New power plants: Too much of a good thing?

by

Published: March 6,2000

Wholesale electrical power generation to meet peak power demands continues to be one of the biggest growth industries in Mississippi with announcements by Entergy Inc. and GenPower in February of plans to build power plants representing total investments of $340 million.

Sixteen merchant power plants (plants that sell on the wholesale market to other power distributors) have been announced in Mississippi since 1997. The major incentive for building the merchant power plants is the huge spike in costs when electrical demand exceeds supply. This past summer electricity traded at almost 90 times its usual price in some regions, rising as high as $7,500 per megawatt hour during blackouts in the Midwest.

However, the large number of power plants either announced or under construction in Mississippi has some industry insiders speculating whether all the plants will be built. And there are concerns that if all the plants are built, it could lead to an oversupply that would reduce the costs of electricity on the wholesale market — possibly to levels that would make it difficult to recoup investments.

Bob Marsh, deputy administrator for the Mississippi Public Utilities Staff, said it is possible that all of the plants won’t be built. If they all are built and a surplus results, it might be bad for the companies involved — but great for consumers.

“A surplus would be wonderful,” Marsh said. “If there is more energy to be sold than there is demand, obviously the price will be better for the consumer. This would benefit the consumer in Mississippi either through the wholesale market or retail electric choice, whenever that occurs. What’s so nice about these merchant plants is there is no risk to the ratepayers in Mississippi. The risk is to the stockholders who are making the decisions to build the plants.”

Some of the merchant plants are being built in the northern quarter of Mississippi primarily served by TVA that currently does not have generating facilities.

“There isn’t a single plant there now,” Marsh said. “All the energy going into that area was flowing from other locations. So perhaps some of the electricity being generated there won’t have to flow much of anywhere. It will be consumed right here in the state.”

Marsh added that when retail competition is allowed in the state, more power generators will mean more competition — and better prices to the consumer.

“And that is why the Public Service Commission (PSC) is looking at these merchant plants favorable,” Marsh said.

The latest merchant power project was announced by GenPower, LLC, a Delaware corporation that plans to build a $200-million, 640 MW combined cycle gas generating plant on 168 acres near McAdams.

“The general reasons for building the plant in that area are the availability of both transmission lines as well as gas supply,” said Dan Lupfer, senior financial analyst for GenPower.

“In terms of being in that region, we do perceive the Southern region as an area of growth, and that translates into growth in electricity demand.”

Lupfer said GenPower has a number of plants on the drawing board similar to the one planned in Mississippi, most of them in the Southeast. The company recently completed work on a plant in Westbrook, Maine, that is the same type and size as the one planned in McAdams. GenPower is in a joint development agreement with General Electric (GE) for development of the power plant currently being proposed for McAdams.

GenPower plans to begin construction at the McAdams site later this year with the plant scheduled to come on line in the middle of 2002.

Entergy Wholesale Operations (EWO), the wholesale power development, risk management, marketing and trading unit of Entergy Inc., is seeking permission from the PSC to build a 300-megawatt (MW) natural gas-fired power plant in Warren County that would be the company’s first generating facility in the Mississippi River Delta.

“We are delivering on a commitment to invest in and to create jobs within Entergy’s home territory,” said Geoff Roberts, president and CEO of EWO.

New merchant power plants currently operating include Enron 475-MW unit in Caledonia and 390-MW unit in New Albany. Under construction are: Tractebel Power, 440 MW, Chester; Escatawpa Funding, 1,000 MW, Escatawpa; and CogentrixLS Power, 830 MW, Batesville.

Permits have been approved for Duke Energy in Jackson (510 MW), McAdams, (510 MW) and Southaven (640 MW), and for Enron’s 260-MW unit in Fulton. Warren Power, a subsidiary of Entergy Inc., has filed an application with the PSC for a 300-MW unit in Vicksburg. Other projects that have been announced are Cogentrix in Southaven (830 MW), Cogentrix in Caledonia (830 MW), Avista in Magee (900 MW), and Calpine Corp., Lowndes County (800 MW).

Jimmy Heidel, executive director of the Vicksburg and Warren County Economic Development Foundation, said that in addition to the direct benefits from the large construction project, the new power plant planned by Entergy would also benefit existing industry and enhance the area’s ability to attract new industry.

Heidel said the new power plant would not only benefit existing industries and the community as a whole, but will also boost recruitment efforts for new industry by guaranteeing power availability and reliability.

If Entergy receives a permit for the facility as expected, an estimated 125 people will be employed during construction, and a total of 10 to 15 permanent jobs will be created. Plans call for starting construction in September with a summer 2001 completion date.

Entergy looked at sites in Arkansas, Louisiana and Mississippi for the project. Heidel said he believes that Warren County was selected because the site contained the infrastructure needed, and the company liked the community and incentives that included a fee in lieu of taxes that reduces the tax burden for 10 years to about a third of what would have been paid without the fee in lieu of taxes.

Michael J. Suter, EWO business development director, said a favorable regulatory climate in Mississippi was also a factor in the site selection. The PSC has responded favorable to other merchant power projects in the state.

Bobby Waites, executive director of the Public Utilities Staff, said there are several reasons why merchant power plants such as the one proposed by Entergy have become a significant growth industry in Mississippi.

“One is that in the Southeast the generation capacity is not sufficient to meet the demand,” Waites said. “Plus, Mississippi has a good system of gas pipelines to supply fuel for the plants, and we have a good electric transmission system. Plus I believe, too, that we have a stable regulatory environment here which makes it good to do business in the state.”

Waites said the projects create a large number of construction jobs, a smaller number of high-tech permanent jobs and add to the property and income tax base.

Power from the proposed peaking plant would be sold on the wholesale market to cooperatives, municipalities, investor-owned utilities not affiliated with Entergy, power marketers and other wholesale customers. Due to federal regulations, Entergy Mississippi, and other Entergy operating companies, are not authorized to purchase power from the facility. However, Entergy Mississippi often purchases power from the wholesale market to meet customer needs which could help prevent the kind of rolling outages seen in some of Entergy’s service territory last summer. Entergy says the new plant will benefit Entergy Mississippi’s customers by increasing the overall availability of wholesale power in the region.

Contact MBJ staff writer Becky Gillette at mullein@datasync.com or (228) 872-3457.


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