Potomac Electric Power Co. will buy electricity from an independent generating plant to be built in Loudoun County, outside Pepco's service area, the utility and the project's developer said yesterday.
The generating plant, off Route 653 near Leesburg Airport, will add a badly needed 5 percent to Pepco's generating capacity. The utility's current maximum output of 5,909 megawatts gives it a summer reserve margin of only 8 percent, "half of what we would like," a Pepco spokesman said.
The arrangements for the new plant provide a striking example of the changes sweeping through the electric power industry. Instead of building its own generating plant, Pepco, a regulated utility based in the District and serving customers in Montgomery and Prince George's counties in Maryland, will purchase power from a Virginia plant built and owned by a subsidiary of an unregulated New York company with a German partner.
Similar power purchase arrangements are proliferating across the nation as utilities look for cheaper sources of power. By buying from an independent producer at a negotiated price, the utilities avoid the risk of cost overruns and rejected rate increases that brought many of them to the brink of bankruptcy in the 1980s.
In such purchase arrangements, it is the independent producer that assumes the risk. If its power costs less than the price negotiated with the utility, it pockets the difference. If it costs more, the independent firm absorbs the loss.
Virtually unknown a decade ago, independents are generating about 4 percent of the nation's electricity and account for nearly half of the new capacity now being built or planned, according to Nancy Sutley, policy director of the National Independent Energy Producers trade association.
The $140 million Loudoun County project will require approval from several federal and state agencies, lawyers familiar with it said. But in the current regulatory environment, which is generally favorable to independent producers, there appears to be no major obstacle.
The developers are Long Lake Energy Corp. of New York and Siemens AG, the German electrical equipment manufacturer that will furnish the plant's three natural gas turbines. Long Lake is building a similar plant in Chesapeake, Va., for Virginia Power Co., a pioneer of the purchased-power trend.
In fact, the Loudoun project was originally proposed to Virginia Power but lost out to lower bidders, according to a lawyer familiar with the negotiations. He said Virginia Power's "enlightened policy" of encouraging independents led that company to offer Long Lake a consolation prize -- the use of its transmission lines to connect the plant with Pepco lines across the Potomac.
Loudoun County officials appear to favor the proposal if environmental issues are laid to rest. Local environmentalists contacted yesterday said they did not know enough about the plan to comment. But a Shenandoah National Park official said he is concerned it could worsen air pollution at the park.
"I thought it was a pretty attractive possibility for the county, but there were some issues to be pursued as to air pollution, noise and so forth," said Charles A. Bos (D-Leesburg), vice chairman of Loudoun's county board of supervisors.
The project would require Planning Commission approval, but the 30-acre site would not need rezoning.