(ghi^markets.com - Oct. 7, 2005)
 

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Consumers in the Eastern Interconnect saved $15.1 billion over five years thanks to production efficiencies driven by wholesale power competition.

That’s what Global Energy Advisors (formerly Henwood) found when it quantified savings produced since Order 888 opened the door to merchant generation in 1999.

You may remember that as Henwood, the firm declared the end of the California crisis and got it right.

The study was funded by 10 EPSA members -- BP Energy, Constellation Energy, Exelon, Mirant, NRG Energy, PSEG Power, Reliant Energy, Shell Trading Gas & Power, Suez Energy and Williams.

Other studies found savings, EPSA CEO John Shelk told reporters, but this one looked specifically at the production efficiencies IPPs and even regulated utilities put in place since markets opened to competition.

That’s $15.1 billion that otherwise would have weighted down a large portion of the US economy, Shelk noted.

Beginning in 1999, Eastern IPPs built 88,000 mw of new generation, assuming all the risks that the plants would run profitably.

The consultant projected that without competition, utilities would have added only 37,000 mw to their ratebases -- just enough for their required reserve margins and consumers would have paid far more under cost-of-service rates that guaranteed utilities’ profits.

Plant construction would have been “lumpy” in the old regulated world, said Gary Hunt, Global Energy Advisors’ president, since utilities generally build larger plants.

His analysis compared what consumers would have paid under traditional, regulated rates versus what they paid with merchant generators vying to sell into the market.

Savings for consumers (Click here to see table) include:

• Over $4 billion in fuel costs for existing plants that ran more efficiently in a competitive environment, and • Almost $2.4 billion in variable operations and maintenance (O&M) costs from those same plants.

But the bulk of the savings were produced by IPPs selling their power into a competitive market for just under $11.5 billion plus $2.2 billion in the value of competitive capacity.

Compare that to the $22.5 billion utilities would have extracted from consumers on new generation they would have built at rates that guarantee them profits.

Whether merchant or utility-owned, the five years saw “spectacular” boosts in efficiency savings from power generation, Hunt noted.

• Refueling times at nuclear plants dropped 13%; • Nuclear O&M costs dropped 8%; • Coal plant O&M costs dropped 14%; • Nuclear plant capacity factors rose 17% -- enough to power 10 million homes; • Coal plant capacity factors rose 16% -- enough to power 25 million homes, and • Coal plant heat rates gained 4%.

Competitive market forces changed the way existing power plants are run, Hunt said. Originally published in Restructuring Today on July 13, 2005

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