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Cinergy, Duke Form Generation Partnership

October 11, 1999
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Cinergy, Duke Form Generation Partnership

A power generation partnership formed last week by Cinergy Capital & Trading and Duke Energy North America LLC (DENA) marks Cinergy's first step toward mending the hole in its defenses against huge summer power demand peaks. The two companies are teaming up to build three gas-fired power plants with 1,400 MW of generating capacity.

According to the agreement, the companies will split ownership in two previously announced DENA plants: a 640 MW plant in Butler County, OH, and DENA's 640 MW power facility in Vermilion County, IN. They also will split ownership in a 130 MW plant Cinergy is planning to build in Henry County, IN. All will be gas-fired peaking plants, planned for operation by next summer, and Cinergy is expected to operate all three.

"This partnership is evidence of DENA's commitment to work with regional energy companies to address the recent shortages experienced in the Midwest." said Jim Donnell, president and CEO of DENA.

Cinergy spokesman Steve Brash said the company's 700 MW share in these facilities will go a long way toward solving the problems that cost the company $73 million in July. Power demand and wholesale prices soared to unforeseen heights in late July, forcing the company to default on some of its wholesale power marketing agreements in an effort to maintain deliveries to its regulated and large municipal utility customers. The event cost Cinergy $16 million to settle with marketers and $57 million related to the cost of serving eight below-market sales contracts with municipal utilities in the region.

The worst of it occurred on July 29 when power demand soared to 10,811 MW on its system and would have escalated by another 600 MW had the company not requested voluntary curtailments by its large customers. Record send out was set a few weeks earlier at 10,873 MW. However, the company only has 11,000 MW of generation, of which only about 10,500 is ever available at one time. Like most other utilities, Cinergy supplements its generation with purchases on the wholesale market. But when demand soars significantly higher than available generation, there is a huge risk in meeting sales with extra purchases, particularly at $9,000/MWh power prices in the hourly market.

Brash said the additional generation is the first step. The second may be new power purchase agreements and a possible renegotiation or buyout of some of its major sales obligations with municipal utilities.

In August, Cinergy CEO James Rogers told analysts the company intends to seriously consider exiting the regulated power generation and sales business entirely. Such a move, however, would require regulatory approval. The only state served by Cinergy that currently is considering electric restructuring is Ohio. Rogers said a decision on the matter will be made later this month or sometime in November.

Rocco Canonica

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