Energy deregulation may force wide scale distributed energy
March 31, 2008
http://portland.indymedia.org/en/2008/03/374115.shtml
In 1992 electricity began to be viewed less as an essential service and more as a commodity when deregulation was enacted with the passage of the Energy Policy Act. Previously, public and investor owned utilities controlled power generation, transmission and distribution within a set region. The Energy Policy Act, however, allowed for the trading of electricity over wide geographic areas, known as long distance “wheeling”, to the highest bidder. The promise of deregulation was that competition in a free market would keep electric rates low.
After four years of litigation, in 2000, FERC Order 888 went into effect mandating the wheeling of electric power over long distances. The ‘single machine’ grid, however, was never designed to manage this type of ‘trading’. Electricity trading jumped immediately upon enactment of Order 888 and so did dangerous levels of transmission line congestion. Transmission loading relief procedures (TLRs) increased by 6 times within a month and the promised lower rates have in fact risen significantly since 2000 in deregulated states.
Another consequence of deregulation was that no incentive remained to build new power generation plants. In fact, investor owned utilities profited from electricity shortages and as we learned from the Enron catastrophe actually induced artificial shortages to drive up wholesale prices. A December 2001, Wall Street Journal article noted, “The profits on the trades… of cubic feet of gas it didn’t extract or burn, of kilowatt-hours it didn’t generate, and of fiber-optic lines it didn’t light… sent Enron’s revenues soaring.” . . .
Transmission lines take years to complete and cost $1M per mile. In cities like Chicago and New York the cost can be $10M per mile. Wheeling losses, (capacities available but not utilized) the inefficiency of electrical transmission is almost 10% globally equaling the combined energy demands of Germany, France and the UK.
These costs, the time required and wheeling losses are some of the reasons New York City is installing more distributed CHP generation. Combined heat and power (CHP) generators capture the heat normally lost in the production of electricity and use it to heat buildings, districts or neighborhoods where the generators are installed. The Christian Science Monitor recently wrote, “A typical electric plant uses only one-third of its fuel's energy to push turbines. The other two-thirds are lost as waste heat. Boilers, on the other hand, can achieve up to 85 percent efficiency.
By combining both processes, CHP can capture between 70 and 80 percent of the energy in the fuel. Theoretically, cogeneration delivers the same energy as separate generation, but with half the fuel and emissions. Because of close proximity to the end-user, relatively little electricity is lost in transmission.”
Reliability of electric service is another primary benefit of distributed generation. During the 1998 ice storm in Canada hundreds of transmission towers buckled leaving over 4 million people in Canada and parts of the US without power. Multiple deaths were reported, many from hypothermia. Power was restored fairly quickly to urban areas however almost 700,000 rural residents were without power in the middle of winter for over three weeks.
CHP generators require fossil fuels but renewable distributed power generators like small wind and solar are viable and once installed not dependent upon the vagaries of foreign policy, market demands, regulatory actions or the expense of maintaining a decaying grid to allow for long distance commodities trading. Ironically, decentralizing may be forced by the consequences of energy deregulation and the free market theory so dependent upon centralization. . .
Rural America . . . is uniquely suited to deployment of wide scale distributed energy to relieve already congested transmission lines. The capital costs of installing distributed generators at the local, neighborhood and district level are significantly less than the standard centralized model. The value of energy independence for rural communities is priceless.
http://www.opednews.com/articles/opedne_magix_080330_energy_deregulation_.htm
Wheeling Charges
One outcome of the ownership of parts of a national grid by different utility companies is the concept of "wheeling charges," which refers to payment for the movement of electricity, owned by a power supplier and sold to retail or wholesale consumers, over transmission and distribution lines owned by a third party. The concept of wheeling can be compared to a toll road.
Idaho Power alluded to this when it mentioned in its 2006 IRP Addendum that it would benefit our area if the company owned the entire Boardman to Hemingway transmission route, and pass cost savings onto us. This might be true if Idaho Power subsidizes its local service area with wheeling charges, since the purpose of the B2H line is as a regional supplier of electricity, with only a small portion imported into the local service area.
How are wheeling charges calculated? The Institute of Electrical and Electronics Engineers's website says this: "From the economic point of view, lower energy cost does not necessarily mean lower utility cost. The cost of wheeling charges and other factors have to be figured into the calculation. . . there is no standard formula to calculate wheeling charges within the utility industry."
http://ieeexplore.ieee.org/Xplore/login.jsp?url=http%3A%2F%2Fieeexplore.ieee.org%2Fiel5%2F28%2F19538%2F00903144.pdf%3Farnumber%3D903144&authDecision=-203
Stranded Assets
The most controversial element of deregulation legislation has been the proposals by utilities for recovering their investments in facilities which can't generate electricity at competitive prices. These older plants are called stranded assets. Utilities propose that rate payers pay the stockholders for writing them off.
The recovery provisions for stranded assets have created an obstacle for other companies, who otherwise might consider selling electricity in these newly-opening markets. They have to produce electricity cheaply enough so that, even with the surcharge for stranded assets, they can undersell the existing utilities. Some states mandate a rate rollback of 10-15%, which forces them to produce at an even lower cost. Utilities, on the other hand, can subsidize their prices using the money received in compensation for stranded assets.
http://www.oe.energy.gov/DocumentsandMedia/primer.pdf
