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Deregulation Holds Key to Power Industry Future

Issue 10 and Volume 100.

Deregulation Holds Keyto Power Industry Future

By Michael W. McComas, Burns & McDonnell

Deregulation and its accompanying regulatory and legislative changes are the keys to today`s widespread innovations in the electric utility industry. As deregulation saturates the market, utilities eager to gain customers are lowering prices and offering diversified services. These changes will continue to reverberate well into the 21st century. Just as AT&T and the Baby Bells struck out on their own, electric utilities are changing their way of thinking to stay in business and keep their customers happy. The result? Capital expenditures on power plants are down while alternatives to energy production are up.

Economic Alternatives

Since 1978, the beginning of the Public Utility Regulatory Policies Act (PURPA), merchant plants have been picking up steam and are becoming the wave of the future. No longer will

customers be held hostage by the fixed prices of giant electric conglo-merates. The sales and trading activities of merchant plants will consist of short- and medium-term contracts ranging from hourly, daily and weekly energy sales with varying degrees of firmness, to seasonal or annual sales of capacity blocks. As electric utilities determine the best resource for delivering their energy commitments, they can purchase energy or capacity from the com-modity market to support their trades, or as market and system conditions dictate, deliver energy from their own plant.

Independent power producers (IPPs), made possible by PURPA legislation, also allow electric utilities to purchase their electricity from the best possible producer. IPPs will continue to thrive because of the options utilities have when purchas-ing their power. Utilities will use IPPs and merchant plants as more economical alternatives to capital investments or building more capacity in their own plants.

Burns & McDonnell Engineers-Architects-Consultants is playing a prominent role in this trend. Burns & McDonnell is part of Mid-American Power, LLC, a consortium that purchased the E.J. Stoneman Station, the first 100 percent merchant power plant in the United States, in Cassville, Wis. There are other merchant plants in the country, but they`ve had contracts in place before operation. Mid-American Power`s plan is significant because it has no underlying power purchases contracts; rather, the plant will support the commodity and electrical trading activities of the consortium.

Consolidation

Deregulation has allowed small utilities a chance in the marketplace, but many aren`t able to survive on their own and have merged with larger, well-established utilities. By combining forces, the larger utilities benefit from the small utilities` niche services and the small utilities bene-fit from the presence and experience of the larger utilities. In today`s market, utilities have to generate their own opportunities.

Competition

As deregulation forces utilities to become more competitive, utilities are offering more diversified services to stand out from the pack. Utilities will no longer have exclusive rights to serve the people in their territory.

Competition hurts, but it`s better for us (consumers) in the long run. People expect quality and good service. The trend into the next century is to offer what the other guy doesn`t have–a one-stop shop, not only for electricity, but for other related services, such as home repairs and security systems.

As power `brokers` proliferate, utilities will find it more economical to use IPPs and merchant plants to handle their need for increased capacity rather than spend money on new construction to increase capacity. With streamlined opera-tions and expanded services, utilities can explore new ways to increase efficiency, lower costs and respond immediately to customer requests or concerns.

One of these days, you`ll have a new kind of meter on your home that will allow you to pick who you want to buy your electricity from. Does the consumer want that? Maybe not, but competition drives the price down and that can only be good for the consumer.

I n the short term, there may be less need for engineering services if utilities scale down their construction activities and look to outside sources for electricity. But over time the engineering industry will find oppor-tunities in the electric generation industry as deregulation opens up the market to many different options. Competition will allow merchant plants, IPPs and other non-utility clients to vie for attention.

Mike McComas is a vice president primarily responsi-ble for day-to-day operations and production in the Energy Division of Burns & McDonnell Engineers-Architects-Consultants in Kansas City, Mo. His experience in the power industry spans 30 years, including work with fossil-fueled plants up to 700 MW.

McComas received his bachelor`sof science degree in mechanical engineering from the University of Missouri-Rolla. He has been withBurns & McDonnell for his entire career.