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Local
Companies | Article published May 18, 2003
TOLEDO EDISON’S PARENT
Failed deal to sell coal-fired plants a boon for
utility
By JON CHAVEZ
BLADE BUSINESS
WRITER
FIRSTENERGY CORP.’s decision to keep its
suburban Toledo Bay Shore and three other Lake Erie coal-fired power
plants could help the company make money as energy prices rise, as
well as ensure adequate electricity while it tries to restart its
troubled Davis-Besse nuclear plant.
After a $1.5 billion deal
a year ago to sell the four plants fell apart and renewed efforts to
sell them last year produced no acceptable offers, the Akron utility
that owns Toledo Edison said this month for the first time that it
plans to keep operating the generators for years.
Some
industry experts said that could be a contingency plan in case
Davis-Besse stays out of operation for months.
Others,
however, said increased energy prices mean FirstEnergy can make a
tidy profit on excess electricity it can produce, so retaining the
four plants, generating 2,535 megawatts of power, makes sense. Also,
a glut of power plants for sale nationally makes profitable
disposition of the local plants tougher.
‘‘It stands to
reason that you don’t want to let go of the best power plants you’ve
got," said Daniele Seitz, an analyst at Salomon Smith Barney. "And
because of the extreme winter weather, they used a lot of these
plants which operate at very attractive margins.’’
Generating
a megawatt-hour of electricity in a coal-fired plant costs about
$16. The average price on the open market is $40, up from $30 a year
ago, making the plants more valuable to FirstEnergy. Generating a
megawatt-hour in a nuclear plant costs about $5.
Considering
that the announcement about retaining the Lake Erie plants was made
amid doubts about when - if ever - Davis-Besse will reopen, there is
some question about whether the coal-fired generators were to be
kept as a contingency.
"It’s a possibility. The reasoning is
correct,’’ said Joan Goodman, an analyst with the Pershing Division
of Credit Suisse First Boston.
FirstEnergy, however, calls it
coincidental.
‘‘If we had been offered $1.5 billion by
someone else, they clearly would have been sold,’’ said company
spokesman Ralph DiNicola.
FirstEnergy was on the brink last
summer of selling the four plants, including Bay Shore in Oregon, to
NRG Energy Inc. of Minneapolis. But NRG’s financial problems killed
the deal, so FirstEnergy tried to market them through the rest of
the year. It said late in the year it had no acceptable bids, but
indicated the plants were still on the market.
The plants
have provided a readily available generation source since
Davis-Besse was shut down for routine maintenance in February, 2002.
Within days, a corroded reactor head was discovered, which
ultimately was replaced, and now the company is trying to get
testing done and obtain approval from the Nuclear Regulatory Agency
to restart the plant. The start-up has been delayed repeatedly, with
the latest hoped-for date in August.
Davis-Besse, near Oak
Harbor, generates 883 megawatts, or about a fourth of what is
produced by the Ohio coal-fired plants in Oregon, Ashtabula,
Cleveland, and Eastlake.
Ms. Seitz, of Smith Barney, said she
is skeptical about a relationship between Davis-Besse and retention
of the lakefront plants. But the increased price nationally of
natural gas, which is used in standby power plants in northwest Ohio
and elsewhere, is helping to push up the price of electricity,
making generation from the coal plants even more valuable, she
said.
Still, she added, with profit margins even bigger on
nuclear-generated electricity, FirstEnergy will do all it can to get
Davis-Besse operating.
FirstEnergy generates about 13,000
megawatts but has commitments to supply customers with 11,000 more,
so use of the coal-plants can yield some financial benefits, said
Warwick Busfield, an analyst with Fahnestock & Co.
Paul
Kure, a staff engineer with the East Central Area Reliabilty
Council, an industry group to ensure adequate electricity in a
nine-state region that includes Michigan and Ohio, agreed that the
Lake Erie plants have became greater assets to FirstEnergy.
‘‘Natural gas will be more expensive in the future, and that makes
those plants more valuable,’’ he said.
Said FirstEnergy’s Mr.
DiNicola: ‘‘We’re using them and they’re operating. Nobody’s
building any coal-fired generation in the state of Ohio yet, so from
that standpoint they have become more valuable.’’
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