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How Changing Energy Markets Affect Manufacturing

March 1, 2000

Introduction

The market for natural gas has been changing for quite some time. As part of natural gas restructuring, gas pipelines were opened to multiple users. Manufacturers or their representatives could go directly to the wellhead to purchase their natural gas, arrange the transportation, and have the natural gas delivered either by the local distribution company or directly through a connecting pipeline.

More recently, the electricity markets have been undergoing change. When C ongress passed the Energy Policy Act of 1992, requirements were included not only to open access to the ownership of electricity generation, but also to open access to the transmission lines so that wholesale trade in electricity would be possible. Now several States, including California and Pennsylvania, have passed laws opening electricity markets to retail competition. Other States are considering similar laws while the U.S. Congress debates proposed Federal legislation.

Manufacturers spend a lot of their dollars on energy--approximately $69.2 billion in 1994. Most of their energy expenditures were used to purchase electricity and natural gas (77 percent). What happens in those two energy markets affects the manufacturing sector. In turn, the manufacturing sector’s high market share for both energy sources affects the natural gas and electricity markets.

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