POWER July 2010 - 60

ELECTRIC POWER 2010: WHERE THE GENCOS MEET
to tie up from $250 million to $400 million
in cash for margin calls. -McMahon
■ The world spends $8 billion on climate science
a year. -James Connaughton, executive
VP, Corporate Affairs, Constellation Energy
■ Sixty million U.S. electricity consumers
are expected to have smart meters by
2019. -McMahon
■ Only 6% of ratepayers have smart meters
today. Some electricity bills are going up
because these meters are much more accurate,
making consumer acceptance a challenge.
-McMahon
■ Power prices at PJM International LLC
(PJM), a regional transmission organization
(RTO), were down to $27 per MWh on peak
on May 17, a day before the session. -Andrew
Murphy, regional VP, NRG Energy
■ Wind energy can afford to stay on PJM's
system until prices go below -$30 per
MWh in the market because of the production
tax credit. -Michael Kormos, senior
VP, Services, PJM
■ If the EPA regulates carbon, we will get onefourth
of the benefits for four times the cost,
compared to cap and trade. -Connaughton
■ We can replace 43% of the cars in this
country without building a new power
plant, simply by exploiting the disparity
between peak and off-peak economics.
-John Adams, senior VP of operations,
Calpine Corp.
■ Most utilities barely have an investment
grade rating on which to finance their capital
expenditures (capex). -McMahon
Gas Is King
The first tip-off regarding gas came in McMahon's
opening address. Of the six " game-changers "
he presented, the first was an explanation
of the industry's capex hurdles. The second was
the role of unconventional natural gas, which
McMahon labeled a " huge game-changer, " noting
that it " overtakes LNG " [liquefied natural
gas] as a new source of this premium fuel.
Electricity is the key driver for unconventional
gas, he continued. Unconventional gas
sources (a designation that implies this natural
gas is more difficult to extract) represented 1%
of the market in year 2000, represents 20% today,
and McMahon thinks it could be 50% by
2035, as long as potential environmental issues
are worked out. The ecological disaster unfolding
in the Gulf of Mexico as I write probably
makes this point loom larger than usual. The
fact that unconventional gas reserves are a domestic
resource and are so vast, however, could
keep a lid on price volatility as well.
The upshot of these remarks, along with
much other evidence in the industry, is that
we may be in for another " gas bubble " not
unlike the one that affected the industry from
1986 through the late 1990s.
The second indication was when Adams
observed that Calpine (which has almost exclusively
gas-fired power assets plus a few
geothermal units) " sold more power in 2009 "
than in 2008, as well as in the first quarter of
2010, an unusual claim from the depths of the
economic recession. This was in response to a
question about the impact of declining electricity
sales posed by Dr. Robert Peltier, POWER's
editor-in-chief, who presided over the panel.
Adams credited low heat rates and low natural
gas prices, which combined to push many of
his plants first in the dispatch queue. Kormos
noted that " older coal plants operated at a loss "
and that load declines make PJM nervous.
In a historical context, this is an interesting
comment by Adams. More than 10 years ago,
during the heyday of merchant generation and
competition, Calpine's executives predicted
that their plants would knock inefficient, dirty
fossil capacity out of the market even for baseload
service. It may have taken a decade, but
that prediction is now apparently coming true,
probably for vastly different reasons. It's like
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POWER | July 2010
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POWER July 2010

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