Performance Issues for a Changing Electric Power Industry
Release date: January 1995
Highlights
One of the compelling topics currently facing the electric power industry is the prospect of substantial change in its structure and organization resulting from more competition, similar to the dramatic changes which have taken place in the telecommunications and natural gas industries. Furthermore, while not related to changes in industry structure or organization, the January 1994 cold wave that resulted in the implementation of emergency actions, involving rotating consumer blackouts in the eastern United States, increased the awareness of electricity reliability issues. Together these two topics raise the question: Will the changing structure of the electric power industry affect reliability?
The U.S. electric power system is one of the most reliable systems in the world. Most disturbances that affect consumers are caused by adverse weather conditions affecting the electric distribution system. The cost of avoiding distribution system outages is very high. Greater reliability in the electric power system almost always comes at a cost. This report addresses the reliability of the bulk power electric system, which consists of electric generating plants and the transmission network.
Reliability Factors in a Changing Structure
Reliability for an electric system is, most simply, the extent to which consumers can obtain electricity from the system in the amount they want. In order to provide electricity to consumers in a reliable manner, organizations that generate and transmit electricity must ensure that the generating and transmission line capacities are adequate to meet demand. They must also ensure that the proper operating procedures for the bulk power system are followed. This report focuses primarily on the adequacy of the generating capacity for the bulk power system, particularly in view of the changing structure of the electricity industry. One of the most commonly used measures in planning for adequate generating capacity reliability is capacity margins. Capacity margins indicate “the amount of generating capacity available to provide for scheduled maintenance, emergency outages, system operating requirements, and unforeseen electricity demand.” They offer one of the simplest indications of how much generating capacity would be available above the projected peak demand if all capacity were on-line.
The aggregate U.S. capacity margin (including both utilities and the grid-serving portion of nonutilities) has shown a declining trend since 1982, from 33 percent to 21 percent in 1993. Although this drop seems dramatic, the decline must be viewed in its historical context. In the 1970’s, the forecasted peak demand was much larger than the peak demand that actually occurred. Therefore, utilities had planned and built more capacity than was actually needed by the time the capacity was completed. This caused quite high capacity margins. Because of these higher margins, utilities were able to minimize the use of higher fuel cost generating units. However, these high margins were not necessary for the level of reliability deemed acceptable and in recent years have been declining towards more efficient levels.
As the industry evolves, the decision of what constitutes adequate reliability for a consumer may increasingly be made by the customers instead of the utilities. This may occur as customers are allowed to choose among suppliers, referred to as retail wheeling, and decide if they are willing to pay for backup capacity or have their service interrupted if their supplier is not able to provide sufficient electric power to the transmission network at any given time. As many as nine States are already considering retail wheeling legislation.
Some decisions about the planned level of reliability are already being ceded to the customer as the industry evolves. Utilities have long had programs that allow a small number of their customers to affect the level of reliability of their own electric power service. These programs all allow the customer to choose a set of conditions under which his electricity service may be interrupted. In recent years, particularly with the advent of demand-side management and cheaper metering costs, these programs have become more popular and have been extended to more customers. With the introduction of competition into the industry, the option of purchasing a desired level of reliability could be even more accessible to customers. It should be noted, however, that the responsibility for operation of the bulk power system needs to remain with some singular institution for the system to operate reliably (control areas now perform this function).
Along with more choices for the customer, other new factors will be introduced that influence the adequacy of supply and reliable operation of the system, including open access to the transmission grid, new markets for wholesale power, regional transmission groups to coordinate wholesale power transactions, and new technologies to meter electricity usage and communicate between utilities and their customers. Many of these factors are just taking shape, and their eventual form, as well as their effects on the industry, are not certain. With mandatory wholesale wheeling, the operation of the bulk power system has already become more complex.