Miss. Power says PSC request for natural gas forecasts unnecessary
by Amy McCullough
Published: November 25,2009
Mississippi Power Company said it believes the Public Service Commission’s request for additional natural gas price forecasts for an upcoming power plant hearing is vague and unnecessary. The second round of hearings regarding Mississippi Power’s proposed Kemper County lignite coal plant will begin in February. The Public Utilities Staff filed a motion supporting Mississippi Power’s position on the additional data requirements.
The PSC decided in a vote this month that Mississippi Power had proven a need for additional baseload energy generation by 2014. The first phase of PSC hearings regarding the proposed $2.2 billion Kemper plant in October evaluated the need for additional energy in the company’s service area of 23 counties in the southeastern part of the state.
Baseload is the amount of power needed to meet a region’s continuous energy demand. Nationwide, energy from coal and nuclear energy are traditionally used for baseload generation.
In its motion recently filed with the PSC, Mississippi Power said a number of factors, including domestic and foreign supplies, influence the long-term prices of natural gas, and assumptions of those factors must be made to make predictions. Mississippi Power said the PSC’s recommendation that the company provide test scenarios reflecting “downward pressure on gas prices” does not provide enough guidance for a credible forecast.
The PSC also recommended forecasts based upon NYMEX gas futures prices. Mississippi Power said NYMEX futures are “imprudent and very dangerous for long-term utility planning.” The New York Mercantile Exchange (NYMEX) is the world’s largest physical commodity futures exchange.
The utility said it has already provided the commission with 16 different natural gas price forecasts that the PSC determined to be reasonable in the first round of hearings.
Phase II of the hearings will focus on the economics of the proposed plant. The commission will also consider other solutions to the energy need, such as generation from independent power producers or other technologies.
Mississippi Power wants to build the Kemper plant to fill an energy generation need, because the company maintains a dependence on pricey, volatile natural gas would be too expensive for rate payers. Energy prices based on lignite coal will be lower and more stable for the future, the company has said. Additionally, because lignite coal is underground at the Kemper site, transportation costs would be eliminated, further reducing prices.
Actions of utilities in other states have recently been swayed by new forecasts predicting a drop in natural gas prices due to newfound domestic reserves, among other reasons.
While the average daily market price of natural gas reached more than $9 per British thermal units in 2000, the nation is currently experiencing the lowest prices in seven years with prices well below $6 per million Btu.
The federal Energy Information Administration forecasts the price to stay under $7 until 2016, and the EIA does not predict prices to top $8 until 2025.
Entergy Louisiana just stopped a construction project converting an existing natural gas plant to a coal-burning facility, citing the fall in natural gas prices and its predicted stability as a reason.
Entergy Louisiana spokesperson Philip Allison said the decision to stop the project was based on a change in natural gas prices and other factors, including federal CO2 legislation and the general economic downturn.
An increase in natural gas production has lowered the commodity’s price, Allison said. Significant new finds of natural gas, particularly from a type of rock called shale, have influenced the market, he said.
The Louisiana Repowering Project’s purpose was to add fuel supply diversity and reduce reliance on natural gas.
In contrast to July 2008 predictions, a Feb. 2009 analysis by Entergy Louisiana indicated “a reversal of project economics,” according to a Louisiana PSC docket. “The outlook for the long-term cost of natural gas had changed dramatically, and long-term prices were forecasted to be significantly lower than previously anticipated due to technological advances in unconventional gas production technologies,” Entergy Louisiana states in the PSC document.
Natural gas prices have historically been very volatile, Philip Smyth, senior director at Fitch Ratings in New York told the Mississippi Business Journal. Currently, onshore reserves that — due to new technology breakthroughs — are now available, combined with a fall in demand because of the recession, have brought down the price of natural gas, he said.
University of Mississippi economics professor Dr. William Shughart said that while natural gas prices have historically been volatile, we are now in an era where prices have come down because of discoveries of new reserves. Who knows what the future will bring, Shughart said. “It’s stretching it beyond credibility to say the reason a plant is needed in Kemper County is because the price of natural gas is so volatile that we’ve got to have a plant to produce energy from lignite coal,” he said.
“If Mississippi Power was investing its own money, it would be more prudent in making these (natural gas) forecasts. They may be right or wrong, but they don’t have a strong incentive to get forecasts right if rate payers are paying the tab,” Shughart said, referencing the state’s new Baseload Act.
The Baseload Act, passed in 2008, would allow the Mississippi PSC to permit Mississippi Power to raise customers’ rates to pay for the $2.2 billion plant.
The commission also requested that Mississippi Power submit addition carbon price scenarios for the February hearings. In its motion, the company said it believes carbon scenarios already submitted should be sufficient.
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