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Fortnightly Magazine - February 15 1998

ESAI, finds it difficult to believe that power producers will want to retire so many coal plants.

Ellsworth told me: "One of the advantages of these gas turbines is that they are fairly small. But it's because of that we actually have a bit of a problem with some of the forecasts [from the EIA and the Gas Research Institute] that show so much gas being used by 2010. In the Northeast, at least, we're not quite seeing that the demand [for turbines] will be there, even with all the oil-fired generation they have. As a hedge against gas prices, I think power producers in the Northeast will continue to be dual-fired."

The study cautions against a simplified view: "Coal consumption projections, for example, have become extremely complex because of the year 2000 requirements under Clean Air Act Phase 2 in regard to both NOx and SO2."

Stagliano concludes: "To achieve even the Kyoto target, the electric utility sector will be required to undertake fairly heroic efforts with a very limited number of fuel and technology options." (Electricity & Climate Change: Estimating Effects of Kyoto Treaty Compliance, ESAI, January 1998.)

Gas vs. Electric, Revisited

In the last issue, with fits and starts, I suggested that restructuring in the electric industry has now outpaced unbundling in natural gas. The reason, I said, was that price is driving electricity competition, creating a real need for choice, while gas supply savings are vanishing as contracts expire, leaving consumers less motivated to worry about supply choice ("Blowing Right By," Feb. 1).

No one has sent me any letters yet, but I'm open enough to consider other views.

Out in Ohio, near Toledo, Columbia Gas is doing some neat things to promote retail gas choice. Assisted by the state's Consumers Counsel and the public utility commission, Columbia has enticed a group of stakeholders (including Enron, Honda of America and others) to forge a settlement to deal with stranded costs, made up largely of upstream pipeline capacity no longer needed when consumers turn to marketers to buy their gas.

A recent PUC decision creates a "transition capacity costs recovery pool." (See, Case No. 96-113-ga-ata, Jan. 7, 1998.) Jack Partridge, a spokesman for Columbia Gas, acknowledges that some details face further PUC approvals, but says the company is committed to unbundling its system and thinks its proposed five-year agreement will provide just the bridge needed to get to the point when its long-term contracts expire.

"Once you get away from those contracts," says Partridge, "the problem of stranded costs goes away."

"And everybody will be chipping in," he adds. "Marketers who decline to accept capacity when our customers go off the system will pay a transition cost fee into the pool. In exchange, we get some tools to mitigate that stranded cost problem, including an incentive plan linked to off-system sales, but must accept ultimate responsibility for about 11 percent of stranded costs left unrecovered at the end of five years. We estimate total stranded costs at between $100 and $300 million, statewide."

Will the plan work for Columbia