Cinergy losses reach $73m in heated Midwest market
Cinergy, the Ohio-based utility, has disclosed that it incurred $73m of losses during July`s heat wave that caused it to default on power supply contracts. The utility, which serves 1.4m customers in Ohio, Kentucky and Indiana, will now increase its generating capacity to prevent a recurrence. It will also reimburse those companies affected.
In what seemed to be a near-repeat of last summer`s market turmoil, a prolonged heat wave in the US Midwest and East Coast areas caused record electricity demand levels. The event has re-opened a debate on the inefficiencies of the US electricity system and the lack of trading experience of some players on the market.
On July 30, Cinergy issued force majeure letters to eight companies with which it has power supply contracts. It said that it was unable to obtain and move the power necessary to fulfil its contractual obligations. The companies affected included Enron, Unicom, Commonwealth Edison and Aquila Power Corp.
Cinergy said that it will now add 130 MW of peaking capacity to the system and possibly an additional 200-300 MW, requiring a capital investment of $160m. Wholesale prices rose to $9500/MWh after Cinergy defaulted on its contracts. The Cincinnati-based utility blamed the events on transmission constraints. It had asked consumers to conserve energy and cut power to its interruptible contract customers.