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Generation: Big or Small?

Fortnightly Magazine - September 15 1996

going to bulldoze down a lot of inefficient plants." Thompson's company, working with Commonwealth Edison Co.,

currently focuses on options for a power plant that combines high labor costs with 13.5¢/Kwh electricity.

Builders of new technology had better remember that they'll be competing at tomorrow's prices, not today's. Thompson points to gas plants his firm built in the Northwest: "Four cents a kilowatt-hour, and now they're shut down. ... They're not competitive anymore. And they were just finished.

"The competitiveness of power is falling so fast, the bottom will be somewhere around a penny and a half to two cents per kilowatt-hour."

Renewables certainly won't hit the economic bull's-eye.

"We can't play with new technology that doesn't compete," Thompson says. "No wind power that only works part-time. No fuel cells that are $7,000 a kilowatt. We can't do that. We're going to have to find a technology that will compete with today's fuel cost."

He says IPPs will play the largest role in installing future plants (em as much as 70 percent of the market. Large utilities, or disaggregated generating companies, will form subsidiaries to either build or buy. And they'll build for many reasons, Thompson says, not least of which might be to get out from under strict union rules or unfavorable long-term coal and gas contracts.

"There's all kinds of reasons why the business is taking a different shape," he says.

Industrials will continue to use the threat of cogeneration as a "better rates" negotiating tool with utilities. That, too, will slow the pace of new generation.

Bob Kennel, national accounts vice president for LG&E Power Marketing, says "new generation now is very carefully being considered. [It's been] sort of delayed by the major utilities ... approached by people like us in a very careful manner, with selected locations around the country but not many plants."

LG&E has joined as a knowing partner in "phantom" industrial cogen projects, the most visible one for DuPont. "After we had signed our letter of intent with DuPont two years ago, they were able to get a very good cogen deferral rate from Carolina Power & Light Co. that saved them $6 million a year," Kennel says. "And we have been willingly used at times to take a look at cogen. And there were people who did studies to get a slightly lowered rate.

"However, I think retail access, particularly for the industrials, is coming fast, and we're telling our clients: Don't build cogen now. There's no reason to build cogen right now."

Kennel says he sees new generation kicking in, in different places and at different times, around the turn of the century.

"We recognize that any new generation is going to have to compete in wholesale power

markets, because we do see a really open market out there."

One reason behind the open market is power marketing. LG&E is in the middle of it. It claims to be the largest of the utility-affiliated power marketers in the country.

It's also getting experience for the future. Over the past 13 years, LG&E has