ELECTRIC POWER 2010
At the opening ELECTRIC POWER 2010 plenary session, both the keynote speaker’s address and discussion among the Power Industry Executive Roundtable participants pointed to the renewed appeal of natural gas and proposed cap-and-trade legislation as being potential game-changers for the U.S. power industry.
The keynote address at May’s ELECTRIC POWER 2010 in Baltimore, and comments by the panel of industry executives at this session, revealed the key but subtle role that natural gas will play in the coming years. Meanwhile, everyone loves cap and trade as it now stands before Congress, even if it’s because something is better than nothing, or because it beats the regulatory drum being pounded at the Environmental Protection Agency (EPA). The appeal of “unfettered” electricity markets continues to recede, while coal, in the figurative sense, is staring at the chassis of the bus.
When I was part of a public equities investment fund focused on the electricity production and delivery value chain, I developed a “dashboard” that would reflect the state of the industry. In the center, the speedometer, if you will, was the forward price of natural gas. Everything on the supply side of the business pivots around it, I coached my colleagues.
Industry Revelations
You didn’t hear that directly, if you were among the approximately one thousand industry professionals who gathered for the keynote session. But that’s what the underlying message was. Sure, there was handicapping of the American Power Act (APA), recently reported out of committee in the Congress; nods to the smart grid; nearly unanimous agreement that cap and trade as currently stipulated in the APA is a good thing; tips of the hat to more renewable energy; recognition that real electricity rates will keep escalating, despite the recessionary blow to demand; and polite discussion about the rock and hard place between which the coal industry finds itself today. But so many of these discussion threads, implicitly or explicitly, seemed to weave together and lead back to gas.
Before we get to all that, let me share with you some true revelations made by the keynote speaker, Richard F. McMahon, executive director of the Edison Electric Institute (EEI) (Figure 1), and the Power Industry Executive Roundtable panelists (Figure 2) during the session:
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| 1. Keynote speaker Richard McMahon. McMahon is the executive director of Energy Supply and Finance for the Edison Electric Institute. Source: POWER |
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2. The 2010 Power Industry Executive Roundtable panelists. From left to right: PJM Interconnection Senior Vice President Operations Mike Kormos; Calpine Corp. Senior Vice President Power Operations John Adams; Duke Energy Group Executive and President Commercial Businesses Keith Trent; NRG Energy President Northeast Region Drew Murphy; Constellation Energy Group Executive Vice President, Corporate Affairs, Public and Environment James Connaughton; and Moderator Dr. Robert Peltier, PE, editor-in-chief of POWER. Source: POWER
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- If the derivatives regulation piece of the financial overhaul bill passes Congress, the typical investor-owned utility would need to tie up from $250 million to $400 million in cash for margin calls. –McMahon
- The world spends $8 billion on climate science a year. –James Connaughton, executive VP, Corporate Affairs, Constellation Energy
- Sixty million U.S. electricity consumers are expected to have smart meters by 2019. –McMahon
- Only 6% of ratepayers have smart meters today. Some electricity bills are going up because these meters are much more accurate, making consumer acceptance a challenge. –McMahon
- Power prices at PJM International LLC (PJM), a regional transmission organization (RTO), were down to $27 per MWh on peak on May 17, a day before the session. –Andrew Murphy, regional VP, NRG Energy
- Wind energy can afford to stay on PJM’s system until prices go below –$30 per MWh in the market because of the production tax credit. –Michael Kormos, senior VP, Services, PJM
- If the EPA regulates carbon, we will get one-fourth of the benefits for four times the cost, compared to cap and trade. –Connaughton
- We can replace 43% of the cars in this country without building a new power plant, simply by exploiting the disparity between peak and off-peak economics. –John Adams, senior VP of operations, Calpine Corp.
- Most utilities barely have an investment grade rating on which to finance their capital expenditures (capex). –McMahon
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