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Competitive Power Markets Produce $15 Billion in Savings

Posted on: Tuesday, 12 July 2005, 15:00 CDT

WASHINGTON, July 12 /PRNewswire/ -- A new report released today, titled "Putting Competitive Power Markets to the Test," concludes that competitive wholesale power markets in the eastern United States and Canada produced at least $15.1 billion in customer savings during 1999-2003.

The report, prepared by the independent consulting firm, Global Energy Decisions, Inc. (Global Energy), and sponsored by a group of 10 competitive power companies, also identified dramatically improved power plant performance and efficiencies nationwide. The report further documented $85.4 million in annualized production cost savings, achieved through reduced transmission barriers and the entry of new competitors in the PJM regional transmission organization's market area.

Commenting on the report, EPSA President and CEO John E. Shelk said, "The Global Energy analysis of eastern wholesale power markets confirms what we in the competitive power sector have known for a long time -- competition reduces costs, lowers prices, drives innovation and efficiencies in the marketplace, rewards creative ideas and spurs growth. The pure nature of competition -- businesses vying for customers -- is the basis of our economy."

"Clearly, this study, which is based on independent information sources, empirical data and careful research, demonstrates the success thus far of federal policies intended to establish competitive wholesale markets," said Shelk. "Considering that certain parts of the United States have not yet fully embraced these polices, we believe substantially more savings for consumers are possible in the future."

"Without competition to lower the costs of building and operating power plants, our nation's fuel efficiency would be much worse and consumer's fuel and electricity bills would be much higher than they are currently," said Gary L. Hunt, president of Global Energy Advisors, the Global Energy Decisions business unit that conducted the analysis and prepared the report.

"Our study suggests that one of the best ways the nation can save energy and reduce costs is for federal and state policy-makers to stay the course on continued development of competitive wholesale electricity markets," Hunt said.

In a unique approach, Global Energy undertook several coordinated analyses to explore competition's benefits to customers. In the first one, Global Energy compared two cases -- one that simulated existing market conditions and one that modeled prices and costs as if competition did not exist and the entire Eastern Interconnection had remained in a traditional vertically integrated utility-operated environment.

The main source of the $15.1 billion in savings was the competitive sector's ability to minimize fuel expenses, operations and maintenance (O&M) costs, depreciation and taxes. Importantly, these savings accrued due to the construction and operation of efficient new generating plants and significant increases in the utilization of existing plants, as both types of generation managed competitive pressures and market opportunities simultaneously.

Global Energy further explored these efficiency improvements at existing power plants, and its analysis of the North American generation fleet found:

* A 13 percent reduction in the length of refueling outages in nuclear plants since 1999; * An 8 percent reduction in O&M costs of nuclear plants, and a 14 percent reduction in coal-fueled plant O&M costs, after adjustments for inflation; * A 17 percent increase in nuclear power plant capacity factors from 1995-2004, which is enough energy to supply power to more than 10 million residential households; * A 16 percent increase in coal-fueled power plant capacity factors from 1995-2004, which is enough energy to supply power to 25 million residential households; and * A 4 percent improvement in heat rates for coal-fueled plants since 1999.

The study also concluded there were significant savings produced by the enhanced integration of utility transmission systems into regional transmission organizations (RTOs). Specifically, Global Energy compared the integration of Commonwealth Edison (ComEd), American Electric Power (AEP) and Dayton Power & Light (DPL) into the PJM Interconnection with a simulated 2004 market in which ComEd, AEP and DPL did not join PJM.

This analysis shows: * $85.4 million in annualized savings for Eastern Interconnection wholesale customers through reduced transmission seams. * Confirmation of the 4.2 percent decline in load-weighted spot market power prices in PJM, as reported by the PJM Market Monitoring Unit earlier this year.

Global Energy Decisions, a leader in market analytics, simulation, planning and risk, and operations management, uses its own independent data sources, software and analytical tools to research and analyze energy markets for a broad range of utility, government and private sector clients. To read the complete study, go to http://www.globalenergy.com/competitivepower. To learn more about Global Energy Decisions, go to http://www.globalenergy.com/.

The sponsoring companies are: BP Energy Company, Constellation Energy, Exelon Corporation, Mirant, NRG Energy, Inc., PSEG Power, Reliant Energy, Shell Trading Gas and Power Company, SUEZ Energy North America, and Williams. The Electric Power Supply Association (EPSA) served as the project manager on behalf of the sponsors.

EPSA is the national trade association representing competitive power suppliers, including generators and marketers. These suppliers, who account for 40 percent of U.S. installed generating capacity, provide reliable and competitively priced electricity from environmentally responsible facilities. EPSA seeks to bring the benefits of competition to all power customers.

Electric Power Supply Association

CONTACT: Jack Hawks of the Electric Power Supply Association,+1-202-349-0143

Web site: http://www.epsa.org/http://www.globalenergy.com/

Source: PRNewswire

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