This report is a continuation of a series produced since the late 1980's by the Technology Assessment Division of the Louisiana Department of Natural Resources (DNR). Prior to last year, reports in the series were titled "Cogeneration in Louisiana." Last year, the report title was changed to "Non Utility generation of Electricity in Louisiana." The change in title reflects the growing potential in Louisiana for non utility generators (NUGs) who operate standalone facilities in which cogenerated steam is used to make additional electricity. These new NUG facilities would produce only electricity and, along with new and existing cogenerating NUGs, amy sell power directly to the ultimate consumers.

These non-cogenerating NUGs as well as new and existing industrial cogenerating NUGs are expected to operate in a new and evolving electricity market brought about by recent regulatory rules changes. In such a market, there would be real competition in electric generation accompanied by open, fairly priced, and informed access to transmission services. Clearly, the arrival of such fundamental changes in the electricity marketplace would affect the entire electric industry including non utility generators, electric utilities, and electric customers. Of importance to Louisiana, this new market is likely to affect the natural gas market as well.

Previous reports in this series focused primarily on the presentation of data regarding electricity sales in Louisiana by NUGs who are "Qualified Facilities" (QFs). Qualified facilities are NUGs who qualify under the federal Public Utilities Regulatory Policy Act (PURPA) of 1978 to sell electricity to the public utilities. Only limited information was given on either NUG QFs who sold no electricity to utilities or on NUGs who were not QFs.

Non Utility Generation in Louisiana - Past and Present

The first part of this report provides a brief history of non utility generation in Louisiana, both before and after PURPA. This section then addresses the historical data on both generation and sales by the electric utilities as well as by all NUGs (QFs selling to Utilities, QFs not selling to Utilities, and NUGs who are not QFs). Some of the topics addressed in the presentation of Louisiana NUG historical data are:

• Description of the growth of NUGs in Louisiana prior to PURPA.
• Regulatory and operational bases for the non utility generation marketplace as it currently exists.
• Presentation of data on Louisiana electric utility electricity generation capacity, actual generation, capacity utilization, and sales to ultimate consumers.
• Presentation of data on Louisiana non utility electricity generation capacity, estimated generation, estimated capacity utilization, and reported sales to utilities.
• Comparison of data for both the electric utilities and the NUGs with emphasis on activity in the Industrial sector.
• Presentation of disaggregate NUG electricity sales data by purchasing utility and individual NUG on a monthly basis for the last decade.

Non Utility Generation in Louisiana - The Future

The next section of this report addresses new and evolving circumstances and issues regarding non utility production, delivery, and sale of electricity. As a consequence of the Energy Policy Act (EPACT) of 1992 and the resulting Federal Energy Regulatory Commission (FERC) final Orders 888 and 889 (April 1996), a new competitive electricity market will evolve and will be different from anything observed in the past. The evolution of this new electricity market will significantly affect the electric utilities, the NUGs, and all electricity consumers as well as all producers of natural gas (see SECTION II, Potential Effects of the New Electricity Market on the Natural Gas Industry), both in Louisiana and nationally.

Regarding the new electricity marketplace, the following issues and concepts are presented and discussed:

• The factors and circumstances which created an environment in which non-utilities could successfully compete with existing electric utilities
• The regulatory basis for the introduction of competition.
• The operational bases which, in a realistic sense, may affect both the effectiveness and the onset timing of such competition.
• Things difficult to predict about the future of competition in the electricity market.
• Proposed further reports by the Technology Assessment Division of DNR addressing the four elements listed above in more detail and on a more current basis, with particular emphasis on effects in the natural gas industry.

Summary

In summary, the following can be said of non utility generation in Louisiana

• Because the type of process plant historically locating in Louisiana typically required large amounts of both electricity and process steam, these plants often chose to meet their own energy needs internally through cogeneration. The result has been that, for more than half of this century, non utility generation has provided a significant proportion of the electricity generated in this state. Of the 77,974 million KWH generated in Louisiana in 1994, non utility generation accounted for 17,805 million KWH or approximately 22.8% of total electricity produced.
• In spite of the intent of the Public Utilities Regulatory Policies Act (PURPA) of 1978 to promote sales of cogenerated electricity by non utility generators, sales of non utility generated power are minuscule in Louisiana compared to generation levels of either the state's electric utilities or the state's non utility generators themselves. NUG 1994 sales of electricity generated in Louisiana were 283.3 million KWH. This figure represents 1.59% of estimated NUG generation in the state, 0.47% of electric utility generation in the state, and only 0.36% of the total electricity generated in Louisiana for that year. Reasons for this lack of NUG sales lie in the PURPA limitation of sales only to the utility serving the NUG and in the purchase price levels for NUG power required by both PURPA and existing Louisiana electric utility regulations.
• Because of lack of competition , there are two separate systems of electric generation and pricing the Louisiana today. One system, operated by the NUGs, was developed in a competitive market and currently produces electricity at an average unit cost of less than 3.9 cents per KWH. The second system, operated by the electric utilities, was developed under governmental utility regulation and produces electricity at an average unit cost of more than 5.7 cents per KWH. This difference in average electricity cost of almost 2 cents per KWH makes clear the capacity of NUGs to compete in any open market for electricity generation.

The federal Energy Policy Act (EPACT) of 1992 and resulting final Orders 888 and 889 by the Federal Energy Regulatory Commission (FERC) intend the creation of a genuinely competitive market in electric generation as well as fair and open access by all generators to transmission. In the absence of absolute regulatory protection under such competition, the electric utilities are faced with serious adverse financial effects. They will be forced to abandon inefficient generating facilities. The term now used to describe such effects is "stranded cost." As a result, at all governmental levels, there will undoubtedly be a great deal of political and regulatory conflict over both the degree of actual competition allowed as well as the timing of its onset. The utilities will attempt to lock in current regulated prices as well as stretch out the effects of NUG competition, both of which protect utility "stranded costs."

The only certain outcome in this process is that the new market for electricity will affect electric utilities, NUGs, electric consumers, and other parties in ways not experienced in the past. Of particular importance in Louisiana is the likelihood that this new market could have substantial effects on the natural gas industry as well as the electric industry. All interested parties participating in the electricity market: the utilities, industrial, residential, and commercial electricity consumers, as well as generation fuel producers (e.g., natural gas), would be well served by continuing to update their data and information as this new unregulated electricity market evolves.

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This page updated June 18, 2008