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4:01 PM Thu, Nov. 15th

Arizona Power Plants, part 2: Public utilities not building merchant plants because of deregulation

An emerging deregulated market for electricity has created a boon for independent companies that are building "merchant" power plants fueled by natural gas.

However, public utilities are not building the plants, and the reason is because of deregulation, according to experts.

In fact, only three public utilities in Arizona produce electricity: Tucson Electric, Arizona Public Service and the Salt River Project.

"With that (deregulation) looming over the horizon, the power plants are holding off on building new plants," said Heather Murphy, a spokeswoman for the Arizona Corporation Commission in Phoenix.

"Most of these people that are building these plants are outside energy organizations like Duke, Panda, PG&E."

Duke Energy North America of Houston and PPL Global of Fairfax, Va., are building the Griffith Energy Project off Griffith Road and Interstate 40.

Caithness Big Sandy LLC, a subsidiary of Caithness Energy LLC of New York City, proposed the Big Sandy Project in the Wikieup area.

Calpine of San Jose, Calif., is building the South Point plant on the Fort Mojave Indian Reservation.

The rules for electric competition require utilities to separate their power generation from their supply and distribution ends, Murphy said.

They need to establish separate companies to oversee electric generation, or buy the power from another company.

The parent company of APS, Pinnacle West Capital Corp.

in Phoenix, has done so creating Pinnacle West Energy, said Craig Nesbit, manager of generation communications for the parent company.

It is not practical for utility companies to build power plants now, Murphy said, adding that before competition "they had no choice.

If they needed power for their customers, they had to build a plant or they could buy power from the (electricity) grid if it was there to buy."

The independent companies, which have sprung up in part in response to deregulation, are building and will operate their plants at the expense of their shareholders, according to Thomas Williams, public affairs manager for Duke.

"The (Griffith) plant we are putting in Kingman is our shareholders' money," he said.

"It is not a rate-based plant.

You make money by being a low-cost provider" of electricity.

"The risk is completely borne by the company.

It is not borne by the consumer."

The Griffith plant was lured to Kingman in part with millions of dollars of infrastructure paid for by the Mohave County government.

The county supervisors in April 1999 approved contracts with the owners of the power plant that committed the county to build a $4.6 million water system and $3 million worth in roads.

The supervisors on April 3 approved $5.7 million in water improvements by issuing a bond financing called certificates of participation, and reaffirmed a commitment to the COPs May 22.

County officials believe they will get their investment back with millions of dollars in property taxes paid by the owners of the power plant.

By the same 2-1 vote, with Supervisor Carol Anderson opposed, the supervisors backed legislation, HB 2324, that will lower property taxes for power plants.

Gov.

Jane Hull recently signed the bill.

Incentives, such as the infrastructure paid for by the county, were one of the reasons that Griffith is being built in Mohave County, according to Stan Barnes, a spokesman for Griffith's owners and a lobbyist in Phoenix and former state lawmaker.

"They generally don't make or break location decisions," Barnes said.

"Those decisions are made of basic fundamentals like natural gas availability and land availability," he said.

Barnes continued, "When you are going to site a power plant, you look for local governments that are receptive and welcoming to your project."