parkway for the blue haze, but instead called the place sacred.)
The reason for the haze over our mountains is the trees and vegetation!
Each tree in the Smoky Mountains emits 3-5 times as many Volatile Organic Compounds [VOCs] per unit weight as the EPA would allow if it were…say…a bakery. On a hot summer day, roughly a million gallons of water vapor and 100 pounds of hydrocarbons are given off by each square mile of forest in North Carolina. These naturally-produced VOCs - mostly isoprenes and terpenes - combine with Nitrogen oxides in the atmosphere and the energy from the sun to produce ozone. It is the ozone which causes the haze and some of the respiratory problems, although the isoprenes and terpenes are themselves believed to be carcinogenic. The pollen can be a health problem, too, as many of us know.
So if Congressman Taylor is serious about curing the alleged respiratory problems in the Smoky Mountains, he should introduce legislation to have the mountains clear cut and paved with asphalt.
That makes about as much sense as what he is proposing, which is to bring the California power crisis to North Carolina.
Now for something completely different. Freedom Technologies uses magnets.
An interesting saga, the plan is to roll out the product in December in every state of the Union. They have presented their case to the Federal and State governments and they are still in business.
Read about it for yourself. It's posted to provide information only.
Hope I didn't offend anybody.
My bias against Calpine was largely derived from the fact that it was California's biggest private power producer, selling at the same spot market as everyone else, but was immune to any criticism (and rarely even a mention) by Governor Davis. Then the cronyism links and financial ties to the Davis administration started coming out, and I thought it stunk.
Calpine was doing many of the same things as Enron insofar as trading power and booking a lot of profits that weren't very real. But one big difference is that Calpine really did generate electricity and there are hard assets in that company.
It's quite obvious that they bit off more than they could chew in terms of expansion plans, and they've had to cancel or "postpone indefinitely" a majority of their new plant projects. They've taken a major beating in the credit markets and they are clearly in far worse shape than they were before this whole episode began.
I simply don't know what the book value of their current assets are, and it's entirely possible that the stock has been oversold. It seems likely to me that the entire power sector has been oversold as nervous investors are dumping everything related to power.
That probably means that some of these stocks are selling at a bargain rate right now because this country needs more of what these companies are selling. Whichever companies pick up the pieces and become dominant are likely to score major gains in the years ahead.
Whether Calpine is one of those, I'm not sure. They made some really bad decisions that cost them billions of dollars, and the management hasn't changed.
Maybe they've learned from their lesson, but I'm not convinced of it. They still want to invest hundreds of millions of dollars in California power plants, and California has demonstrated repeatedly that it's willing to put hundreds of millions of costly roadblocks in the path of power generators.
If you're making a small investment, I wouldn't oppose investing in Calpine. I think if you want to be sure of some solid gains with a larger investment, I would buy stock in several of these companies because the sector, as a whole, is certain to rebound.
I will
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