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The Growing Strategic Role of Fuels

Fortnightly Magazine - April 1 1995

to minimize fixed costs; much of this burden will fall to power production managers. Frequent tradeoffs will take place between variable (fuel) and fixed (capital plus O&M) costs. Determining the proper cost structure and how to implement it will require coordination between fuels and other departments such as power production, power sales, accounting, and finance. In some cases, a restructuring will ensure the profitable operation of the restructured entity, based on its potential fuel-supply portfolios. The regulatory treatment of "stranded in-vestments" and "stranded liabilities" and the reactions of

the financial markets to such restructuring will complicate matters.

Developing creative joint operating agreements and alliances. Many potentially fruitful cooperative options exist among: (a) power producers; (b) power producers, fuel suppliers, and carriers; (c) power producers and their customers, and (d) other combinations limited only by the creativity of the parties. Merger is perhaps the most extreme form of cooperative alliance.

Fuels expertise means more than just buying the lowest cost fuel; it means understanding the fuel markets to give the utility an enduring competitive edge in both the fuel and power markets. Power production skills will remain important, but in a new way. Greater two-way interaction will take place between fuels and power production. This interaction will include system planning, dispatch, and bulk-power sales. t

Jeffrey Price is president of Resource Dynamics Corp. in Vienna, VA. This article derives from discussions with a broad cross-section of U.S. electric utility fuel managers contacted during the course of an Electric Power Research Institute study on fuels management and corporate performance.

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