Power Execs Agree: Managing Risks Key
To stay competitively in the game, power plant players of the
future need to manage a lot of risks: fuel, market, financial and
political, which can change almost as quickly as the weather,
according to a panel of electric power honchos speaking at last
week's Cambridge Energy Research Associates' CERAWeek 2001 meeting
Calpine CEO Peter Cartwright shared a plenary session with
Mirant Corp. CEO Marce Fuller, Cinergy Corp. CEO James E. Rogers
and Duke Energy Services CFO Kirk B. Michael. All spent a lot of
time debating the energy problems that have fouled California in
recent months, but moved away from current problems to focus on
what they see as positive developments for the country and their
companies' futures because of recent news.
"California presents an interesting challenge," said Cartwright.
"It validated a lot of what we'd been telling the market for a long
time - that demand for power would exceed the forecasts." He said
Calpine is working through a "minefield" of problems, but the San
Jose, CA-based company would be "part of the solution, not part of
the problem," because "we are citizens of California."
Mirant's Fuller echoed Cartwright, telling the
standing-room-only audience that the "major key" for the newly
formed Southern Co. subsidiary was to take advantage of the
market's opportunities. As the first utility affiliate that will be
completely separate from its regulated parent as of April 2, Fuller
said Mirant will have to take risks, but more important, it will
have to manage those risks to ensure success.
"California, if nothing else, was a wake-up call for the
players," she said. "There has been a mindset in recent years that
the United States is risk free, that the real risks are overseas.
What we have seen lately is that there are just as many risks here
as around the world."
One key to managing risks is to be an active participant in
shaping the market and structuring the rules, said Fuller. She said
the company had "10 people camped out in Sacramento" to help with
the legislative fixes. "We also want to be a part of the solution."
Though Mirant makes more money outside of the United States
currently, this should change in the near future with more
investment along the East Coast. The company, she said, was
building out "a lot of assets," with the majority in natural gas.
However, like other CERAWeek panelists this week (see related
story), she said, "I for one believe coal will come back,"
especially in areas where it had been big before. "I see no way of
adding coal in different markets like California, as difficult as
it is to site a natural gas plant." But adding diversity was
important for Mirant, and she suspected that more power plants also
would consider regional diversity to include dual fuels or coal.
Relying on natural gas as the dominant supply also concerned
Duke's Michael. In the near term, problems have been created where
demand outstrips supply. In the long term, he worried that
companies could create a "generation stack that was overly
dependent on one fuel source."
Cinergy CEO Rogers' message on natural gas and coal's future
dittoed the participants more forcefully. "From my point of view, I
see changes in the market. How much longer can we go with gas?" He
said 95% of new U.S. generation would be natural gas. "Is it good
national policy to rely on one fuel? I see the day of coal coming
back. What's happening in depending on gas is a fatal flaw in the
country today." Rogers said the United States was at a "dangerous
point in the country" by relying so completely on natural gas.
Carolyn Davis, Houston