Diamond Generating Corporation: Stretching the Limits

Energy Executive Spotlight
Written by Liz Jones
Friday, 30 November 2007
Tetsuji Nakagawa describes this power generation company’s plan to double—or even triple—its capacity in five to 10 years. Many think power is generated and sold in a vacuum. Drawn on paper, it might look like of a series of straight lines from the generation company to the distributor, the utility, and finally, the end consumer. But according to Tetsuji Nakagawa, president and CEO of Los Angeles-based Diamond Generating Corporation, the power industry is actually a highly competitive, constantly moving environment in which one has to be as flexible as a yoga instructor to survive. etsuji Nakagawa, President and CEO A subsidiary of the Mitsubishi Corporation, Diamond Generating Corporation (DGC) began competing in the US market in the mid-1980s but exited in the mid-1990s to concentrate on a booming Asian market. In 1999, DGC re-entered the US market with renewed vigor and a desire to grow. Today, it has investments in 6,250 megawatts of capacity throughout 10 power stations nationwide with net capacity for 2,100 megawatts. Seven of those power stations are staffed and operated by Tenaska under a partnership agreement. The remaining three (Morris Cogeneration in Morris, Ill.; Indigo Energy in North Palm Springs, Calif.; and Larkspur Energy in San Diego) are wholly owned by Diamond Generation Corporation and operated by its subsidiary, DGC Operations. In total, these three power stations have approximately 410 megawatts of capacity. Nakagawa projects that in five to 10 years, DGC will double or triple its capacity, which means it must be flexible enough to go wherever the demand is. In general, the company seeks markets experiencing population and/or industrial growth, as well as markets where the potential for acquiring more than one customer exists. “Sales under a 15- to 25-year off-take agreement with a utility or third party are ideal; however, in more liquid markets, we can contract for shorter terms,” he said, adding that the company is open to considering both acquisition and greenfield opportunities. “We are willing to go anywhere there is a good market.” It’s not easy being green DGC Operations has created a set of operating standards that exceed OSHA requirements. In fact, the company recently completed a safety audit and found that all three plants had exceeded OSHA standards and were 90% compliant with DGC Operations’ standards. “We have set our requirements so high, that sometimes achieving them 100% is a challenge,” said Nakagawa. He added that plant managers and operations managers hold safety meetings every day during shift changes, and all employees are required to participate in weekly safety seminars, which cover topics from materials handling to how to react in a medical emergency. In addition, DGC Operations performs random safety audits on all three plants to ensure they are safety compliant. Second in importance only to safety is the environment. The global discussion regarding the impact the energy industry has on the environment is heating up, and Nakagawa explained that DGC plans to supplement its traditional natural-gas fired generation with renewable energy opportunities, such as geothermal, solar, and wind. To achieve that goal, DGC is working with renewable energy experts from across the globe to augment its in-house expertise. Although no projects have been completed in the US as of yet, Nakagawa said renewable energy will play a critical role in the company’s future. “Environmental regulations will get more restrictive in the near future, and are likely to have an impact on the bottom line, so we have to be ready to meet them. That is the reason why we are exploring renewable energy projects, to balance our portfolio across different technologies.” In the mean time, DGC is meeting or exceeding all environmental regulations at its natural-gas fired generation plants thanks to best available control technology, including low-NOx burners, selective catalytic reactors for NOx control, and catalysts to minimize emissions of CO and volatile organic compounds. In addition, the company has installed continuous emissions monitoring technology, which tracks emissions at each plant 24 hours a day, seven days a week. “That information is recorded at our facilities and transmitted automatically to regulators,” said Nakagawa. But, Nakagawa explained, in certain parts of the country, even the best technology isn’t enough, and the company must supplement its efforts by offsetting emissions. “Say, for instance, a town has switched from diesel-burning buses to natural-gas fired buses. We might purchase the rights to the emissions saved by switching fuel. Although we are bringing a new industry into the area, we are doing so without increasing pollution levels.” Key advantages As a member of the Mitsubishi family, which consists of hundreds of companies worldwide, DGC benefits from strong financial backing. “The power industry is capital intensive, and having Mitsubishi’s backing gives us an advantage because we have the option to finance projects on the balance sheet before securing long-term financing ,” said Nakagawa. “The seller feels better knowing that the deal won’t be held up by a financing contingency.” In addition, because Mitsubishi invests in a broad spectrum of industries, from automotive to electronics, DGC invests when an opportunity meets its pre-set criteria based on its long-term view of the market. “Some of our competitors are only focused on the US power industry, so if they don’t invest in it, they will never grow. Mitsubishi has a variety of investment options worldwide. It is an enviable advantage because we can be selective in our US power investments,” Nakagawa said. Nakagawa predicts that DGC will be faced with many challenges as the power industry in the US matures. For starters, more competitors are flooding the market, meaning existing players need to be nimble—and good networking skills don’t hurt, either. With its team of seasoned professionals, many of whom have been working in the power industry for decades, DGC has the advantage of knowing the majority of the industry’s players. “We can share information, learn about business opportunities, and stay ahead of market trends.”

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