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Did Power Plant Buyers Pay Too Much?

Fortnightly Magazine - November 1 1999

this 42-MW plant was operational as of the beginning of last year. However, it is unlikely that Cape can cover its own fixed O&M costs, let alone contribute to FPL's capital recovery, unless there are significant high-demand periods accompanied by capacity shortages resulting in high price spikes. That is unlikely in New England Power Pool (NEPOOL) given the great amount of capacity additions planned there. For this reason, a conservative approach indicates that, for the purposes of this analysis, the Cape Gas Turbine will have no base value.

The same assumption will be made with regard to the Mason Steam facility. Mason is a 145-MW oil-fired steam generator of 1952 and 1955 vintage. Its heat rate exceeds 15,000 Btu per kilowatt-hour, its fixed O&M expense ranges between $3 and $6 per kilowatt, and it is unlikely to contribute to FPL's portfolio cost recovery without additional investments, more sophisticated valuation methods or higher than expected NEPOOL energy market prices.

The William F. Wyman station is a heavy oil-fired steam generator consisting of four units built in 1957, 1958, 1965 and 1978. The first two units output 54 MW each with a heat rate of approximately 12,300 Btu per kilowatt-hour. Unit 3 is 119 MW with a heat rate of 10,100 Btu per kilowatt-hour and unit 4 is a 620-MW unit, of which FPL purchased CMP's share of 367 MW. Unit 4 has a reported heat rate of between 10,400 and 10,613 Btu per kilowatt-hour.

EIA data indicates that the entire station's generation-weighted heat rate was approximately 11,585 Btu per kilowatt-hour from 1993 to 1997. Wyman's capacity factor has fallen steadily since 1988, when it was at 41 percent. EIA's generation-weighted fuel cost is $28.82 per megawatt-hour from 1993 to 1997. Given the heat rate described above, this would infer a heavy (#6) fuel oil cost of $2.49 per million British thermal units - low by most standards. However, since the plant likely will generate from the newer, lower heat rate units, in the spirit of conservatism it is reasonable to assume the average $28.82 per megawatt-hour fuel cost reported by EIA. Wyman's fixed O&M costs are $16.40 per kilowatt and variable O&M was $4.42 per megawatt-hour from 1993 to 1997.

Finally, the Aroostook Valley station is a wood-fired generating plant of 1994 vintage. It consistently has operated at a high capacity factor, but is capable only of 32 MW of output. Aroostook's fixed O&M costs average $6 per kilowatt, non-fuel variable O&M averages $1.49 per megawatt-hour and fuel costs average $21.30 per megawatt-hour. Aroostook should produce a positive contribution to FPL's capital costs in spite of its small size.

The portfolio described above is shown in table 5, assuming 20 percent and 40 percent capacity factors for the Wyman station. Input parameters for the portfolio are based on the weighted costs of the component plants. Portfolio fixed O&M in the table is weighted by capacity. To determine the fixed O&M on a megawatt-hour basis, fixed O&M is weighted by the assumed output of each plant. Variable costs are weighted by generation so the