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The Environment We Are In

The energy landscape has changed drastically in the past five years. New generating capacity has outpaced demand growth, causing a decline in power prices while natural gas prices rose. Meanwhile, restructuring largely stalled, slowing the transition to a more competitive marketplace. Here are a few indicators of how our industry has changed since 1998.

The industry continued to add capacity beyond what was needed for adequate reserve margins.The optimum U.S. reserve for electricity is approximately 17 percent higher than peak demand to handle weather extremes, power outages and other conditions.		Normal gas and power price relationships gave way to extreme volatility from the late 1990s into mid-2001. When power prices plummeted, so did the profit margins from gas-fired electric generation. (Prices shown are as reported at the Henry Hub and Palo Verde trading centers.)
The push for electric restructuring has slowed dramatically. While implementation is underway in some states with varying results, most are not currently considering retail competition, and several have suspended deregulation or delayed their plans.