Pam Boschee, Managing Editor
Marce Fuller, CEO and President, Mirant Corp. Click here to enlarge image
In an exclusive interview with EL&P, Marce Fuller, CEO and president, discussed Mirant’s U.S. operations, including its business approach in California.
At press time, Mirant was one of the generating companies involved in the ongoing debate about refunds being owed to the state for alleged overcharges. The Federal Energy Regulatory Commission was continuing to review the recommendations by one of the agency’s administrative judges and planned to make a ruling at an undetermined date.
Mirant Corp., Atlanta, completed its spin-off from Southern Co. in early April. Mirant develops, constructs, owns and operates power plants and sells wholesale electricity, natural gas and other energy commodities. With operations in North America, Europe and Asia, it owns or controls more than 20,000 MW of electric generating capacity around the world, with another 9,000 MW of announced development.
EL&P: Apparently, the legal and political fallout is going to continue for some time in California. The “they say, we say” volley seems endless. In your opinion, how will this ultimately be resolved?
Fuller: Unfortunately, it seems that there’s a lot more time spent trying to figure out who to blame as opposed to figure out what the long-term solution is. We are hopeful, although I would say it’s less than a 50-50 probability, that we could get something through the FERC settlement process that would clear up a lot of the questions about the past as well as hopefully take some of this litigation off the table. What the FERC is trying to do is to go back and look at this whole question about what refunds, if any, are owed and trying to look at it not as one single event but in terms of a global settlement that would lead to the state-at least in the law suits that they control-being willing to take those off the table in exchange for some kind of settlement on the refund issue. All of the parties that are needed to be involved to get that kind of resolution are involved; the only real issue is whether or not both sides will come together and try to solve this thing once and for all. I know that the generators, and we are certainly in this category, are very willing [to consider] if there is a way for us to get one single settlement that resolves these past issues so that we can get focused on the future and try to fix the problem in terms of supply long-term.
EL&P: Given FERC’s recently imposed proxy price for the Western states, how feasible do you think it is to sustain a market over the long term with that kind of pricing in place?
Fuller: We came out several months ago and said that although philosophically we don’t like this notion of price caps, that if some form of price caps-and in fact we were advocating a hard cap as supposed to something that has to be recalculated and leaves a lot of room for interpretation-was needed to stabilize the situation in California, certainly it was something we were willing to consider. I think we’re going to have to see some time go by and make sure that everybody fully understands how this price gets calculated to see whether or not it will work, and it’s probably too early to tell at this point.
EL&P: What portion of Mirant’s U.S. generating capacity is California-based?
Fuller: Today in the U.S., we’ve got about 15,000 MW that we either own or control and 3,000 of that’s in California. So, it’s about 20 percent.
EL&P: Does Mirant plan to enter into long-term contracts with the state of California?
Fuller: Yes, we’ve got two contracts with the DWR today. We had signed bilateral contracts with the PX late last year and we assigned those contracts to the DWR just weeks before the PX went bankrupt, so that turned out to be a real smart thing. And then we entered into an additional contract with the DWR about a month ago for 750 MW that goes through ’02. We are in discussions with them for the potential for additional contracts.
EL&P: How have the ongoing challenges changed Mirant’s plans in California? Has expansion been put on hold?
Fuller: We did just recently in the last month get a permit to expand our Contra Costa plant right outside San Francisco. We came out and publicly said that we had to consider our options and needed to make a determination as to whether we would go forward with that expansion. [Our decision depends on whether] we can either get clarity on the market rules going forward, or are satisfied that rhetoric about windfall profits taxes and all kinds of other things-that those things are actually not going to happen. We’ve got to get that-or we would need to get a contract in place with a creditworthy entity that basically took the sales out of those new facilities out from under this political uncertainty. We have got to get one of these two things in place for us to proceed. We are continuing to have discussions with the DWR about contracts, and where those discussions finally end up will determine whether or not we go forward with that expansion.
EL&P: Which markets would you point to as ones that work, or at least work better than California’s?
Fuller: Well, all of them. PJM, New York, Texas; we’re in Europe, Asia and we haven’t experienced anything like what has happened in California anywhere else. It’s been our experience that markets work. I think California is a bit of an anomaly, and it’s probably a misnomer to blame what has happened in California on deregulation. It’s not caused by deregulation, in my opinion. I would argue that only the supply side was deregulated and the demand side wasn’t because consumers never saw any price increases, and in fact the utilities who were buying on their behalf didn’t have the alternative to enter into bilateral contracts. So, it was the demand side that didn’t really work appropriately. But at least on the supply side, you’ve seen new entrants into California and certainly there is more construction and permitting now than there ever was in a regulated environment.
EL&P: Do you anticipate widespread adoption of tools such as the New York Independent System Operator’s newly introduced Automated Mitigation Procedure?
Note: The AMP is customized software designed to prevent market abuse during times when the system is subject to very high load, excessive generator outages or binding transmission constraints and when energy prices rise above $150 per MWh. Suppliers’ bids in the day-ahead market will be automatically reviewed to determine if they exceed designated reference prices. According to NYISO, AMP does not eliminate price spikes due to true scarcity; it addresses only those caused by economic withholding.
Fuller: I don’t know where that will go. I think everybody is looking for the mechanism that works for them, particularly in times of low supply relative to demand, to ensure that they don’t have major price spikes and disruptions in pricing. Like a lot of these things, they’re going to have to stand the test of time and see how they work because whether you’re talking about the mitigation order in California or the mitigation in New York, these are both things that haven’t been tried before; so, to some extent you’re going to have to let them get into operation and see how they work and see what, if any, impact they have on new supply coming into the market.
EL&P: Is there a particular region in the country that Mirant has targeted for new capacity?
Fuller: Everywhere we have existing power plants today, we’ve got expansions targeted-California, New York, New England and in and around the D.C. area. The assets that we bought through utility divestitures are all expandable; those are part of our plan in terms of growth going forward. When you go to pure greenfield development, most of that is targeted for the Midwestern part of the U.S., the Southeast and also some in and around the desert Southwest. About a third of the turbines we have will go to expand existing plants, and the remainder will be for new greenfield construction.
EL&P: How much uninstalled turbine capacity does Mirant have available at this point in time?
Fuller: We’ve got anywhere between 15 and 20 thousand MW that we have either commitments to purchase or options to purchase to serve the U.S. marketplace.
For turbines that are scheduled for [delivery in] the ’02 to’03 time frame, we have places for those.
You certainly have to manage the timing of delivery of turbines with permitting and site selection, but to my knowledge we don’t have any issues where we have turbines that we have coming to us that we don’t have a home for.