Power producers ease plant-building

Decisions by some power producers to pull the plug on merchant power-plant construction in Indiana affirm that the flickering economy is hampering the wholesale electric industry, observers say.

Of the nine most recent construction plans approved by the Indiana Utility Regulatory Commission,

Kentucky-based EnviroPower still wants to build two 550-megawatt plants in Pike and Sullivan counties in southwestern Indiana, but has backed off, citing shaky economic conditions and the fallout from Enron Corp.'s bankruptcy.

"Post-Enron, the utility industry has retrenched somewhat and people are trying to sort out the best way to move forward. So we've been in a holding pattern for some time," EnviroPower Vice President Joseph Darguzas said.

Darguzas insisted EnviroPower has no plans to abandon the projects.

Duke Energy in Houston already operates two merchant plants in Indiana with Cinergy Corp. and wanted to build more. The commission approved applications last year from Duke Energy to build 640-and 620-megawatt plants in Knox and Vigo counties. But construction has been idled on the Knox project, and not begun in Vigo County.

"We may not be building a plant in Indiana, but we might be building someplace else," Duke Energy spokeswoman Kate Perez said. "We have to go where the markets are."

Industry experts also point to improved reserve margins as a reason merchant power plants are no longer an attractive investment.

"Investing in these electric companies isn't the darling it used to be," IURC Chairman William McCarty said. "I certainly haven't seen any new [construction] applications. It's run its course in the short term."

Unlike baseload power plants, in which electricity is produced for retail customers, merchant plants are private investments in which power is sold on the open market during severe power shortages. Reports that Indiana's reserve margins reached dangerously low levels during a July 1999 heat wave, causing a shortage of electricity, helped spawn the 'peaker' plant craze that drew many opponents.

Deregulation of the industry in several states also fueled the demand.

Since late 1998, 26 applications to construct merchant plants have been presented to the Indiana Utility Regulatory Commission, 21 of which were filed following July 1999. Seven of those have been built and are operating.

Of the six construction plans in limbo, data from the commission showed site preparation has begun on one-Mirant Corp.'s Vigo County plant-and construction has been delayed on another because of a site change-Duke Energy's Knox County plant.

Four plans have shown no action: Duke Energy's 620-megawatt plant in Vigo County, Spark Energy Corp.'s 500-megawatt plant in Putnam County, PSEG Global USA Inc.'s 340-megawatt plant in Shelby County, and Acadia Bay Energy LLC's 630-megawatt plant in St. Joseph County.

"Has the slowing economy had an impact? Sure," said Vince Griffin, director of environmental and energy policy for the Indiana Chamber of Commerce. "But the fact is, maybe we don't need as many mechant power plants as we did before."

Mirroring Indiana, national electricity supplies will be adequate this summer, according to forecasting newsletter The Kiplinger Letter. But a shortage is expected by mid-decade throughout much of the nation. The reserve that's needed to ensure uninterrupted power for peak periods will drop to a mere 10 per cent of normal usage by 2005, down from the current 15 percent, the newsletter said.

A 2001 forecast prepared by the State Utility Forecasting Group at Purdue University projects Indiana's electricity usage will grow at an average yearly rate of 1.93 percent, and 1,500 megawatts of additional capacity will be needed by 2004.

"There's no question a generation shortage will occur in our state; it's just a matter of when and how much," Utility Forecasting Group Director Tom Sparrow said. "We've said that since 1996."

Meanwhile, a commission field hearing has been scheduled for Aug. 13 in New Castle regarding Cinergy subsidiary PSI Energy Inc.'s request to purchase power from a new merchant plant in Henry County that was built under strong objection from nearby Cadiz residents. The company has a similar proposal involving an Ohio merchant plant. PSI wants to convert the facilities from their original purpose of serving the wholesale market to instead meet retail demands.

"If we don't transfer the Madison [Ohio] and Henry County facilities to the regulated side, we will need to do something else," PSI Energy spokeswoman Angeline Protogere said. "We'll either need to purchase the power elsewhere or build other facilities."

Opponents are unconvinced, believing Cinergy is trying to recoup the cost of the plants by making ratepayers foot the bill, as a result of the slow wholesale market.

"A few years ago, the state said we need these merchant plants and the utilities were gung-ho about buying on the market," said Grant Smith, utility and environmental policy coordinator for consumer advocate Citizens Action Coalition. "The tune has totally changed now."