Electric power shortage may turn into oversupply

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Electric power shortage may turn into oversupply By Steve Raabe Denver Post Business Writer Sept. 12, 2000 - A nationwide shortage of electric power that has hammered consumers with higher prices will soon turn into an oversupply of electricity, according to a Boulder energy consulting firm.

Power producers throughout the United States are on the verge of adding a huge amount of new generating capacity that will eliminate shortages and bring prices down, said a report by RDI Consulting.

"In just two years, more capacity will have been added to the U.S. grid than was added during all of the 1990s," said Chris Seiple, director of consulting for RDI.

Seiple's report was distributed primarily to the firm's clients in the wholesale power generation sector - companies that sell power to utilities and large-volume com mercial users.

The report concludes that the current "boom" cycle in which power sellers enjoy high prices will be replaced by a "bust" cycle during which greater supplies of electricity will bring lower prices for wholesalers.

But the boom-and-bust cycle has a reverse meaning for consumers. As supplies increase, costs to consumers should fall because utilities will pass through their savings from lower power costs.

Ron Binz, an energy analyst and president of the Denver-based Competition Policy Institute, said he agrees that new power supplies are coming to the market, but he falls short of endorsing the report's conclusion that an oversupply will develop.

"Price spikes have drawn power produc ers into the market, especially with gas-fired plants," Binz said. "But I'm not concerned about there being a glut. As prices come down, new capacity growth will slow."

Binz said the movement to deregulate the power industry ultimately will help ensure adequate power supplies and keep a lid on price increases.

Deregulation suffered a black eye, he said, when power shortages developed this year in California after regulation was lifted from the market.

"In California, policymakers turned loose of the controls too soon before capacity was increased," Binz said.

Seiple of RDI Consulting said increasing power supplies over the next two years will debunk the "myth" that deregulation discourages independent power producers from building new generation.

The nationwide shortage of elec trical power is one of the factors that will cause Colorado consumers to pay sharply higher heating bills this winter. That's because power producers increasingly are turning to natural gas instead of coal to generate power.

The resulting higher demand for gas caused prices to double in the past year.

Colorado utility executives and consumer representatives warned this week that heating bills will soar as much as 40 percent this winter from last year's levels.

The RDI report showed that markets with a power shortage of as little as 2 percent of system capacity can see large price spikes, while markets with an oversupply of 2 percent will experience significant price drops.

For example, Seiple said, several Midwestern markets with a 2 percent undersupply have seen average wholesale prices at $36 per megawatt hour, compared with Northeastern markets in which a 2 percent oversupply has brought prices down to $22 per megawatt hour. A megawatt is the amount of electricity needed to supply power for about 1,000 people.

Xcel Energy, the former Public Service Company of Colorado, said earlier this year it will contract with independent power producers to build nine new power plants along the Front Range, adding up to 1,500 megawatts by 2005.


-- Martin Thompson (mthom1927@aol.com), September 12, 2000

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