Some power markets may be seeing possible signs of recovery. Spark spreads appear to have bottomed out, and reserve margins have begun to fall in some markets. As Figure 1 shows, recovery is...
Roundtable: The Future Of Generation
assets. We have issues, however, about whether you can leverage a distressed merchant asset, and how you can hedge against price fluctuations in the forward cost of power. You need an appropriate supply-demand relationship.
But the competitive market continues to produce the lowest-cost and most efficient power plants. That will continue.
Geoghagan, Deloitte: The key is asset valuation. But I think there will continue to be a market for merchant power, once we get over the shock of Enron and Dynegy and other organizations that failed. Some are doing it aggressively. It's smart to buy plants for dimes on the dollar, and turn them into profitable merchant plants.
Competition is good and we need it. We just have to get the structure correct. When you have regulated companies building things on a cost-plus basis, there is no incentive to be innovative or increase productivity.
McKenzie, Southern Co.: Retail customers have benefited from the wholesale IPP business, because IOUs have had to compete with them in that arena. Now when an IOU does a self-build option, it is at a very attractive cost. We've had to compete against IOUs in Florida, and they have really sharpened their pencils.
The ultimate result is savings for retail customers.
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"I have seen the future, and it doesn't work."