Drought Seen Pushing Up Southeast Power Prices

NEW YORK – A severe drought that has gripped the Southeastern United States for four years is cutting into profits at the region's electric utilities, and may force rate hikes in a region known for its cheap power, industry officials warned.

Low water levels have forced utilities in the Carolinas to severely cut back use of hydroelectric facilities -- their cheapest source of power. Meanwhile, cooling water is running low at nuclear, coal, oil and gas-fired plants.

"If things don't improve over the course of the winter, if you don't see some of these lakes and ponds and rivers refill, then next year you are looking at a serious situation," said Garrick Francis, spokesman for Progress Energy Inc. subsidiary CP&L.

CP&L, which serves 1.3 million electricity customers in North Carolina and South Carolina, has cut generation at its hydroelectric facilities by 70 percent due to low water levels, Francis said.

Although hydro makes up only 1 percent of CP&L's generation portfolio, the lost output from the dams and water-fed turbines cuts into company profits by reducing the amount of surplus power it has available for export sales.

NON-HYDRO PLANTS AFFECTED

Fossil-fueled and nuclear power plants use huge volumes of water to cool steam pipes, boilers and other power generation equipment.

Without enough cooling water, utilities would have to throttle back plant operations, forcing them to buy more costly power from other generators to meet their customers' needs.

And in the South, where power markets are still overwhelmingly regulated by public utility commissions, those extra costs will most likely be passed down to the consumer.

CP&L and SCANA Corp. subsidiary SCE&G have both said that while they are still producing more power than their customers need, bumping up electricity rates is possible if the drought lasts through the winter into a fifth year.

SCE&G provides electricity service to about 547,000 customers through central and southern South Carolina, a region that traditionally has enjoyed some of the cheapest electricity rates in the country.

The average price of power in North Carolina in 1999 was 6.44 cents per kilowatt hour, while South Carolina was 5.57 cents per kWh, compared with a national average of 6.66 cents.

One kilowatt hour is roughly enough power to supply an average home for 60 minutes.

LOST REVENUES

"If we can't use our big hydro facilities, that is the least expensive way that we have to generate electricity," said SCANA spokesman Brian Duncan. "If you eliminate that and you have to go and buy high-priced energy off the grid, it has substantial impact."

SCE&G has already taken several of its small hydro plants out of service due to low water levels, Duncan said. "It is not in dire straits yet but it has potential," he said.

Duke Power, a subsidiary of Duke Energy Corp., has been hardest hit by the drought, and has already cut supply from a coal-fired plant on a river that is 25 feet below average levels.

Other Duke Power fossil fuel plants have had to trim power output because heated water emptying from cooling systems would raise the temperatures of depleted streams and lakes to levels harmful to fish and other acquatic life.

"We're 53 inches below where we should be over the last four years, which is in essence more than one year's worth of rainfall," Duke Power spokesman Tom Williams said.

"We need a couple years of above average rainfall."

Duke has already curtailed production from 70 to 80 percent of its 1,222 megawatts of generation from conventional hydroelectric dams, which make up about 6 percent of the company's overall production portfolio.

Although Duke will not say how much it is losing in excess power sales, an 80 percent curtailment on conventional hydro facilities, at an average power price of $30 per megawatt hour, would cost the company roughly $29,000 an hour in lost revenue during periods of peak power use.

"We are severely curtailing generation from our hydros but we've been able to make up lost generation from our portfolio," Williams said.

"We're in fair shape given what we're up against, because we've been doing our best to hold back water."

Duke sends power to over 2 million customers in North Carolina and South Carolina.