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As a former independent power producer, George Lagassa is sympathetic to the woes of the merchant power industry. Until just a few years ago, he held the license to a micro-hydro qualifying facility (QF) in New Hampshire, so he understands what it takes to compete in a regulated-franchise industry. Yet, as the principal of Mainstream Appraisals in North Hampton, N.H., Lagassa is also a dedicated pragmatist. He sees the industry's consolidation trend as a sort of correction in the U.S. power market.

"IPPs might be squawking about fair-market value, but I'd submit that value is largely what you define it to be," Lagassa says. "If an owner is obligated to sell a plant, for whatever reason, then that asset is inherently distressed. A distressed asset, by definition, will not sell for fair-market value."

Meanwhile, 1,500 miles to the west in Oklahoma, Pete Delaney is hoping to buy one such asset. Delaney, an executive vice president at OGE Energy Corp., has his eye on the 520- MW McClain plant, now owned by the bankrupt NRG Energy. The Oklahoma Corporation Commission approved OGE's plan to acquire the plant, but the deal has been delayed by interventions at the Federal Energy Regulatory Commission (FERC).

Competitive power suppliers are crying foul, charging that OGE is freezing out competing generators, and that the utility should have conducted a competitive solicitation before deciding to acquire the McClain facility. But Delaney is quick to respond.

"It's a false belief that we can go out and get a great contract for supplies to serve our retail customers," he says. "When we look at the other supply options, buying this plant is the hands-down winner all the way around-on cost, efficiency, location, and risk."

Delaney asserts that generators within reasonable transmitting range of OGE's load don't want to tie up their output with a 30-year purchased power agreement (PPA) priced at today's depressed wholesale rates. Even if they would, such contracts today pose troublesome counterparty credit risks. "The rating agencies view long-term PPAs as debt equivalents," Delaney says. OG&E already buys $120 million of power annually under contracts with AES, Calpine, and PowerSmith Generating, but it is concerned about the prospect of exposing itself to a generator with financial difficulties. "Signing a long-term contract with a 'B'-rated entity brings substantial counterparty risk," he says.

Conversely, by acquiring the McClain plant, OGE can lock in a secure source of liquidation-priced capacity for the lifetime of the facility, which is only three years old, and generates some of the most efficient power in the region.

With his voice betraying more than a hint of frustration, Delaney asks, "If we can't buy McClain, which is clearly cheaper than building a plant, where does that leave us? Are we supposed to charge retail customers higher rates so that federal regulators can force a market solution that isn't economic?"

Another 1,500 miles to the west, Jan Smutny-Jones is experiencing a persistent sensation of déjà vu.

As the executive director of the Independent Energy Producers (IEP) trade association in Sacramento, Calif., Smutny-Jones was an early advocate