Participants in the CEO Roundtable at Electric Power 2006 raised a plethora of issues affecting decisions on future electric power generation. Representing a cross section of power producers, the industry leaders made clear that, although globalization has lost its luster in the power generation sector, its impact on the domestic industry remains profound.
Ten years ago, most major investor-owned U.S. utilities and many non-utility companies were seeking fame and fortune overseas, or were at least trying to figure out how to play in that game. Today, few U.S. gencos compete abroad, and those that still have assets there are busy divesting them.
1. The Genco CEO Roundtable. Top executives from a diverse group of companies kicked off the Electric Power 2006 conference with a lively discussion of the challenges and opportunities facing our industry. Panelists included (from L to R) Paul Hanrahan, president and CEO of AES Corp.; Gary Taylor, CEO of Entergy Nuclear; James Jura, CEO of Associated Electric Cooperative, Inc.; Paul Bowers, president of Southern Company Generation; and Jim Dickenson, managing director and CEO of Jacksonville Electric Authority. The session was moderated by Jim Hoecker, FERC chairman from June 1997 to January 2001 and now a partner at the law firm Vinson & Elkins. Source: POWER magazine
Standing tall--globally
The exception is AES Corp. Paul Hanrahan, president and CEO, began his remarks by noting that AES owns and operates production and delivery assets in 25 countries. Half of its operations are U.S.-based, including the utility Indianapolis Power & Light Co. In a sense, AES is the one American global power company left standing after the meltdown and contraction period beginning in 2001. Interestingly, only 20% of AES's capacity is merchant, and most of that is coal-based.
Hanrahan explained the current situation in Chile as a consequence of what he calls the "interconnectedness of various economies." Worldwide demand for natural resources and commodities is soaring, and Chile is one of the world's leading producers of copper. It needs power plants to extract and process the ore. Chile, says Hanrahan, "is an example of a market that works," as it is based on bilateral contracts.
China and India account for much of the global boom in demand for copper, petroleum, and electricity. Hanrahan, conceding that markets "have to be cyclical," asserted that these markets "cannot grow at 10% annually" forever.
Hanrahan also made an astute observation about financing. There is currently a huge excess of capital in financial markets. Available private equity is approaching $1 trillion, or 10% of the capitalization of the New York Stock Exchange. More of this private money is going into the sector even as the institutional capital (large banks) holds back, still hung over from the irrational exuberance of the late 1990s. However, the private equity funds are "chasing the existing plants," Hanrahan explained, because there aren't enough incentives for them to invest in new plants.
Hanrahan and Gary Taylor, president of Entergy Nuclear, both emphasized the growing importance of climate change and CO2. Carbon credits in Europe have reached $36/ton, but at one point they dropped to $18/ton in one day. In other words, a ton of carbon credits over there costs about as much as a ton of coal over here, but with much more severe price volatility. "This affects the coal/nuclear debate," Hanrahan stated, at which point Taylor jumped in. "America is dependent on world politics," he said, and "nuclear [power] is a question of national security." To drive his point home, Taylor offered two chilling statistics: China went from 5th to 2nd in worldwide CO2 production, and India moved from 13th to 5th-in one year!
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