Public Power - September 2008 - (Page 13)

think is very telling. In New England, prior to restructuring, it used to take 120 days for a refueling of a nuclear power station. Today, those same nuclear power stations do it in less than 30 days. You have to ask yourself, what’s the difference? The difference is that generators don’t get paid if they don’t run. So under the old paradigm, they received their cost of service whether they ran or not; under the new market construct, every day the unit is out of service costs the owners money. So they will do everything in their power to get back on line as quickly as possible. And that has driven this increase in resource availability. The third difference from the cost-of- 3 New England has had single-system regional dispatch of electricity since the early 1970s. Were there particular problems in the old New England Power Pool that led the organization to transform itself into a regional transmission organization? There were two drivers in New England that caused people to look for a better way of doing it. One was the huge cost overruns on the nuclear power stations. New England is a relatively small region; the utilities are relatively small and there were a large number of nuclear power stations being built. It’s fair to say the costs of construction were poorly managed. When the units came on line, many of them had operational difficul- In New England, prior to restructuring, it used to take 120 days for a refueling of a nuclear power station. Today, those same nuclear power stations do it in less than 30 days. service paradigm is the efficiencies that are gained through planning and scheduling. With the advent of markets, there is much better transparency on what’s causing congestion, where the losses are, and where the problems are on the power system. These things are visible to everyone in the marketplace and, of course, if you see congestion growing it becomes an immediate call to action. We can take action in the short term by managing outage scheduling, and, in the longer-term, we plan to eliminate out-of-market charges or congestion costs through transmission upgrades. The fourth difference is that RTOs and ISOs guarantee open access to the transmission system and wholesale markets for all resource types. This is fundamentally important in allowing non-traditional resources such as wind power and demand response to gain access to the wholesale markets and provides powerful incentives to investors to reduce our dependency on fossil fuels and reduce the carbon footprint of the electric power system. www.APPAnet.org 4 ties, so they didn’t run as often as they had been designed to. So there was a lot of discontent with these investments. Some people were asking, quite legitimately, does this make sense for the future? Is this the way we want to create incentives for utility companies? The other side of the coin is that the utilities themselves were struggling under a huge debt burden with these investments and they were looking for a way to change things as well. The other reality is that New England has always been a high-cost region in the sense that we do not have any natural fossil fuel resources of our own. We are not sitting on top of a lot of coal, oil, or gas. We have to import everything that we use here in New England. If you look at our system today, about 60 percent of generation is gas or oil—actually more than 60 percent, with 40 percent gas only. Has the new forward capacity market operated to encourage construction of new generation in the region? 5 One of the advantages of the RTO system is that it guarantees access to the transmission system and wholesale markets. Prior to this we had a closed monopoly-based system. Every utility had a monopoly franchise and was vertically integrated. Now everyone can compete, which allows us to do things like the forward capacity market. The forward capacity market procures the resources that are needed three years in advance and it’s open to all comers. We have seen continued interest in investment in traditional generation, but we’ve also seen a huge surge in demand-side resources—such as demand response and energy efficiency. In addition, we’ve also seen some nontraditional resources show an interest in the marketplace such as flywheel technologies—and, of course, renewable generation is starting to make a showing as well. The forward capacity market has attracted that sort of investment because people know they can get a dependable revenue stream to provide a capacity resource to New England. We’ve been very pleased with the response so far. It’s far exceeded what we thought we were going to get, both in terms of the volume of the initial show of interest and the amount of resources that qualified to participate in the auction. New England is heavily reliant on natural gas for power. Can the RTO do anything to encourage a more balanced power supply portfolio? Perhaps the single most important thing we can do to help solve for the resource mix problem is to make sure there is an accurate price signal that indicates to resource developers that there are profits to be made if you can displace natural gas- or oil-fired generation. If you can bring along a resource that produces electricity at a lower cost than a gas-fired generator, you’ll be able to make a profit doing that. That’s what the marketplace is designed to do. However, siting challenges in New England tend to constrain the options that we have. It’s very difficult to site SEPTEMBER 2008 13 http://www.APPAnet.org

Table of Contents Feed for the Digital Edition of Public Power - September 2008

Public Power - September 2008 Contents Perspective 10 Questions What’s Good About RTOs? Capturing Coal’s Carbon Carbon Safety Valves Greater Glass, Greater Savings Getting Customers to Embrace Compact Fluorescent Lights LEEDing Green Kansas City Shows How to Build Green For Governing Boards Safety Community Broadband Hometown Connections Parting Shot

Public Power - September 2008

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