Message-ID: <13723622.1075861943373.JavaMail.evans@thyme> Date: Wed, 14 Nov 2001 10:23:28 -0800 (PST) From: issuealert@scientech.com To: issuealerthtml@listserv.scientech.com Subject: Calpine Corp. Becomes One of the Few Companies to Penetrate Florida’s Wholesale Market Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: quoted-printable X-From: IssueAlert@SCIENTECH.COM X-To: ISSUEALERTHTML@LISTSERV.SCIENTECH.COM X-cc: X-bcc: X-Folder: \MHAEDIC (Non-Privileged)\Haedicke, Mark E.\Inbox X-Origin: Haedicke-M X-FileName: MHAEDIC (Non-Privileged).pst =09 =09 =09 =09 =09 =09 =09=09 =09=09 =09 =09 =09 =09 =09 =09=09 =09 =09 =09 =09=09 =09 November 14, 2001=20 Calpine Corp. Becomes One of the Few Companies to Penetrate Florida's Whole= sale Market By Will McNamara Director, Electric Industry Analysis [News item from Reuters] San Jose, Calif.-based Calpine Corp. (NYSE: CPN) a= nnounced that it has begun construction of its planned 530-MW Osprey power = plant in Auburndale, Fla. The plant, known as the Osprey Energy Center, is = expected to begin commercial operation in late 2003, according to company s= tatements. Calpine said in June that it had received Florida's regulatory a= pproval for the plant, and that it was expected to cost $250 million to bui= ld. Calpine also said that it is "continuing to move forward" with the prop= osed 1,080-MW Blue Heron Energy Center, slated for Indian River County, Fla= .=20 Analysis: With the onset of construction on this plant, Calpine now reporte= dly ranks as one of the few out-of-state generating companies that has been= able to penetrate Florida's wholesale power market. Other companies such a= s Enron have made similar attempts to begin construction on new plants (or = gain control over existing plants), only to be blocked by community and reg= ulatory resistance. Calpine, which now ranks as the largest builder of powe= r plants in North America, has gained entry into Florida by agreeing to sel= l the output from the plant to one of Florida's existing utilities. Neverth= eless, it is a concession that supports Calpine's larger strategy for expan= sion, both within Florida and across the United States. Along with the Ospr= ey and Blue Heron facilities, Calpine also plans to eventually build a 1,08= 0-MW, $500-million plant near Vero Beach, Fla., which certainly positions t= he company as the leading out-of-state generator in Florida's rather cloist= ered wholesale market.=20 It is important to note that the Osprey Energy Center, which will be a comb= ined-cycle, natural gas-fired facility, will be the first power plant of it= s kind to be built by an independent power producer (IPP) in Florida under = the state's stringent Power Plant Siting Act. There are some fundamental as= pects of Florida's $13-billion electric market that should be established f= or context. First, Florida represents the third-largest electric market in = the United States in terms of consumption (193 million megawatt-hours, acco= rding to the Energy Information Administration), so deregulation of the sta= te remains of great importance to many stakeholders. However, Florida has t= aken a "go slow" approach toward electric competition and, at this point, t= here is no plan to initiate retail competition in Florida. Leaders of the s= tate (including Gov. Jeb Bush) have supported competition in the state's wh= olesale market in an effort to move cautiously toward total deregulation. F= lorida's Energy 2020 Study Commission, which is preparing the blueprint for= competition in the state, endorsed a plan to allow out-of-state companies = to enter Florida's wholesale market by building new plants and selling powe= r to the state's incumbent utilities.=20 However, the Florida Supreme Court has banned out-of-state companies from b= uilding merchant plants in the state, which would be free to sell power any= where and are not subject to rate regulation by the state's regulatory comm= ission. A good example of this is Enron, which has attempted several times = to build new generation facilities in the state. A proposed plant in Pompan= o Beach, Fla., was rejected amid strong community resistance. Enron was giv= en governmental approval to proceed with a peaking unit in Deerfield Beach,= Fla., for which the company is still attempting to obtain air quality perm= its. According to Enron, the Deerfield Beach plant was approved because it = was classified as a peaking unit, and will be allowed to generate only duri= ng times of peak demand. It is not known at this time if Enron will continu= e with its plans to build this plant now that it is being acquired by Dyneg= y Inc. Southern Company has also moved into Florida (its first expansion ou= tside of its service area) after receiving preliminary approval to build a = 633-MW natural-gas generation facility in Orlando. Southern Company has agr= eed to sell the total output from this plant in a 10-year contract with the= Orlando Utilities Commission, Kissimmee Utility Authority and Florida Muni= cipal Power Agency.=20 Nevertheless, the important point is that Florida has been a notoriously di= fficult state for outside generating companies to enter and obtain permissi= on to build new generating facilities. Florida law does allow out-of-state = companies to build peaker plants, as long as they only operate in times of = especially high demand when normal supplies are strained. Some new plants a= re small enough as to not need approval from the Florida Public Service Com= mission, although they still must obtain approval related to zoning laws an= d air pollution permits. One proposal under the 2020 plan has suggested eli= minating the involvement of the governor and the State Cabinet in approving= proposed plants, and limiting the ability of local governments to block pr= ojects.=20 There are two factors that enabled Calpine to gain approval to proceed with= the Osprey plant. First, Calpine seemingly has signed a long-term contract= to sell the output of the plant to Seminole Electric Cooperative under a l= ong-term contract, which meets the Supreme Court standard that out-of-state= generators cannot build merchant plants. Second, Seminole is a public util= ity and outside of the jurisdiction of the Florida Public Service Commissio= n, which presumably made it easier for Calpine to gain access into the stat= e. Seminole Electric is a generation and transmission cooperative headquart= ered in Tampa, Fla. It provides bulk supplies of electricity and wholesale = energy services to 10 cooperatives located throughout peninsular Florida. A= s of December 2000, more than 1.5 million business and residential consumer= s in 45 counties received electric service from Seminole and its members. A= ccording to information from Seminole, the bulk of its generating reserves = is provided through a 20-year agreement with Calpine, which runs through 20= 13. Additional terms of the contract were not disclosed.=20 The Osprey facility will be located next to Calpine's existing 150-MW cogen= eration facility in Auburndale, Fla., where a new 115-MW simple-cycle peaki= ng unit is also under construction and expected to come online next year. R= egarding the planned 1,080-MW plant near Vero Beach, Fla. Calpine reportedl= y has found buyers for about one-half of the power it would produce from th= e plant, enough to obtain the necessary state permits. This plant could be = under construction by the end of next year. Calpine also opened a Tampa off= ice in 2000 to support its expansion in Florida and the Southeast, which in= dicates that the company intends to remain a major player in this region, w= hich has been comparatively slow to embrace electric deregulation.=20 Further, Calpine participates in a group known as the Florida Partnership f= or Affordable Competitive Electricity (Florida PACE), which has attempted t= o persuade lawmakers in the state, including Gov. Jeb Bush, to deregulate F= lorida's wholesale market. One measure that would help to give the state a = competitive kick start, or so says the group, would be to allow companies t= o build new power plants and resell the electricity to retail power sellers= such as Florida Power & Light. A final report from the Florida Energy 2020= commission, which should address some of these issues, is expected Dec. 1.= =20 Ironically, public resistance to new power plants in Florida comes at a tim= e when new reports suggest that the state faces an imminent power supply pr= oblem. According to representatives from the state's Energy 2020 Study Comm= ission, Florida's electric reserve is significantly less than the 16-percen= t reserve that incumbent utilities have claimed exists. In fact, the commis= sion has found that, "without extraordinary management techniques including= power disruption," Florida's reserve is 7 percent. It is important to note= that the commission is not including interruptible loads in its reserve ca= lculations. If interruptible load is considered, then Florida most likely d= oes have a roughly 16-percent electric reserve. Thus, Florida's policy of r= equiring out-of-state generators to sign long-term contracts with incumbent= retailers could be considered a very prudent move, as any new generation t= hat gets developed in the state is committed to a retail provider (reducing= the possibility that power could be withheld to drive up market prices).= =20 As a whole, Calpine has a generation arsenal that includes some 37,700-MW b= aseload capacity of mostly natural gas-fired and renewable geothermal resou= rces. In addition to the baseload generation, Calpine also owns or controls= about 8,000 MW of peaking capacity that is presently in operation. Peaking= units generally operate in times of especially high demand when normal sup= plies are strained.=20 As the leading builder of power plants in North America, Calpine is one of = a small number of generating companies that have banked on a steady increas= e in demand across the United States, along with the need to supply power d= uring periods of peak demand. Other companies competing against Calpine in = this space include Reliant Energy, Mirant Corp. and Duke Energy, which coll= ectively have reportedly announced plans to build some 422,000 MW of genera= ting capacity over the next 13 years. Calpine specifically has acknowledged= that it will buy 27 steam engines from Siemens AG between 2002 and 2005 to= build 5,400 MW of generating capacity.=20 Many of these plans for new generating facilities were outlined over the la= st year or two, when the United States faced a well-publicized energy crunc= h. Now, the pendulum has swung back to leave many of the same companies wor= ried about a possible energy glut in which they will have excess power that= cannot be sold (or sold at lower-than-anticipated prices). Certainly, a la= rge portion of the generation planned while supply was compromised and pric= es were high will be canceled or delayed. However, as one example, Calpine = appears to be following through with an aggressive generation expansion str= ategy. One approach that might help Calpine to beat the odds against an ene= rgy glut is that the company continues to build generation in markets that = are projected to have continually increasing demand. However, from a broad = perspective, Calpine may find that, as other companies continue with plans = for generation facilities that may have progressed too far to be terminated= , the surplus of supply could have an impact on prices, which could in turn= impact the market as a whole.=20 An archive list of previous IssueAlert articles is available at www.scientech.com =20 _____ =20 We encourage our readers to contact us with their comments. We look forward= to hearing from you. Nancy Spring Reach thousands of utility analysts and decision makers every day. Your com= pany can schedule a sponsorship of IssueAlert by contacting Jane Pelz at 505.244.7650. Advertising opportunities are also= available on our Website.=20 _____ =20 Our staff is comprised of leading energy experts with diverse backgrounds i= n utility generation, transmission and distribution, retail markets, new te= chnologies, I/T, renewable energy, regulatory affairs, community relations = and international issues. Contact consulting@scientech.com or call Nancy Spring at 505.244.7613.=20 _____ =20 SCIENTECH is pleased to provide you with your free, daily IssueAlert. Let u= s know if we can help you with in-depth analyses or any other SCIENTECH inf= ormation products. If you would like to refer colleagues to receive our fre= e, daily IssueAlert articles, please register directly on our site at secur= e.scientech.com/issuealert .=20 If you no longer wish to receive this daily e-mail, and you are currently a= registered subscriber to IssueAlert via SCIENTECH's website, please visit = to unsubscribe. Otherwise, please se= nd an e-mail to to IssueAlert , with "Dele= te IA Subscription" in the subject line.=20 _____ =20 SCIENTECH's IssueAlert(SM) articles are compiled based on the independent a= nalysis of SCIENTECH consultants. The opinions expressed in SCIENTECH's Iss= ueAlerts are not intended to predict financial performance of companies dis= cussed, or to be the basis for investment decisions of any kind. SCIENTECH'= s sole purpose in publishing its IssueAlert articles is to offer an indepen= dent perspective regarding the key events occurring in the energy industry,= based on its long-standing reputation as an expert on energy issues.=20 Copyright 2001. SCIENTECH, Inc. All rights reserved.