[BETA] Fortnightly

Stephen P. ReynoldsPresident & CEO

Pacific Gas Transmission Co.

Two or three years ago, gas-fired generation was hailed as a cure-all for everything that ailed the natural gas industry. Now it is being suggested with equal conviction that electric restructuring and/or the demise of PURPA will actually slow the growth in demand for natural gas.

What caused this shift? Part of it is uncertainty. Until we figure out who is going to own generating assets and what this new regulatory regime is going to look like, there might be a "go slow" period for new gas-fired generation.

Adding to the uncertainty is the possibility of a sell-off of old, depreciated generating assets. If the new owners repower those old clunkers and sell the electricity at cheap rates, they might dampen enthusiasm for building new gas-fired generation.

Given the current attitude in Washington, former PURPA machines with their long-term contracts face a very uncertain future. Whether they are dismantled or required to reprice their power, there won't be a lot of new PURPA plants built. That might also slow the pace of gas penetration of the electric generation market.

And then there are transition costs. The FERC NOPR on electric restructuring suggests that everyone will be invited to pay a share of whatever it costs to shake uneconomic assets out of the system. Those surcharges could be a barrier to entry for new generating assets (em gas and otherwise.

But regionally, I am quite optimistic about the future of natural gas. In the Northwest (em which up to now has only flirted with natural gas as a fuel for electric generation (em natural gas is an appropriate choice in an environmentally sensitive region. It's available, it's low cost, and the costs keep dropping all the time.

Should pipelines get in the electricity business? I think most pipelines have recognized that their charter to operate a broad, vertically integrated fuel business has expired. As they look for new business opportunities, electric generation makes a good deal of sense. Power generation is related to our overall business, we know the virtues of natural gas as a fuel source, and new generating assets bring growth opportunities to our core pipeline business. Rather than waiting for the load to come to us, electric generation is a way to bring the load to our own system.

Erroll B. Davis, Jr.

President & CEO

Wisconsin Power & Light Co.

Natural gas is the fuel of choice in Wisconsin for meeting peak electric generation needs. As we build new generation to meet peak, small gas-fired units are a clear preference. However, over the next five years we will continue to see a high reliance on existing coal units in the Midwest because an excess of coal capacity exists elsewhere in the region.

It should be pointed out that use of gas for electric generation in the Midwest does not translate into huge volumes of gas consumed. Gas-fired generation constitutes 22 percent of WP&L's inplace capacity, yet represents only 0.4 percent of the Btu input into our plants for electric generation