Will a back-to-basics strategy meet investor expectations?
It's an issue that is coming to the fore with greater force-the debate over...
Battle of Dunkirk
Utilities rush to save their last tenuous hold over the power plants they so smugly sold off.
Last year, when Niagara Mohawk Power Corp. sold off its 600-megawatt, coal-fired Dunkirk generating station, hard on the Lake Erie shore in southwestern New York state, it probably figured that, at the very least, it could still profit by selling electricity at retail to the new plant owners. To operate the plant, the owners would need power from outside the station for a host of perfunctory applications, such as heating, lighting, and air conditioning of plant control rooms and offices, fuel handling, pumping and treating of cooling water, emissions control and related monitoring equipment, and, of course, starting up the plant following any planned or unplanned shutdown.
Like the father of the bride, Ni-Mo wouldn't lose an asset. It would gain a customer. It would marry itself to the needs of the new owners. Yet some weddings don't go as planned. In this case, the new owners had different ideas.
The buyer of the Dunkirk plant was NRG Energy Inc., a subsidiary of Northern States Power Co. At about the same time NRG also had acquired the Ni-Mo's 760-MW coal-fired Huntley plant, and the much larger 1,700-MW Oswego station, fired by fuel oil and natural gas. It planned eventually to assemble a large fleet of power plants throughout the Northeast. (At press time, NRG claimed to own more than 15,000 MW in total generating capacity in North America, either operating or under construction.)
With so many resources, why pay retail for on-site power? After all, Dunkirk (and the other plants) would need only standby power, since NRG could always fall back on output from its own units while they were operating. Why not acquire power at a much cheaper wholesale price, from the various regional spot markets for bulk power, such as those run by independent system operators (ISOs) in New York, New England, and PJM? Why not just "net" this station power requirement against the plant's output, and altogether avoid paying retail rates to utilities?
To put muscle behind its threat, NRG petitioned the Federal Energy Regulatory Commission for relief, asking the FERC to allow netting of station power.
Of course, you can already guess where this battle is going. If a power producer can bypass the local utility and purchase power from the ISO and the regional power exchange, why not a suburban homeowner with a diesel generator in the back yard?
That's exactly what NRG's opponents are saying, including a host of retail electric utilities and several state public utility commissions (PUCs). They see this netting of "station power" as a step down the slippery slope to a serious bypass of retail utility rates, with all the included subsidies and surcharges for stranded costs, resource planning, and renewable energy. To bolster that view, on Sept. 29, the New York state commission flatly rejected the idea of netting. Honoring a petition filed by Con Ed, the state commission asserted full authority to regulate standby station power as