Public Power - July/August 2008 - (Page 39)

had to pay these market prices for any length of time during an outage.” Insurance companies can make good money on this product, he said, especially if the utilities purchasing the coverage don’t have experience in negotiating the details of the contracts. On the other hand, there are challenges for the insurance companies, too, because it is an extremely complicated product to price. “This is one reason there are so few insurance companies offering this coverage.” “If there is an outage and the utility has to buy generation on the market, the market price can be very high,” said John Jiang, Ph.D., assistant professor, electrical and computer engineering, power systems at the University of Oklahoma. Jiang co-authored a research paper on how utilities can evaluate outage insurance contracts offered by insurance providers. Outage insurance can make sense, but is not very popular, he said. “It does not offer liquidity. It cannot be transferred to anyone else.” In addition, because there are not a lot of policyholders, the insurance companies need to keep the premiums rather high, he said. Utilities considering this type of insurance must pay careful attention to negotiations, Jiang said. During the time lapse between the outage and the time the policy actually kicks in, you can negotiate with the insurance provider. Whether the coverage makes sense depends on a utility’s particular situation, said Jack Hadsall, director, risk and security management, for City Utilities of Springfield, Mo. “We use our units for our native load, but we do sell nonfirm surplus off-system,” he said. “We have looked at the coverage from time to time, but we have never felt the need to purchase it.” At one time, North Carolina Municipal Power Agency 1 considered outage insurance for its nuclear plant. “This type of insurance was still fairly new,” said Clay Norris, the utility’s senior vice president of planning and marketing. “At the time we looked at it, many of the insurance companies didn’t have much under their coverage, so we felt that the premiums were too high. Another challenge is that few insurers understand our business, so they have a hard time quantifying the risk and payout exposure.” As an alternative, NCMPA1 ended up with a physical product, a bilateral agreement with a local utility. “When we have an outage, they provide the power instantaneously,” he said. “Of course, not everyone has access to this. “We may not continue with this in the future, largely because of pricing.” Norris thinks outage insurance might make sense if a lot of public power utilities could pool their risk. “If you can get enough companies together and pool that risk, such as in terms of a captive insurance company or more traditional coverage, it might make sense,” he said. “This might make more sense in RTO markets, because there is an easier way to financially settle with centralized markets.” ❚ community Economic Development & Broadband Conference Making the Connection between Economic Development, Broadband and Technology: • Tracks for Economic Development Professionals, New Entrants into Broadband, Experienced Broadband Providers • Broadband topics include: legal issues, technologies, marketing, and customer service • Economic Development topics include: site selectors, business retention strategies, and entrepreneurship • Meet with vendors about the latest technologies • Network with public power colleagues from across the nation • Pre-conference workshops on July 20 For more information, visit www.APPAnet.org and click on “events” or contact Heidi Lambert at 202.467.2921 or hlambert@APPAnet.org July 20 – 23, 2008 Loews Vanderbilt Hotel Nashville, Tennessee www.APPAnet.org JULY-AUGUST 2008 39 http://www.APPAnet.org

Table of Contents Feed for the Digital Edition of Public Power - July/August 2008

Public Power- July/August 2008 Contents Perspective 10 Questions Solar Energy Rising Sacramento's Solar Shares Gainesville Crowns a Conservation Idol By the Numbers Curbing Costs of Outages Reliability Green Energy Hometown Connections Customer Service Parting Shot

Public Power - July/August 2008

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