Capacity 'hot spots' in electric power
By Anne M Porter -- Purchasing, 12/10/1998
A shortage of generation capacity and transmission bottlenecks were two (of several) reasons for the massive price spike in the Midwest wholesale electric power market that left interruptible-rate industrial customers without juice for a number of days in late June.A ferc staff report suggests the situation is "unlikely to recur," and that "maturing market conditions should reduce the severity of future price spikes," [PUR: Nov. 5, '98; p. 43]. In the Midwest, at least, the Wisconsin state legislature has begun to address fragility of the transmission system and incumbent Midwest generating utilities--plus a host of opportunistic merchant-plant developers--are scrambling to ensure adequate capacity to produce electrons in the region by summer 1999.
Still, other market watchers are less confident that future capacity crunches will be avoided. A report from credit rating agency Fitch ibca (Electricity Price Spike: Lessons Learned) says, "There is no assurance that the Midwest price experience is an isolated event." Among their reasons for fearing a repeat performance: "Extremely hot or cold weather is not an aberration, it is a given," and "Transmission constraints and unit outages can happen in many regions."
A number of reports released in recent months suggest other North American regions could face capacity constraints under certain sets of circumstances. For example--
* A report from Texas Public Utilities Commission chair Pat Wood, III, says, "...using a conservative 10% reserve margin goal relative to forecast peak demand, Texas will experience a 5,187 MW capacity shortfall in the summer of 1999 (falling to 1,274 MW if all current interruptible contracts are exercised). If our goal were a 15% reserve margin, Texas would fall 8,556 MW short in generation capacity (or 4,465 MW with full interruptions)." Given the short time frame, Wood says, "this demand cannot be met by supply-side sources alone. We must, then, look to aggressive peak shaving and other demand-side reductions to solve this problem and ensure the continuing reliability and adequacy of Texas' electric system in the near future." Wood notes: "Utilities may question these [peak projections], but given their consistently low-level forecasts in recent years, I will require a high standard of proof to lower the load forecasts..."
In a related memo on "moving forward" with load management proposals, Wood said: "We should ask each utility to guarantee that the interruptible load it reports to the Commission...can be counted on as dependable resources, and consider placing some penalty on the utility if those interruptible loads are not dependable. If a utility's interruptible customers switch to firm load and that utility ends up with less interruptible load than reported to the Commission...or if for some other reason a utility's interruptible customers cannot be interrupted as projected by the utility, the utility should not be able to flow through to other customers the cost of resources acquired from the market to make up the deficit."
* Planners in the Northwestern U.S. have suggested that a combination of cold weather in December or January, plus extraordinarily low water supplies, and uncertainties created by deregulation, could leave the Pacific Northwest short on power this winter. A briefing issued in September says, "Projected regional energy loads compared with energy supply show potential winter deficits (loads greater than resources) in excess of import capability with: continued 'medium' load growth, poor hydro conditions, no further resource development." The briefing papers say the problem is, "nothing new...just getting larger and closer."
* A report prepared recently by the California ISO says, "In general, [generation] resources are adequate to meet demand plus needed operating reserves through the turn of the century." However, it continues, "The occurrence of some possible contingencies, such as the retirement of 2,000 MW of existing generation which may not be competitive in the new marketplace coupled with limited new generation development, or the complete elimination of certain interruptible contracts, could lead to resource inadequacy as early as 2000."
The report points out that, "The [California Energy Commission's] siting process for thermal generators has experienced unprecedented levels of interest from new investors...such that at the present time applications for approximately 2,700 MW of new merchant plant capacity have been filed with the CEC with additional filings pending." Still, its authors worry, "it is not clear that price signals are sufficient to encourage the development of sufficient generation (and the retention of existing generation) to maintain or enhance system reliability." In response to this concern, the report recommends that, "By January 1, 1999, the ISO should develop a mechanism to ensure that appropriate price signals are available to account for the need for additional generating resources or other means of providing reliability in specific locations."
* On October 8, 1998, Megawatt Daily reported that the energy minister for Canada's Alberta province had suggested that rolling blackouts could occur this winter if the region fails to boost power supplies.
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