The American Clean Skies Foundation recently published a research report titled “Power Switch: A No Regrets Guide to Expanding Natural Gas-Fired Electricity Generation,” which lays out a practical plan to take advantage of the lowest natural gas prices in a decade and save ratepayers tens of billions of dollars.
The study suggests that the potential savings are akin to the large benefits homeowners and businesses are now realizing by refinancing mortgages and long-term debt at today’s historically low interest rates.
Oklahoma and our homegrown energy producers doing work all across this country have been at the forefront of discovering and producing massive amounts of natural gas.
Our state’s energy bounty and the natural gas renaissance across America have fueled the strengthening of our native energy security, positioning us for a chance to achieve true energy independence. Today’s historic low natural gas prices have given us a rare opportunity to lock in the benefits of America’s clean energy resource by allowing utilities to sign long-term contracts to buy American natural gas to run their power plants.
A sharp decline in natural gas prices stemming from the unprecedented growth of shale gas production has spurred an increase in gas-fired power generation. Combined cycle gas turbine plants are now cheaper to operate than coal-fired power plants and better for the environment. However, without key changes to commercial and regulatory frameworks at the state level, the current economic and environmental benefits may only be temporary.
We can sustain the benefits of low natural gas prices into the next decade by allowing utilities to enter into long-term natural gas fuel supply contracts, as is common today with coal-fired power and power purchase agreements for renewables. The agreements can be equipped with logical protection provisions, such as associated hedging agreements, to share some of the risk of any future price changes. Oklahoma is leading the way.
Oklahoma lawmakers and regulators recently authorized longer-term agreements for buying natural gas. The Oklahoma Corporation Commission updated its rules, thereby allowing the best option to win the day. I commend the commission and our commissioners for its foresighted action.
In addition to Oklahoma, two other states, Colorado and Oregon, have departed from the norm by taking proactive roles in encouraging long-term gas contracting. The Colorado and Oregon utility commissions found that long-term commercial arrangements could produce large benefits to utility customers in the long run. The three states’ efforts can offer guidance to other states that want to consider long-term contracting as a potential low-cost hedge benefiting utility customers over time. One key element of a long-term contracting policy is the certainty for cost recovery by a utility.
As the report summarizes, the U.S. electric power industry has a historic opportunity to deliver cleaner and cheaper gas-fired generated power to America for decades. The opportunity won’t be realized unless more lawmakers and regulators follow Oklahoma’s lead to put into place the framework to support the wider use of longer-term gas supply contracts. Now is the time.
Jim Roth, a former Oklahoma corporation commissioner, is an attorney with Phillips Murrah P.C. in Oklahoma City, where his practice focuses on clean, green energy for Oklahoma.