Time Delay

Amidst Uncertainty, Power and Energy Companies Slow Down, Reassess Southeast Projects

By Pam Radtke Russell

Utilities in the Southeast are delaying new power plants in the short and intermediate term as they grapple with a shifting consumer demand and a lack of affordable financing.

FPL Group has several projects under way that revamp existing plants. (Image courtesy FPL Group)

“There’s so much uncertainty of what’s going to come ... everyone’s trying to kind of hold off,” says Richard Lauckhart, a managing director with Black & Veatch’s Enterprise Management Solutions in Sacramento, Calif. “We’re seeing that a lot of people who would be involved in (projects) are hesitant at the moment.”

For instance, Charlotte, N.C.-based Duke Energy has postponed plans to begin construction of Buck Steam Station, a natural gas-fired unit in Rowan County, N.C., until 2010. Construction was originally supposed to start this year.

But now, construction of it, and of another unit in Rockingham County, N.C., will begin in 2010. Construction of both units will be compressed, and they will be online in 2012 as originally proposed, says Paige Sheehan, a spokesperson for Duke.

“The capital for us is still getting spent, but there’s a little wiggle room in the calendar,” she says. “We want to be prudent with how we are using our capital.” The delay at Buck frees up capital for 2009, she says.

A contract with the Shaw Group, based in Baton Rouge, La., for construction of the Buck plant has been suspended, she says.

Duke also hopes to reduce its spending because of lower construction costs.

“If there's any good news in the challenging economy that we're seeing, it's that we seem to be out of the hyperinflationary EPC market that we saw emerge over the last couple of years, and we believe we're going to have the opportunity to capture some cost efficiencies in labor and materials (in two large expansions), which will in my mind substantially reduce project risk,” Jim Turner, president of Duke's regulated utilities business, said at an analyst meeting late last year.

The recession has hit Florida particularly hard, where the housing crash has led to a much lower demand because people aren’t moving into the state or moving into larger homes that need more power. According to the Florida Public Service Commission, about half, or 5,000 MW, of previously proposed and approved generation will be delayed beyond 2017.

Juno Beach, Fla.-based Florida Power & Light is retrenching because of the slowdown. Plans for a new 1,219 MW natural gas unit for 2016 have been shelved in favor of $1 billion upgrades at FPL’s Cape Canaveral and Riviera stations.

Upon modernization, both the Cape Canaveral and Riviera facilities will be combined-cycle natural gas power plants, according to FPL. Both will be capable of producing approximately 1,250 MW of electricity. The Cape Canaveral plant began operating in 1965; the Riviera plant dates back to 1946. FPL states that the upgrades will reduce carbon dioxide emissions at each plant by an estimated 50%.

“In our current forecast we no longer need that additional capacity,” says Mayco Villafana, a spokesperson for FPL. “However, forecasting of new generation is a dynamic process and 2016 is a long time from now. Ten-year site plans are planning documents, not a commitment.”

In addition to the credit crunch and slowing demand for electricity, utilities are also awaiting a federal approach to regulating greenhouse gas emissions. Federal policies could make fossil-fuel-generated electricity more expensive and provide incentives for more renewable generation.

“The jury is still out on pretty much everything – except the need for more power,” says Ed Legge, a spokesperson for the Washington, D.C.-based Edison Electric Institute, a trade organization for investor-owned utilities.

The Department of Energy’s Energy Information Agency, in its 2009 preliminary long-term forecast, says that total electricity consumption is expected to grow by a billion kilowatt-hours by 2030.

It would take a major shift toward energy efficiency or home-based power generation to change that long-term need for power, says New York-based Macquarie Research utility analyst Marc de Croisset.

“We haven’t yet seen a major retrenchment in (utilities) strategies,” he says. “That’s unlikely to happen unless there’s a fundamental change in belief” of the way Americans use electricity.

Utilities haven’t scrapped their plans but are instead pushing them out a year or more to save money now. Nationwide, utilities have cut their budgets for capital expenditures by 5% to 10% for the year, de Croisset says.

And de Croisset adds that analysts believe that the future could be even bleaker for utilities.

“There has been a widespread expectation that they (utilities) will cut their cap-ex plans in a major way as they face their major economic realities,” he says.

Some of those cuts could come by cutting plans for new nuclear units. But utilities have given no indication they will delay those long-term, capital-intensive projects. The first new unit is scheduled to come online in about 2016.

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In January, St. Petersburg, Fla.-based Progress Energy Florida signed a $7.65 billion engineering, procurement and construction contract with the consortium of Monroeville, Pa.-based Westinghouse Electric Co. and the Shaw Group to build two new AP1000-based nuclear units in Levy County, Fla. The contract is the third that the consortium has signed to build the 1,100 MW AP1000. In 2008 Shaw/Westinghouse signed EPC contracts to build two AP1000 units at Atlanta-based Georgia Power’s Alvin W. Vogtle site near Waynesboro, Ga., and two units for SCANA Corp, Columbia, S.C., at its V.C. Summer Nuclear Station in Jenkinsville, S.C.

Every single unit – two units each at six sites -- proposed for the Southeast is an AP1000.

Shaw already has a backlog of work and expects more work to follow, says Robert Belk, a company executive vice president. The company is so certain that the units will be built that, largely at its own risk, it will begin building modules for the units late this year at a facility the company is building near Lake Charles, La.

Because of the long lead time needed for the nuclear units, companies can wait out a year or two of an economic downturn before deciding to cancel.

“The multibillion dollar ones are years in the making,” says Brian Mershon, a spokesman for Irving, Texas-based Fluor Corp., a major EPC contractor throughout the nation’s EPC power market. Mershon adds that development of the longer-term projects has slowed down as companies re-evaluate their plans.

Lauckhart and de Croisset agree that utilities that change course now because of a one-year drop in demand may be shortsighted.

“In the bigger picture of what we need in 15 or 20 years, one year’s load growth kind of gets lost,” Lauckhart says.