The current “trough” hanging over the power sector is likely to stretch three to five years and a key factor in determining just how long the industry will be stuck in its current funk will depend, at least in part, on how many forecasted gigawatts actually come online over the next couple of years, said Thomas Boren, executive vice president at PG&E National Energy Group (NEG).

“We are basically a relatively new industry, we’re still embryonic,” Boren told investment professionals attending a Deutsche Bank electric power conference on Thursday. “And, because of that, we’re still going through the first cycle ever,” he added. He said that the first part of that cycle included “some high prices at the very beginning, and now we’re going through the second part of the cycle as it goes down. Hopefully, we are at the bottom, or near the bottom….of that price.”

From Boren’s point of view, he thinks the current power industry trough “is going to last at least three years and no more than five years and I’m optimistic, hopeful, that it will be in the three-year range, but you can develop your own view on what that turns out to be.”

Boren said that the speed at which the power industry recovers from this current trough will depend on three things. “First, it’s going to depend on demand for gas and electricity, demand growth,” the NEG executive said. “Secondly, it’s going to depend on whether companies make the business decisions to cancel plants that are under construction and, finally, whether there are retirements of existing plants.”

Boren commented on forecasts for the amount of new generation expected to come online and how this ties into the speed of recovery from the current trough. “As we look out for 2002, ’03 and ’04, we estimate there’s somewhere between 110 and 115 gigawatts that are under construction that are scheduled to come online,” he said. “About 63, 64 gigawatts are supposed to come online in 2002. The largest this country’s ever absorbed in one year was last year…and that was closer to 40 gigawatts and we’re talking about 62, 63 [gigawatts], something like that, in 2002.”

The United States has already had about nine gigawatts come online through April, Boren added, and another 54 gigawatts are slated to come online before the end of the year. “The bulk of those are going to come on in [the] June and July timeframe in order for them to be here to hit the summer peak. I really believe that most of those will come online,” Boren said.

So the issue then becomes how many planned plants, comprising about 50 gigawatts, will actually come online in 2003 and 2004, the executive said. “I would tell you, I think with a little bit of luck, 10 to 20 gigawatts won’t come online…I really do think that that has a real possibility of happening.

“If we have fewer gigawatts coming online, then this trough, the frequency, is going to shorten and that will be good for us, it will be good for our whole industry, it will be good for the manufacturing industry, ultimately, it will be good for the trading industry as well,” Boren argued. “So that’s the key issue that we have to look for.”

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