The recent price spikes and generation outages in the Midwestpower market have opened the door wide for the natural gas industryto capture a greater share of the industrial energy market, says asenior economist.
Utilities over the years have always cited reliability as thereason industrial customers should favor electricity over gas,noted Harry Chernoff of Science Applications International Corp.”But now they’re curtailing electric. So the gas companies arerightly going to [remind industrials] ‘your electric was justcurtailed,’ or ‘your peak prices just went way up,’ or ‘you’ve beenoffered a new combination of rate schedules where firm is a lotmore expensive than it used to be…'”
Natural gas companies “are going to go, and they should, to theindustrials that have processes that require continuous energysupplies,” he said. Given that electric is “less reliable” than itused to be, “that favors gas. That’s a significant marketing issue,and I would think that a lot of the industrials are going to take alook now at what kind of reliability is being offered from gas.”Chernoff believes gas service has become increasingly more reliableover the years, with companies installing a lot of peak deliverycapacity – such as storage.
Chernoff’s remarks came at a press briefing Wednesday sponsoredby the American Gas Association (AGA), where it unveiled theresults of a study on the impact of electricity restructuring onelectricity prices. Chernoff, who authored the study, predictsindustrial customers will see the greater rate reductions (mid-20%)out to 2015, while rate savings for residential and commercialelectric customers will be lower – in the 10-15% range.
But few, if any, of the rate savings for residentials andcommercials will be the result of restructuring, he says. Just”look at what the states who are deregulating – California,Illinois, Massachusetts – are saying to their ratepayers. They’resaying, ‘deregulation will create these huge savings, immensesavings. And by the way, we’re going to mandate rate reductions forthe residential and commercial classes.’ You’ve got to ask yourselfif these savings from deregulation are huge, why are the ratereductions mandated. Well the answer is they’re not huge for theresidential and commercial sectors. They’re huge for theindustrials.”
Chernoff believes that restructuring is unnecessary to a certainextent. “…[A] lot of what’s taking place under the name ofderegulation, states could do if they wanted to under regulation,”he told reporters.
Still, he said restructuring “makes sense” for high-cost states,such as California, New Jersey and states in the New Englandregion. “It doesn’t deliver the residential savings they’reexpecting, but it does deliver the industrial savings.” But hedoesn’t think it makes sense in low-cost states that have anabundance of hydroelectricity, such as Idaho. That would be thelast state where Chernoff would expect to see a deregulated powermarket.
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