System of Governance

Posted on 2013 Mar 02 by Mark Lively
On 2013 February 27 & 28, I attended the National Research Council’s workshop on “Terrorism and the Electric Power Delivery System.” Though “terrorism” was in the title of the report issued November 2012, the issues were as applicable to natural disasters as to terrorist attacks. In regard to problems on the electric delivery system I was reminded of the Yogi Berra quip, “It’s déjà vu all over again.” Except, I kept thinking, “It’s déjà vu all over again, and again, and again… .”

During the final session of the workshop, Granger Morgan of Carnegie Melon University, the NRC panel chair, said that microgrids could only work if local utilities were disenfranchised. I had just moved up from the audience to the panel table to pass a note to Richard Schuler of Cornell University and took advantage of sitting at a microphone to challenge the need to disenfranchise local utilities in order to have effective microgrids. My thesis is that the benefits of microgrids can be achieved by real time pricing of electricity imbalances within the footprint of the microgrid, where that real time market for imbalances is operated by the local wires company. I wrote about the concept four years ago in “The WOLF in Pricing: How the Concept of Plug, Play, and Pay Would Work for Microgrids”, IEEE Power & Energy Magazine, January/February 2009[i] and in “Microgrids And Financial Affairs – Creating A Value-Based Real-Time Price For Electricity,” Cogeneration and On-Site Power Production, September, 2007[ii]. The benefits of self generation such as a combined heat and power plant can be retained by the participants within the footprint through bilateral hedging, with the actual transactions being with the franchised utility. I note that Granger Morgan’s Carnegie Mellon University is in Pennsylvania, a retail access state, and is in the footprint of PJM, an ISO that operates such a real time market. “Déjà vu.”

I wanted to pass a note to Richard Schuler because he had commented that Australian industrial consumers had noticed that bulk power prices varied inversely with frequency, mentioning a study that he had seen from the mid 1990s. I wanted to get a reference to that study because in the 1980s I had proposed to automate the concept of pricing unscheduled flows of electricity, setting the price the same way, by the price varying inversely with frequency.  The concept of prices varying inversely with frequency is simply illustrated in the first figure, which somewhat replicates the graph Richard Schuler drew for me to illustrate his memory of the findings in Australia.  My first published paper on the topic was “Tie Riding Freeloaders–The True Impediment to Transmission Access,” Public Utilities Fortnightly, 1989 December 21.  So, “Déjà vu all over again.”

Inverse Relation between Prices and Frequency

Richard Schuler made an aside to me after my comment on microgrids about the need to increase the capacity of the wires between pairs of participants on the microgrid because of the size of some distributed generation projects. Such upgrades are part of the responsibility of a franchised utility, but until such upgrades are made and paid for, there needs to be a way to extend the dynamic pricing to include the dynamic use of wires, as I wrote in “Dynamic Pricing: Using Smart Meters to Solve Electric Vehicles Related Distribution Overloads,” Metering International, Issue 3, 2010. Now, truly, “Déjà vu all over again, and again.”

Terry Boston of PJM Interconnection (and perhaps others) repeatedly commented on the need to control frequency and voltage.  When FERC was investigating the concept of ancillary services in the mid 1990s, one pundit said there were 31 flavors of ancillary services.  I wrote “Thirty-One Flavors or Two Flavors Packaged Thirty-One Ways: Unbundling Electricity Service” The National Regulatory Research Institute Quarterly Bulletin, Summer 1996.  The two flavors I identified were active and reactive power which respectively control frequency and voltage. “Déjà vu all over again, and again, and again.”

I believe that microgrids would have the most value during the islanding of the electricity system, which might be the result of terrorism or a natural disaster. Sue Tierney of Analysis Group said that we need a system of governance.  I say that a real time pricing system would provide such a system of governance while the system is stressed, such as by a terrorist attack or by a natural disaster.

David Kaufman of DHS/Federal Emergency Management Agency asked what private actors need from the government, after all, 44 of the top 100 economies in the world are private companies and during emergencies private actors often provide much of the relief.  I believe that the government needs to allow and perhaps operate a system of real time prices while electric systems are operating on an island mode.  David Kaufman also told the story of visiting Haiti after the earthquake and being amazed by the entrepreneurship of kids.  They took batteries from abandoned cars and provided a cell phone charging service.  Batteries could be used on a microgrid during an emergency if appropriate real time prices were available for charging and discharging the battery.

Miles Keogh of the National Association of Regulatory Utility Commissioners said that better competitive markets are very important over short periods of time, after which other systems need to take over.  The real time pricing mechanism that I described in many of my papers could function well on an island electric system, at least until the island was reconnected to the grid and another pricing mechanism could take over.

Following Terry Boston’s admonition to control frequency and voltage and using the concept mentioned by Richard Schuler, I say that we can have a system of prices that vary inversely with frequency.  As I discuss in various papers including “Markets Instead of Penalties: Creating a Common Market for Wind and for Energy Storage Systems,” 8th CMU Electricity Conference: Data-Driven Management for Sustainable Electric Energy Systems, Carnegie Mellon University, Electrical & Computer Engineering and Engineering Public Policy Departments, Pittsburgh, Pennsylvania, 2012 March 12-14, my current thinking is that the shape of the inverse relation between prices and frequency should be a negative hyperbolic sine, such as presented in the next figure.  The hyperbolic sine is symmetrical about a price of zero and in this case a frequency of 60 Hertz.  The price needs to be offset from zero, such as with a price that varies inversely with time error.

 

The hyperbolic sine gets the price high enough to incent private actors who own backup generators to dump electricity into the island grid when frequency is perilously low.  I note that backup generators are notoriously expensive to operate, especially when the replacement of fuel is problematic.  If the price is changing every minute or every five minutes, the price will also drop when there are too many such backup generators or too many solar voltaic systems on the line.  The hyperbolic sine will also push the price negative when system frequency gets to be too high.  This swing in prices between high and low (or negative) would provide an incentive for the batteries to discharge and charge, as I wrote last year in “Reply Comments Of Mark B. Lively, Utility Economic Engineers, On The Need To Create A Program To Price Imbalances,” Rulemaking 10-12-007: Order Instituting Rulemaking Pursuant To Assembly Bill 2514 To Consider The Adoption Of Procurement Targets For Viable And Cost-Effective Energy Storage Systems, Public Utilities Commission Of The State Of California, 2012 February 13.

As I said, “It’s déjà vu all over again, and again, and again … .”

[i] Most of the articles, papers, and comments identified in this blog are available on my website, LivelyUtility.com.

[ii] http://www.cospp.com/articles/article_display.cfm?ARTICLE_ID=307889&p=122

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CO2 Crusade Excesses Begin

Posted on 2013 Feb 26 by Mark Lively

The analysis of the global climate change has become quite contentious.  We seem to be focusing on issues that seem to have a minor impact on the climate and taking actions that are reminiscent of the various religious debates that have occurred over the centuries.

The current focus of climate change debate seems to be on carbon dioxide (CO2), almost to the exclusion of other issues.  Though CO2 may have a role in the change of weather patterns, CO2 seems to have a very minor role, perhaps insignificant role compared to some major cosmological issues.

  • Sun spots—The sun goes through a period of apparent warming and cooling, approximately every 11 years.  The cycle was noticed by a count of sun spots.  This cycle of sun spots was noticeably interrupted during the Maunder minimum (1645-1717) which was during the depth of the Little Ice Age (1550-1850)
  • Volcanic activity—Volcanoes often spew ash and sulfur into the atmosphere, which reflect the sunlight that would otherwise reach the earth.
    • The 1815 eruption of Mount Tambora in the Dutch East Indies was followed by the 1816 year without a summer, during which Boston experienced a July snow fall
    • The 1600 eruption of Huaynaputina in Peru was followed by the Russian famine of 1601-1603 which led to the decline of Tsar Boris Gudonov.

Both of these extended winters occurred during the Little Ice Age and may have contributed to the Little Ice Age as much as the Maunder minimum.

  • Earth’s axial tilt—The tilt of the earth’s axis is changing slightly, such that the Tropic of Cancer and the Tropic of Capricorn are both moving toward the equator by about 50 feet a year, and the Arctic and Antarctic Circles are shrinking by a similar amount.
  • The ocean bed—Earthquakes and landslides change the shape of the ocean bed, which determines the circulating currents of the ocean
  • Ice cover on the Arctic Sea—The Northwest Passage, which would provide a channel for shipping between the Atlantic and the Pacific, would also provide a new path for circulating currents of the ocean

These cosmic effects may dwarf the impact of the change in the amount of CO2 in the atmosphere.

The crusade for CO2 production abatement has led to excesses, some of which have historic precedents in the religious disputes of the past.

  • Indulgences—The Roman Catholic church has long had its members confess their sins and then undertake acts to show their remorse.  For a while the Roman Catholic church sold indulgences that covered sins that people anticipated performing, essentially getting permission to do bad things ahead of time.  Many people look at CO2 emissions in the same way.  Their extravagance in emitting CO2 can be forgiven by buying emission offsets, such as planting a tree.  This indulgence purchasing process was most notably demonstrated by former vice president Al Gore.
  • The Mob—The Washington Post reported 2013 January 22 that the Italian mob has moved into the wind industry, torching competitive wind farms and obtaining sweetheart contracts with the government for the sale of electricity from wind farms owned by the mob.  Similar sweetheart contracts have been negotiated in the U.S., though there have been no allegations of mob influence, just prices that will raise the price of electricity to consumers.
  • Forced conversions—Some religious groups have forced non-members to become members.  The practice of forcing consumers to obtain a portion of their total electricity consumption as renewable energy effectively forces all consumers to convert to a belief that renewable energy is the only way to save the planet from climate change.
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Storage/Pricing — Chicken/Egg

Posted on 2012 Dec 04 by Mark Lively

On Tuesday, 2012 November 27, I attended the Heritage Foundation’s discussion of Jonathan Lesser’s 2012 October paper “Let Wind Compete: End the Production Tax Credit.” The only philosophical statement on which there seemed to be agreement was that improved storage systems could improve the market for wind.

But who would own the storage systems necessary to make wind even more viable? Unless the ownership is in common with the wind systems, how would these storage systems be compensated?

  • And, can we expect entrepreneurs to build these storage systems and then expect FERC to set an appropriate price? Beacon Power produced a flywheel storage system but couldn’t get FERC approval of a tariff before it ran out of operating cash and is now bankrupt.
  • Or should FERC put into place a pricing mechanism that could compensate storage systems when they arrived on the scene? I look at this as the Field of Dreams mantra of “If you build it (a competitive market appropriate for storage systems), they (storage systems) will come.”

Truly, a chicken and egg issue.

Wind has been accused of having two failings. Wind often provides a lot of power at night, when electricity is not highly needed.  Wind provides less power on the hot mid-summer afternoon, when electricity is needed the most. This is an intra-day issue for storage to handle. Wind power also follows the wind speed. A wind gust can push power production up to great heights. A wind lull can suddenly drop power production. Storage could be useful for handling this intra-hour issue.

Not all storage can handle both the intra-day and the intra-hour issues well. For example, the storage part of the Heritage Foundation discussion mentioned only pumped storage hydro as a representative storage technology to help wind. Pumped storage hydro has been used for decades to transfer power from the nighttime and weekends to the midweek daytime periods. That is, pumped storage is known as a way to handle the intra-day issue. I like pumped storage. My first job after getting a Masters from MIT’s Sloan School was with American Electric Power which owned a pumped storage plant. This perhaps accounts for some of my bias of liking pumped storage hydro.  (Actually I like to have a variety of generation options available, not just pumped storage.) Pumped storage hydro is excellent for intra-day transfers of power.

I have never seen anyone use pumped storage hydro for intra-hour transfers of power, or even propose it for such purposes. The absence of a historical use of pumped storage to provide intra-hour storage doesn’t mean that pumped storage could not be used for that purpose. After all, many people tout pumped storage for its ability to respond in seconds to changes in the need for electricity.

Pumped storage is often touted as being about 75% efficient. For every 100 MWH used for pumping, 75 MWH can be subsequently generated. We can model the effect of shorter duty cycles by beginning with the assumption that 0.5 hours in the pumping mode is ineffective. Under this modeling assumption, for 13 hours of pumping, there is the equivalent storage of 12.5 hours. With the 75% efficiency assumption, the system can generate for 9.375 hours, for a revised efficiency of 72% (9.375/13). Reduce the pumping time to 5 hours will reduce the generating time to 3.375 hours and the revised efficiency to 67%. Reduce the pumping time to 1 hour will reduce the generating time to 0.375 hours and the efficiency to 37%. This is not a very good efficiency ratio but we normally don’t think of running pumped storage on an intra-hour basis. I don’t know that pumped storage can run with just one hour of pumping, just that trying to do so will be costly, indeed very costly.

The intra-hour situation has been handled by batteries, flywheels, magnetic storage devices, and theft of service. Theft of service is a harsh term. When an electric utility faces the intra-hour problem associated with rapid changes between wind gusts and wind lulls, the physics of the electric system results in inadvertent interchange, electricity moving into and out of the utility.  With the inadvertent interchange going both ways, which utility is providing a service to the other utility?

If the wind gust occurs first, the power is stored on a neighboring utility system. If the lull occurs first, the utility is borrowing electricity and then gives it back. There is no systematic payment mechanism associated with this storage or borrowing of electricity. It is a free service as I described over two decades ago in “Tie Riding Freeloaders–The True Impediment to Transmission Access,” Public Utilities Fortnightly, 1989 December 21.

Most of the currently operating pumped storage systems were put into place by vertically integrated utilities. AEP often looked at its coal fired generating system as providing cheap, efficient capacity, allowing AEP to make large sales to its neighboring utilities. But the pumped storage system also helped AEP with its minimum load issues. The large AEP generating units were very efficient. The investments made to achieve these efficiencies hampered the ability of generators to cycle down at night, during minimum load conditions. Pumped storage systems helped AEP with that situation. Now many pumped storage systems operate in advanced markets operated by ISOs/RTOs, where their value can be assessed based on their interaction with the advanced market.

The thought process of testing how a pumped storage system would operate on an intra-hour basis also provides some information about profitability issues. For 13 hours of pumping and 9.375 hours of generation requires the off-peak price to be less than 72% of the on-peak price to achieve breakeven revenues, that is revenue from the sales to be equal or exceed the payments for pumping energy. The off-peak price has to be even less for the pumped storage system to have book income, that is the ability to cover its investment and other operating costs. The shorter the operating period, the smaller the break-even off-peak price relative to the on-peak price. A competitive market for storage systems needs to have very low “off-peak” price relative to its “on-peak” prices.  In this context, off-peak price and on-peak prices could be better described as storage prices versus discharge prices.

The advanced markets have hourly pricing periods that are consistent with the dispatch periods of pumped storage.  But for rapid response storage, hourly energy prices do not provide any incentives for the storage system to operate on an intra-hourly basis.  Indeed, if storage systems are to operate on an intra-minute period, then prices need to be differentiated on an intra-minute basis, not just on an intra-hour basis.  Area Control Error (ACE) is an intra-minute utility metric that can be used to set an intra-minute price for storage systems that are expected to be operated on an intra-minute basis.  India has developed a very simplified pricing vector that uses ACE to set the price for Unscheduled Interchange on an intra-dispatch period basis.

In India, the regional system operators set hourly schedules for the utilities and for non-utility owned generators.  Though the schedules are hourly, the utilities and non-utility owned generators are nominally required to achieve an energy balance every 15 minutes.  Each 15 minute energy imbalance is cashed out using a pricing vector that indexes the price for all imbalances against system frequency.  In India, system frequency is the equivalent of ACE.

There are ongoing discussions in India about modifying the pricing vector to reflect the hourly settlement price, to expand the pricing vector for more extreme values of ACE, to geographically differentiate the price, etc.  Though there are discussions about revamping the pricing vector, the pricing vector concept has greatly improved the competitive system against which the utilities and non-utility owned generators have be operating.  The pricing vector concept could be used to price intra-dispatch period storage to provide the competitive market from which the storage systems could draw power and into which the storage systems could discharge power.

Utilities, including ISOs/RTOs, use ACE to determine dispatch signals for their generators.  ACE is calculated every three or four seconds using the frequency error on the network and the interchange being delivered inadvertently to other utilities on the network.  Generally, the convention is that a positive ACE means that the utility has a surplus, while a negative ACE means that the utility has a shortage.

  • A surplus means that the utility is giving away energy, not getting any money for the surplus energy.  Under the situation of a positive ACE, the utility will want its generators to reduce their generating levels and would want storage systems to store energy.  As demonstrated by the earlier thought experiment, the market price for unscheduled energy into the storage system would have to be low for the storage system to absorb the energy economically.  When the utility is giving the energy away and not getting any money for the giveaway then any price, even a low price, for the energy going into storage can be appropriate.
  • A shortage means that the utility is taking energy from its neighboring unities, without paying for the shortage.  This is one form of the theft of service I mentioned facetiously above.  Under the situation of a negative ACE, the utility will want its generators to increase their generating levels and would want storage systems to produce energy.  As demonstrated by the earlier thought experiment, the market price for unscheduled energy coming out of the storage system would have to be very high for the storage system to produce the energy economically.  When the utility is stealing energy, then any price, even a very high price, for the energy coming out of storage can be appropriate.

For an explanation of the Indian mechanism for pricing Unscheduled Interchange, I recommend “ABT – Availability Based Tarrif”,[1] a completion of postings on InPowerG, the Indian equivalent of IEEE’s PowerGlobe and “ABC of ABT: A Primer On Availability Tariff,”[2] written by Bhanu Bhushan, the developer of the Indian pricing vector concept.  For a discussion of advanced pricing vectors that could be used for pricing storage, see the papers on my web site,[3] especially those filed recently with FERC.

The advanced markets have prices for generators that respond to the dispatch programs in a rectangular manner. For instance, consider a 5 minute dispatch period.  The price does not differentiate between those generators that are ramping versus those that are constant or those that move up and down to counteract ACE excursions.  An intra-dispatch period price for generation excursions would reward those generators (and loads) that help with ACE excursions and charge those generators (and loads) that cause the ACE excursions.  A pricing plan that achieves such a concept would be worthwhile even before fast acting storage systems came on line.


[1] http://abt-india.blogspot.com/2007/10/windpower-discussion-on-inpowerg.html

[2] http://www.nldc.in/docs/abc_abt.pdf

[3] http://livelyutility.com/library.php

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Electricity Pricing—Fair Trade vs. Free Trade—Which is High/Lower

Posted on 2012 Nov 21 by Mark Lively

When I got married in 2004, my wife introduced me to the term “Fair Trade” as in fair trade coffee, where coffee growers are paid a price that allows a “living wage” to be paid to the workers on the coffee plantation where the coffee beans were grown.  I quickly realized that Fair Trade could be used to describe the standard regulated electricity market, including a fair rate of return to the investors.  In contrast, the term Free Trade could be used to describe a competitive market, such as the ones then being developed by Independent System Operators (ISOs).  Free Trade could also be used to describe the bulk power markets between large vertically integrated electric utilities, such as when my former employer American Electric Power (AEP) sold electricity to other utilities, whether Commonwealth Edison to its northwest or TVA to its south.  However, both these Free Trade examples have some aspects of Fair Trade, as has been shown by regulators intervening in the Free Trade markets when prices have appeared to be excessive, such as the imposition of caps on the ISO markets.

 

In 1978, the Federal government implemented a mixed form of Fair Trade/Free Trade for Qualifying Facilities, requiring many utilities to buy electricity at Avoided Cost under the Public Utilities Regulatory Policy Act (PURPA).  In 1984, Ernst & Whinney, my employer at the time, won a contract with the Texas Study Group on Cogeneration to investigate the way Houston Lighting & Power (HL&P) was paying (or not paying) cogenerators for the electricity that was being produced.  I invented the Committed Unit Basis[1] (CUB) for evaluating long term contracts under which utilities bought power from cogenerators.  CUB was adopted by name by the Texas Public Utilities Commission in its regulations and was used to determine the reasonableness of three large cogeneration contracts that HL&P signed over the next year.

 

CUB develops an inflation adjusted annual revenue requirement for the next generating unit that the utility would build were it not for the presence of the cogeneration plant.  The inflation adjustment results in economic depreciation rates, which could be negative in the first few years of the model.  Thus, not only did CUB reduce the first year payment to a levelized rate below the standard utility model for the revenue requirement, but the first year payment was below even that levelized rate.  The payment escalated with inflation over the life of the contract.

 

I saw HL&P sign three major contracts in 1984/5 based on CUB.  My analysis suggested that the second and third contracts were for rates that were successively lower than the first contract.  Some suggested that the lower rates reflected the loosening of the market for electricity.  The first contract reflected the full value identified by CUB, while the subsequent markets reflected competition, effectively going from a Fair Trade price to a Free Trade price.  When I subsequently addressed the concept of a competitive market for unscheduled flows of electricity, I concluded that sometimes the Free Trade price needed to be above the Fair Trade price, not always below the Fair Trade price.  This concern was included in the name of my model for a competitive market for electricity, WOLF, or Wide Open Load Following.

 

The Free Trade/Fair Trade issue comes up most starkly in the discussion of dispatchability, an issue that dramatically affects wind and solar generation.  They are not dispatchable and many argue that they should be paid a price that is lower than the price paid to dispatchable generators, such as gas turbines.  This lower price would be paid to any “as available” wind and solar (as well as many other forms of QF power, such as surplus cogeneration).  But sometimes, the “as available” power happens to occur when it is needed.  Should “as available, as needed” power always be paid a lower price than dispatchable power?  Should there be a way for “as available, as needed” power be made whole relative to the lower prices that they are paid during many of the hours when dispatchability is important?  How can that be done?

 

WOLF provides a price adjustment to reflect the concurrent need for power.  When load outstrips supply, the price follows the load upward above the standard price for scheduled power.  Conversely, when load is much below supply, the price follows the load downward below the standard price for scheduled power.  For electricity, the standard measure for whether load and supply are in balance on a utility is Area Control Error.  When the utility is synonymous with the entire grid, the standard measure for whether the load and supply are in balancer is frequency error.  Since both ACE and frequency error can be positive or negative, the price adjustment can serve to raise or to lower the settlement price relative to the standard price.

 

There are times when dispatchable generators fail to meet their obligations and the utility is able to meet its load because of the availability of non-dispatchable generators.  During such times, the value of the non-dispatchable generation is equal to the value of the dispatchable generators, perhaps even more valuable.  WOLF provides a way to set a price based on the value of “as available, as needed” generation.  When there is a shortage, the Free Trade price for “as available, as needed” generation should even exceed the Fair Trade price for dispatchable generation.


[1] Recently I googled “Committed Unit Basis” and had ten hits, including a paper written in Portuguese by Brazilian authors, but I had include the quotation marks to reduce the hits down to ten.

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2012 Washington, DC, Area Storm Electricity Outage Duration

Posted on 2012 Nov 19 by Mark Lively

The Washington, DC, area was hit by two storms in 2012, each of which cause widespread electrical outages.  A derecho hit the evening of June 29.  Hurricane Sandy hit four months later on the evening of October 29.  I sent surveys to people on the mailing list of the National Capital Area Chapter of the U.S. Association for Energy Economics (NCAC-USAEE) for both storms asking for a reply about the number of hours they were without power.  (I experienced nine hours for the derecho and two hours for Hurrican Sandy.)  My “Derecho Outage Survey” was included in USAEE Dialogue, Volume 20, Number 3 – 2012.  Here I report on the outages related to Hurricane Sandy and compare the results to the outages related to the Derecho.

Table 1 replicates the form of Table 1 from my “Derecho Outage Survey.”  There were 93 survey responses, which I have summarized for five of the electric utilities in the Washington, DC, area.  I report the number of customers who reported an outage to me and the duration of those outages in hours.  I also include the number of customers who reported that their outage time was zero.  Many of these zeroes may have actually been an outage of a few seconds to a few minutes.  None of PEPCo’s customers in Washington, DC, reported an outage.   I note that 22 PEPCo’s customers in Washington, DC, did participate in the survey, though each reporting 0 hours of outage.

Figure 1 presents a cumulative distribution function for the outages, including separate plots for BG&E; PEPCo-Montgomery County; and VEPCo; as well as a plot for the combination of all of the outage data.  Each plot has a convex shape, showing a rapid increase in the number of customers who have been returned to service, with a gradual degradation of the response rate as time accumulates.

The phenomenon of a convex cumulative distribution function is often referred to as “low hanging fruit” or “the most bang for the buck,” reflecting the incentives and policies that utilities have to concentrate on returning the most customers to service as quickly as possible.  Thus, problems that can be resolved quickly for large numbers of customers are the first problems to be attacked.  The result is the rapid early increase in the number of customers who are returned to service.  Problems that affect individual customers are the last to be resolved, resulting in the plots turning horizontal as the outage duration time increases.

Figure 2 presents the cumulative distribution function for the outages of BG&E, comparing the outages for Hurricane Sandy with the outages for the derecho.  The plot for the four outages associated with the derecho does not have the convex shape described above.  But with only four outages reported, the distribution of reported outages has a greater chance of not being representative of the distribution of actual outages.

Figure 3 presents the cumulative distribution function for the outages of PEPCo in Montgomery County, comparing the outages for Hurricane Sandy with the outages for the derecho.  PEPCo took some 72 hours to restore half of the customers who had outages associated with the derecho compared to only 3 hours to achieve the same restoration level for outages associated with Hurricane Sandy.

Figure 4 presents the cumulative distribution function for the outages of VEPCo, comparing the outages for Hurricane Sandy with the outages for the derecho.  VEPCo took 40 hours to restore half of the customers who had outages associated with the derecho compared to only 12 hours to achieve the same restoration level for outages associated with Hurricane Sandy.

Figure 5 presents the cumulative distribution function for all the outages reported in the two surveys, comparing the outages for Hurricane Sandy with the outages for the derecho.  The utilities in the DC area took 55 hours to restore half of the customers who had outages associated with the derecho compared to only 9 hours to achieve the same restoration level for outages associated with Hurricane Sandy.

The DC area electric utilities were severely castigated by government officials for the length of time that restoration efforts took after the derecho.  Few comments were made about the restoration time in regard to outages in the DC area for Hurricane Sandy.  Some of the differential in the length of the outages associated with the derecho versus Hurricane Sandy relate to physical phenomenon.  Some relate to planning by the utilities.

The derecho occurred four months before Hurricane Sandy.  The derecho is likely to have toppled many of the trees that Hurricane Sandy would otherwise have toppled.  The utilities in the DC area also initiated a substantial tree trimming program after the derecho, further reducing the number of trees that would otherwise have been grist for Hurricane Sandy in causing outages. The derecho may also have had stronger winds.  Together, these items are reflected in the large increase between the two surveys in the number of responses that showed no outages.

At least one utility in the DC area, PEPCo, pre-positioned contractors before Hurricane Sandy, as I wrote while sending out the survey.

When my wife and I drove to church Sunday morning, I was impressed with the dozen or more bucket trucks sitting in the parking lot of the Gaithersburg Holiday Inn, thinking I should call the television stations as a potential story for them to film. I didn’t, but I was no longer impressed by yesterday’s sight when I saw Channel 4′s story today about noon from Gaithersburg, just across the street from the Holiday Inn. The Montgomery Country Fairgrounds seemed to have over a hundred bucket trucks, making the Holiday Inn parking lot scene look insignificant.

These pre-positioned contractors would likely have reduced the duration of the outages, just as the relative timing of the two storms, the tree trimming programs, and the relative strengths of the two storms likely contributed to the reduced fraction of customers who reported any outages and the increased fraction of customers who reported no outages at all.

Pre-positioning contractors comes with a cost.  The contractors I saw at the Holiday Inn were in the DC area two days before Hurricane Sandy hit.  Some of that time might have been non-productive.  Some of the time might have been used for additional tree trimming and other normal on-going work that utilities do on a routine basis.  Even the contractors shown on TV seem to have been pre-positioned a day ahead of time.  In contrast, the derecho was not anticipated and contractors generally travelled during the first day after the derecho hit instead of one or two days before Hurricane Sandy hit.

 

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Oil Storage

Posted on 2012 Oct 23 by Mark Lively

During the Arab oil embargo of 1973, some people speculated that the US had a strategic petroleum reserve in the form of gasoline sitting in the driveways of most suburban homes.  The speculation was that many people made a point to refill their gas tanks as soon as ¼ of the tank had been consumed.  At that rate, the average amount of gasoline in this mobile storage was 7/8 of the tank.  By some calculations that was the equivalent of a month’s usage of gasoline.  Whether the mobile storage was indeed the equivalent of a month’s usage of gasoline or was much less, the storage capability was quite large.

 

During the question and answer period after Adam Sieminski, Administrator of the US Energy Information Administration talked to the National Capital Area Chapter of the US Association for Energy Economics on 2012 October 19 on the EIA Winter Fuel Outlet, I asked Adam about the possibility of oil supply interruptions in the Northeast, which is the area most heavily dependent on residential heating oil.  I included in my question a reference to the gasoline shortage in California that had pushed gasoline prices there more the 50 cents a gallon above the national average.

 

Part of Adam’s response included a discussion of the high elasticity of demand for gasoline, the time it took for tankers to move gasoline from other parts of the country, or from overseas, and that historically such price spikes lasted about five or six days, much less than the fourteen days necessary to ship gasoline the requisite distance.  Later I wondered about my above musings, about the mobile inventory of gasoline.

 

Do people respond to gasoline price spikes by a partial depletion of their individual mobile inventory?  Does the average gas tank level drop from 7/8 to ¾ to ½, or even lower, by only having partial fill-ups?   After all, some newspaper articles included interviews of workers who changed their fueling practices in include partial fill-ups.

 

How could we estimate the size of the partial drawdown of this mobile strategic petroleum reserve?  Or even the size of the mobile strategic petroleum reserve before the drawdown?  Does EIA have sufficiently fine data to make these estimates?  And how would a drawdown of this mobile reserve effect the elasticity estimates that Adam identified?

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Economic Failures Contribute to Indian Grid Blackouts

Posted on 2012 Aug 06 by Mark Lively

On 2012 July 30 and July 31, India experienced massive blackouts on its electricity grid. The first blackout was early in the morning of July 30 and affected only the Northern Region. The second failure was at midday on July 31 and affected the Northern Region, the Eastern Region, and the Northeastern Region. The Western Region, though interconnected with the Northern, Eastern, Northeastern Region in the NEW Area, survived, as did the Southern Region, which is not interconnected synchronously with the NEW Area.

Various comments have been made about the events that led up to the blackouts. This blog entry will only discuss some failures of the economic systems that contributed to the blackouts.

 

Prices of Inadvertent Didn’t Reflect Security Issues, That Is, No Locational Marginal Prices

Beginning in 2002, India implemented its Availability Based Tariff (ABT) that included the creation of a market for imbalances, Unscheduled Interchange (UI).  ABT pricing of UI has a geographically uniform price.  I said early on that the price in areas that could be at risk of a blackout due to a power deficit after a transmission failure should have higher prices than other regions, those that have a power surplus.

Other pundits have suggested that utilities in the Northern Region ignored operators’ requests to reduce load because the energy price was low enough, that there were no economic consequences of taking too much electricity. The economic system failed the Indian electric network by not providing sufficient monetary pain for ignoring operators’ request.

A rigorous locational pricing plan could have produced that monetary incentive. I have not heard that all of the NR utilities were drawing more power than the amount which had been scheduled. A feature of ABT pricing of UI is an incentive for some utilities to draw less power than the amount which has been scheduled, not just for utilities to reduce their draw to the scheduled amount. Thus, a locational pricing plan would have led to some NR utilities to under draw and help stabilize the system.

 

High Inadvertent Prices Could Not Incent Backup Generators to Assist the Grid

Customer owned back up generators can do double duty. The standard use of a back up generator is providing electricity to the owner when there is a rotating blackout that affects the owner. When rotating blackouts are not affecting the owner, stand by generators can provide electricity to the grid when the value of electricity on the grid is high enough to pay for the fuel cost of the back up generator.

This second use of back up generation requires

  • the back up generator being able to operate synchronously with the grid; and
  • metering to identify the amount of energy provided to the grid to displace the high value UI power that the utility would otherwise be purchasing on a real time basis.

 

Power Deliveries to Farmers Aren’t Structured so Farmers Can Help Save the System

Indian farmers do not participate in the market for electricity, generally receiving several hours of free service. Giving Indian farmers a fixed subsidy would allow them to participate in the UI market for the number of hours they need for electricity. This would give the farmers incentives to help the system when there is a larger shortage of electricity. From the farmer’s perspective, the farmer would be able to use electricity for more hours since the average price could be cheaper than that upon which the subsidy was predicated.

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Washington, DC, Area Power Outages

Posted on 2012 Jul 20 by Mark Lively

The Washington, DC, area was hit with a major storm on 2012 June 29, that caused many consumers to lose power for extended periods of time.  I asked some correspondents in the DC area to provide me with the number of hours they were without power, their utility, and their jurisdiction, sending the message to about 1200 people.  I received 30 responses from people served by three utilities in a variety of jurisdictions.  A 2.5% response rate is good for such surveys, but is likely to be biased.

I present the data in the following table.

 

 

The following is a cumulative distribution for PEPCo, including DC, Montgomery County, and a composite of the two jurisdictions.  I am the customer with only 9 hours of outage in the above data and on the following chart.

 

The following is a cumulative distribution for BG&E, VEPCo, and composite of the three utilities.

 

Both the VEPCo distribution and the composite distribution illustrate the concept of many customers coming back quickly and then a few customers who are off for a long time.  Utilities try to prioritize outage work to get the most customers restored as soon as possible, often being able to flip a switch to restore hundreds of customers at a time, once they know which lines are safe to re-energize.

Mark Lively

Utility Economic Engineer

 

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Analysis of Current and Pending EPA Regulations on the U.S. Electric Sector: NCAC-USAEE Lunch of 2012 May 24 w/ Francisco de la Chesnaye, EPRI Energy and Environmental Analysis Program

Posted on 2012 Jun 09 by Mark Lively

As I end my seventh year as an officer of the National Capital Area Chapter of the US Association for Energy Economics, six years as treasurer and one as secretary, and as I anticipate becoming vice president in July, I have decided to start including in my personal blog reflections on NCAC events, inviting other participants in the events to add to the blog their comments on my reflections and the on the comments of others.

EPRI anticipates that 80% of the coal plants will be environmentally retrofit in the next three years, by 2015.  But some of those retrofits might be considered to be minor tweaks, in that some systems are estimated to have a retrofit cost in excess of $3,000/KW while about half of the systems are expected to be less than $500/KW.  Though $500/KWH might be minor compared to $3,000/KW, the costs aren’t minor compared to the cost of a new coal fired power plant, which is in the neighborhood of $1,000/KW-$2,000/KW.  But surprisingly, the average retail price of electricity is expected to drop by about 10% by 2025, despite the cost of these huge retrofits and the cost of the parasitic loads necessary to operate the systems.

The presentation itself is available at http://ncac-usaee.org/pdfs/2012_05Chesnaye.pdf.

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Wind Boondoggles

Posted on 2012 Feb 28 by Mark Lively

            Wind can fit into the electric grid.  But all too often wind projects are boondoggles, government programs to concentrate the wealth of the nation into the hands of the politically connected, all too often with the cachet of Keynesian economics.

            Robert McCartney’s column “Wind power is worth the investment of $2 a month for Maryland households” in the 2012 February 25 edition of The Washington Post obviously argues for a greater investment in wind farms in Maryland.  But I was more intrigued by his explaining the political machinations being taking by the governor and his associates, using the Keynesian arguments for a temporary bump in construction jobs, a temporary bump for which Maryland consumers would be paying for years, probably costing more jobs in the long run than are produced in the short run.

            Three days after McCartney’s column The Washington Post  published my letter to the editor, along with two others, each of which had been written in response to earlier articles and editorials in The Washington Post .[1]  I take a longer term view of such investments.  We eventually have to pay for them.  Further, how many times has the government underestimated the cost of a project?  Yes, we are told it is only $2 a month per customer.  But that is today’s promise.  And $2 a month per customer is a lot of money.  Further, I doubt that the boondoggle will stop there.

            Keynes was a big proponent of the government spending its way out of recessions, which seems to be part of the governor’s calculus.  But I have to wonder about the payback.  Greece and a few other European nations are learning about the old adage, “Paybacks are Hell.”  They spent in a Keynesian manner and their economies are now being depressed by much more than the Keynesian spending had provided benefits.

Similarly, what will be the payback for the governor’s preferred method for adding more green electricity to the grid?  The benefits to limited parts of the current economy will be paid back at $2 a month per customer for years, sucking money out the Maryland economy, money that would otherwise have been able to provide jobs in the future.  I am sure that the response in the future will be more Keynesian economic investment, digging us into mess similar to the Greek hole.

            One aspect of the governor’s approach is a concentration of wealth into the hands of a few.  Though some might call it robbing Peter to pay Paul, I think of Robin Hood, the English folk hero brought to life by Hollywood, and his mantra of “Rob from the rich and give to the poor.”  Except as I say in my The Washington Post letter, the governor’s approach is the opposite of Robin Hood.  The governor is taking from everyone, especially the poor, and giving it to a few people, making the rich or richer. 

Yes, the governor talks about the working class people in Baltimore getting jobs.  But those same people will be the ones who will be short of jobs in the future when the $2 a month per customer payments are sucked out of the Maryland economy.  But that will be some other governor’s problem, just as the Greek hole is the problem of a different Greek government than the one that spent Greece into debt.

            But the wealth concentration is not just the temporary jobs given to the working class people of Baltimore.  The wealth concentration also shows up in payments to the manufactures of the wind turbines and in payments to the owners of the wind turbines.  In many respects these are the real beneficiaries of the governor’s wind program.  I am pretty sure that Robin Hood wouldn’t like this major, long term, part of the governor’s wind program, this legislative boondoggle.

            And as to the benefits of getting Maryland into the ground floor of manufacturing wind turbines, I seem to remember the same argument being made by the federal government about its loan guarantees to Solyndra, a manufacture of solar cells.  But these green generating devices were made more inexpensively by China, and Solyndra went under, with no long term benefit to the US for the investment in these manufacturing jobs, jobs that vanished with Solyndra’s bankruptcy.

            I would pull out my copy of Cervantes’s Don Quixote and begin tilting at windmills, but windmills do have a place in the electric grid, just not the way being proposed for Maryland.

[1] http://www.washingtonpost.com/opinions/which-way-wind-power-in-maryland/2012/02/25/gIQAXipbeR_story.html

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