POWER July 2011 - 62

ELECTRIC POWER 2011: WHERE THE GENCOS MEET
Consolidation, Market
Distortions Underlie Remarks
by Industry Executives
If you needed additional proof that the power industry is changing, the ELECTRIC
POWER keynote and panel discussions over the past few years have
provided it-top-of-mind issues have been significantly different each
year. For the 2011 keynote speaker and panelists, the challenges of reliability,
regulatory compliance, financing, and getting the fuel mix right
took center stage. In the wake of Japan's nuclear crisis, safety also featured
prominently.
Jason Makansi, Pearl Street Inc.
W
hat a difference a year makes.
At the 13th Annual ELECTRIC
POWER Conference Keynote session,
smart grid and nuclear (which figured
prominently last year) were the equivalent
of footnotes. What the speakers converged
on instead, without actually confronting it
directly, is that the industry is headed for significant
consolidation.
Opening remarks were given by John
Shelk, president and CEO of the Electric
Power Supply Association (EPSA), which
has probably done more to pry open wholesale
electricity markets over the past 20 years
than any other organization. His comments
were followed by an industry executive panel,
moderated by POWER Editor-in-Chief Dr.
Robert Peltier (Figure 1).
Shelk began by noting a key attribute of
this industry: Reliability " is an input, " a requirement
to maintain a surplus of capacity;
no other " competitive " industry operates
with such a regulatory mandate. One might
think that, after 30 years of " deregulation, "
20 years of competition programs at the state
level, and numerous initiatives at the federal
level, mandated reserve margins would be
coming down. Not so, at least not in Texas.
That point was underlined in the panel
discussion by Doyle Beneby, president and
CEO, CPS Energy. He reported that the Electric
Reliability Council of Texas, which runs
the Texas electricity market, increased its reserve
margin from 12% to 13.5%. And this is
a market that, according to many observers,
" got [competition] right. "
The Fuel Conundrum
A second challenge Shelk noted was the perennial
cost of environmental compliance.
62
1. Keynote speaker John Shelk. Shelk is the president and CEO of the Electric Power
Supply Association. Source: POWER
No one needs to be reminded that environmental
mandates have essentially made the
industry's No. 1 power plant fuel, coal, uncompetitive
economically. Carbon cap and
trade legislation is off the federal government's
agenda, at least for now; the Republican-dominated
House is trying to rein in
the Environmental Protection Agency (EPA)
on myriad other compliance initiatives; and,
reported Shelk, Congress is requesting economic
impact analyses of compliance rules
from the EPA, the Federal Energy Regulatory
Commission, and the Department of
Energy (DOE).
Despite this shift at the federal level, announcements
of coal plant retirements keep
growing. Tennessee Valley Authority (TVA),
one of the country's most significant coal
www.powermag.com
burners, is " throttling back the coal fleet, "
said Robert Fisher, TVA's senior VP, fossil
generation. " Eliminating today's carbon
footprint includes closing coal plants, " said
Ruth Ann M. Gillis, executive VP and chief
administrative and diversity officer, Exelon
Corp. (Figure 2).
From a market perspective, it's hard to
imagine a cheaper source of electricity than
a fully paid-off, amortized coal-fired plant-
unless you heap enough environmental compliance
costs on it to kill it.
Beneby noted that you can buy an idled
combined-cycle plant for less than the cost
of the flue gas desulfurization system that
would be required on a coal unit-forget
about the boiler, turbine/generator, and other
major components. What's more, the finanPOWER
| July 2011
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POWER July 2011

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