S7. It is unclear whether demand for electricity will increase or decrease; electric loads served by natural gas-fired generation will have to be reduced or replaced by renewable energy.

Portland’s electricity is provided by Portland General Electric (PGE) and Pacific Power; natural gas is provided by Northwest Natural. To meet the demand for electricity, electric utilities must either produce power from their own generating plants or purchase electricity from other producers under contract or on the spot market.

As demand for electricity grows, utilities must expand capacity to meet the load. The Oregon Public Utility Commission requires utilities to develop Integrated Resource Plans (IRP) identifying the least-cost ways to meet load growth, including energy efficiency and renewable energy. Since the early 1990s the least-cost way to meet load growth has routinely appeared to be natural gas generation. Natural gas currently is used to generate between 7 and 25 percent of the electricity distributed in Oregon, depending on weather conditions and utility company. Utility IRPs use or modify forecasts of natural gas prices from one of several national economic consulting firms. These forecasts show natural gas prices dropping for the next several years, then increasing back to current prices and holding steady for the foreseeable future. These price assumptions do not appear to take into account any impacts from peak oil on energy prices.

Though utilities serving Portland do not rely on oil as an energy source, they do use large quantities of natural gas. World natural gas production will eventually peak like oil; natural gas production in North America has already peaked, and it is questionable whether imported liquefied natural gas (LNG) will be sufficient to maintain current levels of natural gas use, much less allow an increase. In addition, since oil and natural gas are substitutes in many uses, higher oil prices are likely to drive up natural gas prices as well.

The biggest impact of peak oil on both electric and natural gas utilities will be the effect that rising prices and limited supplies of natural gas will have on their costs and rates charged to consumers. The more dependent electric utilities are on natural gas generation, the more electric rates will rise along with natural gas prices. In the long run, current natural gas generation will have to be replaced with non-fossil alternatives. Any utility commitments to more reliance on natural gas generation in the short run will increase long-term exposure to increased costs. Even if utilities generate electricity from alternative resources, these currently cost more than power from natural gas plants, so rates could increase in any event. Over the long term, however, less dependence on natural gas generation should reduce electricity prices.

The effect of peak oil and natural gas on demand for electricity is uncertain. As oil and natural gas prices rise, some businesses may scale back or shut down operations, which would cause demand for electricity to drop. In addition, business and residential electric customers will conserve electricity as rates increase and budgets and incomes are stretched. Significant demand destruction could cause rates to increase as utilities try to recover fixed capital investments. Over the long run, there may be an increased demand for electricity as consumers convert to electric heating, plug-in hybrid or electric cars and other substitutes for oil and natural gas.