Power generation shouldn't be over-reliant on one source of fuel

The Oklahoman Editorial Published: January 30, 2013

PREDATORY pricing laws are designed to keep one retailer from selling at a loss in order to drive competitors out of business, then raising prices in a new monopolistic environment.

Monopolies aren't good for consumers in any arena. Energy supply is no exception. What's happening in power generation is a concern because one major source of power is being pushed aside. Coal is in disfavor for environmental reasons, but pricing also plays a key role. In this case, it's not predatory pricing but simply market pricing: Natural gas is now a cheap source of power for making electricity.

While coal is plentiful and the supply doesn't have to be imported from hostile regions, coal producers are hard-pressed to compete with gas on price alone. The reason is the shale gas boom triggered by hydraulic fracturing and horizontal drilling. This has upped the supply of gas; the price has fallen dramatically as a result.

Ten years ago, according to a Wall Street Journal report, natural gas was the fuel used to make just 18 percent of electricity. In the 12 months ended last Sept. 30, gas made nearly 30 percent of power. Coal's share declined from 50 percent to 37 percent during that period.

The rub on gas for many years was its price volatility. Power producers could lock in prices for coal for multiple years; the only unknown was how much it would cost to bring the coal from the mines to the power plants. Not so for gas. And not so long ago, gas was a more expensive way to make power than coal.

It could be again. The market now favors gas. Utility companies are under intense pressure to avoid building new coal-fired power plants and shut down existing ones. This has nothing to do with market forces and everything to do with the Obama administration's aversion to fossil fuels in general and coal in particular.

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