A power generation partnership formed yesterday by CinergyCapital & Trading and Duke Energy North America LLC (DENA)marks Cinergy’s first step toward mending the hole in its defensesagainst huge summer power demand peaks. The two companies areteaming up to build three gas-fired power plants with 1,400 MW ofgenerating capacity.

According to the agreement, the companies will split ownershipin two previously announced DENA plants: a 640 MW plant in ButlerCounty, OH, and DENA’s 640 MW power facility in Vermilion County,IN. They also will split ownership in a 130 MW plant Cinergy isplanning to build in Henry County, IN. All will be gas-firedpeaking plants, planned for operation by next summer and Cinergy isexpected to operate all three.

“This partnership is evidence of DENA’s commitment to work withregional energy companies to address the recent shortagesexperienced in the Midwest.” said Jim Donnell, president and CEO ofDENA.

Cinergy spokesman Steve Brash said the company’s 700 MW share inthese facilities will go a long way toward solving the problemsthat cost the company $73 million in July. Power demand andwholesale prices soared to unforeseen heights in late July, forcingthe company to default on some of its wholesale power marketingagreements in an effort to maintain deliveries to its regulated andlarge municipal utility customers. The event cost Cinergy $16million to settle with marketers and $57 million related to thecost of serving eight below-market sales contracts with municipalutilities in the region.

The worst of it occurred on July 29 when power demand soared to10,811 MW on its system and would have escalated by another 600 MWhad the company not requested voluntary curtailments by its largecustomers. Record send out was set a few weeks earlier at 10,873MW. However, the company only has 11,000 MW of generation, of whichonly about 10,500 is ever available at one time. Like most otherutilities, Cinergy supplements its generation with purchases on thewholesale market. But when demand soars significantly higher thanavailable generation, there is a huge risk in meeting sales withextra purchases, particularly at $9,000/MWh power prices in thehourly market.

Brash said the additional generation is the first step. Thesecond may be new power purchase agreements and a possiblerenegotiation or buyout of some of its major sales obligations withmunicipal utilities.

In August, Cinergy CEO James Rogers told analysts the companyintends to seriously consider exiting the regulated powergeneration and sales business entirely. Such a move, however, wouldrequire regulatory approval, and the only state consideringelectric restructuring so far is Ohio. Rogers said a decision onthe matter will be made later this month or sometime in November.

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