Kurt Wulff quoted on American Electric Power in Grant's Interest Rate Observer, June 22, 2001

Respected journalist, Jim Grant, assisted by Jay Diamond, opines that electric power might be the glut of tomorrow.  Our case that natural gas will raise the price structure of electric power and thereby increase the value of AEP's low cost coal fired generation is cited.  Most of the skepticism of  the Grant's editor and publisher is directed to Calpine, an aggressive developer of new capacity.  

Grant's views and our views are reconcilable.  We don't take a strong stand on whether there will be a glut of generation capacity.   

More important to us is fuel cost.  All the new capacity is designed to use higher cost fuel.  We are practically certain that natural gas supply will not expand to cover incremental demand from new generation capacity.  Instead the generators will outbid inefficient users for the fuel. 

The generation capacity we most want to own in deregulation is the old, low cost, capital intensive plant.  The regulated price has been below the market and as the regulations come off, all generators will receive market prices set by the cost of the marginal supplier.  Even if marginal generating capacity is free, the marginal cost of electricity during times of normal load will still be at least equal to the marginal cost of natural gas.  We reckon that during the past twenty years the price of natural gas has been as low as cheap electricity less than ten percent of the time.  We don't see natural gas prices of the past twenty years returning.