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 in Houston.

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

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