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Energy Policy Fact Sheets
Electricity Restructuring
Restructuring of the electricity industry will have a profound impact on independent oil and gas producers, both as suppliers of the natural gas used to generate electricity and as consumers of electricity in the oil and gas production process. The IPAA Board of Governors has approved a position statement which reflects the association’s concerns from both the producer and consumer standpoint:
As both natural gas producers and electricity consumers, independent producers support the concept of full and fair competition and customer choice in the electricity industry through a comprehensive plan of legislative and regulatory reform. Environmental mandates on electric power generators must be reexamined and modified to ensure that the nation’s clean air goals will be met and that all generation fuels and facilities are subject to comparable standards. The comprehensive plan should provide for nondiscriminatory open access to facilities for wholesale and retail transactions; a time certain for implementation of competitive framework by the states; and ensure that deregulation is accomplished in a manner that does not disrupt the contractual relationships between natural gas suppliers and electric generation markets.
Independent producers are responsible for more than two-thirds of the natural gas produced in the United States. Natural gas can be used to generate affordable, clean and efficient electricity when used in connection with combined-cycle turbine technology. Given fair and comparable regulatory standards, natural gas can successfully compete with other fuels for the electric generation market. However, if natural gas must continue to play by a different set of rules, specifically with respect to air emission standards set at more stringent levels than other fuels, then independent producers will be injured economically by electricity restructuring. Furthermore, if certain fuels, such as renewable energy resources, are provided with a federally mandated share of the market, natural gas producers and consumers will all lose.
As consumers of electricity, independent oil producers must have competitive electricity rates to remain competitive in the global petroleum market. A 1997 study by the Oklahoma Marginal Well Commission revealed that electricity costs account for approximately 12% of the total operating costs for average oil leases in that state. However, on some leases electricity charges are two-thirds of operating costs. For small independent producers, electricity restructuring is vital to maintaining our country’s 434,000 marginal wells
