Tuesday April 24 12:36 AM ET New Power Plants Raise Concerns

By GARY GENTILE, AP Business Writer Copyright, Associated Press, Fair Use for Education and Research Only

LOS ANGELES (AP) - As California tries to build its way out of its energy crisis, the state is deepening its dependence on natural gas, a fuel source that is increasingly expensive and scarce.

That reliance could keep costs of wholesale power high for the state and its utilities even when California eventually generates enough electricity to keep the lights on.

The state hopes to have at least 13 new power plants generating an additional 8,900 megawatts by 2004. California then will rely on natural gas to generate 60 percent of its electricity, up from 52 percent today, according to the Rand Corp.

All the plants now in the works will be fired by natural gas, which has been the cheapest and cleanest way to produce power. On Monday, Gov. Gray Davis and other officials broke ground on the latest, a 500-megawatt plant west of Bakersfield to be online by the middle of next year.

Putting the state's energy future almost entirely in the hands of natural gas suppliers concerns some analysts.

"Is that a good strategy overall to be so dependent on one fuel?" said Mark Bernstein, a Rand senior policy analyst.

As millions of California ratepayers know from their rising utility bills, the price of natural gas has skyrocketed since last winter. Much of the price hike is due to increasing demand nationwide combined with a lack of pipelines - or access to pipelines - in California, which imports most of the natural gas used to run its power plants.

"Overall, when you have increased demand, you have increased prices," said Harvey Morris, an attorney with the California Public Utilities Commission. "Will all this expansion eventually take us to where there is not enough natural gas, and the prices will be perpetually high? That is a concern out there."

Reports by energy analysts predict that natural gas production nationwide will increase by about 3 percent this year, a level that should be sustained over the next few years and is expected to keep pace with demand.

The industry is just now recovering from years of low prices, which discouraged exploration and drilling.

"It's economical now for the producers to go full steam ahead," said Mark Hand, editor of Gas Daily, a trade publication. "We're at record highs now in terms of rigs in operation."

Experts say natural gas prices will remain high for the next few years but should moderate as more supply hits the market - at least in the rest of the country.

Because of California's pipeline problems, the cost for importing gas could run several dollars higher per cubic foot, analysts said.

An Assembly subcommittee hopes to begin addressing the problem this week. It is scheduled to introduce a package of bills to make it easier for companies to win approval for building gas pipelines.

Assemblyman Joe Canciamilla, D-Pittsburg, the committee chairman, said the bills should stabilize and perhaps even lower prices.

"It's sending a signal to the markets that there will be increases in pipeline and storage capacity," he said.

State officials also point out that some of the new plants are replacing older, less efficient units that have gone offline at critical times due to breakdowns. The new generators typically use significantly less gas than current units.

Nationwide, 96 percent of proposed new power plants will run on natural gas, according to David Wagman, editor of FT Energy, a trade publication.

But if gas prices remain high, it might persuade lawmakers to take a harder look at solar, wind, geothermal and other sources. Alternative energy is usually dismissed because it costs more for those technologies to produce electricity.

"Longer term, the solution is to get away from fossil fuels and such a heavy reliance on natural gas," Canciamilla said. "Once the market is stabilized and we're not dealing with the crisis-of-the-week mentality, then there can be an examination of some of the longer-term fixes."

-- Robert Riggs (rxr.999@worldnet.att.net), April 24, 2001