Washington (Platts)--19Jun2008

The US may be entering a period of "significantly higher power prices
that will last for years," Federal Energy Regulatory Commission staff said
Thursday.

In a report presented to commission members Thursday, staff said forward
power prices are pointing upward in anticipation of high fuel prices and
construction costs, with natural gas-fired power at the leading edge of those
trends.

Commmissioners responded with expressions of hope for competitive forces
and energy conservation but also suggested rising power prices are for the
most part inescapable.

"The reality is that we're looking at continued upward pressures" on
power prices, said FERC Chairman Joseph Kelliher, saying the commission is
operating in a "high-cost regulatory environment."

Commissioner Philip Moeller added that "consumers need to be told
honestly that we are in a rising price environment" and that there probably is
little that regulators can do about that.

Commission member also cautioned against suggestions that the rising
prices could be blamed on regional transmission organizations. While
hydroelectric power and coal-fired generation have helped moderate price
increases in some regions, Charles Whitmore, with FERC's Office of
Enforcement, said higher power prices are being seen across the US.

"The wholesale price has little or nothing to do with whether it's an
RTO," Whitmore said.

Commissioner Suedeen Kelly, like Kelliher, stressed the importance of a
continued commitment to competition in markets, but added that FERC also
should assure that incentives are not overused for transmission construction,
which could add to the cost burden. She has frequently dissented on
transmission construction incentives because of her view that the incentives
have not necessarily been needed.

The FERC staff report on costs offered estimated ranges for what it now
takes to build a power plant: about $500 to $1,000/kW for a combustion
turbine, $800 to $1,500/kW for a combined-cycle gas-fired plant, $1,300 to
$2,600/kW for a wind turbine, $1,700 to $4,000/kW for a conventional
coal-fired plant, $2,800 to $5,500/kW for an integrated gasification
combined-cycle plant and $4,500 to $7,500/kW for a nuclear unit.

Citing a Cambridge Energy Research Associates index of power capital
costs, Whitmore said the capital cost index has almost doubled since 2003. The
price for steel has more than doubled since then, he added.

The FERC report also cited the North American Electric Reliability Corp.
for a projection of net load growth of 14% through 2016 in the US.

For the next few years, "natural gas will be crucial," Whitmore said.
While wind farms are being built rapidly, gas most likely will be the
dominant power source for additional generation capacity over the next decade,
he said.