Sempra pulls plug on badly needed electric plant
Here is another reason electricity re-regulation is coming to Maryland. Sempra Energy was one of the few electricity-generation companies to have planned a plant in Maryland, which badly needs the juice. Sempra's Catoctin Power project would have supplied new megawatts to central Maryland, where BGE and other utilities now import lots of power at expensive rates from out of state.
Not any more. In news first reported by Power Market Today, Sempra is pulling the plug on the plant for now because federal regulators rejected a pricing scheme Sempra says was necessary to make the generator profitable. Here is Sempra CEO Donald Felsinger on a conference call with Wall Street analysts last week.
JOHN KIANI: Can we assume that at least at this point you're not going to build [Catoctin] and PJM since FERC did not pass the cone increase?DON FELSINGER: I think it's safe to say from our perspective that the economics that currently exist don't warrant us making an entry at this point in time.
And:
PAUL PATTERSON: I apologize if you've already gone over this. The Catoctin Power Plant, with the new cone and heat rate situation at PJM, any additional thoughts on that.DON FELSINGER: I did answer this earlier. That is, as the new cone was published and as the process at PJM and submitting their new cone to the FERC didn't get approved for procedural reasons, we've decided not to enter the market based upon capacity prices. Now, that does not mean that we're not out shopping with utilities for a contract. But currently the economics in that region don't support us going forward with a new build without a contract or a higher cone.
"CONE" stands for cost of new entry, a pricing protocol on PJM Interconnection, the wholesale grid for the Mid-Atlantic region. Sempra and other generators wanted to crank up the Cone, which would have increased their profits. Everybody else fought the higher Cone. A few weeks ago FERC rejected it, and now Sempra is (at least temporarily) taking away its marbles. Look for Sempra to sign a contract with BGE or somebody else in which utility ratepayers will underwrite at least part of the cost of construction.
Comments
It is not a question of "increased profits." An investment requires a fair return. So if the system does not want to allow that, then fine, the investors won't bring their marbles, as you put it. Ultimately the consumers will suffer either because they have inadequate supplies or high rates.
Posted by: M Agic | May 8, 2008 1:35 PM
Jay, the kind of new plant that Sempra wants to build has recovered only 60% of its fixed costs in PJM over the last 9 years - so these gas plants have not been profitable. Also, construction costs for new plants have risen 120% since 2000, thus the need for CONE adjustments or the cost of new entry will forever be higher than wholesale power prices and no one will build. The logic of suggesting reregulation will somehow free us from these basic economic facts is specious at best.
Posted by: D. Biden | May 9, 2008 10:24 AM
I agree with It is not a question of "increased profits."
Posted by: hancock | June 21, 2008 8:31 AM