Big Share of '95 Fuel Mix

For the second year in a row, natural gas fueled an increasing share of U.S. electric generation. When the final numbers are tabulated for 1995, electric generation is expected to have increased about 2.7 percent over the previous year. This compares to a 0.98-percent increase for the 1993-1994 period. Gas accounted for over 10 percent of the 1995 utility fuel mix (em up from 8.8 percent just two years ago. And for perhaps the first time in history, coal burn by utilities should remain flat despite robust growth in electric generation.

The fuel mix winners of 1995 were nuclear, hydro, and natural gas. Gas benefited primarily from decreasing prices, while the increase in nuclear output can be attributed to improved performance and more timely maintenance and refueling schedules.

Until the mid-December surge in gas prices (em driven by cold temperatures that triggered supply constraints in the Northeast (em prices for natural gas had steadily declined since February 1994. After reaching 273 ¢/MMBtu two years ago, average delivered gas prices continued to decline by more than 32 percent, bottoming out at 180 ¢/MMBtu in September. Over the same 18 months, oil prices remained relatively flat, averaging over 254 ¢/MMBtu in September.

During the first three quarters of 1995, gas-fired generation was running 25.4 billion kilowatt-hours (bKwh) higher than in the same period in 1994. Gas-fired generation increased most in the South Atlantic (up 12.2 bKwh), displacing oil

(-15.4 bKwh). Gas burn also increased significantly in the West South Central region, particularly Texas, where gas (up 9.3 bKwh) combined with nuclear (up 9.6 bKwh) to displace coal-fired generation (down 5.6 bKwh). In the Mid-Atlantic utility fuel market, gas burn increased (up 8.4 bKwh) while both oil (down 7.5 bKwh) and nuclear declined (down 7.2 bKwh). Only in California did gas decline, while hydro rebounded to post a three-quarter increase of over 21.8 bKwh.

Ironically, coal's lackluster performance in a relatively strong year for electric demand has come about despite competitive spot prices. Spot coal prices remained relatively stable throughout the year, ranging between 114 and 118 ¢/MMBtu delivered. Yet even at these prices, spot coal consumption declined by 15 percent.

Nuclear generation for the first three quarters of 1995 ran 32.6 bKwh ahead of the same period in 1994. Already by September, eight power plants had recorded increases of over 3 bKwh. Topping the list were Houston Light & Power's South Texas facility (up 6.2 bKwh) and Cleveland Electric Illuminating's Perry station (up 4.8 bKwh). And during the third quarter alone, the Palo Verde plant operated by Arizona Public Service Co. generated over 8 bKwh (em the highest quarterly output of a U.S. nuclear power plant on record. Only two plants recorded significant decreases in electric generation: Maine Yankee (down 4.6 bKwh) and Public Service Electric & Gas's Salem plant (down 4.2 bKwh).

Last spring, Resource Data International projected gas to play a significant role as an electric fuel if prices stayed competitive. During 1995, gas prices were competitive and utility demand for gas

increased. We also predicted that hydro would rebound and play a significant role in the electric fuel mix. It did. Finally, we suggested that coal demand from electric companies would increase if spot coal prices continued to decline. Coal prices did remain competitive; however, demand stayed flat due to an abundance of nuclear- and hydro-generated electricity and competitively priced gas.

How coal contributes to the fuel mix in 1996 will depend in large part on the price competitiveness of gas, available hydro generation, and nuclear performance. Despite a record performance in 1995, more than half of the nation's 69 operating nuclear plants were down for refueling or maintenance at some point during the year. Clear evidence of faster refueling and maintenance schedules suggests another strong year for nuclear's contribution to the utility fuel mix. t

Kent Knutson is senior vice president at Resource Data International, Inc., an energy industry consulting and information management firm specializing in market and competitor analysis.

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