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December 17, 1999
Study predicts need for additional
electrical generating capacity
WEST LAFAYETTE, Ind. – A study prepared for the state of Indiana predicts that additional electrical generating capacity will be needed to keep pace with peak energy demands.
The study also found that electric prices in Indiana probably will continue to decline modestly over the next few years and then remain relatively constant for at least a decade. "Real" electric rates – those adjusted for inflation – have been declining at about 4.7 percent each year since 1986 due, in part, to declining fuel prices.
Electric rates are expected to continue declining at 0.9 percent annually until 2003 and then level off at about 5 cents per kilowatt hour, according to the report, prepared by the State Utility Forecasting Group, a state-funded panel of researchers headed by Frederick T. Sparrow, a professor of industrial engineering at Purdue University. The group has developed methods for predicting future growth in electricity use in the state and region, periodically issuing reports for the Indiana Utility Regulatory Commission.
The report, Indiana Electricity Projections, contained these conclusions:
• Energy analysts are concerned about the declining ability of the state's utilities to meet peak electricity demands in the near future. Additional electricity is expected to be needed because of increased economic growth, the additional service needs of commercial and residential customers, and price declines for electricity in comparison to other energy sources.
• Assuming that utilities continue to operate under Indiana's current regulatory structure, power-plant construction made necessary by the increased demand for electricity will cause rates to level off between 2003 until 2016, the last year covered by the study period.
• If electricity generation is opened to competition, and if competition works perfectly, rates are expected to initially fall below those under regulation, then slowly rise to a level slightly above the projected regulatory rates.
• Electricity sales in Indiana will increase an average of 1.8 percent annually.
The group based its predictions on studies of the state's economic activity, personal income, population, commercial employment and industrial output. The studies are done in accordance with a state law enacted in 1985 to provide the Indiana Utility Regulatory Commission with an impartial projection of electricity consumption and peak demands. That information is helpful in determining whether need exists for additional power plants. This is the seventh full report compiled by the group.
Among other duties, the commission is charged with determining whether new power plants proposed by utilities are necessary and whether construction costs are reasonable and should be borne by rate payers.
Sources: Frederick T. Sparrow, (765) 494-7043, fts@ecn.purdue.edu
Douglas Gotham, associate director, State Utility Forecasting Group,
(765) 494-0851; gotham@ecn.purdue.edu
Writer: Emil Venere, (765) 494-4709, emil_venere@purdue.edu
Purdue News Service: (765) 494-2096; purduenews@purdue.edu
Other source:
Ryan Soultz, public information director of the IURC: (317) 232-2715; rsoultz@urc.state.in.us
Related Web sites:
State Utility Forecasting Group
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