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California Power Outages: Greater Reserve Needed?

Friday, August 21, 2020   (0 Comments)
Posted by: Libby Maynard

By: Branko Terzic


My heart goes out to the citizens of California who in addition to the global Covid-19 crisis face local disasters due to forest fires and electric power shortages. The first two are beyond my competence to comment on, while power shortages is a more manageable subject.

 

“Elementary, my dear Watson, when you do not have sufficient reserve capacity your electric demand can exceed your supply.”

 

According to one report the load serving entities (LSE) in California, electric utilities with transmission and distribution systems, are required to own or contract sufficient electric generation capacity to meet their portion of the California Independent System Operator (CAISO) estimated peak demand (Megawatts MW) plus a 15% reserve margin. So, if there is insufficient supply this week that means one of two things:


1. The California LSEs, in question, did not contract for enough supply.

2. The reserve margin number of 15% is not a sufficient reserve in some service areas.

 

One thing to keep in mind is that there is a difference between energy and power. Demand is the power measured in megawatts (MW) required by customers while capacity (MW) is the power available. Apparently at this moment California’s electricity market does not have the capacity available to meet the demand required by customers.

 

Energy is the ability to do work and it can be expressed in terms of kilowatt-hours, British Thermal Units or even gallons of gasoline. Power is the rate at which energy is delivered and is expressed, most commonly in horsepower (HP) and kilowatts (kW) with 1.34 HP= 1 kW. Consider for a moment of someone asks you for 1,000 kilowatt hours (kWh) of energy. If they want it delivered as 1 kW for the next 1,000 hours than a little Briggs and Stratton lawnmower engineer would suffice. If they want it delivered as 1,000 kW in one hour than you’ll need a Formula One Ferrari engine (1,000 kW= 1,340 HP).

 

Capacity is the term used in electric industry to refer to the power output capability of a generator. Demand is the term used to describe the power requirements of customers. Large power plants are rated for power in terms of one million Watts or megawatts (MW). The rule in regulation of electric utilities is that the monopoly electric service company must always have adequate capacity on hand to meet the coincident peak demand of all customers. The problem in California appears to be inadequate available capacity or lack of power transfer capability between regions.

 

Reports indicate that the shortage of power in California is attributable to low wind conditions reducing the output of wind farms by 1,000 MW and the loss of anticipated power supply of 470 MW from a natural gas power plant due to problems at the facilities. There also may be regional power transfer issues where power cannot get from where it is surplus to where it is needed in the state due to lack of adequate electric transmission lines. Of course, new or upgraded transmission lines can correct the transfer problem.


It looks like California’s energy regulators will need to rethink their reserve margin calculations. Whatever assumptions were made about the availability of natural gas fired generators and wind produced electricity capacity will need to be reconsidered based on the facts of their unavailability at this time.


If the main consideration and reluctance to increase reserve margins is the cost of additional reserve capacity to the consumers, there are plenty of studies available which show that costs of additional reserve are below of costs of power outages. During the mid-1980’s, after a surge of nuclear power plant construction and in anticipation of the continuance of 6% per year growth in electric demand, the reserve margin in the US was about 35%. Regulators were alarmed but growth reduced the margin to more typical levels in the range of 15%-20%. Thus, there is nothing sacrosanct about California’s current 15% margin target nor should there be any reluctance to change it if the facts so dictate.


The state of California may be able to reduce power shortages in the future with the introduction of additional end-use energy efficiency or consumer conservation measures, but if not, the adoption of higher reserve margins based on the most recent experience may be a reasonable measure. Yes, higher reserve margin will likely raise base electric rates for all consumers, but it is also likely that any small increase in electric rates will be more than offset by the avoidance of the cost of outages and the higher confidence consumers and business will have in California’s electric system and energy administration.

 



Branko Terzic, Managing Director at BRG LLC and Senior Fellow at Atlantic Council. He is a former; Commissioner on the US Federal Energy Regulatory Commission, Commissioner State of Wisconsin Public Service Commission and Chairman, President and CEO of Yankee Energy Systems., Inc.


     

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