Five Takeaways From the ELECTRIC POWER Executive Roundtable 

Executives from power companies operating in different markets revealed how their firms are being affected by low natural gas prices, pressures to achieve fuel diversity, distributed energy generation, and lax demand growth, among a number of topics.

The annual executive roundtable panel at the ELECTRIC POWER Conference and Exhibition on April 19 was moderated by Richard McMahon, vice president of energy supply and finance for the Edison Electric Institute (EEI). Its panelists included: Phillip May, president and CEO of Entergy Louisiana; John Trawick, senior vice president of commercial operations and planning for Southern Co.; and Clarence Hopf Jr., senior vice president and chief commercial officer for the newly formed Talen Energy.

Here are some key takeaways from from roundtable. For more, see POWER‘s forthcoming June issue.

Key Issues Affecting the Companies Today

May [Entergy Louisiana]: Across the Gulf Coast, we’re seeing a surge of industrial development driven by a number of factors, such as low energy prices, natural gas prices, and feedstock for industrial customers. We also have some of the lowest electricity prices (the U.S. generally has low electricity prices compared to the rest of the world, and Louisiana has some of the lowest electricity prices in the U.S.). That growth is what we’ll be dealing with in terms of investing in our grid and investing in our power plants.

Another thing that we’ll be dealing with is that we have an aging fleet. If you look at the 20,000 MW [that is] Entergy’s fleet, roughly half are built pre-1995, so we have to plan for their replacements.

Trawick [Southern Co.]: We’re largely a regulated business. We’re in the process of merging with AGL Resources, so we’re going to be a fairly significant energy company going forward with nine million total customers, including going into places like Illinois and N.J., so I’m not sure we can call ourselves the Southern Co. here in the future. We see a lot of opportunity in where gas is going in our business.

Going forward, its clear to us that gas is becoming the dominant fuel and it will continue to be the dominant fuel both from a planning perspective as well as from an operations perspective. Southern Co. was historically a very heavy coal-based utility—about 70% of our generation came from coal. Today, we’re about 30-35% coal and our gas generation is approaching 50%.

Hopf [Talen Energy]: We are 100% about letting the market make those decisions about what type of generation should be built, and totally from a competitive standpoint. The second issue would be the environmental policies.

On an aging fleet: 

May [Entergy Louisiana]: One of the things that we’ll need to address … is our aging fleet. If you look at the history of the industry, a lot of these plants were built in the 1970s, when the industry was experiencing a 6% to 8% growth per year. At that same time, the Gulf Coast was experiencing a 7 to 10% growth per year. So we were in a building mode. Those plants can now be replaced with more efficient plants. So we are now embracing plants that may have heat rates close to double in terms of efficiency of operation

On the Industry’s Capital Expenditure Expansion

McMahon [EEI]: Contextually, the industry has been in the middle of a massive capital expenditure expansion. Six or seven years ago, it was an $8 billion industry. Now it’s an $1.1 trillion industry. The average capital spend has been $90-plus billion a year. Last year it was at a record level of $103 billion, and its significantly across the chain.

On Distributed Generation

May [Entergy Louisiana]: As we go through this, the subsidies need to be reexamined at a state level, particularly when they get so large as to threaten a state’s budget. We need to make sure we get the rules right on the rates that are being paid for the generation of solar. For instance, why would it be appropriate to pay a retail rate for electricity generated from a rooftop solar installation at a residential level while [rates for] a similarly large-scale [installation] would be half, or less than half of that.

Trawick [Southern Co.]: From a rate perspective in terms of the total cost of power, we’re not seeing a lot of movement for folks who want to go the distributed energy/distributed solar route. At the end of the day, the thing that is the most crucial are rate structures. If you don’t get the rate structures right, you do end up with the same subsidy-type issue, as you’ll have one set of customers paying for a separate set of customers who decided to go separate route. At the same time, I’d say that as a company we look at this as an opportunity … for revenue growth associated for loads. …We want to be the one to provide that service to them. Back to that whole customer-is-our-focus here, we are seeing a lot of opportunity here.

On Utility-Scale Solar

May [Entergy Louisiana]: Utility scale solar is something that we are increasingly looking into. One of our sister companies, Entergy Arkansas has an 82 MW facility that is under construction right now.] The cost of utility solar right now is significantly less than rooftop solar right now.

On Fuel Diversity

Hopf [Talen Energy]: I think diversity of fuel has to be in the mix. I have a concern that if we go too much to … gas, in different parts of the country, we would be setting [ourselves] up for something that we wouldn’t want to happen, such as the polar vortex. I think we’re just setting ourselves up as an industry if we try to go too far on just one fuel.

Trawick [Southern Co.]: Certainly, from our perspective, diversity is important. During the polar vortex, if we weren’t able to switch from gas back to coal because gas prices had [surged], we wouldn’t have saved customers about $100 million in just basically a month.

May [Entergy Louisiana]: I think that fuel diversity is important. I think that in organized markets—and we operate a vertically owned utility in organized markets as well as in merchant markets—but I don’t know that organized markets are paying plants for those attributes, whether those attributes are being emissions-free, or the lack of volatility you see in their pricing, or those kinds of things. ….

I applaud Southern Co. for leading on building nuclear plants but from an Entergy perspective, we just can’t go for it with a nuclear plant with where gas prices are right now. We started down that path on two different sides, and as gas prices went down, it was just clear that we needed to move forward on gas construction. The cost of building a new combined cycle, not only are they low, but they are quite sure. Generally, when we are building a [combined cycle gas turbine], we’re setting out how long it will take, and generally we’re building it in a shorter timeframe and under budget.

Sonal Patel, associate editor (@POWERmagazine, @sonalcpatel)

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