Average generation costs for the nation's electric utilities fell in 1994, primarily due to reductions in delivered fuel prices. Production costs declined by 3.5 percent, averaging just $1.89 per kilowatt-hour (Kwh) by year's end.
The WSCC is the only NERC (North American Electric Reliability) region where production cost increased (em 2.6 percent in 1994 (em as reduced hydro output in California was replaced by more costly natural gas-fired generation. The greatest cost reductions occurred in ERCOT (11.3 percent), MAIN (5.9 percent), SPP (5.3 percent), and NPCC (4.6 percent) as a result of increased electric output by nuclear power plants and competitively priced natural gas and coal.
Natural gas prices began to fall in March of last year, reaching a low in October of $1.94/MMBtu delivered. Gas prices declined by more than 24 percent overall, resulting in a 9.8-percent increase in gas burn. In contrast, both coal and oil evinced slight decreases in electric output, despite a significant decrease in coal prices (down 7.2 percent) during the second half of 1994. Spot coal prices fell to near $1.13/MMBtu at the end of 1994, after reaching a four-year high of $1.28/MMBtu in October 1993. The lower prices reflected an aggressive spot coal market that provoked significant inventory-building. Coal stocks nationwide reached 127 million tons in December (em up 14.3 percent from the same period in 1993.