Reliant defends $1900/Mw-hr power price

By the OGJ Online Staff

HOUSTON, May 18 � Reliant Energy Inc., Houston, purposely made a $1900 bid to discourage "premature" use of a California plant's limited run time, Joe Bob Perkins, executive vice-president and group president of the company's wholesale business, said Friday.

Perkins said the plant is only allowed to run 8-9 days a year under California pollution rules. The company believed it best to save the time for the "desert like summer ahead." Reliant is required to bid into the market and Perkins said he assumed the California Independent System Operator "determined it [power] was needed at that time. It was the choice of those dispatchers."

He said the plant is one of the oldest and most inefficient in Reliant's California portfolio and he was buying gas on the spot market to operate it.

Perkins said if the plant could get an emergency waiver, bids from the plant could be up to 80% lower. He said Reliant is also working with air authorities to get an extension to run the plant more frequently.

California Gov. Gray Davis has singled out the Reliant transaction in recent speeches as an example of how out-of-state generators are taking advantage of California consumers during the current power shortage.

The governor has characterized Reliant as "obstructionist" and a "price gouger."

The governor's rhetoric has escalated to plant seizures and a windfall profits tax both of which discourage investment in the state when it is most needed, Perkins said

Reliant said the attacks are simply an attempt to demonize an outsider as the cause of the state's energy crisis. The comments just help create an atmosphere of distrust and uncertainty that have further destabilized the market, Perkins said.

Perkins estimated that investments of up to $15 billion are needed during the next 3 years to fulfill California's power needs.

Perkins defended the company's profits, saying California only accounted for a portion of its earnings increase. He attributed part of the gains in California to rising volume, noting the company doubled output last year at its California facilities.

Reliant pointed out the steps it has taken to keep the lights on in California:

--Run its 30 to 50 year old plants at the highest levels since their purchase in 1998. Output levels exceeded those achieved under prior ownership.

--Invested $80 million in 2000 to upgrade the plants and get more power output and to improve the emissions levels.

--Offered to sell power at 2¢/kw-hr if the buyer will provide the natural gas ensuring a transparent cost of power.

--Kept its plants running even though there was concern over credit.

--Created an aggressive curtailment plan to encourage businesses to "sell back" power voluntarily to add more power to the Western grid.