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Cinergy Cries Force Majeure On Power Deliveries

Cinergy Cries Force Majeure On Power Deliveries

Slightly more than one year after Midwest power prices spiked to $7,500/MWh from $25/MWh, causing suppliers to default on contracts, companies to go out of business and federal regulators to conclude it was a one-time anomaly, the power market did it again.

Record power demand, tight supplies and transmission constraints on July 30 sent prices to as high as $9,000/MWh at the Cinergy hub, and hub operator Cinergy Corp. conceded last week that it defaulted on several hourly off-system sales contracts with power marketers. The Ohio-based utility and wholesale power marketer sent out "force majeure" letters to several counterparties, claiming there was not enough power supply available on the market to make deliveries. Cinergy said even if supply had been available it would not have been able to deliver it because of transmission constraints during the peak afternoon hours. The company neither named the marketers involved nor said how much power wasn't delivered to them.

Some power traders questioned whether it was a case of force majeure, an act of God, or of "price majeure," in which Cinergy was just unwilling to pay exorbitant prices to fulfill its obligations. Cinergy spokeswoman Angeline Protogere said, however, "There was simply a lack of available power to us either because of just limited supplies out there because of the record heat and record loads that the region was experiencing or [because of] transmission constraints that we were experiencing." She added that there was "at least one other company that failed to deliver," but she could not name the party. She also noted that the hourly load was non-firm power.

Temperatures reached the high-90s that day, pushing electric demand to near record levels throughout Cinergy's Ohio, Indiana and Kentucky service areas. Power demand on its system reached 10,811 MW, or about 47 MW shy of the record, and would have broken the record had it not been for the company's aggressive requests for voluntary power reductions, said Protogere. Voluntary reductions shaved about 500 MW from Cinergy's power needs that day, she said. The record was set July 22 at 10,858 MW.

"We called more than 2,000 large-volume customers and asked them to reduce their load. If we had not gone out and called for voluntary conservation we would have blown past that peak by hundreds of megawatts." Cinergy had warned customers that blackouts might occur if voluntary reductions were not made. The company was able to maintain its on-system deliveries.

Protogere said the company currently is negotiating with power marketers over the force majeure provisions in their power agreements and hopes to settle the matter outside of court.

Last summer, multiple power marketers went to court against Federal Energy Sales when the Rocky River, OH-based marketer defaulted on power delivery contracts. Many marketers suffered financial losses and some went out of business. The power price spikes that occurred during the week of June 22 and resulting market shake-up triggered investigations by state and federal regulators and hearings on Capitol Hill. Regulators recommended some market changes, such as more independent system operators, but generally concluded the event was the result of an immature marketplace and was not likely to recur.

Rocco Canonica

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