Brent Bilsland: All right. Well, I’ll try to dissect that. There are several questions in there. I think your math is generally in the right ZIP code. But what’s a caveat to that is the level we have is if we take 40% of our coal production to the Merom generator, and we convert that into electrons and we price that at the day ahead curve the pricing today looks very robust, right? And we may do that, but we have not done that yet. So on one hand, we say, well, we’ve got a home for it, but we haven’t pulled the trigger on that sale and there’s some reasons for that, right? There’s — if you make a forward sale on power, you’re obligated to perform and there can be significant penalties for not performing. And one of the things that we’re seeing in the — so we’re trying to look at that and make sure that we do that in an appropriate way that we are maximizing the profitability of the plant without taking too much downside risk.
And what I mean by that is, so if you looked at in February of 2021 in Texas, when they had the five-day outage was storm Yuri, you saw several power producers who had sold, say, $50 per megawatt power were hit by that storm and couldn’t produce and we’re forced to cover at $9,000 a megawatt hour in the Texas market, and we’re bankrupted pretty quickly. Now we’re in the MISO market, Texas is in ERCOT, the max limited is legal limit is $3,500 a megawatt hour, which means if you were caught in that event, you would go bankrupt slower. But those — so we’re working on the ways that we can lock in the profit potential for some of the plant while at the same point in time, limiting our downside risk in the event that the plant can’t or wouldn’t perform at that precise moment.
And what we’re seeing is if you look at — one of the trends that’s going on in the industry is generation that has an on switch. And I would argue on-site fuel, coal, nuclear, is being prematurely replaced with generation that either doesn’t have an on switch. Wind and solar or doesn’t have on-site fuel, natural gas. Those are basically the three options that the market is replacing generation with. And what we’re finding is, if you go back to MISO to prior to 2016, they had zero Maxgen events, right? They had all this excess capacity of generators they could turn to when demand got high. Well, now we’re seeing those reserve margins or another way of saying that is excess generation capacity is gone, which is why the capacity payments of the plant now are high enough to cover a significant portion of the fixed cost of the plant.
And back to ’16, we saw zero Maxgen events in the last 12 months, we’ve seen 11. And these are events where power prices are hitting just astronomical numbers, right? So there’s a balance as everyone tries to figure out this trend in the grid where it’s these — these super high price events are happening with greater frequency. Though you better to lock in margins ahead at, say, $50 per megawatt hour or $40-some per megawatt hour or are you better to have your generator less sold and ramped up and ready to go during these Maxgen events where we’re seeing power prices in the hundreds of dollars or sometimes even thousands per megawatt hour. So that’s what we’re trying to balance. And that’s why we say, gosh, if we are less sold on the power side, we think our earnings could be really lumpy, right?
Kevin Tracey: Understood.
Brent Bilsland: Yes. So that’s what we’re trying about. So I hope that answers your question.
Kevin Tracey: Okay. And on the capacity auction side of things, do you still expect to be able to fully participate in the auction that’s coming up shortly, right? Or I think the 12 months that starts June 1.
Brent Bilsland: So, the auction…
