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Gas-Fired Generation

Fortnightly Magazine - September 15 1995


James A. Carrigg

Chairman, President, & CEO

New York State Electric & Gas Corp.

There is a very mixed outlook for gas-fired power generation over the next five years. There is likely to be little new construction of baseload electric capacity over this period. Certain existing gas-fired plants that are currently nondispatchable will likely become dispatchable. This, in turn, will lower their capacity factors and, therefore, their gas use. Offsetting this decline will be the conversion of certain coal and oil units to gas because of environmental considerations. The net result of gains and losses will be no change from the current gas use amount.

PURPA repeal will have no impact on gas consumption. In the past, state commissions mandated high-priced electric contracts between NUGs and utilities under the aegis of PURPA. Those mandates are now gone and new

electric plants will have to be competitive with or without PURPA.

As regards wholesale and retail wheeling, regulatory restructuring will likely reduce gas use in the short-term. As the electric industry restructures, higher-price NUG contracts will be renegotiated. This will result in a number of gas-fired units either being retired or seeing their capacity factors reduced. This has already started.

Patrick J. Maher

Chairman & CEO

Washington Gas Light Co.

The transitional path to a

market-driven electric industry is not known, but the path will be taken. It is tempting to think about PURPA repeal or one regulatory regime or another (em "PoolCo," for example (em and conclude that gas-fired generation will go up or down. Either scenario is possible. But think about what the electric industry will look like five years from now. Market and political forces will have given rise to consolidation and vertical disintegration, and the new regulatory and legal rules of a rocky road will have produced leaner, more competitive companies. In that environment, demand will be up and gas should certainly compete, not only for generation, but at the burnertip. Gas can also substitute for electric cooling.

Beverly A. Wharton

President, Gas Division

MidAmerican Energy Co.

The deregulation of electric generation will proceed much faster as a result of the Energy Policy Act of 1992 (EPAct). This will cause investors in gas-fired generation to delay projects until critical issues like the availability, location, and cost of generating facilities are resolved. We believe the marketplace reaction to EPAct will be more significant for gas-fired generation than any Congressional action on the repeal or modification of PURPA.

Once the availability, location, and cost situations stabilize, any new generation will not, in our opinion, be biased toward coal, because the longer lead times for coal-fired generation will increase commercial risks appreciably. A competitive electric generation market will not accept such increased risks, even given coal's much lower commodity cost.

All participants in the natural gas industry should be allowed the opportunity to serve gas-fired generation or become a power generator if they so choose. The one able to provide the most responsive and cost-effective service should serve the generating plant. Only by permitting such marketplace efficiency will the natural gas