PECO Energy of Philadelphia, Pennsylvania, which believes its best opportunity in the deregulating US electricity sector is to become a major supplier of wholesale power, hopes to have a generation portfolio of at least 25 gigawatts by 2003. Initially, PECO Energy will focus on building this portfolio by acquiring nuclear plants across the US. The numbers, which would require PECO to nearly triple its generating capacity, were cited on 9 October by Chief Executive Officer Corbin McNeill in an address to US security analysts. PECO Energy currently owns 9 GW of generation, the major portion of which is nuclear.
Chief Financial Officer Michael Egan explained that PECO will focus on nuclear plants “because that’s where the value is”. A joint venture formed by PECO and British Energy recently agreed to purchase the Three Mile Island 1 nuclear plant from GPU Inc.
The PECO executives envision buying nuclear units across the US and operating them regionally. “We see clear opportunities to create clusters of units in several key areas of the US power market,” Egan said. For example, PECO’s Limerick and Peach Bottom nuclear stations, plus TMI Unit 1 (when the purchase is completed) would operate as a cluster. Other clusters could be in the West, Midwest and South, Egan said.
US fossil generating plants are currently overvalued, Egan said. “Prices are way too high and do not provide for the levels of return that we demand from our investments,” he said. In many of the states which have adopted electric utility restructuring plans, regulators are requiring utilities to divest their fossil generating plants, but to date PECO has not shown strong interest in them. The decision to focus on the wholesale electric market, rather than the retail electric market as many utilities are doing, is not unrelated to the fact that PECO has lost retail customers to competitors in the Philadelphia area it has historically served.
A recent study by Energy Resources International, meanwhile, suggests that nuclear plants would be even more valuable in a deregulated US electric market if the US Environmental Protection Agency allowed their owners to take credit for reducing utility emissions of sulfur dioxide, a precursor to acid rain.
David South, a vice president at ERI, told a news conference in Washington DC, that utilities which operate 261 fossil-fired power plants in the eastern United States were able to “bank” 480 000 tons of SO2 emissions since 1990 because of a 16.4% increase in generation by nuclear plants. If owners of nuclear plants can’t take credit for that under EPA’s cap-and-trade system for utility emissions, their book value (if they were spun off in a deregulated market) would be lower.
The ERI study supported the positions of several US electric utilities trying to persuade the EPA to count all generating facilities in its cap-and-trade program.