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Customers Interrupted

Utilities that are short on capacity and operate in a stable regulatory environment may be able to extract value from interruptible rates.
Fortnightly Magazine - October 1 2003

markets, and high native peak load. Certainly the rate's intended use will significantly affect the utility's usage of the interruptible rate, therefore impacting its value to the utility.

A second factor is the utility's capacity position. Is the utility long or short in capacity? A utility's capacity position changes from year to year. In one year it may be short capacity, then, if a plant comes on line, it could be long the following year. The impact of the utility's capacity position will vary depending on the interruptible rate's objective. For example, if the objective of the rate is only to be used for system reliability issues and the utility is long on capacity, than the interruptible rate has reduced value. However, if the interruptible rate can be utilized to take advantage of favorable market conditions and is priced appropriately, it still has financial value.

A third factor in an interruptible rate's value is the restrictions placed on the utility in calling interruptions. The key parameters that influence restrictions are as follows:

  • Frequency of interruptions
  • Duration of interruptions
  • Total number of interruptions
  • Notice period before an interruption
  • Assurances of interruption

The value of curtailable and interruptible programs to the utility is the result of a reduced cost to serve load (or revenues from selling the capacity). If a utility can substitute nonfirm load for firm load, the value of the nonfirm load is the marginal cost of the foregone resource additions. As noted above, not all degrees of nonfirm service provide equal value. A kilowatt of curtailable or interruptible load must therefore be evaluated in the context of the restrictions placed on its availability and utilization.

The three factors (intended use, capacity position, and restrictions) combine to determine the value of the interruptible rate for the utility. The full potential of an interruptible rate will be realized when the three factors are optimized to work together (see Figure 1). If the factors are not complementary, the value will be reduced. For example, an interruptible rate that allows unlimited curtailments (restrictions) but only for system reliability reasons (intended use) will have minimum value to a utility. On the other hand, an interruptible rate that allows 400 hours of interruptions (restrictions) for economic reasons (intended use) at a time when the utility is short in capacity (capacity position) will have significant value to the utility.

Each of the three factors mentioned above should be considered when valuing the capacity and energy value of an interruptible rate. Since an interruptible rate is a demand-side option and customer demand typically is met on the supply-side (i.e., generating plants), an equivalency needs to be established between the supply and demand sides. To establish the equivalency, resources with similar characteristics are compared. For example, an interruptible rate is a demand-side option for reducing peak demand throughout the year. A comparable supply-side option is a peaking plant. If all operating characteristics (see factors above) are equal, the two options should have an equivalent value to the utility.

A peaking, supply-side option is valued on the capacity (fixed) and energy