Monday, October 18, 2004
Experts blame many factors, such as high natural-gas costs and the economy.
NASHPORT (AP) -- Amid the hills near this central Ohio town is a 218-acre field of trees and soybeans that once figured to be part of the country's energy future.
Aquila Inc., a Kansas City, Mo., utility, wanted to buy the land and use 20 acres for a natural-gas-fired power plant that would generate electricity -- and huge profits -- at times of high demand.
But the project -- like so many others in Ohio and elsewhere around the country -- was shelved before the first shovel of dirt was turned.
Of the 30 power plants Ohio has approved since 1998, 15 have been put on hold or withdrawn, according to utility regulators. And the state has not been asked to approve any plants since 2002.
What's to blame?
Executives and experts blame the collapse of wholesale trading markets, Enron Corp.'s bankruptcy after revelations of hidden debt and inflated profits, high natural-gas prices, the struggling economy and tightening credit markets, among other factors.
Utilities, power generators and marketers sought to take advantage of a new market in which there was a rush to build new plants for additional power to sell at peak times, said Mike Wilczek, senior markets editor for Platts, a supplier of price and market energy information.
"They made a big bet. It was a bad bet," said Michael Morris, president, chief executive and chairman of American Electric Power, the nation's largest electricity generator.
"Many of them were not familiar with this business," he said. "They just saw this as an opportunity to fill a huge gap."
AEP stayed out of the rush, feeling that the potential for demand was not there, said spokesman Pat Hemlepp. The company recently announced plans to build a new plant over the next several years that will be powered by clean coal technology.
Decision to build
Aquila decided to build gas-fired plants in Ohio and other Midwest states after several hot summers, including the 1998 heat wave that forced some businesses in Ohio to shut down over concerns whether enough power was available, company Vice President Al Butkus said. Also driving the decision were huge unmet demands for power.
Each plant was going to cost about $300 million.
Butkus said a megawatt of electricity -- enough to power 330 homes -- that typically would sell for $20 was going for several thousand dollars at times of peak demand. The idea was to add inexpensive plants that could be built quickly, adapt easily to changing market conditions and be powered by cheap natural gas.
Unlike a traditional regulated operation -- which counts on customers to pay the construction cost -- these plants would be built on speculation that enough power could be sold at high enough prices to pay for the plant and make a profit.
But without strong prices to support additional capacity, many companies have been forced to scale back expansion plans, sell assets and renegotiate with lenders. Several have come under federal investigation over accounting and trading issues.
"Power plants aren't cheap to build," Wilczek said. "Before you bring home lots of bucks, you have to pay it off."
Calpine Corp. of San Jose, Calif., announced plans in 2000 to invest $850 million in two natural-gas-fired plants in Ohio that would generate nearly 1,400 megawatts of electricity.
One plant, in Hanging Rock in southern Ohio, will move forward only if Calpine can find customers to buy the power, said John Flumerfelt, spokesman for the seventh-largest power company.
Construction slowed
Construction of a northern Ohio plant, in Fremont, has been slowed because no one has committed to buying the power it would generate. The plant is to begin operation in 2006.
Calpine typically sells the power it generates from these plants to utilities, industrial customers or perhaps a third party that will then resell it.
The company's situation is similar elsewhere. In 2002, Calpine said it would shelve 34 projects until prices pick up.
"Financing a project at this point in time without a customer is difficult if not impossible," Flumerfelt said.
Dayton Power & amp; Light recently withdrew plans for a 480-megawatt plant in Allen County in northwest Ohio. Houses and condos are planned for a site in Huntington, W.Va., where Panda Energy International once was going to build a $300 million natural-gas-fired plant.
Companies that did get in early have benefited.
Cincinnati-based Cinergy Corp. uses a 640-watt plant built with Duke Energy to supply electricity to customers primarily in Indiana during times of peak demand, spokesman Steve Brash said.
Cinergy plants in the south have helped meet power loads at peak times in the region and the summer load in Ohio, he said.
Also pleased is Alan Schreiber, chairman of the Public Utilities Commission of Ohio.
Increase in availability
Overall availability of electricity in Ohio still has increased by 6,525 megawatts -- an increase of up to 25 percent depending on how the additional megawatts are calculated -- since the push to add plants began in 1998, according to records of the regulatory group.
Schreiber said that while some electricity is being sold in other states, it would be available to Ohio if needed.
For now, consumers have not been hurt by the problems.
"There's still a significant amount of power available in the marketplace," said Jack Hawks, vice president of public affairs for the Electric Power Supply Association, which represents power generators and marketers. If consumers are paying more for electricity it is because of higher prices for oil, gas and coal, he said.
Flumerfelt figures that demand for power provided by Calpine and other companies will rebound one day, whether because of environmental regulations that force old, coal-burning plants to shut down or a cold winter or hot summer that drives up demand.
Meanwhile, the 218-acre field in Nashport that includes an oil well and a lake remains for sale.
"We were excited it was going to happen," Jeff Lepi, one of the family members who owns the site, said of the possibility it would be sold.
"It wasn't meant to be."