Construction of new powerplants and transmission lines is most likely to occur in markets where utilities can count on recouping the cost of their investments. Electric utility and construction executives also point to consistent government regulation as key to construction of energy projects.
“Capital tends to be there” for investments that are made in markets where there are stable rules, said David Campbell, CEO of Dallas-based Luminant, the power-producing arm of the former TXU Corp., last month at the National Association of Regulatory Utility Commissioners annual meeting in New Orleans.
“Certainty would be nice, but consistency allows us to come up with our evaluation,” said Chris Leslie, chief of investment firm Macquarie group’s U.S. business. “Provided that [a regulator’s rulings] are consistently unfair, that probably is better than volatility.”
Richard Rudden, senior vice president at Kansas City, Mo.-based Black & Veatch’s enterprise management solutions division, says consistent regulation is important for construction and engineering companies because it encourages building new electrical infrastructure.
“Firms like B&V that have substantial capabilities across all generating technologies, including renewables, will be very well situated to handle almost any regulatory regime, provided the regime supplies some degree of certainty,” he said.
Luminant is moving forward with construction of two coal-fired powerplants, scheduled to come online in 2009 and 2010. Projects without committed financing, at Luminant and elsewhere, are questionable, Campbell said.
Future investments in coal are being postponed because of uncertainty over possible carbon rules. New development in wind generation also is “ramping down” in Texas, as developers wait to see how the new presidential administration handles renewables, Campbell said. But “build cycles tend to respond very quickly,” he noted.
NorthWestern Energy, Sioux Falls, S.D., is being cautious and will defer one of two peaking units planned near Aberdeen, S.D., until 2010 because of the uncertain economy, said Robert Rowe, president and CEO.
“It’s becoming more difficult to finance than to site a plant,” Rowe said. He urged regulators to do more to increase the advanced and timely recovery of costs.