Abstract
There exists the possibility of interfuel substitution in the generation of electrical energy. The responsiveness of the demand for various fuels by electric utilities given this economic fact is investigated. Using regionally disaggregated data, the results indicate that the responsiveness of the demand for coal, oil, and natural gas by electric utilities to relative price changes is not significant. It is argued that fuel adjustment clauses are responsible for this observation. As expected, the demand for natural gas increases as the level of economic activity expands. Most interesting is the negative response of the demand for natural gas by electric utilities to changes in weather conditions. It is suggested that the reason for this observation is that electric utilities, based on current regulatory practices, are among the first to be curtailed should any supply shortfall occur, given prevailing market conditions.
Highlights
To oil, natural gas is the nation's largest primary source of energy, accounting for more than 30 percent of current supply
The country has entered a period of natural gas shortage which may never be reversed
The functional form is log—linear where the logarithm of the quantity of natural gas demanded is a linear function of the logarithm of the prices of the various fuels, the logarithm of degree days'' which is used as a* proxy for the seasonal demand for electrical energy by residential, commercial and industrial consumers, and the logarithm of the index of industrial production which is used as a proxy for the level of economic activity which will affect the general level of demand for electrical energy (5, Chapter 2)
Summary
Natural gas is the nation's largest primary source of energy, accounting for more than 30 percent of current supply. Electric utilities are large users of natural gas with substantial multifuel capabilities.^ As a result, they are concentrated in priorities four through nine and con sequently are among the first to be curtailed when supply fails to satisfy demand at the prevailing market price. 4. Firm industrial requirements for boiler fuel use at less than 3,000 Mcf per day, where alternate fuel capabilities can meet such requirements. 5. Firm industrial requirements for large volume (3,000 Mcf or more per day) boiler fuel use, where alternate fuel-capabilities can meet such requirements. 7. Interruptible requirements of intermediate volumes (from 1,500 Mcf per day through 3,000 Mcf per day), where alternate fuel capabilities can meet such requirements. 9. Interruptible requirements of more than 10,000 Mcf per day, where alternate fuel capabilities can meet such requirements
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