Duke CEO Sees Canada on Horizon
In the second of Duke Energy Corp.'s monthly chat series, Jim Donnell, CEO of Duke Energy North America, said Friday that DENA remains on track to complete 10 power facilities by 2002, with the 10th to be announced within the next month. On the horizon, however, Donnell said Duke sees opportunities for growth in Canada, naming Alberta and Ontario as two likely generation sites.
On the market side, the CEO said the softening of electricity prices will continue, but he added that Duke Energy would not be impacted.
"The softness seen in the market is the exact softness we saw last year," Donnell said, citing the "lack of weather" and the nature of the commodities market. "The markets are cyclical. We've seen softness in this summer and on a forward curve." However, because of DENA's hedging position, which is as high as 90% in some regions including the West, "our performance of our asset portfolio is that we're on track to deliver projections."
Duke Energy also expects the continued electricity demand to remain at 2% growth. "Consequently, Duke Energy still realizes strong prices," he said, and added that the company "clearly supports the position of President Bush's energy policy that we need more generating capacity."
Donnell spoke at length about Duke's role in California, where the company has several expansion projects under way. Donnell said he expects the Federal Energy Regulatory Commission to impose market price caps in California at its scheduled meeting today in Washington, D.C.
Reiterating that DENA is on track to announce its 10th generation site in the United States within the next two months, Donnell also reported that the integrated energy company is eyeing Canada for future plans.
"We are looking north to Canada," Donnell said, especially in the Alberta and Ontario areas, where he said DENA is "looking to expand." Expansion is not difficult, he said, because Duke Energy's "clear advantage" is its "integrated approach to the business." He did not elaborate on a timetable, however, on when Canadian expansion might begin.
On the U.S. side, Donnell said DENA has "13-15,000 MW under development in subsequent years (and) given the market dynamics, constantly balancing our portfolio, we are shifting more to the western connect." But he cautioned that the cost of generation was higher in the West.
"Currently, it costs Duke $500,000 to $575,000 a megawatt to build a simple cycle peaking facility in California. A combined cycle costs $575,000 to $775,000 a megawatt. The easy sites are taken, the low-cost sites are gone," and he added "water is the limiting resource in the West."
Of FERC's hearings on the California crisis, Donnell, when asked about what he thinks of the suggested price cap plan said, "We've not seen the FERC plan, but my reading of it is there's a market base not a cost base (on price caps that) they are pursuing, and given that we know little, we're not yet in a position to respond." However, he said that no matter what FERC decides, "we are 90% hedged for this year and hedged in subsequent years, so the decision would have little to no impact on Duke's earnings."
With a 90% hedge through 2001 in the western region, Donnell said he was confident that the hedge, which would be in the range of 70% in 2002 and 2003, would protect the company.
"DENA has protected itself through hedging contracts in the West," Donnell said. "Our average sales price for the entire year 2000 for long- and short-term contracts was $76 MWh," he said of California prices, where the average spot price in 2000 was $113. "In the first quarter of this year, our average was $136 MWh. That compares to the average spot price of $239 (in the first quarter).The difference between Duke and others is clear that long-term contracts are important to stabilize any market. We are doing all we can to stabilize our market in California while protecting our shareholders' interests."
As far as the finger pointing at various energy companies, Donnell said Duke had "conducted itself with the highest level of integrity, and will do so in the next 100 years. We're in the process of a $750 million expansion in the (California) marketplace. We will offer solutions for a long time. We conduct our business in a heads up fashion and will continue to do so. At the end of the day, we'll manage through the rhetoric and continue to be part of the solution, not part of the problem."
Donnell said Duke would do "everything we can to produce any documents requested of us, and at the end of the day, we've never had any concern and none now that Duke Energy will have been found to have done anything inappropriate. It's not the way we do business."
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