The prospect for California fulfilling soon its goal of having 15-20% reserve margins in its electric generation capacity is clouded by the current financial uncertainty facing the energy industry, and may not be resolved until there is some further consolidation, according to representatives of merchant generators speaking at an industry conference in San Diego last week.

Several primary merchant power plant operators have lost up to 90% of their market capitalization in a year, said Randy Hickok, a senior director of Duke Energy North America’s California operations, speaking at an American Conference Institute energy symposium.

A number of the power plant projects still alive in California are being proposed by companies “whose financial survival is very uncertain,” said Hickok, noting that in checking financial statistics, “five traditional merchant power plant developers have stock prices that are now in single digits, which represents a loss of 90% of their market capitalization in a year. There are all levels of projects being shopped, and whole companies being shopped.”

In this context, Hickok said that while there are 10,000 MW of new power plants on paper that are supposed to come on line by 2004, “a lot of that is likely to dry up and blow away. And the California Independent System Operator (Cal-ISO) estimates that another 2,000 MW of outdated plants will be shut down in 2003.”

Hickok and Mirant marketing executive Jim Shandalov, indicated that it appears in California only dry cooling is going to be allowed in future power plant upgrades or new plants, adding significantly to the plants’ costs and environmental impact, and feeding the uncertainty of whether they will ever get built or upgraded. Mirant’s Potrero Hill plant in San Francisco, and Duke’s Morro Bay plant, both fall into that category, as they struggle to move ahead with replacement plans at the respective plants to replace the existing, old and inefficient generation units.

A third speaker, Garrett Smith, president of a Portland, OR-based cogeneration developer, Cogentech, Inc., suggested that one alternative to put more “balance” in the future transmission grids and relieve the pressure for new, central baseload plants is for regulators in California and elsewhere to promote the development of larger on-site congeneration that takes care of the customer’s load and provides extra megawatts for the grid. He cited about a dozen proposed projects his firm is involved with in California, totaling more than 1,000 MW.

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