Electric Executives' Forum
Summer 2001: Are You Ready?
Demand-side programs are all the rage as utilities scramble to find power to serve peak loads.
Be prepared. Power interruptions are not necessarily expected -nevertheless, be prepared-but by God, line up all the weapons you can to prevent blackouts in the first place.
Whether it's Utah or New York, that's the chant heard from the five industry leaders interviewed for annual Electric Executive's Forum. To examine how power companies of all shapes and sizes are confronting this summer's looming blackout possibilities, the interviewed executives from a cross-section of utilities-from giant PacifiCorp, which owns utilities in six Western states, to tiny Cheyenne Light, Fuel & Power, server of approximately 140 megawatts of load.
And with that cross-section of utilities comes a whole cross-section of problems and challenges. Cheyenne Light's Rick Kaysen, for example, just recently found himself scrambling for reasonably-priced power when a long-term contract with PacifiCorp covering Cheyenne Light's entire load expired in December. Cheyenne Light had looked to PacifiCorp for its power for some 37 years. Alan Richardson and PacifiCorp, meanwhile, have had to prepare their own family of utilities for the coming summer by attacking the challenge from all sides, investing in new generation and creating a bevy of demand-side programs to shave off load while simultaneously adding megawatts.
But PacifiCorp doesn't own the patent on conservation. Compact fluorescent light bulb offerings are in, spot market purchases are out. Portland General Electric, for example, has attempted to live up to its city's progressive image by creating its own host of programs. PGE's Peggy Fowler, in fact, notes that her utility's energy efficiency program is the original-the real McCoy. In other words, the umbrella program never was terminated, so the infrastructure was in place when the power crisis hit.
For a slightly different perspective on the summer situation, the looked beyond the world of the investor-owned utility, speaking with Gary Zarker of Seattle City Light. Zarker discusses the appropriate mix of contracts, utility-owned generation and market purchases, and gives the details of contingency plans that take medical issues into consideration. Zarker, too, boasts of a whole family of conservation efforts.
Finally, Ralph Tedesco of New York State Electric & Gas Corp. has a mission: to solve his industry's woes, not only in his own territory, but statewide, and to do it using the principals of a NYSEG-created plan. In April NYSEG published a report on the state's "energy crisis" that takes issue with much of the data used and conclusions drawn in the New York Independent System Operator's report. NYSEG also is trumpeting its own six-point strategy for attacking energy problems in the state, and for its own part, has proposed to extend its rate freeze until 2008. Tedesco also tells what his company has done to prepare for the summer and possible ripple effects of power problems downstate in the Big Apple.
Chief executive officer and president
Portland General Electric
"One thing that I think is different about us is we [never] quit our energy efficiency programs. ... So I think we're better positioned than some."
Guarding Against Blackouts
Portland General Electric initiates new programs to increase customer efficiency.
It has been said that rolling blackouts are a possibility in Oregon. Does that apply to your territory?
... We've been working on this for some time. We planned ahead. We did buy ahead. We buy about half of our retail electricity on the [wholesale] market. The rest we generate ourselves. Since we assumed that prices were going to be higher-it was more prices, necessarily, than supply-we planned out as far back as a couple years ago to have some extra energy for our customers. So we think we're well situated. Certainly with the low hydro that we have this year and with all the issues in California, there could be some supply issues in areas around us, but we think we're well positioned.
Were the contracts you entered into long-term?
We don't do [contracts] very far into the future anymore. We used to do long-term contracts of 10-20 years. Now we do two-year contracts-we have [some] on five [year contracts] but not much-most of it's one to two years now.
Is it wise to enter into long-term contracts now, or is that a bad idea because prices are so high?
If I could get a long-term contract at a price that I thought was reasonable, I would enter into it. But right now, as I price long-term contracts, they're above $90 [per megawatt-hour] probably, and I don't think that's reasonable. But if I could get a $55 or a $60 or a $65 for five years, we'd probably do that. ...
What have you done to plan for the unlikely occurrence of shortages?
... The types of things we're doing are talking with customers, getting customers who might commit to come offline or change their usage patterns if we get into difficult situations.
What is your most innovative program that will alleviate summer demand?
Probably the demand buyback [program, under which PGE pays large customers to reduce their load during peak demand periods]. We figured out how it was effective for the individual customer, as well as helping our system, to be able to bring that energy back, and share with other customers. ... This isn't just something that we figure we'll use this summer. We'll continue to use this through time, in the future when we think that there might be shortages. ...
How many megawatts do you hope the program will add to your system?
About 150 MW, I think, is where we are right now. We're out working on some other pieces of flexibility that we can probably even increase from there.
You also have just implemented a program that gives residential customers $12 coupons toward the purchase of high efficiency compact fluorescent light bulbs. How much power will that save collectively?
We hope that it will be 2 MW. That's a modest goal. We're hoping it will be much more, but [that's] just what we thought was immediately doable. ...
What, besides your wholesale contracts and generating capacity, differentiates you from utilities in surrounding areas, where blackouts are more possible?
One thing that I think is different about us is we [never] quit our energy efficiency programs. We have kept those going, so we have a good staff in place continuing to do that. So I think we're better positioned than some. We figured at one point time, over the last 10 years, we've saved about 270 MW-enough for a whole plant, really-from our energy conservation program.
You met your efficiency goals in 2000. Have you shaved off all you can?
No, we've raised that bar again and put more money to try and increase those [savings]... from 6 MW to 11 MW.
How successful have the cash rebates and low interest loans for home energy improvements been?
That's really how we've gotten the savings over the past 10 years. But those [savings] were at prices that were relatively low. We really look for that to increase as we go into trying to put together some programs around whole house energy efficiency and those types of things. We think we'll achieve even more success because of the prices continuing to increase.
From where are you getting your increased capacity?
We have 100 MW that we're hoping for on the renewable side in five years, which isn't a whole lot. We upgraded our coal plant about 65 MW last summer, and about 35 MW from our gas turbines and hydros, so that's 100 MW. There's a new unit [Coyote Springs II] coming online that we're going to operate. It's actually [been] sold to Avista, but we'll operate it and it comes into our system. That's 280 MW. That's summer of 2002. We hope to be able to buy back some of that. It's not ours. And then we have a Port Westward unit, which is also located on one of our facilities, that could come online by summer 2003 at 650 MW. ... I should also mention we're putting on a high efficiency gas turbine-a small one, it's a 24.9 MW, actually, to stay under our 25 MW rule-at our Beaver plant, so that's also available for us this summer.
Are you planning to keep your same mix (roughly 50-50) of wholesale market purchases and self-owned generation?
Yeah, so far that seems to be the best approach for us. That's always subject to dealing with the commission and what the state wants to do in terms of power supply. But right now the state seems to want us to continue to provide for our customers through a mix of our own generation and purchasing on the market.
Have you implemented any new contingency plans in preparation for this summer?
Certainly what we've done is we've dusted off all our contingency plans. In this business, you kind of live in the world of expecting a storm or a major outage. We've just been through Y2K, we've been through things in the past where you share the shortage or have curtailment plans. So, yes, we're working through all those [plans], making sure that we have communications with our customers. We know what to do to operate the system and how to talk with other operators in the area so that we can be in good shape and can handle an emergency if something unusual occurs, like a major plant outage or a system coming down that would cause a domino effect ... .
Have you been working with government agencies in planning for this summer?
There hasn't been anything real formal to this point in time [late April]. We always deal with the city and state emergency folks as we work through, like the Y2K planning and those types of things, but so far no one's really required that a major plan be put in place. But I talked to the governor [the week of April 16] and I suspect we'll be seeing some of those types of things [by the summer].
What else have you been doing in terms of final prep work for the summer?
We're really trying to work hard with our customers so that they know-we have a lot of high tech companies here-looking at what they might be able to do to plan ahead or take care of problems so that they can avoid any type of damage or curtailment to their work. So it's the customer piece we're trying to work on more than anything.
... In the past, energy's been so cheap. We [the industry in general] have pretty much worked on the supply side. Now with costs like they are, it makes a lot more sense to work more on the demand side.
Cheyenne Light, Fuel & Power
"We are a combined gas and electric utility here, and through the winter months we, of course, encouraged conservation efforts, since natural gas prices have been high ... We are encouraging the utilization or consumption of kilowatt-hours on a very conscientious basis."
Life After Long-Term Contracts
Cheyenne Light, Fuel & Power seems to think they'll do just fine after breaking away from PacifCorp.
Blackouts are possible in Wyoming this summer, according to some forecasts. How does that assessment play in your territory?
Our forecast identifies that we do not anticipate any type of service interruptions ... . We have planned, and should have, adequate supply for our customers. Barring any type of infrastructure problems, we should be able to meet the summer load for our customers.
How was your supply arrangement with PacifiCorp, which recently expired, set up?
We had received ... a series of contracts over roughly 37-plus years [in addition to] some extensions off of those contracts and then just new contracts. The most recent contract that expired was a four-year contract that expired on Dec. 31.
How much power did you lose with the 4-year PacifiCorp contract that expired?
It was a full requirements [contract], and that would have been in the 140-MW range. PacifiCorp supplied all of our energy needs. It was not like we had two or three or four different suppliers over those years ... .
Have your negotiations with PacifiCorp led to a new contract?
No, not with PacifiCorp. Our negotiations with PacifiCorp were not fruitful ... . Going from a full requirements customer, we have been creating more of a diverse portfolio of supply in different purchase power agreements with other providers.
What sorts of contracts are you entering into with these new suppliers?
Some of them are short-term, two-month types of contracts. Others [include], for example, a 10-year contract, which does not begin until September of this year. So it's a range of both short- and long-term contracts that we continue to try to build our portfolio.
But during this time of high prices, is it wise to enter into long-term contracts?
[The idea is] to keep a mix so that not all requirements are due at one time when the market might be at a very, very high peak, [such as what] we have just gone through experiencing with the termination of that PacifiCorp contract. [The idea is to put] some flexibility into the portfolio that provides termination of some contracts and the ongoing building of that, so you can try and take advantage of the market when it is at its best. There are diverse arguments as well with respect to long-term and short-term contracts. Some folks are encouraging long-term contracts when you can get that very good price, with the uncertainty of the market and the supply-demand imbalance at this time.
So it is not an easy task to just go out there and say, 'Okay, we would like to have a 10-, 15-, 20-year contract,' because you'd have to try to determine what that future may hold for you as well, let alone what might be happening just at six months or 12 months. When we are out there trying to acquire a purchase power agreement, two things are very important. One is reliability, and then, of course, the cost. And you try to make sure you achieve both of those criteria as you go forward with any type of negotiations.
Have you locked in contracts to meet your load requirement for this summer?
At what point are you in securing contracts for beyond this summer?
We do have about five contracts in place in short- and long-term. We are in the process of evaluating responses to a request for proposal that was issued earlier this year. ...
Who have you secured contracts with?
We have a contract with Public Service Co. of Colorado, and we also have some contracts with [various] Black Hills Corp. entities. ...
What would an extended heat wave this summer do to your system?
Again, [depending on] whatever that extended heat wave might be and what the surrounding impacts might be, we have forecasted we should be able to meet the load.
Have you implemented any demand-side programs?
Yes, we have. Of course, we are a combined gas and electric utility here, and through the winter months we of course encouraged conservation efforts, since natural gas prices have been high ... . In the open dockets we have filed with the Wyoming Public Service Commission, we do have several programs of demand-side management-programs for residential and business customers alike. We are encouraging the utilization or consumption of kilowatt-hours on a very conscientious basis. That's not to say that our consumers have not been conscientious. Again, there's just more emphasis being placed on it right now, recognizing the supply-demand imbalance and of course the related prices.
We do also have a part of that docket ... for proposals ... [for] some type of a buyback program. Again, all proposed and nothing on the books yet.
What other programs have you proposed?
For residential, we would have a program such as going out and acquiring more energy efficient appliances as rated by the Department of Energy. We also have just recently announced as part of the whole Xcel Energy Corporation [Cheyenne's parent company] for those customers on natural gas, there is a program where they could get low-cost loans to go out there and ... do some type of weatherization to their homes. These are some basic programs that we have had some success with in other service territories within our corporation, so hopefully we can mirror that success and our customers can benefit as well.
Have you been in touch with any government agencies with regard to contingency plans?
[As of late April] there have been general discussions. It's all part of the docket [for a rate case increase] that we have in front of the Wyoming commission ... . There have not been any real detailed questions outside of what we have in front of the commission.
Have you been in communication with customers about this summer?
Not in any great detail because, again, our plans do not show that we would have any type of system problems with regards to delivery.
Again, a lot of it depends on what Mother Nature will bring here with respect to a hot extended season. Unfortunately the forecast does show warmer than normal temperatures. We're hoping for our neighbors up in the Northwest that they're going to get some relief from the droughts and perhaps get some spring and summer rains.
Seattle City Light
"We're moving very aggressively on wind generation in our state. There's quite a bit of that coming online. ... We believe we have one of the cleanest portfolios anywhere, and our customers expect it."
Seattle City Light looks to wind farms, small generators, and community awareness to keep the lights on in the Pacific Northwest.
Extremely tight margins in Washington raise the possibility of blackouts should a plant go offline. Does this apply to your service territory?
There's a pretty strong wholesale marketplace here and interconnected grid. We are concerned that it is stretched to its limits, although I think Seattle City Light is capable of withstanding normal reliability issues. I'm not as assured of that as in the past, so we're talking with our customers, commercial and residential, about preparation for blackouts, but mostly from the standpoint of, we think they are going to be in the news frequently from California, and people are going to wonder what the prospect is and how it would play out here. So we want to just use the opportunity to engage people in the conversation and make sure that we're communicating well and that they're prepared.
Are you mainly speaking with your larger customers?
The larger customers, yes we are. ... I think our biggest concern is not so much this summer, but later in the year. The winter may be a bigger issue for us. ... We're having dialogue with elected officials and with the press. ... Some of the larger customers, we have account executives who are working them about interruptibility. And we need to do some community forums and further informational sessions for commercial and residential customers, so that's going to play out over the course of the summer. ...
What mix of wholesale power purchases and your own generation do you have?
In a normal year, we're maybe 10-15 percent on market, and the rest comes from our own resources and long-term contracts. Our own resources are largely hydro resources, and they're about 70-75 percent in a normal year. Because of the severe drought, we're probably down at least 10 percent in our own hydro generation, and that's going to have to come from market resources for the year.
Thinking longer-term, are you comfortable with that mix?
I think we know we want to diversify our portfolio a bit. We have output from a new combustion turbine that's coming online in July; we're one of the purchasers out of that. We're moving very aggressively on wind generation in our state. There's quite a lot of that coming online. And there may be some additional gas-fired combustion turbines in our future. So some further diversification, I think, does make sense. We're pretty careful about the environmental implications of the portfolio we have. We believe we have one of the cleanest portfolios anywhere, and our customers expect it.
How much can you count on from new wind farms?
The capacity is probably somewhere in the low hundreds [MW], [but] what it actually produces in terms of average energy, I don't know yet. I think we're saying it's about a third. I think the people who are selling these wind farms have pretty high expectations for what they're actually going to produce. I'm not going to count on it until we have a little more track record.
Is it wise to enter into long-term contracts now, or is that a bad idea because prices are high?
We have a variety [of contracts], and I would do it again today. Longer-term contracts give you up-front hedge against the kind of power prices we're seeing here right now. ... Our history has always been to have some combination of owned resources and longer-term contracts. There was a time when most of our long-term contracts looked horrible, and today we're pleased as punch that we have them, so I don't know that there's an easy answer here. Given that 75 percent of our resource portfolio comes from low-cost hydro and basically has no fuel cost, I don't think we're going to bankrupt ourselves by having a few well-chosen contracts.
Have you undertaken any efforts to increase capacity for the near-term?
We have looked into putting small generators into our service territory as a reliability hedge. Because of the Pugeot Sound area's clean air problems, putting in more diesel generators was maybe possible but not very desirable. So we didn't go very aggressively there. We did look at some gas-fired machines that could have helped us out in the third quarter of this year; in the end, we decided not to do those as well. I don't think we're going to be incentivizing people who have diesel generators to operate them to help with the power supply. ...
How successful has your voluntary conservation program been?
The goal we set was to try to achieve a million megawatt-hours of reduced load [for the year]-a million below what our forecast was-and that's very close to 10 percent. You know, this city has had 20 years of very strong conservation programs. We've been investing $15-20 million in energy efficiency for quite some time. So, we've been doing a pretty good job of letting conservation investment meet our load growth, and I was a little nervous that asking people to cut another 10 percent might be squeezing a pretty dry turnip or something, but the response of the community has been great. We're down well over 5 percent; depending on how you measure it, we're close to 9 percent, in just a couple of months of working on the message. So, I'm very confident that by year-end, we're going to have achieved that million megawatt-hours in savings. I think it can be done.
Have you implemented any other demand-side programs?
We've got a compact fluorescent light bulb program going on right now, and we mailed out coupons to all of our residential customers, a little over 300,000 of them. ... About 50-55 percent of the coupons have come back [for redemption], and we've mailed out probably 120,000 packages of two compact fluorescent bulbs. I'm told that we are going to get to about 60 percent penetration of our residential customers before this is all done, and, you know, that's 2 or 3 MW. ... That's a good start...
We're doing all of the other programs that other people have shown are good ideas. Vending Miser is a good idea, [which is] kind of a screen saver version for vending machines, turning their refrigeration equipment off. ...
Are your contingency plans new, or are you just dusting off the old ones?
Sometimes it feels like to me that the next thing that can happen to us must be a plague of locusts or something because we've really had quite a number of issues-first a drought, then a major earthquake-you know, I don't know what's next. But I think the earthquake gives us a good indication that you've got to keep the dialogue going for people to be really ready. All utilities have contingency plans for how the system is going to protect itself and we're going to protect our system when there are disturbances. ...
What we want to do is separate the fact from the fiction about what do these things really mean? What can you do to prepare for this? Are there some things that the city's emergency response should include? We've got to make sure that places where new technology has brought things like kidney dialysis into the home, that people understand that the electricity system is not 100 percent reliable. ...
Do you communicate to customers with medical needs that they need back-up generators?
What the medical community tells us is that none of this is permitted to be done in the home unless there is backup power supply. ... [But] we know that some of our customers have backup batteries that have never, ever been checked. They're probably not going to work. So it's that kind of message: "Today would be a good day to check your batteries." ...
Do you keep a list of customers with home medical equipment?
Yes, our customer information system is supposed to have that kind of information. That's another good example of something that I think we want to make sure the medical community is helping us keep those records up to date. It's just a good wakeup call, a reminder for us ... . New technology gives us the ability to do broadcast messages to people that are on special needs lists like that, so I want us to have good information systems and up-to-date information. Again, that's a good point.
How have you been disseminating these "check your battery" reminders?
We will mail to everybody, and we will probably do a good deal of press advertising in addition to that, but I think all of these things are done one heck of a lot better if you engage the part of the community that really knows. The healthcare industry probably has a much better sense of who these people are, what their particular needs are, and how to best communicate with them.
What government officials or agencies have you been working with?
I work for the mayor and the city council. We had a good session with the city council to kind of kick off this reliability conversation. They had some good contributions. I think they're going to help us with getting the word out. There are a number of city departments that I can call on to be of help here. A good example: The city runs the transportation system. ... We need to get well-coordinated with traffic signal electricians when we are thinking about rolling blackouts so we can get traffic signals restored very quickly. Again, that's just a preparation that I need to have our smart people talk with their smart people and figure out how we're going to coordinate that ... .
[We're not really] expecting blackouts. We think this is a good opportunity, since public awareness is high and people are asking those questions, and we want to take advantage of their interest and make sure we're prepared and ready to do a good job.
New York State
Electric & Gas Corp.
"We offer our customers very sophisticated meters, whereby they can download usage information over the Internet, and they can use that information to not only manage their usage, but perhaps more intelligently procure supply."
Urging Action from the ISO
NYSEG lays out a plan to keep New Yorkers from paying outrageous electric rates in the coming years.
What prompted you to go public with your warning about problems in New York State's electric market?
I would say there were at least three factors. The key factors were, first, what we saw going on in the wholesale gas and electric marketplace. Secondly was a strong desire to protect our customers and the upstate economy from the volatile, erratic wholesale electric market we have here in New York. And the third thing was a report issued by the New York Independent System Operator that we thought was very unrealistic in its assumptions and therefore flawed.
Things that we've looked at that have caused us some concern were, first, wholesale gas and electric market prices. When we looked at, say, January to January, we saw that the wholesale gas prices were up about 200 percent and in New York wholesale electric prices in that same timeframe were up roughly 100 percent. In addition to that, we feel that there are serious gaps in energy and infrastructure planning in New York, and this will take many years to correct. Other things that we looked at that were going on around us were, in the city of New York, Con Edison customers experiencing 30 to 70 percent price increases. Now Niagara Mohawk is talking about 6 to 10 percent price increases if their merger does not go forward. We have the New York Independent System Operator, contrary to their initial report, now saying that they expect wholesale prices to rise steeply by 2005, as much as 46 percent. And we see in Massachusetts, the Boston Globe is reporting electric price hikes of up to 69 percent.
Setting aside what's going on in California, and collectively, we looked at these things and said that we have a responsibility to protect our customers and, again, to protect the upstate economy from these very volatile price swings. [In upstate New York,] the economy is just now beginning to perk up, and a key part of sustaining that is providing our customers stable prices. And indeed, our customers are in strong support of stable prices and what we call our Price Protection Plan, whereby we are offering to freeze electric prices until 2008. ... [Prices already have been frozen since 1995.] I should also mention that during that same period, our industrial rates have declined 20 percent, and under our Price Protection Plan, we're offering to reduce those industrial rates an additional 5 percent. And this, again, is what we believe is very, very important to the upstate economy.
Apparently you feel that your long-term contracts are at prices that will sustain the rate freeze and cuts.
We think we're taking an intelligent business risk, which is what businesses do. ... That's how they make money. ...By managing those contracts that we already own and spot purchases, we believe that we'll be able to effectively manage our supply portfolio.
What's wrong with the ISO's own report?
... I think on many points, in terms of these infrastructure issues, the ISO agrees with us. The problem we had with the ISO report is that it made very, very unrealistic assumptions. For example, it assumed that we could add 8600 MW in New York State by 2005. The reality is, one of the largest plants that's going through the state's licensing process has been in that process for 31/2 years, [and] has yet to turn a shovel full of dirt. We're asking, if that's the case and if that's the process, how can you possibly have 8600 MW operating when these things have barely begun the licensing process. In addition to that, the ISO used outdated gas supply cost information, and did not include energy delivery or transportation costs in their gas supply forecasts, so we found that very, very troubling.
The report also included recommendations to expose New York retail customers to electric wholesale market prices at a time when the wholesale market is very immature and volatile, and we feel very strongly that under present market conditions, this proposal is simply irresponsible and wrongly shifts the consequences of an immature market to customers. And in fact, we believe such an approach can create a backlash against competition.
Has the PSC responded to your "NYSEGPlan," your six-point energy policy recommendations?
They have really not taken a formal position [as of May 1.] In fact, we're trying to get them to agree to a schedule for a plan. We have recommended a rather aggressive schedule. ... We have been across New York State talking about our plan, we've received editorial endorsements by three different newspapers across our territory, we know that there have been literally hundreds of letters sent to the governor and to the chairman of the public service commission in support of our plan. ...
Given your plant divestitures, where does your supply come from?
We have sold off virtually all our generation. We have in some instances taken back long-term contracts from those facilities-and "long-term" I would define as three to 10 years. For the balance of our supply portfolio, we're buying on the spot market. ...
What are the chances of blackouts in your territory this summer?
We think we're in good shape with regard to both transmission and supply. Having said that, we're also, as you can appreciate, in a situation where all our transmission in New York State is inter-tied with the other companies. If you think in terms of, "When New York City sneezes, upstate New York catches a cold," that's the situation we face. By that, I mean, last summer, cool though it was in this part of the country, we had to go into voltage reductions not because of difficulties with our system or supply with our system, but rather because of problems that were being experienced downstate New York. So, I would say there is very good potential we'll find ourselves doing a similar thing this summer, because as New York ISO and New York Public Service Commission and many others have pointed out, the supply situation in New York City is extremely tight.
Have you been communicating with your larger customers about the summer?
Yes. Many of our larger customers have been concerned about two things. They've been reading the newspapers and they've seen these price hikes associated with these market pass-throughs, and ... they very much want price stability and support our plan. The other thing I can say about these companies is that we have said to them that it is reasonable to expect that on certain days, just as there was last summer, there is some potential for voltage reductions.
What have you been doing on the demand side for this summer?
The fifth point of our plan specifically calls for the continued wise use of energy. To put some meat on those bones, some of the specific things we've been doing over the past 18 or 19 months have been to solicit our largest customers and other customers for so-called electric interruptible contracts. We've met with what I'll call very modest success-something on the order of a little less than 1 percent of our peak demand, but I think more than anything else, this is a financial product that is going to take some time for the marketplace to digest. But we're also very hopeful that this will be a very valuable tool, not only to our customers, but to our supply portfolio as we look forward, so that's certainly a very important part of what we're doing. ... We also offer our customers very sophisticated meters whereby they can download usage information over the Internet, and they can use that information to not only manage their usage, but perhaps more intelligently procure supply.
Have government agencies been knocking on your door asking if you're ready for possible power interruptions?
Not specific to the summer. I think most of the attention by the New York Public Service Commission has been in the city of New York because of the tight supply situation there. We do get inquiries from time to time with respect to reliability, and of course we operate under performance-based ratemaking, and we have reliability targets that we have to achieve, and we achieve those.
The key reason that we put this plan in place is to really protect our customers and protect the upstate economy, and we feel very strongly that we have a responsibility to our customers and the upstate economy. And so we put this six-point plan in place-the generation, transmission, pipelines, regional transmission organization, wise use of energy, and the sixth point being our price protection plan to freeze rates for an additional seven years-we think is very realistic because the first five points will take at least seven years to sort through. And that's really where we believe the attention needs to be focused in the state of New York today, and indeed across the country: on infrastructure.
President and chief executive officer
"We've stepped forward on a very urgent basis on some real chunky generation. I think that by the time the calendar year has ended, we will have brought on about 1100 MW of generation."
Thinking Across State Lines
PacifiCorp adds some major generation to prepare for the coming summer months.
What is the potential for blackouts in your territories this summer?
I think the potential for blackouts in our territories are relatively small. But there is a danger of disruption, particularly in California, which may cause stresses and strains on the wider Western network. Certainly from our own customers' point of view, from our own resource point of view, we work very hard so that we've got all the options at our disposal, from conservation demand-side management [to] new generation ... . If there is a wide-spread issue-extremely hot weather and the [lack of] hydro continuing-then it could be difficult.
Have you added new generation to prepare for the summer?
Yeah, we have. We came through last summer, which was quite a difficult summer, and people imagined that the issues might go away. But December was a difficult month, and we really stepped up our action then, which had already been moving. For example, we identified 100 MW of combustion turbines that we could locate in Salt Lake City, and they're being commissioned as we speak here [May 2]. We located about 200 MW of generation in customers' plants that wasn't running, and we contracted that generation from customers. That's running, and that's been running since January. We've also invested in a couple of plants that come on later in the year: the West Valley [plant], near Salt Lake City, 160 MW, will come on in October. And, of course, the Klamath Falls 500-MW co-gen plant on the Oregon-California border, which will commission in early July.
So there's a lot going on. And there's more than that: [for example] wind farms-about 350 MW of wind that will come on progressively from about August. So, we've stepped forward on a very urgent basis on some real chunky generation. I think that by the time the calendar year has ended, we will have brought on about 1100 MW of generation.
Have you been in touch with California utilities about the potential ripple effect of their problems?
Absolutely. We work on a daily basis-on an hourly basis-with the California ISO. They're good people, they're doing a good job, I think we work well together. There's a lot of years history of Western states working together, particularly working with California, and that is still continuing.
It's made worse because of the credit crisis that exists in California. It's not easy-in fact it's impossible legally-to trade with people that simply cannot repay you. And that is the biggest problem we face, going into the summer, to make sure that people that are buying the electricity from us actually are credit worthy. And that might sound strange, but we have no discretion in those matters.
What other demand-side programs are you offering?
[For example] In the first six weeks [of a compact fluorescent light bulb program] we marketed to 350,000 customers in Oregon and gave away 400,000-more than a 50 percent take or break. All we asked them was, tell us where you're going to fit the bulbs, so we could calculate the savings. We reckon it's 2 gigawatt-hours per day from the light bulbs alone, and that's just in Oregon, so we need to get that wider because I think this problem is going to persist through the winter and beyond. ... One of the things I say is, cheap energy is precious, so you should take care how you use it, and you'll keep it that way. But if you're careless with it, you'll lose it. ...
Has your energy exchange program, which pays industrial customers for going offline during peaks, been well received?
Yeah, we've had really good responses from the industrial customers. One [program] is the Internet-based Demand Exchange [www.demx.com, where customers auction their willingness to reduce and/or eliminate their need for power in exchange for an economic benefit either from the generating company, wire company, power marketer, or possibly another customer]. Also, on a direct one-to-one basis, we've worked to secure large customers' generation, but also on a bilateral basis to secure their curtailment at peak when we really run into some of the peak problems and very high prices ... . We're looking at quite large numbers, in the hundreds of megawatts there. For example, in industrial and irrigation, we've already got about 400 MW available to us.
How does the irrigation program work?
[The farmers] simply don't even plant. We're saying, "We'd rather you didn't plant all summer, and we'll pay you." And again, the regulators have been pretty proactive in helping approve those arrangements, particularly Idaho, which is where the big irrigation load is.
We kind of worked hard to include people, and help them help us solve the problem. ... I've got to say we get huge support from the political leadership, from governors, legislative leaders, local congressmen and women. It's really been very good that people realize that there are problems out there, and we really have to work together. I'm most appreciative of that.
What will all these programs do for you in sum total?
Put it this way, I have options this summer that I didn't have last summer. I've got demand-side management. I've got customers' generation. I've got more of my own generation. And those options give me more security than we had last year, so I think from a PacifiCorp point of view, we responded well going into this summer and we really are in good shape-much better shape than last year. And, having said that, last year was like the year before: We were well covered, but the problem was we always went to markets for super-peaks. And all of a sudden, the super peaks were 10 times the price, so you've got a price impact. ...
What worries me is, the customer doesn't know that's going on. You don't know you're buying power at $500 [a megawatt-hour]. If you did, you wouldn't use it. Which is why I've sort of said we've got to get rate increases out there so people realize that electricity is more expensive now than it normally is, so can we preserve it, please? Now, I think we've done some of it through getting the rates up; we've still got more to do there. But a lot of it is just from getting the shear publicity about the problem, and when we get into the hot weather in the summer, we'll need to ramp up the publicity again.
Have you created new contingency plans, or perhaps dusted off old ones?
... What we've done is we've totally refreshed our contingency plan. ... We [Scottish Power] are recent owners of PacifiCorp ... . We were working through [a contingency plan] last November, and then we had a real crisis in the West with the threat of the Arctic Express, the cold weather hitting us, so we really accelerated that program ... . It really is quite a powerful, well thought-through plan. People have got clear accountabilities, we know what we've got to do in the event that the worst happens. And I think that helps. You know, it's nice to know that if you are under real duress, there's a real organized way of going about it; it's not haphazard. I think we're in good shape in that respect. I just hope we don't have to use it.
Have you been working with government agencies on interruption issues?
Yes, and the Northwest Power Planning Council has an emergency response team that pulls that sort of thing together. But we've looked to a wide set of agencies, formally and informally, because, for example, seniors might be left quite exposed, and you need to know who the organizations are, who know those people almost socially and personally. That's what we try to do, as well as the well-structured set-up that there is in the West. You just have to go the extra mile to make sure that there's no one really being threatened in terms of health or worse.
A lot of people are working very hard inside our business and I'm sure in other businesses, and I think people forget it's a long time to focus on real adversity, as demonstrated by the power prices. There's a lot to be done; I hope we're providing good leadership in it, and I hope to bring our customers through intact.
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Electric Executives' Forum - Summer 2001: Are You Ready?
Demand-side programs are all the rage as utilities scramble to find power to serve peak loads.