PURPA turned 30 this month -- President Jimmy Carter signed it November 9, 1978 -- but is this any kind of celebration?
The publicly traded merchant power generators -- companies that grew out of the Public Utility Regulatory Policies Act and the energy acts that followed it through the years -- are mostly posting strong earnings on a cash basis, but their stocks have been battered. Some are cheaper than a latte, as the saying goes.
Two are on the ropes: Constellation Energy is being propped up and rescued by MidAmerican Energy Holdings and Reliant Energy is looking to sell assets.
The main point, though, is that none of their individual market capitalizations is equal to the cost of a new nuclear plant. In fact, their aggregate market cap is just barely higher than the market cap of a big utility like, say, Duke Energy.
Coincidentally Duke CEO Jim Rogers earlier this month said that within the next 18 months or so he expects financial pressures will cause the remaining merchants or IPPs to merge among themselves or be bought by investor-owned utilities, just as Exelon is trying to do with NRG Energy.
Duke, meanwhile, is shedding more of its PURPA legacy. The big utility recently announced that it is putting its Midwest gas-fired plants on the block. Those plants were among the 200,000 MW of capacity that was hurriedly built in the late 1990s back when merchant power was a brave new concept. That was back when Duke, which was leading the charge in adding all that gas-fired capacity, believed in convergence -- the idea that there are synergies in owning both gas assets and power plants. (Last year Duke sold Spectra, the last vestige of its convergence play.)
Rogers is now saying that the merchants or IPPs might disappear entirely, subsumed by their utility brethren. If there are any merchants left standing, should they be called "incumbent IPPs" or perhaps "legacy merchants"? Maybe this is just the power industry's version of recycling?
The prospect of the imminent demise -- some might say premature indications of the demise -- of the merchant power industry does raise a real question, though. What is the future of competition in the electric power sector without viable competitive power companies?
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