Electric Utility Deregulation

[TCO]

Originally posted by MichaeltheGreat


If I wasn't already here, and already doing it, I wouldn't take it either. I'm looking to move out of the field altogether in the next two-three years, unless there happens to be another gold rush.

Can I have him give you a call--he is in San Diego? (If this job oppty is still in play for him.) I don't think that the type of work he is looking at is competetive. It's more on the energy buy side. Not generation permitting.

Might be real useful for him to talk to someone with industry experience. His partner would have that, but he does not.

[chequita guevara]

Originally posted by MichaeltheGreat
And of course, they also caused the hot weather, the drought, lots of people to move to Cali and not give a **** about conservation, and transmission lines to go overcapacity.

So how come many of the days when they had electrical shortages were days when demand wasn't anywhere close to peak?

[MichaeltheGreat]

Originally posted by Adam Smith
MtG:

I have a pdf version of the Borenstein, Bushnel & Wolak article (about half a mb) which I can e-mail to your Poly address or any other e-mail address you might wish to PM me.

Cool, the Poly one should be fine. I'll PM you my work one anyway.

I skimmed through the article again last night. It appears that increased profits from transmission difficulties falls under the category of "rents", ie, above normal returns to a resource that is temporarily in short supply.

That sort of expense/profit falls into two different areas: One is having to go to less optimal wheeling routes or displacement deals, with more fees to more parties and/or larger transmission and substation losses.

The other is where an absolute constraint effectively partitions the grid, and only in-block generators are available. As one example, I worked on three 50 MW peakers in Solano County (that's the client who decided they didn't want to play in Cali, so they paid us up and quit), and another 150-350 MW proposed base+peaker in Contra Costa County. Physically, the two sets of sites were 15 miles apart as the crow flies, an hour apart to drive (the Sacramento River Delta was in the way), and a practical world apart from a transmission perspective during high load periods. The Solano County plants, despite their geographic proximity, would have been unable to reach the SF-Oakland load center during the very high peak periods, but they would have handled the Sacramento area load center.

Also, the authors count scheduled outages as part of market power, since a generating company can strategically choose when to have a scheduled maintenance outage. Since some maintenance outages are necessary, this clearly overstates the amount of market power.

They're partly correct here and partly not. This was the one area where most gaming took place wrt in-state generators. The flip side is that some "maintenance outages" were really planned long-term shutdowns for repowering (i.e. tearing out the guts and putting in new turbines, etc., to uprate, downrate, change fuel source or increase generating efficiency.) Once shut down for repowering, a lot of regulatory things happened - and the plant was "new development" for air quality and land use permitting. Several SCE peakers that were sold off fit that mold. Sometimes, the new owners were in a position to restart the existing hardware, sometime it was already partly removed.

Three further questions:
1. Where is North Pass? I can't find it on the transmission map I have.

North Pass is a colloquialism for the northern transmission route out of South Pass. It's a sort of short for "North of South Pass." In addition to the overall transmission line constraint, there are constraints at the breakers, transformer banks, etc. in each section of a primary transmission substation, so you can have capacity on a line in or out, but not through a particular transformer bank taking a line out to a specific destination.

2. Which parts of the state were hit hardest by power outages and price hikes, on a percentage basis?

I don't have hard numbers, although I can dig around. SDG&E territory was the least hit, despite being the most import dependent, due to low industrial load and the major population concentrations being coastal. SDG&E also has a different transmission situation, since they have less outside system connections, but those are typically less constrained.

The SF Bay Area was probably the worst hit, followed by the LA basin. Other parts of PG&E territory and SCE territory were less badly hit. Some munis, like SMUD, (Sacramento) were virtually immune to outages, but not cost hits.

3. Why does LA have so many small power plants? Are they inefficiently small plants left over from years of NIMBY? Or are they newer, more efficient combined cycle plants? My guess is the former.

Well, it's definitely not the latter. LA and SCE territory in the LA Basin is just a transmission nightmare. There are a ton of munis - LA itself (LADWP), Anaheim, Riverside, Burbank, Glendale, Azusa, and Colton are all munis, with LADWP generating pretty heavily. Some of the others have the odd peaker plant, but most of those don't really run, they were installed in the wholesale contract gaming days between SCE and the munis. LADWP's transmission system is labrynthine, since there are franchise cutoffs that nearly isolate large industrial areas, so LADWP has a lot of end-of-line situations. Many of their peakers are more for stability purposes in end-of-line than they are for pure peaking.

SCE had a bunch of peakers connected closely to major distribution substations, and some of those are now in prime real estate. Torrance has some, Redondo or Manhattan Beach (not like there's a real difference ) had some. They kind of got lumped in ad hoc as different areas industrialized and built out over the years, so now, there's not a lot of coherence to the overall transmission and peaking / system stability scheme.

[MichaeltheGreat]

Originally posted by GP


Can I have him give you a call--he is in San Diego? (If this job oppty is still in play for him.) I don't think that the type of work he is looking at is competetive. It's more on the energy buy side. Not generation permitting.

Might be real useful for him to talk to someone with industry experience. His partner would have that, but he does not.

Sure, I'll PM you my cel phone #. Weekday afternoons are the best, now that I'm over by the beach in Playas, it's hard to get out the door too early. Plus things are at a fairly "casual" pace right now, until a couple of contracts close.

[MichaeltheGreat]

Originally posted by chegitz guevara


So how come many of the days when they had electrical shortages were days when demand wasn't anywhere close to peak?

Several reasons. The biggest factor is that outages are a separate issue from pricing. Outages are mandated by the WSCC (Western Systems Coordinating Counsel) protocols for the safe management and operation of the transmission grid in the 11 western continental states.

WSCC is a non-profit technoweenie organization, that doesn't care at all about markets. Their whole mission in life is to assure overall reliability of the overall system. Every utility that dispatches generation is a member, so that includes private utilities, the feds (WAPA and BPA), some large munis who generate (Sacramento Municipal Utility District), and state agencies like the Cali Department of Water Resources. If you dispatch into the grid, membership is mandatory, and you pay to support the organization and have a rep there. Members are obligated to other members to comply strictly with WSCC protocols, so that's why you can have a major transmission line loss that affects isolated pockets in all 11 states - each member has to take action to restore stability in event of a major generation or transmission loss.

The way the outages worked was that each dispatching utility monitored it's different required reserve levels, so when a particular reserve level got too low, the utility was mandated under the WSCC protocols to reduce load until the reserve level was back to the acceptable minimum.

The first people to go were those who were voluntarily on interruptible rate tariffs. Under these, you got a break in your power rate, in return for the utility having the right to cut you off (they use wireless radios, so it's under their control) under certain load conditions. The interruptible service contracts specify that you can only be interrupted for a certain total number of hours, a maximum number of different days, and a maximum of X hours in a day. That means if the problem hasn't gone away, eventually you have to let the interruptible guy back on the system, and drop your load some other way. (i.e. rolling outages)

Peaking plant operations are another problem - as load goes up, you bring a peaker to idle, no load condition, and it's then part of your hot ready reserve (aka "spinning" reserve). However, if you actually start generating, it's no longer reserve, so you have to replace your reserve level or drop load off your system. A lot of the peaking plants in the system hadn't had major maintenance since the 80's (this is by design, to make them more economical you try to stagger how much you run them, so that your entire fleet averages out longer intervals before major maintenance). A lot of them were overdue, and running them excessively, say at 110% load, or for too many more hours than planned, increased the risk of breaking something, and taking the plant all the way down for the season. So you run a risk analysis - how much benefit from X extra running hours, vs. what risk of total loss for the season, and how would that total loss affect system integrity?

There's an environmental issue, in that a lot of peakers are oil or diesel fired, and on limited duration air quality permits that allow them to run X hours per year. On a hundred degree day with a Stage II smog alert and a nice inversion layer, the last thing you want to do is run 20 inefficient oil burners. The dirty plants are all liquid fueled, so they have to have onsite fuel storage, and normally, that isn't sized to run 300 hours in a month. The plants were never designed for that, so they instead have fuel for maybe 30 hours running time before needing to be refueled. And when everyone wants fuel for their baseload (semi-clean) and peaking (dirty) plants, getting refueled in time to keep running is a nasty logistics issue. So again, you do risk-benefit analyses on the fly, to look at preserving the greatest availability of your peaking assets.

The late year problem in 2002 came about mostly as a result of exhaustion of the peaking assets. Too many of them had maintenance issues, they'd outrun their permits or been overloaded past 100% for too long, turbines had cracked compressor blades or combustion liners, etc. So a lot of what would have served as reserve capacity in October to December of 2000 was just one step away from being a bucket of bolts. BTW, most of those were still owned by the regulated utilities that got skinned by the market prices, so they weren't really the gougers - they were much more the gougees.

[MichaeltheGreat]

Re: Re: Re: Re: Re: Electric Utility Deregulation

Originally posted by GP
I guess my point was more that the immediate pointing out of other limiters seems like it doesn't admit what environmental problems there were or estimate their scope. And of course some of this stuff is a grey area, no? (Where does a NIMBY change into an eco-freak?) But bottomline, they restricted expansion of capacity with a godawful regulatory process.

The process was/is a mess, but interestingly enough, I've never had the problems with the eco-weenies I've had with landowners, landrapers and lawyers. Eco-weenies can be bought off fairly easily if you work with them a little and give them some of what they want. The NIMBYs and BANANAs are just impossible, though.

And the rhetoric of conservation made some wierd things happen too. I remember getting paid by SDGE to do an efficiency study for a customer who DIDN'T even want the study. Said there was zero chance that they would consider getting rid of their 20 ugly process chillers. But SDGE got the money from some ratepayer pot of money and they made money by commisioning me to do the study and tacking a markup on it. (I didn't mind...it was a kinda fun break to do that instead of more plumbing design. Even if it only took me two days to churn out a $4000 report. Had a nice comb binder...)

Yeah. The legacy of moonbeam Jerry. At the time, nobody was going to do that crap, but the funny thing was that if they had, it would have really paid for itself in 2000, and then some.

They are paying for it one way or another. But in this case they are paying for more, since they used more. They would have paid less if prices had risen since they would have used less.

Spread over time it's a lot less painful. It was bad enough as it was, if there hadn't been a market limiter somewhere, it could have gotten beyond any ability to control. The utils couldn't really cope (and the legal system would have been overwhelmed) with 5 or 10 million bill rebels. So it would have gotten political at some point anyway, but with a lot more bad blood that would make creating a real market more difficult.

Having some businesses that use a lot of energy close, would have been tough, but I guess good, given that it was in short supply. I mean there was a real shortage for all the reasons listed (lack of capacity, hot summer, transmission problems, etc.), Why not let people know that?

Didn't the prices get passed on in SD? Just not in SCE or PGE areas?

They got passed on to an extent everywhere. Just that the market prices in SCE and PG&E went higher, due to worse constraints and load conditions. Up to the same point, everyone got stuck, but the SDG&E costs never rose high enough that the cap became an issue.

Agreed. And people wonder why power providers want a premium for dealing with that banana republic...

Yeah, the financial market people flat out told DWR/CPA that they didn't believe the state would fulfill the commitments it was promising. A lot of the prospective DWR/CPA stuff died because it was unfinanceable due to political risk. Then the economy tanked and the weather turned, so people don't have a clue how lucky they were, and the pols all have an incentive to lie about it and look the other way. 'Til next time.

[TCO]

Thanks Mike. Did I mention the nice comb binder?

[MichaeltheGreat]

Yeah, I sent out some of those reports the same way. Even got them nice card stock covers and clear plastic sheets to protect the pretty color letters on the covers. It was the least I could do.

Ahhh, those were the days... When Cali FUBAR II happens, I think being able to triple my billing rate will probably get me to yank myself out of semi-retirement from the field.