Independent producers of electricity, who are expected to revolutionize the way millions of Americans receive their power, have been nothing but a headache for utility officials and an expense for consumers in Houston.
There, the independents have generated more electricity than Houston Lighting & Power Co. needs, but the utility is required to buy the electricity nonetheless. The utility estimates that it will pay $750 million more in the next eight years for independently produced power than it would have if it had built its own generating station.
Virginia Power officials, who want to build a new generating station called Chesterfield 7, point to Houston as an example of what goes wrong when utilities are not allowed to control their destinies by building in at least some of their own generating capability.
Houston's problem is a legacy of a law passed by Congress in 1978. The intention was to encourage diversity of electrical supply by forcing utilities to purchase power from producers who use a single fuel, such as natural gas, to make electricity and steam.
All power plants do just that. What is different from the way the game was played in the past is the requirement that established utilities purchase the independently produced electricity and that the steam be put to a useful purpose, not just expended into the atmosphere.
As a result of that 1978 law, cogeneration has become a multibillion-dollar business that has provided most of the new generating capacity in several regions of the nation.
In Houston, however, the prices that Texas regulators ordered utilities to pay the independents for their electricity were so generous that more generation plants were built than needed and a power glut resulted, at least in the eyes of the utilities.
However, John Stauffacher, manager of utility regulatory affairs for Dow Chemical Co., the largest cogenerator in the country, said that the cost of cogenerated power is still less in many instances than what a utility has to pay to generate its power. "In this particular instance . . . none of us forecast accurately the size of the downturn in the Houston area economy that has happened in the last couple of years," he said.
Demand rose sharply in the 1970s, when Houston's economy boomed. But when oil prices took a dive and Houston was dragged down, the power demand decreased.
That is a new version of an old electric utility story, where demand estimates outstrip reality and overbuilding results in excess supply and higher rates for consumers. This time, however, the suppliers were not the utilities themselves, but the cogenerators.
Larry Ford, a Houston Lighting official, said that Texas regulators encouraged many refineries and petrochemical plants with a great demand for steam to become cogenerators. The regulators, however, set a price "overencouraging" independent power production, Ford said.
Houston Lighting has become the largest purchaser of independently produced power in the nation, with about 20 percent of its electricity coming from cogenerators.
So much independently produced power is offered to the utility, Ford said, that it is forced to reduce the output of its own coal-fired generating units, an inefficient and costly process because coal units are meant to run at a consistent rate.
"After it was reasonable for everyone to see we didn't need new power, independent producers continued to build plants," Ford said. "The consumer is paying more than he should."
The utility has appealed to the Federal Energy Regulatory Commission to help states solve these issues.