|
|
Enron Mail |
PennFuture's E-cubed is a commentary biweekly email publication concerning =
the current themes and trends in the energy market. If you have trouble rea= ding this email, please see the document on our website (www.pennfuture.org= ) under Pressroom & Publications.=20 -------------------------------------- August 24, 2001 Vol. 3, No. 16 A Cool Heat Wave From August 6 to August 10, record peak electricity demand driven by a swel= tering heat wave severely tested the reliability of the competitive PJM mar= ket. The PJM market passed its stress test with little public notice or cre= dit. As usual, only ships that sink or planes that crash draw headlines. With air-conditioners battling near 100-degree temperatures, consumers set = three new peak usage records on August 7, 8, and 9, with demand hitting 53,= 464 megawatts (MW), 53,910 MW, and 54,176 MW respectively. These new recor= ds smashed the old peak of approximately 51,700 MW set in a 1999, and contr= ibuted to unhealthy air in large parts of the Mid-Atlantic region. They als= o highlight the need to enact better demand response programs and energy ef= ficiency policies in order to reduce the strain placed on power supplies as= well as to protect the environment and public health.=20 The ability of the PJM competitive market to meet record demands and keep c= onsumers cool sharply contrast with California's inability to keep the ligh= ts on even in periods of low-seasonal usage from late 2000 through March of= this year. Speaking of PJM's impressive reliability performance, PJM Presi= dent Phil Harris concluded, "This week's accomplishment is testimony to how= effective markets and efficient operations work in harmony to reliably ser= ve the electric customer." But keeping the lights on should never be taken = for granted. Prior to restructuring, in January 1994, rolling blackouts occurred through= out the PJM power pool when demand for about 45,000 MW couldn't be met. The= se blackouts occurred primarily because huge numbers of plants, which were = rate based and operated by fully regulated monopolies or non-utility genera= tors with PURPA contracts, experienced mechanical and fuel problems at the = same time.=20 This painful experience ensured that policymakers made reliability a top pr= iority and a major topic of discussion when enacting the state's Electricit= y Competition and Customer Choice Act in 1996, asking questions like, would= a competitive market attract sufficient investment to build necessary plan= ts? Would existing plants perform better or worse and experience less or mo= re outages? Could consumers be paid market prices to reduce demand at peak = usage times in order to increase incentives for energy conservation?=20 The last five years and meeting record peaks both in 1999 and 2001 answer t= hose questions and prove the reliability of the competitive PJM market. The= market is producing lots of new generation - most of it new natural gas pl= ants and some wind power, and all of it much cleaner than the coal and nucl= ear plants which dominated the generation market more than 10 years ago. Pl= ants in PJM have never operated better and have reduced their forced outage= rate by about 50 percent since 1996. Additionally, a few customers partici= pated in PJM's emerging demand response programs during the August 2001 hea= t wave.=20 But many more customers would reduce usage in peak periods in return for ma= rket-based compensation if they only had the ability. Though demand respons= e has its nose under the generation tent, it still hasn't reached most Penn= sylvanians. Neither Pennsylvania nor any other state has taken policy steps= to ensure that a necessary infrastructure of time-of-use meters and applia= nce control devices is deployed throughout every home and business, a failu= re which amounts to regulatory malpractice. Until the Pennsylvania Public U= tility Commission requires the deployment of these available technologies o= ver a reasonable period, prices for electricity will remain higher than the= y need be, pollution will be worse than it should be, and reliability will = be less than it could be.=20 Keeping the lights on During the recent heat wave, PJM encouraged general restraint in usage, imp= lemented its demand response programs, and reduced voltage by 2 percent to = 3 percent for brief periods - undetectable to most customers. Beyond not fa= iling, the system performed so well in large part because of the competitiv= e market, not despite it. Several factors worked to maintain system reliabi= lity, including better power plant performance, new generation, imports, sk= illful management of the operation of the transmission system and demand re= sponse.=20 Improved Generation Plant Operation. Of all these factors, dramatically bet= ter plant performance is the single, biggest key to competitive PJM's impre= ssive reliability performance during the last five years. Generating plants= are operating much more reliably now than during the monopoly era. In 1996= , the forced outage rate at PJM generation plants was 12.7 percent, meaning= that a plant scheduled to be available was in fact unavailable for operati= onal reasons 12.7 percent of the time. The forced outage rate of generating= facilities in PJM declined to 11.2 percent in 1997, 6.5 percent in 1998, 5= .7 percent in 1999 and to 5.2 percent in 2000. In 1996, when you really nee= ded a generator, there was a 1-in-8 chance that the unit wouldn't be availa= ble. But in 2000, the odds that a generator would be forced out of service = at any particular time had fallen to 1 in 20.=20 Under price regulation, generators for the most part got paid even if their= plants were unavailable to generate electricity because of operational or = maintenance problems. With the move to market-based prices, generators have= a built-in incentive to be there, especially when demand and prices are hi= gh. Even the PJM capacity payment - still a relic of rate-based generation = - has moved from a payment simply because a plant was physically built, to = one based upon the generating unit's historical availability to provide gen= eration when needed. The decline in unforced outage rates is a testament to= the change in how generators get paid. At the 5.2 percent 2000 average for= ced outage rate, about 3,000 MW would have been unavailable - at the 12.7 p= ercent average forced outage rate for 1996, more than 7,300 MW would have b= een unavailable. Every generation owner deserves credit for this superb per= formance.=20 New Generation. Another reason the lights are staying on despite record pea= ks is the new generation built to serve the Mid-Atlantic market. The develo= pment of competitive power plants continues to accelerate in PJM, with over= 4,000 MW scheduled to come on-line in 2002, and even more for 2003. In con= trast, demand in 2002 is expected to grow by less than 1,000 MW.=20 The Mid-Atlantic experience documents that new generation can be supplied i= n a competitive market. The market is delivering plenty of new generation t= hat is dramatically cleaner and more efficient than that built during the m= onopoly era. Transparent prices in a competitive, efficient market are enco= uraging investors to build. Unlike the previous generations of power plants= , no captive monopoly consumer had to guarantee any investor in a new gener= ation plant a single penny return of the investment or a single penny retur= n on the investment. Unlike many of the previous generation of power plants= , these new plants use mostly natural gas instead of coal or nuclear fuel, = cost billions less to build, can be planned and built more quickly, and don= 't pollute nearly as much. And these plants will never receive a penny in s= tranded costs. =20 Imports. The PJM transparent competitive market sends price signals to gene= rators in its territory - to encourage them to build new supply and to keep= their plants in service and available, especially at peak demand - as well= as to national electricity markets, especially in the Midwest and Virginia= . Peak demand and relatively high peak prices in PJM enabled PJM to benefit= from surplus supplies in adjacent regions and import significant amounts o= f electricity - often over 3,000 MW of net imports - when it was needed mos= t.=20 PJM Operations. Properly managing the electric grid isn't an easy task on a= typical day, but during a heat wave it's particularly challenging. In Augu= st, PJM showed exceptional restraint and skill in managing a potential cris= is without overreacting, relying on the market and voluntary reductions whi= le avoiding the more intrusive controls at their disposal. The 2 percent to= 3 percent reduced voltage levels for a few hours were the only non-volunta= ry reductions, measures imperceptible to most consumers. =20 Demand Response. PJM called upon industrial customers to curtail usage thro= ugh traditional interruptible service in which large customers receive a di= scounted rate in exchange for having service interrupted when supply is lim= ited, and requested that all customers, especially large industrial custome= rs, voluntarily limit consumption and turn on on-site generation. PJM also = successfully utilized several new, market based curtailment programs, and e= stimates that approximately 2000 MW of peak load was avoided through incent= ive programs and implementation of its pilot demand-side response program. = There was an increase of nearly 400 MW of Active Load Management (ALM), whi= ch accounted for a good portion of the demand response programs instituted = by PJM. Unlike the previous year, ALM was not excluded from participating i= n the PJM demand response programs. Additionally, about 100MW of non-ALM re= sources have enrolled in PJM's emergency and economic programs. While this = represents a humble start, the effects during the peak hours can still be s= ignificant.=20 Prices. Peak demand produces peak prices in a competitive market, but PJM m= arket prices remained well under control because new development, imports a= nd plants in service provided adequate supply, and because PJM has a market= rule limiting bids to $1,000 per MWh. Average peak hour prices (7 a.m. to = 11 p.m.) at the PJM western hub were about $250 MWh. In many hours, prices = remained less than $100 MWh, while during a few hours prices were constrain= ed by the $1,000 rate cap. These peak prices are quite moderate compared to= the extreme volatility that was seen in the Midwest in 1999, with prices r= ising to several thousand dollars per MWh, or the recent price spikes in Ca= lifornia.=20 Indeed, one-year forward contract prices within PJM have collapsed since Ju= ne, and the August heat wave hasn't reversed the sharp declines. An all-hou= rs 2002 PJM contract now can be had for about $29.00 per MWh. June, July, a= nd August 2002 contracts have fallen 50 percent from summer 2001 prices. These forward prices are now reflecting the PJM spot market prices that fel= l in 2000 compared to 1999, and have hovered around $30.00 per MWh for the = last 24 months. Both the PJM spot price and the forward contract price are = up to 50 percent less than what most Pennsylvania customers paid their mono= polies for generation in 1996. If they were paying only competitive prices,= instead of competitive prices plus stranded costs - primarily for nuclear = plants - every Pennsylvania customer would have a huge rate cut. And the award goes to. Congratulations to PJM and its staff for operating the PJM market reliably = and competitively in the most difficult, challenging circumstances it has f= aced so far. Their service to the public is unfortunately not widely recogn= ized and is taken for granted. Thanks as well to the plant operators who ha= ve never operated their plants better and to those fortunate consumers who = had the ability to participate in demand response programs and reduced thei= r usage for compensation.=20 Public safety, economic competitiveness, consumer savings, and environmenta= l protection demand that all consumers, not a fortunate few, have the chanc= e to save real money by reducing energy usage through demand response techn= ologies.=20 ----------------------------- E-cubed is available for reprint in newspapers and other publications. Auth= ors are available for print or broadcast. PennFuture (www.pennfuture.org), with offices in Harrisburg, Philadelphia a= nd Pittsburgh, is a statewide public interest membership organization, whic= h advances policies to protect and improve the state's environment and econ= omy. PennFuture's activities include litigating cases before regulatory bod= ies and in local, state and federal courts, advocating and advancing legisl= ative action on a state and federal level, public education and assisting c= itizens in public advocacy. To unsubscribe, simply reply to this email with "unsubscribe" in the subjec= t.
|