ICF Consulting Study Predicts Turning Point in Wholesale Power Markets

Apr 04, 2001, 01:00 ET from ICF Consulting

    FAIRFAX, Va., April 4 /PRNewswire/ -- ICF Consulting recently completed
 the Fourth Edition of its Bulk Power Outlook subscription study, which
 concludes that the outlook for the wholesale power markets is at a turning
 point. After years of generation capacity shortages, the number of new plants
 under construction promises an end to shortages in one to three years in
 practically every U.S. regional power market.
     ICF Consulting does not believe this turning point will occur everywhere
 at the same time. California, other western states, and some other markets
 face potentially serious shortages this summer. "California faces potentially
 severe problems this summer," says Judah Rose, managing director of ICF
 Consulting's wholesale power practice. "However, even California can expect to
 be in balance within three years and prices will moderate and extreme price
 spikes will occur less frequently. Also, we are very concerned about New York
 City for this summer."
     ICF Consulting's previous three editions of Bulk Power Outlook strenuously
 warned that the lack of construction would result in extremely high prices
 reaching thousands of dollars per MWh. "Since 1995, we advised everyone to
 develop generation and/or secure it, even peaking facilities, because prices
 were going to skyrocket," says Rose. "At the time, ICF Consulting was the only
 entity to anticipate correctly the current high prices and shortages. Today a
 different approach is needed."
     Using the same ICF Consulting IPM(TM) power model from previous studies,
 this Outlook predicts that the current level of plant construction is enough
 to solve shortages. Since construction takes two to three years, relief will
 not be available this summer. In a few markets, construction is more than
 sufficient -- e.g., ERCOT (Texas). "Regulators, consumers, and producers need
 to be sensitive to current difficulties and base decisions on future
 developments," says Rose. "Moderating oil and gas prices over the same period
 also will help lower power prices. In addition, a return to normal hydro
 conditions by 2002 will further reinforce the effects of new plant
 construction."
     The implications of this change in wholesale market conditions are far
 ranging. First, regulators can expect market conditions to be more supportive
 of deregulation, especially if they facilitate private-sector initiative.
 Second, power plant developers will need to be more selective. Third,
 unregulated retail sales will be more feasible, reversing a trend of
 significant problems in developing retail businesses. "Our findings are not
 that markets don't work but rather they don't work perfectly, especially when
 barriers combine with lack of experience. We can clearly see a powerful market
 response to four years of high prices," Rose concludes.
     For more information on this topic or to obtain a copy of Fourth Edition
 Bulk Power Outlook study, contact Judah Rose at 703-934-3342 or Elizabeth
 Kaiga at 703-934-3497.
     ICF Consulting, with more than 30 years of experience, is one of the
 world's leading professional services firms advising clients on managing
 global resources in a sustainable way.  ICF Consulting helps clients optimize
 energy resources, meet environmental challenges, foster economic and community
 development, enhance transportation projects and policies, and manage
 information technology resources. ICF Consulting's 800 employees are based in
 16 offices around the globe, including offices in Bangkok, Fairfax, London,
 Los Angeles, Melbourne, Moscow, New York, San Francisco, Toronto, and
 Washington, D.C.  The firm reported gross revenue of $109 million in 2000. For
 additional information, please visit our Web site at
 http://www.icfconsulting.com .
 
 

SOURCE ICF Consulting
    FAIRFAX, Va., April 4 /PRNewswire/ -- ICF Consulting recently completed
 the Fourth Edition of its Bulk Power Outlook subscription study, which
 concludes that the outlook for the wholesale power markets is at a turning
 point. After years of generation capacity shortages, the number of new plants
 under construction promises an end to shortages in one to three years in
 practically every U.S. regional power market.
     ICF Consulting does not believe this turning point will occur everywhere
 at the same time. California, other western states, and some other markets
 face potentially serious shortages this summer. "California faces potentially
 severe problems this summer," says Judah Rose, managing director of ICF
 Consulting's wholesale power practice. "However, even California can expect to
 be in balance within three years and prices will moderate and extreme price
 spikes will occur less frequently. Also, we are very concerned about New York
 City for this summer."
     ICF Consulting's previous three editions of Bulk Power Outlook strenuously
 warned that the lack of construction would result in extremely high prices
 reaching thousands of dollars per MWh. "Since 1995, we advised everyone to
 develop generation and/or secure it, even peaking facilities, because prices
 were going to skyrocket," says Rose. "At the time, ICF Consulting was the only
 entity to anticipate correctly the current high prices and shortages. Today a
 different approach is needed."
     Using the same ICF Consulting IPM(TM) power model from previous studies,
 this Outlook predicts that the current level of plant construction is enough
 to solve shortages. Since construction takes two to three years, relief will
 not be available this summer. In a few markets, construction is more than
 sufficient -- e.g., ERCOT (Texas). "Regulators, consumers, and producers need
 to be sensitive to current difficulties and base decisions on future
 developments," says Rose. "Moderating oil and gas prices over the same period
 also will help lower power prices. In addition, a return to normal hydro
 conditions by 2002 will further reinforce the effects of new plant
 construction."
     The implications of this change in wholesale market conditions are far
 ranging. First, regulators can expect market conditions to be more supportive
 of deregulation, especially if they facilitate private-sector initiative.
 Second, power plant developers will need to be more selective. Third,
 unregulated retail sales will be more feasible, reversing a trend of
 significant problems in developing retail businesses. "Our findings are not
 that markets don't work but rather they don't work perfectly, especially when
 barriers combine with lack of experience. We can clearly see a powerful market
 response to four years of high prices," Rose concludes.
     For more information on this topic or to obtain a copy of Fourth Edition
 Bulk Power Outlook study, contact Judah Rose at 703-934-3342 or Elizabeth
 Kaiga at 703-934-3497.
     ICF Consulting, with more than 30 years of experience, is one of the
 world's leading professional services firms advising clients on managing
 global resources in a sustainable way.  ICF Consulting helps clients optimize
 energy resources, meet environmental challenges, foster economic and community
 development, enhance transportation projects and policies, and manage
 information technology resources. ICF Consulting's 800 employees are based in
 16 offices around the globe, including offices in Bangkok, Fairfax, London,
 Los Angeles, Melbourne, Moscow, New York, San Francisco, Toronto, and
 Washington, D.C.  The firm reported gross revenue of $109 million in 2000. For
 additional information, please visit our Web site at
 http://www.icfconsulting.com .
 
 SOURCE  ICF Consulting