Wednesday, July 8, 2009

CPV wants Md. PSC to order utilities to buy plant's power

Platts (2009) - Electric Power Daily
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Competitive Power Ventures said it cannot build a previously approved 640-MW natural gas-fired plant in Maryland unless the project has one or more long-term contracts to support it.

The company asked the Maryland Public Service Commission on Monday to order at least one of the state's investor-owned utilities to buy power from its proposed $500 million plant in St. Charles County under a 20-year contract. Under the company's request, the utilities would be required to sign the long-term contracts within 60 days of the order or the PSC would negotiate the contract on the utility's behalf.

The project will not be able to get financing without long-term contracts, the company said. "This simply is a fact under both current and reasonably foreseeable economic conditions resulting not only from the increasingly rigorous finance conditions placed upon large capital projects, but the nature of the PJM Interconnection market structure as well," the company said in it's request.

More than 3,000 MW of new generation has been approved by the Maryland PSC in recent years, but only 200 MW have been built, Braith Kelly, a company spokesman said. An industry observer who asked not to be quoted by name said requiring long-term contracts is probably the only way to get new generation built in Maryland.

The financial markets are not strong enough to finance new generation projects without the revenue streams from long-term contracts to lower the risk, Kelly said. "The markets are just not willing to take on that risk," he said.

At the same time, PJM's capacity payment is set in such a way it does not encourage new construction, Kelly said. "If it had a bifurcated payment system, one for new generation and one for older generation, developers would be more comfortable with the payment stream," he said. As it is now, the single payment offered for both existing generation and new generation is not enough to support new projects, he said.

PJM's reliability pricing model is not getting plants built because new construction needs a longer revenue streams than the six or seven years offered by PJM, Sue Kelly, general counsel for the American Public Power Association, said in an interview. "It's a financing fact after last year's economic meltdown," she said. Kelly said all options should be kept on the table, and long-term contracts are needed to anchor needed additional resources, she said.

Pepco, which serves customers in Maryland, said there is an active market in PJM, so there is no reason CPV cannot sell the power from the plant to PJM. "We're certainly not interested in a long-term contract," Bob Dobkin, a spokesman, said. BGE did not return a request for comment on the possibility of being required to sign a long-term contract.

Connecticut has had great success by requiring long-term contracts, CPV's Kelly said. "If the industry is going to survive there has to be more such forward thinking,"
he said.

Pennsylvania regulators have required utilities to stabilize rates by requiring a mixture of long-term, short-term and spot market contracts.

Privately held CPV said it would open its books to public review to show the reasonableness of its terms and pricing. The company would bear the risk of cost overruns, Kelly said.

The new plant would reduce rates and rate volatility while reducing the state's "alarming" reliance on out-of state resources, CPV's Kelly said. APPA's Kelly said there are limited options to bring down the price of power. "But with a dedicated plant at a known price, there might be a place in a portfolio for that," she said.

CPV asked for expedited consideration of the request, with an order issued within 30 days.

The project is in the advanced stages of development, the company said. It received a final certificate of public convenience and necessity on November 8 and an Army Corps of Engineers permit on January 16. To meet a 2012 online date, it needs to begin construction right away. CPV expects to receive remaining federal, state and local approvals shortly.   -- Mary Powers

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