High electricity demand foreseen By Boris Ladwig bladwig@therepublic.com

Despite forecasts that Indiana will use more electricity this summer than last, no power plants that could assure adequate supply are planned.

Price spike Average cost of producing 1 kilowatt hour: 4 cents.

Highest price utilities allegedly paid last summer: $9.50.

Increase in percent: 237.5.

Cost of one gallon of gasoline at that increase: $368.13.  Source: F. Thomas Sparrow, director of State Utility Forecasting Group and professor of industrial engineering and economics at Purdue University About a dozen plants are still in stages of planning and completion, but all are merchant plants. Power produced by those plants cannot be sold directly to consumers.

Some critics say the trend toward merchant plants is fueled by profits, while utilities say they are popular because, unlike traditional plants, they can be built quickly.

According to State Utility Forecasting Group, Indianas electricity demand will increase by 366 megawatts from 1999 to 2000.

Local utilities are concerned about their ability to meet electricity demands if the summer of 2000 is similar to the last.

Cinergy spokeswoman Angeline Protegere said the continuing drought could result in lower rivers and higher water temperatures.

That would decrease the time power plants can rely on river water for cooling and would lower the plants total output.

An extremely hot summer like last year could cause some concerns, agreed Dan Arnholt, general manager of Bartholomew County REMC.

Last year the energy supply was so tight that the corporation asked its largest customers to use energy wisely, Arnholt said.

Power options Utilities have several solutions to meeting increased energy demands, including:

Building a regulated plant  power must be sold to Indiana retail consumers.

Building a merchant plant  electricity must be sold on the open market.

Purchasing power from brokers or other utilities.

Advocating conservation. Source: Angeline Protegere, Cinergy spokeswoman Cinergy, parent company of PSI Energy Inc., had 24,000 customers in Bartholomew County as of May.

Bartholomew County REMC, which purchases its power from Hoosier Energy, has 9,000 customers.

Last summer, Cinergy would have exceeded its generating capacity had it not been for voluntary conservation, Protegere said.

Meeting obligations

Utilities are obligated to assure that their retail customers are provided with the power they need, unless the power isnt available or is inordinately expensive, said Michael A. Mullett, a Columbus attorney with Citizens Action Coalition.

A recent report by U.S Department of Energy charged that some utilities focused on competing for markets, cutting costs and maximizing prices, instead of assuring that power is kept flowing.

In 50-50 ventures with Duke Energy, Cinergy is trying to construct three plants. Two are to open this summer.

Both plants are merchant plants, which means that the electricity will be sold on the open market, but cannot, by federal law, be sold to Cinergys affiliate PSI Energy.

Why is Cinergy building two merchant power plants but none that addresses its need to increase capacity?

Thats something that only PSI can answer, said Ryan Soultz, public information director for Indiana Utility Regulatory Commission, the governmental body that regulated power plants.

The reason that they dont do that is not something they have expressed to us.

Economic consideration

They can make more money selling electricity in the open market than in the regulated market, said F. Thomas Sparrow, director of State Utility Forecasting Group and professor of industrial engineering and economics at Purdue University.

Theyre trying to maximize profit by receiving a market price rather than a regulated price for plants that are as inexpensive as possible, Mullett said.

The forecasting group predicts that in the long run (about 15 years) competition will result in a slight decrease of electricity prices for consumers.

With competition, consumers will pay about 4.99 cents per kilowatt hour, without competition about 5.02 cents.

The .03 cents difference in price doesnt mean much considering the forecasts assumptions and models, Sparrow said.

Faster and cheaper

Protegere said Cinergy is building merchant plants because they can be built more quickly and not raise consumers electricity bills.

If the company were to build a plant under its regulated arm, the cost of the plant would be passed to consumers. Merchant plants are paid by investors.

Building a plant under the regulated arm would also take longer than building a merchant plant, Protegere said.

Regulated plants have to undergo a much lengthier process at the state level, she said.

Cinergy wanted to add power quickly when the opportunity for a joint venture with Duke materialized.

We took advantage of that to put generation on the ground quickly in time for this summer, Protegere said.

A traditional plant could not have been approved and built so quickly.

Some uncertainties

There is no question that the expectation is that deregulation will result in higher profits (for utilities), Mullett said.

It is uncertain, he said, whether competition will result in lower prices for consumers.

Cinergys decision to build merchant plants rather than regulated plants is based on economics, Mullett said.

Sparrow agreed that it is a business decision that has an indirect benefit of increasing supply and lowering prices.

The theory is that Cinergy could sell its merchant power to another company, which, in turn, could sell its power to Cinergy, resulting in greater electricity supply for the area and Indiana consumers, Sparrow said.

Duke Energy, for example, could sell its half of the energy generated in the three plants it is building with Cinergy, to PSI, Protegere said.

There are thousands of reasons why plants should be questioned, Sparrow said, but the reason should never be that the electricity is not needed.

Competition and increased supply are to bring consumers lower prices, more choices and better service.

That doesnt always happen, Mullett said.

Deregulation and the resulting competition among airlines, for example, hasnt resulted in better service, as is evident in the quality of meals and the size of seats, he said.

Consumers do have lower prices and more choices, but only for high-demand routes.

With telephones the situation is similar, he said: Some customers benefit, others dont.

Protegere said competition in the telephone industry has provided great benefits to consumers, including lower prices, better service and more options.

Were taking a portfolio approach (to increasing capacity), Protegere said.

We are not ruling out building plants on the regulated side of the business

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-- Martin Thompson (mthom1927@aol.com), March 18, 2000