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Content-Type: text/plain; charset=ANSI_X3.4-1968 Content-Transfer-Encoding: quoted-printable X-From: Steven J Kean X-To: Bernadette Hawkins X-cc: X-bcc: X-Folder: \Steven_Kean_June2001_4\Notes Folders\Discussion threads X-Origin: KEAN-S X-FileName: skean.nsf ----- Forwarded by Steven J Kean/NA/Enron on 02/28/2001 01:49 PM ----- =09"SCIENTECH IssueAlert" <IssueAlert@scientech.com< =0902/28/2001 06:07 AM =09=09=20 =09=09 To:=20 =09=09 cc:=20 =09=09 Subject: Constellation to Build Major Plant in California, First in = Over a=20 Decade Today's IssueAlert Sponsors:=20 Get over 100-pages of daily tracked and verified e-commerce utility-related= =20 information with SCIENTECH's E-Commerce InfoGrid. This unique Strategic an= d=20 Competitive Intelligence tool will help you stay on top of the torrent of= =20 e-commerce information news and analysis. Don't miss this opportunity to fi= nd=20 out what's happening in the field of utility e-commerce. Download a free= =20 sample and order your InfoGrid today at www.ConsultRCI.com or contact Chris= =20 Vigil at 505-244-7605.=20 The most comprehensive, up-to-date map of the North American Power System b= y=20 RDI/FT Energy is now available from SCIENTECH. The Wall Map measures 42" x= =20 72"; the Executive Map Set consists of 18 11" x 17" maps. Visit our website= =20 at www.ConsultRCI.com for a detailed description of these valuable maps and= =20 complete ordering instructions.=20 For advertising information, email Nancy Spring, or call (505)244-7613.=20 [IMAGE] IssueAlert for February 28, 2001=20 Constellation to Build Major Plant in California,=20 First in Over a Decade by Will McNamara=20 Director, Electric Industry Analysis Constellation Energy Group (NYSE: CEG) announced that Kiewit Industrial=20 Company of Omaha, Neb., will begin construction in early April of the 750-M= W=20 High Desert power plant near Victorville, Calif. The project, which has bee= n=20 in development since the mid-1990s by High Desert Power Project, LLC=01*a= =20 subsidiary of Constellation Energy Group of Baltimore, Md.=01*will be the f= irst=20 new major power plant to serve the Southern California area in more than a= =20 decade.=20 Analysis: The fact that California suffers from a significant supply / dema= nd=20 imbalance, and that no new major power plant has been built in the state in= =20 over a decade, has been well documented in the energy industry press.=20 Consequently, the fact that Constellation Energy Group is now close to=20 breaking ground on its new plant (having completed the laborious plant siti= ng=20 requirements in California) is a major=01*and somewhat surprising=01*coup f= or the=20 company, considering that its generation expertise has primarily been in th= e=20 Northeast nuclear industry. Constellation Energy Group has said that it wil= l=20 market power from the plant within California, which should prove to be a w= in=20 / win scenario for both the company and the state.=20 The High Desert power plant will be built on a 25-acre site at the Southern= =20 California Logistics Airport, formerly known as the George Air Force Base.= =20 Commercial operation of the plant is scheduled for June 2003. The plant's= =20 electric generating technology is based on clean-burning, natural gas-fired= =20 combustion turbines operating in a combined-cycle mode. Part of the current= =20 supply problem in California is the fact that hydroelectric resources, the= =20 state's primary energy source, have been in short supply due to=20 lower-than-average rainfall over the last year. Moving away from a dependen= cy=20 on hydroelectric supply may be a smart move for the state. In addition, the= =20 High Desert plant is consistent with a national trend that supports natural= =20 gas as the fuel of choice for new power plant development projects. As a=20 point of interest, according to data from the Energy Information=20 Administration, California's fuel mix is primarily based in a mixture of=20 natural gas (45.59 percent), hydro (21.95 percent), nuclear (18.07 percent)= ,=20 coal (1.36 percent), oil (1.04 percent), and other, presumably renewable,= =20 sources (11.98 percent).=20 It is rather surprising that Constellation would be the first company to=20 build a major power plant in California in over a decade, considering the= =20 company's consistent geographic and fuel-mix focus. Constellation Energy=20 Group is a holding company that includes a group of competitive energy=20 businesses focused mostly on wholesale power marketing, merchant generation= =20 and portfolio management in North America. Constellation Energy Group is th= e=20 parent company of the Baltimore Gas and Electric Company (BGE), a regulated= =20 gas and electric delivery company serving Central Maryland. Up until this= =20 point, Constellation's generation assets have been primarily based in a=20 mixture of coal and nuclear, and for the most part located in the=20 Northeastern United States. According to information directly from the=20 company itself, Constellation's own fuel mix is predominantly coal (54=20 percent), followed by nuclear (40 percent). Oil, gas and hydro only represe= nt=20 a small percentage (6 percent) of Constellation's fuel mix.=20 Although coal is the primary fuel in Constellation's portfolio, over the la= st=20 year the company has become more focused on nuclear. For instance, last=20 December Constellation Nuclear, a wholly owned subsidiary of Constellation= =20 Energy Group, announced its intent to purchase 100 percent of Unit 1 and 82= =20 percent of Unit 2 of the Nine Mile Point nuclear power plant. Once the deal= =20 is closed in mid-2001, Constellation will own a total of 1,550 MW of Nine= =20 Mile Point's 1,757 MW of total generating capacity. The nuclear plant=20 purchases that Constellation is making expand upon its Calvert Cliffs asset= ,=20 an 850-MW two-unit nuclear plant in Southern Maryland. When I wrote about= =20 this acquisition last December, I noted that, while Constellation will most= =20 likely retain its coal-fired generation assets, the company appeared to be= =20 moving closer toward a nuclear-based portfolio.=20 In addition, in early 2000 Constellation began a restructuring of its=20 corporate identity, dividing its operations into two separate segments: one= =20 focused on its merchant energy business (including Constellation Nuclear) a= nd=20 the other focused on regional retail energy services. The merchant energy= =20 business was ranked fifth in the nation for sales of electric power in the= =20 third quarter of 2000, and the company is committed to expanding this growt= h.=20 The goal for the merchant energy business, according to Constellation Energ= y=20 Group CEO Christian Poindexter, is to establish a portfolio of over 30,000 = MW=20 of electric generation facilities by 2005. Toward that end, Constellation= =20 acknowledged earlier that it would be taking advantage of "bargain prices f= or=20 nuclear plants," which resulted in large part from other utilities focusing= =20 on transmission operations and thus choosing, or being mandated, to divest= =20 their generation plants. Constellation in the past has justified its move = in=20 this direction by saying that its experience has found that nuclear fuel is= =20 cheaper than coal and gas generators and that "the economics [of nuclear] a= re=20 quite robust, once they are calculated out." =20 However, considering that there is only a limited number of nuclear plants = in=20 the United States that will become available for purchase, Constellation=20 Energy Group may have recognized the need to become even more diversified.= =20 The California market, despite its stringent plant siting requirements,=20 arguably offered an appropriate market for Constellation to become more=20 diversified. Given the state's environmental lobbying presence, it is=20 doubtful that a nuclear plant could have been approved in California.=20 Although natural gas is not a primary fuel source for Constellation as a=20 company, it is the preferred source for new power plants. Therefore, the Hi= gh=20 Desert plant, given that it will be fired by natural gas, presumably stood = a=20 greater chance of navigating through California's plant siting requirements= =20 (than a coal or nuclear plant could have). In fact, in the announcement of= =20 the plant, Constellation noted that, having received all federal, state and= =20 local approvals, the High Desert plant "will be a good neighbor in the=20 community with no significant environmental impacts."=20 The announcement of Constellation's new plant could not come at a better ti= me=20 for California, of course. Although the plant won't be operational until Ju= ne=20 2003, the state can use the good publicity now. A new report from the=20 Cambridge Energy Research Associates (CERA) says that it is already too lat= e=20 for the state to head off a serious summer shortage that could lead to at= =20 least 20 hours of rolling blackouts. "It's too late for this summer,"=20 declared Lawrence J. Makovich, of CERA, referring to the state's desperate= =20 efforts to ramp up power supplies for the short term. "The source of=20 California's far-reaching power crisis is a shortage. At least 5,000=20 megawatts of new generating facilities are required to restore balance to t= he=20 state's grid." Instead, according to the report, demand will exceed supply = by=20 3,000 MW, which will cause the state to be under an energy alert of some so= rt=20 for at least 200 hours.=20 CERA's report came out on the heels of Calif. Gov. Gray Davis' pledge to ha= ve=20 5,000 MW of new generating capacity available in California by July, more= =20 than double the amount expected just a few months ago. Davis said the new= =20 plants would provide enough electricity to ward off blackouts this summer,= =20 which CERA obviously disputes. Davis announced a series of orders intended = to=20 bring online 5,000 MW by July 2001, with an additional 5,000 MW by July=20 2002. =20 In any event, as California continues to struggle from a severe supply /=20 demand imbalance, the announcement of Constellation's new plant appears to = be=20 good news for all the parties involved. Gov. Davis has pledged to support a= n=20 expedited approval process for additional plants, so it will be interesting= =20 to see which company is given approval to proceed with the next power plant= =20 in the state. It will also be interesting to see, based on Constellation's= =20 plant and others that may be built, whether or not the economics of buildin= g=20 such plants in California will prove beneficial. Other power suppliers may= =20 opt to merely enter into long-term sales agreements with the state, rather= =20 than invest the resources that building a power plant would require.=20 An archive list of previous IssueAlerts is available at www.ConsultRCI.com Reach thousands of utility analysts and decision makers every day. Your=20 company can schedule a sponsorship of IssueAlert by contacting Nancy Spring= =20 via e-mail or calling (505)244-7613. Advertising opportunities are also=20 available on our website.=20 SCIENTECH is pleased to provide you with your free, daily IssueAlert. Let = us=20 know if we can help you with in-depth analyses or any other SCIENTECH=20 information products. If you would like to refer a colleague to receive ou= r=20 free, daily IssueAlerts, please reply to this email and include their ful= l=20 name and email address or register directly on our site. =20 If you no longer wish to receive this daily email, send a message to=20 IssueAlert, and include the word "delete" in the subject line.=20 SCIENTECH's IssueAlerts(SM) are compiled based on the independent analysis= =20 of SCIENTECH consultants. The opinions expressed in SCIENTECH's IssueAlert= s=20 are not intended to predict financial performance of companies discussed, = or=20 to be the basis for investment decisions of any kind. SCIENTECH's sole=20 purpose in publishing its IssueAlerts is to offer an independent perspecti= ve=20 regarding the key events occurring in the energy industry, based on its=20 long-standing reputation as an expert on energy issues. =20 Copyright 2001. SCIENTECH, Inc. All rights reserved.
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