EPSA letter urges caution in natural gas issue

July 3, 2003 — The Electric Power Supply Association (EPSA) has sent a letter to Secretary of Energy Spencer Abraham which recommended against strict federal policies regarding fuel choices for power plants in the U.S.

EPSA is the national trade association representing competitive power suppliers, including independent power producers, merchant generators and power marketers. EPSA members provide reliable, competitively priced electricity from environmentally responsible facilities in U.S. and global power markets.

The June 25 letter follows.

June 25, 2003
The Honorable Spencer Abraham
United States Department of Energy
1000 Independence Avenue, SW
Washington, D.C. 20585

Dear Secretary Abraham:

The recent volatility in natural gas prices has placed a spotlight on the use of natural gas in our industry. Higher prices have prompted some to argue for proscriptive federal policies with respect to the fuel. In the 1970s, these arguments led to the adoption of the Power Plant and Industrial Fuel Use Act of 1978, a law that cost consumers billions by short-circuiting market forces in favor of federal mandates. In 1987, Congress recognized the mistake and repealed the law.

The evidence is mounting that the market is already responding. Rig counts are up, and the future price of gas (as manifested in various commodity exchanges) is moderating. Federal Energy Regulatory Commission Chair Pat Wood has said that government intervention in the gas market would be a mistake and specifically cited new, more efficient gas-fired power plants as helping smooth out the supply and demand imbalance.

As the Energy Information Administration recently noted, new gas-fired generation is often dramatically more efficient than existing or retiring gas-fired facilities. In Texas and in California, it has been documented that the development of new gas-fired facilities actually has resulted in less aggregate gas consumption by the electric power industry. EIA recently noted that gas-fired electricity generation increased by eight percent in 2002, but total gas used for electric generation increased by only two percent.

One policy that will save gas TODAY would be the opening of all wholesale power markets to the full force of competition. In many parts of the country, state-of-the-art gas-fired power plants sit idle while Korean war vintage gas plants run full bore.

The use of economic dispatch – where the least-cost and most efficient power plants are utilized before inefficient units – exists in organized electricity markets in the Mid- Atlantic and the Northeast, but must become national policy.

A recent study has shown that economic dispatch could save Louisiana customers as much as 400 million dollars a year in electricity costs and would provide concomitant savings in natural gas usage.

EPSA members, who generate electricity from the full range of resources – including coal, nuclear, gas and renewables – would strongly oppose legislation or regulation that would prohibit gas use in new power plants. Again, market forces should drive the decisions. This kind of prohibition will not benefit consumers or promote positive national energy policy.

We look forward to working with your Department and the Administration as it develops effective natural gas policies.


EPSA Lynne H. Church

cc: Deputy Secretary Kyle E. McSlarrow