Part C - Louisiana Electric Utility Data

Data in this report on generator capacity, generation of electricity, consumption of electricity, and pricing of electricity for both the electric utilities and the NUGs in Louisiana came from a number of sources. Among these were: previous editions of this Louisiana Department of Natural Resources report, the Energy Information Agency (EIA) of the U.S. Department of Energy (DOE), the Edison Electric Institute (EEI), and the electric utilities serving Louisiana.

Generation of Electricity by Louisiana Electric Utilities

Tables I-94, I-95, and Figure I present information on the generating capacity, electric generation, and capacity use for all utilities serving Louisiana in 1994 and 1995. The data are presented for the prime mover types used to generate electricity by the state's electric utilities. These include natural gas, petroleum, coal, and nuclear fired steam turbines and natural gas fired combustion turbines.

The data on electric utility combustion turbines may not be compatible with data on NUG combustion turbines (refer to Appendix A, Part I). Electric utility combustion turbine generating systems are typically simple cycle operations; only the "jet engine" section is used to provide power to the generator with waste heat exhausted to the atmosphere rather than to a waste heat recovery boiler. This differs form the combined cycle combustion turbine operation used by most cogenerating NUGs. Electric utilities use simple cycle combustion turbines because they may be started up and placed into service very quickly to provide peaking or emergency power.

For Louisiana electric utilities, the number of generators and electric generating capacity remained unchanged from 1994 to 1995 at 109 generators and 16,873 megawatts (MW). Generation of electricity and, consequently, use of capacity did increase over that period, however. Utility electric generation increased form 60,169 million kilowatt hours (million KWH) in 1994 to 65,555 million KWH in 1995, an increase of about 9%. There was a corresponding increase in generator capacity use from 41% to 44% in the same period. As a basis of comparison, generation capacity use for all electric utilities in the U.S. was 47.2% in 1994 and 48.4% in 1995.

Natural gas fired steam turbine units provided the bulk of Louisiana electric utility generation in both 1994 and 195 generating 25,897 million KWH (43.04%) and 30,132 million KWH (45.96%), respectively. Coal fired steam turbine units were second, generating 20,125 million KWH (33.45%) in 1994 and 18,954 million KWH (28.91%) in 1995. Nuclear steam turbines were a close third, generating 12,779 million KWH (21.24%) in 1994 and 15,686 million KWH (23.93%) in 1995. Generation from petroleum fired steam turbine and natural gas fired combustion turbine units accounted for less than 3% of the Louisiana electric utility totals for both years.

Ranking of generation capacity use percentages for natural gas, coal, and nuclear steam turbine generators was the reverse of the generation quantity figures. Nuclear was first with 73% in 1994 and 89% in 1995, coal was second with 69% and 65% respectively, and natural gas was third with 27% and 31%. These use levels correspond to the capabilities of unit types to be taken in and out of service and run at less than capacity.

Nuclear plants require immense effort, both operationally and administratively, in both startup and shutdown. With the exception of refueling, which takes place about every 18 months, or an emergency, nuclear plants are never taken off line. Running any plant at steady output is easier from both an operations and safety standpoint, and since nuclear fuel is the least expensive per BTU of heat input of any utility boiler fuel, there is no incentive to run a nuclear plant at less than capacity. For these reasons, the nuclear steam turbine units come closer to maximum use than any other prime mover type.

Startup and shutdown of a coal fired unit, although hardly in the same class as a nuclear unit, is nonetheless, difficult. So, coal fired units tend to be run continuously. Coal is the second least expensive fuel. In addition, some coal fired units in Louisiana receive their fuel under "take or pay" contracts which means the price for the fuel will be paid whether it is used or not. These two reasons provide incentive to run coal fired units as close to capacity as possible.

Of the three types of prime movers in predominate use by the electric utilities in Louisiana, the natural gas fired boiler / steam turbine units are the easiest to bring on and take off line. These units, then, are the most likely to not be run continuously. In addition, natural gas fuel is generally more expensive per BTU of heat input than coal or nuclear. For the reasons, above, natural gas fired boilers have only 27% and 31% capacity use factors in 1994 and 1995, respectively.

Electricity Sales to Ultimate Customers in Louisiana by Electric Utilities

Tables II-94 and II-95 present information on the sales of electricity in Louisiana by the electric utilities. Sales totaled 69,920 million KWH in 1994 and 72,385 million KWH in 1995. These figures represent a 3.5% increase in sales over the period. In spite of the increase in sales of electricity, total utility revenues from sales fell from $4.260 billion in 1994 to $4.148 billion in 1995. This occurred because average electricity rates for all consumer classes went down almost 6% from 6.0927 cents per KWH in 1994 to 5.7305 cents per KWH in 1995 more than offsetting the effects of the 3.5% increase in consumption of electricity.

Sales of electricity in Louisiana were also higher than the generation of electricity in Louisiana during the same years. In 1994, sales of electricity in the state topped generation in the state by 16.2%. In 1995, similar sales topped similar generation by 10.4%. This phenomenon is probably caused by both the import of electricity by those Louisiana serving utilities having generation facilities in the adjacent state of Texas as well as by the purchase by all Louisiana utilities of electric power form other utilities outside of the state. NUGs in Louisiana and Texas selling power to utilities serving Louisiana (discussed later in this section) can account for only a small fraction of such purchased power.

The consuming sectors in Louisiana for 1994 and 1995 purchased the following from the electric utilities:

• The residential sector consumption increased 4.9% form 22,715 to 23,835 million KWH between 1994 and 1995 or from 32.5% to 32.9% of total utility sales. Revenues for these two years fell 1% from $1,741 and $1,725. Residential sales represented 40.87% and 41.59% of utility sales revenues during the years 1994 and 1995 and carried average rates which fell in those successive years from 7.6645 cents per KWH to 7.2373 cents per KWH or about 5.5%.
• Commercial sector consumption also increased 3.8% from 14,911 to 15,483 million KWH between 1994 and 1995 or from 21.33% to 21.39% of total utility sales. Revenues from these sales fell 3.5% from $1.079 billion to $1.041 billion or from 25.33% to 25.10% of total utility sales revenues during those years. Average commercial sector rates fell from 7.2363 cents per KWH in 1994 to 6.7235 cents per KWH in 1995 or about 7.1%.
• Industrial sector consumption increased 2.7% from 29,867 to 30,685 million KWH between 1994 and 1995 but fell from 42.72% to 42.39% of total utility sales. Revenues from these sales of $1.267 billion fell 3.9% to $1.217 billion between 1994 and 1995. As a percentage of total utility revenues, industrial sector revenues fell from 29.74% to 29.34% between those years. The only slight increase in KWH sales and declining dollar value sales occurred in spite of a decrease in industrial rates from 4.2421 cents per KWH in 1994 to 3.9661 cents per KWH in 1995 or about 6.5%.

Sensitivity of Electricity Sales to Electricity Price Changes - Residential and Commercial Sectors

While many or even all of these relatively small changes may be explained by changes in weather patterns, changes in business patterns, or changes in industrial production levels, the overall negative response of decreasing revenues from sales in the face of falling unit product prices in every sector may also be indicative of the current nature of the electricity market in Louisiana. Under current regulatory circumstances, those in the residential sector and virtually all of those in the commercial sector have no choice about the source of their electricity. Further, the ability, or even willingness, of the entire inventory of residential and commercial consumers to adjust consumption over the short term is likely limited to only a few percentage points from one year to the next. This presents the situation in which yearly decreases in prices of more than a few percentage points will produce decreasing electric utility revenues and yearly increases of prices in a like manner will have the effect of increasing utility revenues.

Sensitivity of Electricity Sales to Electricity Price Changes - Industrial Sector

Choices of electricity supplier are available in the Louisiana industrial sector. Currently, many industrial consumers in the state have two choices of electric power supply source: their serving electric utility or themselves. This additional choice, constituting a degree of competition, has significant effects on the electricity rates paid by theses industrial consumers. The current industrial price of electricity in Louisiana is a reflection of the current internal cost to an industrial facility, now on the utility system, to produce its own electricity by building new internal generating facilities.

If an industrial facility constructs new internal generating facilities, the new industrial NUG will leave the utility system. In addition, its "avoided cost" or the price at which it will purchase electricity externally falls to the variable price of its generating fuel. Over the last several years this has ranged from 1.5 to 2.0 cents per KWH.

As a result, not only is industrial electric consumption in Louisiana sensitive to price, the effects of price on utility sales revenues are both discontinuous and nonsymmetric. On the price increase side, if utility rates to many industrial customer exceed, even by a small margin, the cost at which that customer can self-generate, the customer will do so and leave the utility system - forever. At a point slightly above the current price, utility industrial electric sales revenues can react discontinuously to price. With higher prices, sales revenues are not just reduced by some percentage relative to the percentage price increase, they are immediately and irrevocably reduced by a perfect 100%.

Even at the current industrial average rate of 3.97 cents per KWH, Louisiana industrial electricity prices may still be high enough to drive some industrials out of the market. Since July of 1996 the Technology Assessment Division in DNR has been contacted by at least four engineering or consulting firms requesting data and indicating that they are involved in planning NUG cogeneration facilities for plants in Louisiana. Names of the plants were not discussed. It is not known whether these facilities are existing industrial NUGs expanding, non-generators now on a utility's system, or industrial firms new to Louisiana.

The effects electricity rate decreases in Louisiana have on the utility's existing industrial customer base, on th other hand, are not symmetric with the effects of rate increases. Price decreases for the industrial plants who currently buy electricity form the utilities are likely to have sales revenues effects similar to those exhibited by residential and commercial consumers. Electricity consumption is more likely to be affected by production requirements than price. A 6 or 7% decrease in price may increase industrial electricity consumption slightly. However, if the percentage increase in consumption is more than offset by the percentage price reduction, the net effect will be a decrease in utility electricity sales revenues.

Industrial electricity rate decreases can have effects which are similar to, but the reverse of, the effects of industrial rate increases. These effects hold for both the new plants of new industrial entrants into the state and plant expansions by NUGs who may not be on the utility system. In either case, the decision being made by the potential industrial customer is "make or buy." If the utility can offer rates to the potential industrial which are below that customer's cost of self-generating electricity, then sales revenues may be increased incrementally and in greater proportion than the percentage rate decrease. This is particularly true if special lower rates can be applied on an industrial facility by industrial facility basis rather than through a general industrial rate decrease.

The percentage price decrease required to induce non-expanding NUGs to return to the utility system are too large to reasonably expect. Some Louisiana industrial NUGs are still selling power to the electric utilities at prices averaging 1.69 cents per KWH in 1994, 1.77 cents per KWH in 1995, and 2.09 cents per KWH in 1996. These values are representative of these NUG's "avoided cost" threshold. Only at rates below these levels would these industrial NUGs purchase power instead of making it. These NUG threshold price limit levels would represent price decreases 60.1% for 1994 and 55.4% for 1995 against the industrial rates effective in those respective years.

In summary, under the current regulatory system Louisiana electric utilities have a dilemma with respect to industrial pricing. The utilities are faced with a narrow band of prices which maximize their industrial revenue. Above those prices, they lose industrial customers who leave the system thereby forever cutting their revenues to the utility by an increment of 100%. Below those prices, for existing industrial customers, the utilities lose industrial revenue because industrial consumption of electricity does not increase by the same percentages as the percentage industrial electric price decreases. The only electric rate reduction scenario likely to increase overall income to the utility is the establishment of special industrial electric rates for new facilities which otherwise might become a NUG.

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This page updated June 18, 2008