ICF Consulting study predicts turning point in U.S. wholesale power markets

FAIRFAX, Va., April 4, 2001 à‚– 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 IPMà¢â€ž¢ 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 à‚– 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 https://icfconsulting.com .

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