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U.S. ENERGY INFORMATION ADMINISTRATION
WASHINGTON DC 20585

FOR IMMEDIATE RELEASE
September 2, 1998

Electric Power Industry Restructuring:
Fuel Suppliers Face New Challenges in Competitive Electricity Markets

Restructuring of the electric power industry could lead to widespread changes including early retirement of some nuclear power units, closure of less competitive coal mines, and an increased share of natural gas to generate electricity, according to an analysis released today by the Energy Information Administration (EIA) in a new report, Challenges of Electric Power Industry Restructuring for Fuel Suppliers.

Restructuring will change the financial risks faced by the industries that supply the fuels used to generate electricity and place new demands on their supply and transportation systems. EIA conducted an analysis of the possible impacts competition in the electricity generation markets could have on the fuel supply industries.

Highlights of the report include:

  • Coal. Coal supplies fuel for 56 percent of utility power generation, representing 87 percent of all domestic coal consumption. Restructuring will result in renewed pressure for cost cutting and consolidation in the coal industry. Small firms may be forced out of business, and large firms are likely to continue increasing in size through acquisitions and mergers. With more than half of all coal being delivered by rail, changes in the structure of the railroad industry also may affect the economics of the coal and electric power industries.

  • Nuclear Power. The nuclear power industry, which accounts for about 21 percent of total electricity generation, will face the possible early retirement of some nuclear power units as a result of restructuring. Competitive electricity prices may be too low to cover operating costs. A plant's inability to cover full costs, including capital costs, produces "stranded costs." The States will determine whether and how much of these costs are recovered. Nuclear power plant operators will be challenged to reduce all operating costs.

  • Natural Gas. Natural gas is the preferred source of energy for most new generating capacity. Deregulation of electricity markets could lead to greater integration of the electricity and natural gas industries and the emergence of competitive energy markets.

  • Oil. Restructuring of the electric power industry should have little impact on crude oil-derived fuels, as the industry currently accounts for only 2 percent of the Nation's petroleum consumption. Electricity deregulation may, however, provide oil companies with opportunities to expand into a related business, using the experience they have gained in electricity production overseas.

  • Renewables. Because electricity generated from renewable fuels, other than hydropower, generally is more expensive than conventionally generated electricity, competition in deregulated electricity market could result in a reduced role for renewable energy facilities. State legislatures and Congress have considered a variety of proposals that include specific provisions to support the continued development and use of renewable energy. Green pricing programs, already being implemented by regulated electric utilities, also may provide a means to increase consumer demand for electricity from renewable fuels.

In its quantitative analysis of likely impacts on fuel supply industries, EIA prepared a range of scenario cases, based on different assumptions about key electricity and energy variables. Some of the key results are:
  • In competitive electricity markets, natural gas will likely capture most of the market for new generating capacity.

  • Nuclear-powered generation capacity is projected to decline as a result of retirements and lack of new construction.

  • Higher demand for natural gas for electricity generation in a competitive environment leads to higher gas prices than would be expected with no competition. Competition also results in slightly lower coal prices.

  • Unless required by policies, the restructured electricity market will not stimulate renewable energy technologies. If policies require increased use of renewables, average electricity prices will increase slightly.

This report is available on EIA's Internet Site at: http://www.eia.doe.gov/cneaf/electricity/chg_str_fuel/chg_str_fuel.pdf.

Printed copies of Challenges of Electric Power Industry Restructuring for Fuel Suppliers will be available later this month from the U.S. Government Printing Office, (202) 512-1800 or through EIA's National Energy Information Center, (202) 586-8800.

The report described in this press release was prepared by the Energy Information Administration, the independent statistical and analytical agency within the U.S. Department of Energy.  The information contained in the report and the press release should be attributed to the Energy Information Administration and should not be construed as advocating or reflecting any policy position of the Department of Energy or any other organization.

EIA Program Contact: B.D. Hong, (202) 426-1126, byungdoo.hong@eia.doe.gov
EIA Press Contact: National Energy Information Center (202) 586-8800, infoctr@eia.doe.gov

EIA-98-21

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National Energy Information Center
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