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Gas-Fired Generation

Fortnightly Magazine - September 15 1995

power generators, they should be subject to the same functional

unbundling standard that most parties agree electric utilities should meet. We support functional unbundling as an alternative to forced divestiture for electric utilities and would support the same approach for gas utilities and pipelines.

D. Louis Peoples

Vice Chairman & CEO

Orange and Rockland Utilities, Inc.

Orange and Rockland is optimistic about the future of gas-fired power generation. Our view is tempered, however, by our commitment to balance fuel sources for the purposes of reliability, security, and economy.

In the long term, the economic benefit of natural gas as a fuel for electric generation, enhanced by deregulation and coupled with the environmental advantages of gas, will most likely result in new gas-fired electric generation facilities and further conversions to natural gas. However, this transition will be determined in large measure by how federal and state regulators allow recovery of capital outlays.

If there is a bias for coal, it's due predominantly to geography. Some utilities are limited by the environmental constraints of coal as a fuel source and by the cost of coal transportation. Utilities in other regions have a plentiful supply within affordable reach and operate under more relaxed environmental restrictions.

From the perspective of electric consumers, there is no compelling reason for pipelines to become power generators. However, the financial implications of supply and demand may cause pipeline companies to pursue such ventures. If the projected increase in gas production continues to exceed the projected increase in gas consumption, gas producers

may seek to create additional

end-users (em such as their own electric generation units (em to maintain price margins.

Eugene R. McGrath

Chairman

Consolidated Edison Co. of New York, Inc.

Forecasts of excess generating capacity for the northeast over at least the next decade indicate that any growth of gas-fired generation will probably come from coal-to-gas conversions of existing units, rather than new construction. We have not seen a bias for coal in New York. However, as concern about lack of fuel diversity increases, a bias for coal will increase.

Michael Baly

President & CEO

American Gas Association

FERC action in the electric industry restructuring proceeding probably will have a significant influence on how much natural gas is used in electric generation. At least as important, however, is regulatory activity at the state level, where commissions are considering direct retail access for consumers to competing electricity supplies. Increased competition as well as regulatory and market uncertainty will slow the construction of new generation facilities. Competition will provide an incentive for existing generators to do everything possible to increase output from existing facilities, including coal and nuclear, that can displace gas generation.

Nonetheless, gas-fired generation remains the most economic alternative to meet new requirements. Competition will force generation companies to put aside any remaining coal bias and rely instead on the superior economics and efficiency of electricity generated from gas. A.G.A. believes that demand in the electricity sector, including independent power producers, will grow from 3.1 quadrillion Btu in 1994 to at least 3.9 quads of natural gas annually by