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Independent Power Group Urges Caution on Natural Gas Issue

Issue 8 and Volume 107.

The Electric Power Supply Association (EPSA) has sent a letter to Secretary of Energy Spencer Abraham recommending 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.

Acknowledging that higher prices have prompted some to argue for proscriptive federal policies with respect to the fuel, the letter points out that high prices in the 1970s 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 In 1987, Congress recognized the mistake and repealed the law.

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,” said the letter from ESPA President Lynne Church. She said that 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.

EPSA supports the opening of all wholesale power markets to the full force of competition as a way of mitigating gas prices in the short term. “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,” notes Church.

She adds that 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. EPSA cites a recent study that shows that economic dispatch could save Louisiana customers as much as $400 million a year in electricity costs and would provide concomitant savings in natural gas usage.