independent power
Restructuring impacts industries` electric power purchases
douglas smith
Although the electric power industry has gradually been restructuring itself since passage of the Public Utility Regulatory Policies Act (PURPA), now that the National Energy Policy Act of 1992 has been passed the pace of restructuring has increased dramatically. Today, regulators are looking very seriously at allowing large electric power consumers to choose their supplier.
According to George C. Ford, George C. Ford & Associates president, a management consultant firm of Princeton, N.J., there has been a sharp drop in the activity for new power plant projects because of the major restructuring changes now occurring. The immediate consequence of deregulation is an extreme degree of uncertainty on the part of electric utilities as to the proper response to the massive changes now under way in the industry, he says.
In Ford`s opinion, 8 GW of electricity will be added in 1995 and 1996 while 5 GW will be added in 1997. Ford says that electric utility`s share will increase to 68 percent and will be supplied by new peaking turbines and several new coal-fired power plants. Independent power producers are expected to add 2.3 GW per year which is well below the average of 3.5 GW added per year over the last five years, says Ford. Figure 1 gives a breakdown of the capacity added by the regulated utilities and the unregulated independent power suppliers from 1990 through 1997 while Figure 2 shows capacity additions by type for the period 1995 through 1997.
What do end users want?
At the recent "PowerMart" conference in Houston, James E. Smallwood, Owens-Corning Fiberglass Corp.`s director of corporate energy and project sourcing, said consumers of electricity want retail competition. In addition, Smallwood said they want reliable and adequate supplies of electricity at competitive prices and a choice of service options. Smallwood complained that massive price differentials of electricity occur throughout the United States with some exceeding 300 percent. Some suggestions put forward by Smallwood that would benefit the end users if implemented include:
z special contracts with the supplier,
z load shifting,
z fuel switching and changing the process design to more efficiently utilize the use of electricity,
z installation of cogeneration or self generation, and
z municipalization of the electric supply industry.
In Smallwood`s opinion, competition is coming, and as an example he mentioned the increased number of independent power producers constructing power plants and the shopping around by cooperatives and municipalities for wholesale power. Smallwood mentioned a study conducted by Public Service of New Mexico in 1993 that reported 26 percent of its customers would switch suppliers if the rates were equal. From this study Smallwood concluded that many electric supply customers are dissatisfied with the service they are receiving.
According to Smallwood, industrial users of electric energy must become involved in the changes now taking place to make the electric supply industry more competitive. Unless the industrials become more active the large and well-funded opposition will win.
In his closing remarks, Smallwood said market forces are superior to regulation in setting prices, and that open non-discriminatory access to transmission and distribution is essential if we are to have a more competitive electric power supply industry. z
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