Public Power - September/October 2007 - (Page 56)

FOR GOVERNING BOARDS Strategies for Managing Power Supply by William Atkinson The American Public Power Association’s Task Force on the 21st Century came up with a list of 10 recommendations for public power utilities. Number two on the list was “deliver value through power supply management.” For most public power utilities, bulk power supply is the largest determinant of electricity rates. Restructuring has led to significant price volatility in wholesale markets and raised new concerns about bulk power reliability. In light of these challenges, the task force listed eight strategies for managing power supply: • Diversify your power supply portfolio. • Pool your operations and risks. • Know what your customers value most. • Watch your credit rating to keep your cost of capital down. • Go long on your generation reserve margin. • Don’t forget transmission. • Hedge your risk; don’t speculate on it. • Keep at least one eye on the long term. “We were remarkably optimistic when we put that together,” said Barbara Grimes with a laugh. Grimes is the general manager of the Burlington Electric Department in Vermont and a member of the task force. “However, BED has been able to accomplish much of what the list encompasses.” Burlington Electric owns one electric generating plant. However, getting long-term 56 SEPTEMBER-OCTOBER 2007 contracts for generation is almost impossible. “The New England wholesale market is somewhat different than the rest of the United States,” she said. Forty percent of electricity generated in New England is natural gas-based. The volatility of natural gas prices has caused many of New England’s utilities, both public and private, to change power supply strategies. BED entered into a selfhedge program two years ago, after Hurricanes Katrina and Rita disrupted natural gas markets. The program was designed to minimize risk, in that it would give BED neither the highest price nor the lowest price for power. “We have found this to be true,” she said. BED’s electricity supply portfolio is 67 percent renewable. Sources include biomass, small hydro, and landfill gas. “Given the carbon-constrained world we find ourselves in, our commission has challenged us to find sources to make it 100 percent renewable,” she said. “We have found that, with the renewables in our portfolio, we are able to deliver competitive pricing.” This past summer, Burlington Electric rolled out its “Solar Cities Program” to install gridconnected photovoltaics on municipal buildings. The program is designed to help reduce peak load. Burlington has been committed to energy-efficiency since 1991. “Our residents, board, and staff all believe that the cheapest kilowatt is the avoided kilowatt,” said Grimes. There is also now a very strong push in the state as a whole to encourage the use of products and lifestyle changes that will help reduce load within the state. Huntsville Utilities in Alabama is in an enviable position, said President & CEO William Pippin, another member of the APPA task force. Huntsville Utilities is served by the Tennessee Valley Authority, so its power supply is diverse and cost-based. “This means we have an assured supply, reliability is good, and the cost is very reasonable.” Most of the other public power utilities in the United States that do not have their own generation and transmission depend on investor-owned utilities to provide that service. Unfortunately, these days, he said, generation and transmission are not being provided at a very reasonable cost, because it is all based on market pricing, since cost-of-service pricing has disappeared. “The whole purpose of deregulation was to provide multiple generation sources to connect transmission lines and allow power [buyers] to have access to reasonably priced power from outside their traditional service territory,” he said. But transmission lines are congested and new lines are not being built. Some public power utilities are at the mercy of their generation and transmission providers, and are probably worse off than they were before deregulation,” Pippin said. “The exceptions are utilities served by TVA and Bonneville” [Power Administration]. As far as Doug Hunter is concerned, Pippin is “preaching to the choir.” He knows first-hand about the problems Pippin outlined. Hunter, also a member of the task force, is general manager of Utah Associated Municipal Power Systems), based in Salt Lake City, which has 52 members. “What is difficult these days, especially in the West, is to get new generation at all,” he said. “Coal can be impossible, largely because of environmental issues. These days, everyone is talking about global warming. Nuclear has never been very big out here. In fact, none of the new plants are scheduled to be out here.” In addition, greenfield sites can be problematic in and of themselves. One reason is the lack of rail service to some of these locations. UAMPS recognizes the importance of diversification. The agency built a gas-fired generating plant so it would have a physical hedge on the fuel market. It also has invested in wind power and is focusing on conservation. Transmission is also a problem, especially in the West, and it is getting bigger every day, said Hunter. “It is almost to the point of being catastrophic in terms of the lack of investment,” he said. “The region spent about 20 years and millions of dollars looking at the idea of regional transmission organizations, but nothing ever got done.” While renewable resources can pick up some of the slack created by the lack of generation, they still depend on transmission. “In order for renewables to grow, we need transmission,” he said. “These wind sites, solar sites, and geothermal sites are in the middle of nowhere. There are no transmission lines or any other infrastructure.” s PUBLIC POWER

Table of Contents Feed for the Digital Edition of Public Power - September/October 2007

Contents Washington Focus 10 Questions Public Power (Every) Week Training Tomorrow’s Work Force What’s in Your Wallet? U.S. Lags in Broadband Deployment Now What? For Engineers Safety Community Broadband For Governing Boards Human Resources Hometown Connections Customer Service DEED Index to Advertisers Advertisers by Category Parting Shot

Public Power - September/October 2007

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