Dynegy chairman: US short of peak capacity

The US is 'dangerously short' of peak load electric capacity and it will be 6-7 years before equilibrium takes place, Chuck Watson, chairman of integrated energy marketer Dynegy Inc., said in Houston Thursday. He estimated the US will be about 45,000 Mw short of peaking capacity next year.


Kate Thomas
OGJ Online

The US is "dangerously short" of peak load electric capacity and it will be 6-7 years before equilibrium takes place, Chuck Watson, chairman of integrated energy marketer Dynegy Inc., said in Houston Thursday.

"We have plenty of base load to handle the demand," Watson said at the Energy Economy 2000 conference. But he estimated the US will be about 45,000 Mw short of peaking capacity next year. And that number, he says, is contingent on all the nuclear and coal plants remaining in service, plus all the plants that have been proposed getting built. "And that's a stretch," Watson said.

By region, Dynegy is estimating the Midwest and Southeast will be about 25,000 Mw short next year; the West will be about 13,000 Mw; the mid-Atlantic, about 4,200 Mw; Florida, about 3,000 Mw; New York, about 1,800 Mw; and Texas, about 200 Mw.

Only in New England is Dynegy forecasting a surplus of about 2,200 Mw of electricity. Because weather plays such a dominant role in the use of electricity, Dynegy has followed a strategy of diversifying geographically.

Presently, the company owns or controls about 23,000 Mw and has set a goal of having about 75,000 Mw of capacity under its control during the next 3-4 years, Watson said. "In power we needed the peaking capacity. It is critical to be a physical player."

Wide geographic distribution of its electric generating capacity also gives the company access to market data and intelligence which enhances the rate of return on assets, he explained.

Earnings from Dynegy's power business continue to rise "exponentially," Watson said. He noted Dynegy bought Illinova for its unregulated generation. The purchase also has given the company a window into retail marketing and trading.

Good laboratory
"It has given us a good laboratory," Watson explained. Moreover, ownership of Illinova's transmission system gives Dynegy a seat at the table when decisions are made about how ownership of transmission lines are sorted out, he said. Since purchasing the company, Dynegy has pared about $50-75 million in costs at Illinova.

Natural gas will be tight this winter, Watson said, with gas in storage at "dangerously low levels." He noted gas demand is being fueled 90% by power and that Dynegy has now become its own best gas customer.

Technology has permitted the company to compete "in ways we never dreamed of before," Watson explained, including access to customers. Dynegy recently spent some $120 million on scalable marketing and trading infrastructure systems that have allowed the company to standardize transactions and drive down costs.

Looking ahead, he predicted the single most important change in the energy industry will be the implications from the merging of power and natural gas together with the communications and technology industry. To participate in the next phase of the transformation of the industry, Dynegy recently purchased Extant, an e-commerce company providing carrier transport, interconnections, and clearinghouse services to integrated communications companies.

While 80% of Dynegy's business is still handled in a traditional sense, Watson predicted that in 2 years that "will completely flip flop" because of the rise of e-business. As the transformation takes place, Dynegy will become a knowledge-based company.

"Knowledge becomes the power play," he said. "I don't believe assets will be enough. The economy is based on ideas rather than physical assets. Knowledge is driving Wall Street today."

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