THE ELECTRIC MARKET IN CRISIS: DANGER OR OPPORTUNITY?
Abstract:How did we get to where we are today with skyrocketing electrical costs? Is California's energy situation a fluke or a sign of what's to come? What good is another energy management plan?
Water and wastewater utilities alike have an extraordinary opportunity to turn a potential crisis into a significant opportunity.
Historically, the energy cost for utilities has been reasonable. But the days of “penny-cheap” energy are truly historical and, as a result, consumers and businesses must now both adjust in a newly competitive environment.
During the '70s, electric utilities were vertically integrated by generation, transmission, distribution, and customer service. Into the '80s, the cost of electricity began to rise with many double-digit increases. There were significant numbers of new plants, establishing a new rate base. Legislation enacted in the late '70s/early '80s promoted the concept of demand-side management, purchased power agreements, and conversation investment programs. Into the '90s, those utilities were still vertically integrated; however, cracks in the stack were occurring. The Federal Energy Regulatory Commission issued its Order No. 888/889, independent system operators were conceived, and transmission became the linchpin to electric competition. Prices rose even higher, the environmental movement gained more strength, and demand-side management was very common.
The year 2000 saw those previously integrated utilities unbundle. Wholesale generation became its own competitive market through IPPs, market areas, and price spikes. Consumers could choose their providers in 24 states. Today, base price increases are slowing due to increased competition, and a focus on the environmental impacts continues to be strong due to continued resistance to new construction (“not in my back yard”).
Dollars spent on transmission line construction and generating plant construction decreased over time while demand has climbed. Fluctuations in price have been so significant that over the period of just a few days the price of electricity bounced back and forth between 50 and nearly 3,000 per kWh.
For transmission providers, three separate grids serve the United States electric markets: the Eastern Interconnect, Western Interconnect, and the Electric Reliability Council of Texas (“ERCOT”). These grids combine with transmission systems originally designed to serve load, not transfer large quantities of power, to create significant points of transmission line congestion at many highly loaded interfaces. There is also a wide variety of pricing schemes. These factors have made transmitting energy a major challenge. Also, the transmission system is now being further pushed into a role of market facilitator, and is now the linchpin to achieve a competitive generation market and capture the competition benefits. And then there's California. In the future, it's likely that the events in California will simply appear as a footnote in the history of the energy market. And there is good news. Opportunities exist on both the supply and demand side.
Utilities will learn how to save as much, or more, than 30 percent of energy costs. This includes examples of up to 15 percent on the supply side from savings strategies such as rate incentives, and 15 percent on the demand side from strategies such as more effective procurement and deployment of load, accumulating to millions of dollars in savings.
And one of the best ways to take back control of energy costs is to develop an Energy Management Plan. The plan development methodology ensures that utilities know the energy industry, can speak the language, and keep pace with the rapid changes now underway. As you become a fully educated energy buyer, you are in the best position to negotiate reduced energy costs for your utility.
Document Type: Research Article
Publication date: 2002-01-01
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