EIA Reports

U.S. ENERGY INFORMATION ADMINISTRATION
WASHINGTON DC 20585

FOR IMMEDIATE RELEASE
May 4, 1999

Electric Utilities Pay Lowest Price for Petroleum Since 1976

The price electric utilities paid for petroleum declined by more than 25 percent in 1998, falling to $2.14 per million British thermal units (Btu). This was the lowest price in more than 20 years (the 1976 price was $1.99 per million Btu), according to information released today by the Energy Information Administration (EIA) in the Electric Power Annual 1998, Volume I. The prices of other fossil fuels to electric utilities also dropped from 1997 to 1998: natural gas from $2.76 to $2.38 per million Btu and coal from $1.27 to $1.25 per million Btu.

These lower delivered costs for fossil fuels contributed to the lower prices that end-use customers paid for electricity in 1998, because fuel is a major portion of the cost of generating electricity. The price of electricity (measured as the average revenue per kilowatthour sold) fell by 1 percent, from 6.85 cents in 1997 to 6.75 cents in 1998, with declines experienced in all major end-use sectors.

Total generation of electricity at utilities was 3,212 billion kilowatthours in 1998, a record level that was nearly 3 percent above generation in 1997. (These generation statistics cover electric utility companies only, and exclude the 11 percent of U.S. electricity generated by nonutility companies.) The higher demand level and lower fuel prices, combined with less hydroelectric generation because of reduced water availability, resulted in increased generation from petroleum (up 42 percent), natural gas (up 9 percent), and coal (up 1 percent). The 911 million short tons of coal consumed at electric utilities in 1998 was a record high level.

Other highlights of this EIA report are:

• Seven nuclear units (that had been out of service for an extended period of time) were restarted in 1998, returning nuclear-powered generation to 674 billion kilowatthours, equal to the record level produced in 1996. The average capacity factor (actual generation compared to maximum possible generation) for all nuclear units increased from 71 percent in 1997 to 78 percent in 1998.

• Although the average delivered cost of petroleum to electric utilities declined in every State between 1997 and 1998, petroleum was still more expensive than the average delivered cost of natural gas in the majority of the States. The largest increases in petroleum-fired generation occurred in Florida and New York.

• Summer temperatures throughout the country in 1998 were considerably warmer than normal and also warmer than during the summer of 1997. Retail electricity sales rose in all end-use sectors during this warm spell, with relatively larger increases in the residential sector than in the commercial and industrial sectors. The largest annual growth in retail electricity sales occurred in Texas and Florida, with increases of 15 and 12 billion kilowatthours, respectively.

• During 1998, the legislatures and /or public utility commissions in 18 States approved or implemented plans to move toward retail competition in their electricity markets. In response, many electric utilities began restructuring their companies and selling their generating assets, primarily to nonutility companies. A total of 23,397 megawatts of electricity generating capability, representing 3 percent of the total utility generating capability, was sold to nonutility companies in 1998.

• These sales to nonutility companies resulted in a shift in the ownership patterns of power plants. During 1998 the share of total industry capability owned by nonutilities rose from 9 percent to 12 percent. By the end of 1998, 4 States (California, Maine, Massachusetts, and Rhode Island) had over 45 percent of their capability owned by nonutility companies.

• In June 1998 a wholesale price spike shocked the electric power industry. The spike resulted from a combination of record high temperatures in the Midwest and East, outages of power plants and transmission lines, and a default on a contract to deliver wholesale electricity. The problem of finding and securing power supplies- at any price- in order to meet customer requirements caused wholesale prices to skyrocket from an average of $25 per megawatthour to an astronomical $7,500 per megawatthour. This price anomaly represents unprecedented volatility in the electricity market.

• Wholesale auctions of electricity occurred for the first time in 1998. This market of supply and demand bids is different from the traditional bilateral contracts or agreements.

• During 1998 five new electricity futures and options contracts began trading (there were only two in 1997), expanding the number of delivery locations. Using futures contracts, power marketers, producers, and buyers can lock in a sale price of electricity for a specific location at a specific time.

EIA Program Contact: Dean Fennell, 202/426-1157, dean.fennell@eia.doe.gov
EIA Press Contact: National Energy Information Center, 202/586-8800, infoctr@eia.doe.gov

EIA-99-11

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