244 



For the past two years the topic of fuel choice has been the subject of much discussion 

 in the Northwest. The origin of this debate has been the need for new electric genera- 

 ting resources in the region after a decade of energy surplus. Natural gas, because of 

 its availability, moderate environmental impacts and current low price has been the fuel 

 most often proposed for new generating resources. The question of whether that fuel 

 could be more efficiently used to displace electric end-uses such as water and space 

 heating has arisen in this context. 



There are two points that should be considered regarding fuel choice. First, there are a 

 variety of issues that need to be addressed before a regional policy on fuel choice is 

 implemented. Because of regional diversity, we believe that fuel choice is best ad- 

 dressed at the local utility level. 



Although the direct use of natural gas for space and water heating can be more efficient 

 than using the gas in a combustion turbine to produce electricity, there is more to the 

 public policy debate. In fact, even the technical analysis is not entirely clear because 

 combustion turbines would be displaced by nonfirm hydroelectric energy or used in con- 

 junction with high-efficiency ground source heat pumps. The decision to encourage the 

 use of natural gas as a substitute for electric end-uses is also a complex business deci- 

 sion. Many questions surround the implementations of a regional fuel switching 

 policy. Among them; To what extent are measures beyond current market price sig- 

 nals necessary? Current signals are yielding a result that sees 95 % of the new housing 

 market choosing natural gas over electricity to serve household heating needs. Given 

 this level of gas utilization, one wonders what additional steps would be effective. 

 Other questions arise if you then make the decision to proceed with a regional fuel 

 choice policy. What is the appropriate level of contributions from the three parties in- 

 volved: the electric utility, the gas utility and the customer? Should the transaction be 

 viewed as a deferral of the need to purchase new generating resources by the electric 

 utility or the transfer of a revenue stream to the gas utility? Given that the customers 

 are already responding to the price differentials between natural gas and electricity, 

 what is the likelihood that electric utilities would be paying for a consumer decision 

 that would have occurred anyway? What is the correct incentive to pay if all you are 

 achieving is the acceleration of a market trend? What assurances do electric utilities 

 have that consumers will not reverse their decision and return to the electric utility at 

 some point in the future, should the price of natural gas escalate? These questions put 

 the fuel choice issue in a broader and more comprehensive perspective. 



