Load Profiles and Unscheduled Flows of Electricity

In response to my earlier comments about a Fox News article equating decoupling with socialism, I received a question about time of use rate making and how my comments regarding unscheduled flows of electricity picked on small utilities. My response follows.

Most utilities group customers by their consumption patterns. You are grouped with McMansions and with hovels. Not because you have the same consumption, but the same pattern. Let’s say that a McMansion uses 10 times the energy that you use each month. Then, if you look at the consumption for the period defined as “on peak”, the McMansion will use about 10 times the amount of electricity that you use “on peak”. Similarly during any other well defined period. TOU pricing will not differentiate your average price from his average price, or at least not much.

Not much unless you or the utility invest in devices that control your consumption patterns. Thirty five years ago I worked for American Electric Power (AEP) in its New York City office. I helped investigate ceramic storage, a concept then in use in England. Turn on electricity to these “hot rocks” at night and then during the day just blow a fan across them to get heat into the room. Conversely, there is ice storage. Connect your A/C unit to a tank that looks like a water heater. At night dump refrigerant through the Ice Bear (a commercial brand I have heard of) and create ice. During the day, put the refrigerant through the Ice Bear instead of running your compressor. This creates huge swings in the multiplier between you and McMansion. During the night the multiplier might be down to 5 or less. During the day, the multiplier might be up to 20. The result is that you pay a lower average rate using TOU if you manage your load.

Dynamic pricing means to me a moment by moment change in the price of electricity. During the hottest day of the year, the price might soar by a factor of 100. Avoid 7 hours at that high rate and you have reduced your average price by 1% (730 hours on average in the month) or more, at least if I have done the math correctly. Many utilities have equipment that they attach to your AC compressor to allow them to turn it off during such periods. The standard pricing approach is to pay you $5/month. They save money by avoiding some of the energy at the 100 times multiple.

Pricing is considered by many to be a form of rationing. Economists say that pricing is the best way to ration a commodity. It gets people to give up lower valued uses when there is a scarcity. I like to think of it as a way to soak those who can afford it so I can put in my controllers that allow me to store energy thermally. In some jargons, my thermal storage can be considered to be a form of supply side, though most just look at it as demand side.

As to whether the small utility gets the free ride or the large utility, it depends on the circumstance. My employer AEP, one of the largest in the country, may have been getting a free ride by building fewer very large generators. That lowered their average cost but they got reliability by interconnecting with other utilities that had many, though smaller, generators. Even the transmission example is not clear cut either way, especially when the high voltage line fails and the low voltage line experiences huge electrical line losses.

Socializing the Grid

A friend sent me a message overnight that asked me, since my friend says I have an understanding of utility issues, to identify the misstatements in a 2009 January 15 article “Browner: Redder than Obama Knows” by Steven Milloy. http://www.foxnews.com/story/0,2933,480025,00.html   My response is below.  Now, as I am posting this to my blog, I realize that the article is over two years old.  When I began writing my response, I had focused on the January 15 and thought that I was only 11 days behind the time instead of two years.  Oh, well.  The interest in the article is current even if the article isn’t.

Before I talk about the Fox article, “Browner: Redder than Obama Knows”, let me talk a little about the socializing of the electric system, an issue I have been trying to correct for over twenty years.

Electric systems improve reliability by increasing the number of generators connected to the grid.  More generators with enough capacity and we are more likely to have enough electricity for everyone.  Electric generators have great economies of scale.  Larger units mean less steel and concrete per KW or KWH.  Perhaps more importantly, fewer power plant employees.  Manning an operating room 24×7 for a 2,000 MW plant takes not many more people than for a 300 MW plant.

So, eighty years ago electric systems were in a quandary.  To maintain high reliability, electric systems needed more units.  To keep costs low and improve profit margins relative to a fixed price, electric systems needed larger units.  So the trade off was between more, therefore smaller, units versus larger, therefore fewer, units.  The solution was to interconnect with one’s competitors which increased the number of units connected to the grid and allowed utilities to build larger, less costly, units.  In the summer of 1969 and from 1971 to 1976 I worked for American Electric Power (AEP).  In perhaps ten years times, AEP went from building 280 MW generators, to 800 MW, to 1300 MW, being able to achieve those economies of scale by having more interconnections with its neighbors than almost any other utility in the US.

Those interconnections created a form of socialism.  The utilities did not figure out how to charge each other for the increased reliability provided by the interconnection.  Reliability came to be considered to be a public good, not to be charged for.  Reliability regions created rules for their interconnected utilities, such as having a 20% reserve margin for each utility or having spinning reserves equal to the size of the largest unit.  If we assume only the 20% reserves, then a very small utility could build one large unit to enjoy the economies of scale and rely on the large number of interconnected units for reliability.  If an industrial facility builds and operates a cogeneration plant (whose per KWH fuel costs because of the steam usage is half of the per KWH cost of a conventional plant), then the industrial facility will not want to have a spinning reserve requirement that reduces the generation by on the cheapest unit on the system.

Over twenty years ago I wrote “Tie Riding Freeloaders–The True Impediment to Transmission Access,” Public Utilities Fortnightly, 1989 December 21 arguing for a de-socialization of the electric system, both of the generation component discussed above and of the transmission component.  I say that we need a system to pay for unscheduled flows of electricity on very small time increments.  That way the small utility with the single large unit would pay the current value of electricity whenever the unit went down.  If the unit always failed during the summer peak, then the prices would be very high.  If the utility did sloppy maintenance and the unit was out more than the average for the rest of the grid, then the utility would be making frequent payments.  The reliability regions were not able to devise a reserve rule to penalize the sloppy maintenance practices or the bad timing issues.  I say that pricing the unscheduled flows achieves the appropriate grid discipline, or at least better grid discipline.  India put into place such a pricing mechanism and improved its grid discipline.

The physical interconnection created a form of socialism of the generating system.  Real time pricing of the imbalances would remove some of that socialism.

For the transmission system, socialism comes in the form of loop flow.  Engineers often use the short hand of saying electricity flows through the path of least resistance.  But, when there are several paths of relatively low resistance, the electricity divides among those paths such that the marginal line losses on each path are the same.  Thus, two parallel identical lines will split the load equally between them.  Attach something to one of the lines and the load will split in some slightly different way, but not all going to the one line with the least resistance despite the short hand.

Higher voltage lines have lower resistance than do lower voltage lines.  Higher voltage lines are more expensive per mile of wire but less expensive per KW-mile, with much lower line losses.  Consider this another example of economies of scale.

Consider a small utility that has a low voltage transmission line connecting its customers over a long corridor.  Consider a large utility serving roughly the same corridor that builds a high voltage transmission line parallel to the other line.  If the lines are connected to each other at each end, total line losses are reduced when some of the power from the small utility travels on the wires of the large utility.  If there is a scheduled transaction for the flow, the small utility will pay a wheeling fee to the large utility.  Generally there is no scheduled transaction and the small utility gets a free ride, a form of socialism.  Some describe the claim by the large utility for a wheeling fee to be “vampire wheeling.”  My article says that the network needs to price this unscheduled flow by differentiating the price geographically in addition to the temporal differentiation discussed above.

In regard to the Fox article, the aiding and abetting has taken the form of support for carbon taxes that would impact utilities differently.  A utility with a large nuclear fleet would see its competitors costs go up.  That would competitively advantage the nuclear fleet owner and in restructured markets, such as those operated by ISOs, the price of energy from the nuclear fleet would go up by the carbon tax without the cost of the nuclear fleet going up.

In regard to decoupling, some utilities will weatherize my home, with little or no charge to me.  That will lower the amount of electricity that I consume for HVAC.  The utility will treat the cost it incurred to weatherize my home as a legitimate rate case expense.  This raises the price that everyone, including me, pays.  If the utility has 100 customers, then I end up paying in higher rates less than 1% of the cost that the utility incurred to pay for weatherizing my home.  With a thousand customers, I pay less than 0.1%.  But I will pay for weatherize other peoples’ homes.  Except, that my new, green and economy minded, wife and I already spent a fortune on new double paned windows and other weatherizing features.  So my costs will not get socialized but I would pay the cost incurred by the utility for weatherizing others.

The Fox article presents three ways for decoupling, different ways for the utility commission to treat the weatherization costs as a legitimate rate case expense.  Or the government could use stimulus money for the same purpose, a different form of socialization.

My comments above don’t actually identify and explain misstatements, just explain some of the statements.

The Smart Grid Needs Real Time Pricing of the Distribution Grid

When I read the January-February edition of IEEE Power & Energy Magazine earlier this week, I got hung up on figure 1 on page 53, “The price of energy in the PJM market.”  Figure 1 shows 6 hours of prices every 5 minutes.  There appears to be five prices for each time point which would represent 5 locations on the PJM system.  There is the obligatory price spike to $210/MWH and a price suppression to minus $40/MWH.

Curiously, the prices for the 5 locations seem always to fall almost on top of each other, even during the price spike.  Except during the price suppression period.  There, two of the prices actually went up slightly and were not suppressed, one dropped to the previously stated minus $40/MWH and the other two dropped significantly though not to minus $40/MWH, though one did go slightly negative.

My analysis is that the price spike was a generation related issue while the price suppression was a transmission related issue.

This edition of IEEE Power & Energy Magazine focuses exclusively on the smart grid.  Since the related article was about demand response in Chicago, I thought that there should be more about using demand response to handle constraints on the distribution grid, the section of the wires that most people discuss in regard to the smart grid.  Thus, the geographic price differentials should be on the distribution grid, which would be a issue for Exelon’s Commonwealth Edison instead of a transmission issue for PJM.

Using demand response to address generation issues is old hat, the load management programs of a few decades ago.  And though figure 1 shows some geographic dispersion of prices and thus, perhaps, demand response being worthwhile for the transmission portion of the wires associated with the smart grid concept, my experience with PJM suggests that the price suppression was probably most severe in the Chicago area, suggesting that there was too little load in that area instead of the need for demand response.

I believe we need more demand response, not just to handle the G&T issues associated with figure 1, but more especially to handle overloads on the distribution grid.  Electric vehicles (according to EPRI) will overload the majority of the transformers that EPRI studied. 

  • The presence of figure 1 in the IEEE P&E Magazine suggests that many people believe that we can use real time prices to get more demand response.
  • The EPRI study tells me we need demand response to handle distribution issues. 

Putting it together, we need a way to price the use of the distribution grid on a real time basis, just as PJM has put into place a way to price the G&T on a real time basis.

I came to this distribution pricing conclusion last January while speaking at the IEEE/NIST smart grid conference.  My paper on the subject is “Dynamic Pricing: Using Smart Meters to Solve Electric Vehicles Related Distribution Overloads,” Metering International, Issue 3, 2010, which came out last Fall.