Exelon sells plants in Maryland and Cali; Mitsui buys into Viridity; Duke issues $1.2B; plus deals at TVA, Xcel, PG&E, etc. totaling $4.9B.
Utilities are enjoying some of the best financing terms anybody’s ever seen. Is the party winding down?
Conditions are ideal for utility financing—but not forever. Although interest rates remain low, policy changes weigh on capital structures.
Constellation completes 16.1 MW PV project in Maryland; Ikea commissions 31st solar project, reaching 38 MW installed; IPL and MidAmerican install $545 million scrubber in Iowa; DTE partners with Enbridge and Spectra on pipeline for Utica shale gas; plus contracts and announcements from Dominion, Sempra, Southern Company, AEP, EPRI, Itron, Landis+Gyr, Opower and others.
Positioning to win in the contest for scale.
The industry’s slow-and-steady pace of mergers seems to be picking up speed, as larger and well-positioned players overtake smaller and weaker targets. Realizing the greatest value from consolidation requires companies to assess their strengths and weaknesses and focus on performance improvement—both before and after a deal gets done.
Exelon Generation named Ron DeGregorio president of Exelon Power. Most recently he was chief integration officer working on the Exelon-Constellation merger. Former NSTAR president, chairman and CEO Thomas J. May was elected president and CEO of Northeast Utilities (NU) following the completion of the merger of the two companies. He succeeds Charles W. Shivery, who retired from his position and assumed a new role as the non-executive chairman of the board of NU.
Lewis “Lew” Hay III intends to retire from NextEra Energy at the end of 2013 as part of a planned leadership succession process. Hay will serve as executive chairman from July 1, 2012, until his retirement, and James L. Robo, currently president and CEO of NextEra Energy, will succeed Hay as CEO, effective July 1.
(May 2012) Entergy Louisiana starts construction on gas-fired power project; Virginia Commonwealth University and Dominion partner on a test site for efficient energy technologies; Burlington Electric Department selects Siemens for meter data management platform; IKEA commissions four Blink electric vehicle charging stations; Edison Mission Energy, TIAA-CREF and Cook Inlet Region Inc. form partnership, and others.
Planning ahead in a low-cost gas market.
IIt’s ironic that in today’s market, as the cost of hedging against commodity price increases has declined, support for utility hedging programs has sunk to a historic low. The ideal time to hedge is when prices are low and markets are relatively calm, because that’s when hedging costs and risks are the lowest. Conversely, waiting until prices rise and markets become volatile will expose customers to higher costs. Convincing regulators to approve hedging programs now will require a collaborative approach to educating and enlisting support from stakeholders.
Does the lack of long-term pricing undermine the financing of new power plants?
The PJM Interconnect’s Reliability Pricing Model generally has succeeded in attracting and retaining low-cost generation and demand resources to maintain resource adequacy. But sluggish demand and low prices have weakened the market for long-term capacity contracts. Suppliers aren’t willing to lock in current low prices, and buyers don’t want to pay more for future certainty. Is the market dysfunctional, as some state lawmakers suggest, or does the lack of long-term contracts indicate a rational balance of supply and demand?
Are merchant power assets overpriced?
By some measures, merchant power assets look like a bargain, selling for well below their replacement cost. But whether low prices signal a buying opportunity or a value trap depends on the outlook for electricity demand growth—not just in the long term, but also in the fairly immediate future.