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Utility Industry

 


Background

Historically, the electric industry in the United States has been a regulated monopoly. In this environment it has grown to provide a very reliable source of energy for the customer and a safe industry for the investor. Return on investment was almost guaranteed and for more than half of this century electricity prices were declining. There was a high degree of cooperation between separate utilities to the point of sharing resources during times of weather related outages. In the latter part of the twentieth century prices began to rise for a variety of reasons. And pressures began to build for restructuring, particularly in those regions of the country with higher than average electricity prices.

Now that deregulation of the industry is in full swing, utilities are tightening their belts. Real competition, and even just the threat of future competition, has become a strong motivator for improving efficiencies and holding down or reducing prices charged for energy. In areas where large industrial and commercial customers are allowed to shop around for power, many have either signed new contracts with their local supplier at reduced rates or actually switched to an alternate supplier. New regulations often require the local utility to transmit the competitor’s power over their own lines to the customer they have lost. The term used for this is "wheeling." The new supplier may not even be a utility. It can be an independent power provider (IPP) or a power broker.

It remains to be seen how well utilities will cope in this new competitive environment and what the results will be. Some large customers are already seeing reductions in their energy costs but many experts predict that the residential user will see little or no reduction in electricity rates. The primary visible focus in deregulation has been energy costs. But there are other issues that are less obvious. One is the area of reliability of electric service.

 

Electric Service Reliability

The competitive pressures building on the electric industry are resulting in some of the same outcomes as in other industries that have gone through a period of deregulation. These are occurring in all areas of the business, i.e. generation, transmission and distribution. Some examples are:

  • personnel reductions via early retirements and layoffs
  • hiring and salary freezes
  • company mergers
  • reduced expenditures for new plants and lines
  • reduced or postponed maintenance
  • earlier retirement of older generating plants

All of these taken together tend to reduce the level of experience in the work force and cause operating and/or capacity margins to get smaller. Line maintenance including tree trimming is postponed. More power is wheeled for greater distances over the transmission system. The new IPPs in practice have no responsibility for maintaining reliability of the transmission and distribution network. Thus, they focus only on generating billable energy (kilowatt-hours kWH) rather than associated reactive power (kilovolt-amperes reactive KVARs) which are needed to maintain adequate voltage on the grid. This is evidenced by the fact that some IPPs actually install generators rated for 1.0 power factor (no KVAR generation). Utilities always use generators rated for power factors such as 0.8 to provide much of the necessary KVARs for the grid.

Thus, reliability is becoming a greater concern. This is recognized within the industry itself. A recent report, "Reliability Assessment 1997 to 2006", North American Electric Reliability Council, Princeton Forrestal Village, 116-390 Village Blvd., Princeton, NJ  08540, states the following:

"For the long term, the industry faces significant challenges in its transition to a fully competitive and open marketplace."

" ...the industry must be able to respond quickly to those changes if reliability is to be maintained during the transition and the latter 5 years of this assessment period."

"The risk is that an inadequate supply of either resources or transmission could result in an inability to deliver electricity to the customer."

Furthermore, the U.S. Nuclear Regulatory Commission has recently notified all nuclear plants of a concern relating to the nation’s power grid reliability and the potential impact on nuclear safety.  This was issued via Information Notice 98-07: Offsite Power Reliability Challenges from Industry Deregulation, U.S. Nuclear Regulatory Commission, Washington, DC, February 27, 1998.  Nuclear generating plants normally rely on their offsite electric system to provide power to safety equipment. If this system fails there are backup diesel generators, however they are intended for use only on rare occasions. A grid failure at a nuclear plant does introduce an undesirable transient and the frequency of such events should be minimized. The stated purpose of the NRC notification is "...to alert addressees to a potential concern relating to the electric power industry deregulation that could adversely affect the reliability of offsite power sources, i.e., power from the transmission system grid to nuclear power plants." It goes on to list examples of more than seven recent problems with the utility grid and concludes, "The present grid management may be dismantled or restructured by two factors that are emerging: non-utility generation and deregulation. ... The capacity and capability of the offsite power system for each nuclear power plant could be significantly influenced by the decisions emerging from these forthcoming changes."

This concern is evidenced by some recent major outages in North America.  See Outage Archives for descriptions.

 

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