Reliant Defends $1,900/MWh Price in CA

Having been singled out by California's governor for "price-gouging" during recent rolling blackouts for charging $1,900/MWh for some emergency spot market supplies, Houston-based Reliant Energy's wholesale businesses President/COO Joe Bob Perkins fought back Friday, crying foul, but drawing short of saying his company would seek any legal action against the confidentiality of its bulk power transactions being apparently violated by state officials.

Plant seizures, which have been threatened by California politicians, Perkins noted, would cost state taxpayers billions of dollars. He said the state seems to be taking "one step forward, but several steps backward. California officials must now lessen the rhetoric and focus on efforts to mitigate the impact of summer blackouts, along with providing longer term supply/demand solutions. We could be part of the solutions, and we remain committed to doing our part."

Perkins indicated Reliant would resist any efforts by the state to discount the $340 million of unpaid power bills that it is owed, although he did not say so categorically. He would only say that discounting the back bills would discourage future investment in plants and he is not "talking to anyone" about discounts.

Responding to what he called "a lot of allegations flying around this week regarding California's energy crisis," Perkins held a conference call with news reporters to try to set the record straight from Reliant's point of view. He emphasized the his company "will continue to champion" market-based solutions that address fundamental supply/demand issue, adamantly opposing price caps as "pain-killers" that don't cure anything, and can make the illness worse.

The center of the recent controversy --- the $1,900/MWh power --- was mischaracterized, Perkins said, because it involved a very inefficient, old peaking plant using expensive spot market natural gas for fuel. The plant is limited to eight to nine days of generation annually because of air emission restrictions, thus, Reliant purposely bid its power very high, hoping to discourage the plant's use so its limited hours of operation could be preserved for use during the summer peak-demand hours.

In any event, Perkins said, the amounts of power ultimately used were two hours worth, so the impact of the high-price mixed in with all of the other spot supplies would not be significant. Further, Perkins argued that if the state would extend the number days of the plant's operation annually, the price for power could come down as much as 80%.

In response to criticism from the state regulators and attorney general's office regarding alleged manipulation of power plant operations to create artificial shortages and raise wholesale prices, Perkins said Reliant has been "running 30- to 50-year-old plants at the highest levels since they were purchased in 1998, nearly doubling their output last year to meet the needs of California." So far this year, he said Reliant is running plants "almost three times greater" for the same winter period, which normally is a time of low peak-demands.

"There have been multiple investigation about plant withholdings, and I expect there to be others, and we have fully cooperated with all of them," Perkins said. "The thing that needs to be looked at is how much we run those plants. When we are running plants at those kinds of incredible levels, we have to work on them more often. It is run time that is far more critical to the people in California than the maintenance time."

In response to specific questions about pulling out of the state or dampening future investment there, Perkins lightly stepped around the issue, but he admitted that he has expressed concerns about the future, particularly with the increasing talk by the governor and others of instituting windfall profits taxes and/or seizing power plants.

"Longer term, the state needs the investment and re-investment of the generators like Reliant to build more supply and upgrade old plants on the verge of collapse," said Perkins, estimating $15 billion as the cost of all the power plants and transmission work that the state needs in the next three years. "A call for the state to take over plants could be between $15 and $20 billion."

Perkins said everyone should be focused on getting adequate power supplies to California this summer. Anything else, he said, "wastes everybody's precious time and resources."

He reiterated Reliant's proposal for a so-called "negawatts" program to pay large industrial customers to forego some or all of their power use during peak-demand hours and, in effect, sell back power to the grid on a pre-scheduled basis, noting that Reliant executives have been going to all the western states promoting the program. In addition, the company continues to offer California a five-year power contract at 2 cents/kwh, with the buyer providing the natural gas for the generation (see NGI, May 14).

"We still have that offer on the table," said Perkins, adding that Reliant has "focused significant resources" on upgrading and maximizing production at the four older gas-fired plants it owns. Collectively the plants amount to less than 5% of the state's overall electricity load.

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