Frontlines

Deck: 
Merchant plants snub the market, using native load to create their own private rate base.
Fortnightly Magazine - April 15 2003
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Turncoat Turbines

Merchant plants snub the market, using native load to create their own private rate base.

You've read those stories about distressed assets-how the collapse of energy prices has sent firms scurrying to sell off plant to raise cash, buy down debt, and shore up the balance sheet. But that's just window-dressing. It tells you nothing about how to make money in a $40 power market with a high-cost gas turbine peaker bought during the height of the California power crisis, when prices were $300, $400, $800/megawatt-hour (MWh).

Until now, that is. Lately, some clever folks have found ways to divorce their overbuilt and overpriced gas turbines from the wiles and whims of commodity prices, and instead to remarry their assets to the girl next door-to the same captive native load that they disdained only a few short years ago.

The result is a guaranteed stream of payments, allowing the plant owner to recover fixed costs at no risk. The generator can then afford to bid and sell into any regional spot market, no matter how low the price, or simply to operate as a plant dedicated to native load.

Doesn't that distort markets? You bet. But it's already happening, with aid and comfort from the regulators, and even with help from a regional independent system operator (ISO)-the one player that you would think would want to preserve the integrity of a standard market design (SMD) with locational marginal pricing (LMP).

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