Keeping the lights on no longer cuts it, EPRI warns
Normally
we think of reliability as keeping the lights on but that's not enough in a
digital economy, EPRI CEO Kurt Yeager told us.
"You have to think about what's the
reliability that's going to keep the computerized assembly lines and all the
other digital equipment from going off.
"That means you have to keep the power on
and keep its integrity on a fraction of the cycle basis."
That level of reliability boosts security against
big outages too, such as the Aug 14 event because the system is
"anticipating difficulties and is automatically self-correcting and
self-islanding," said Yeager, referring to the ability for a section of the
grid to cut itself off from other parts of the grid to contain a problem.
That way, "if you have either a natural or a
man-made intrusion," it stays local and doesn't cascade over large areas.
"All the vulnerabilities of the power system
really require this kind of approach to resolve and when you do that you open up
tremendous new business opportunities in terms of the services," he added.
BPL is one but Yeager sees many other services
becoming available as "an integrated, converged
electricity-telecommunications infrastructure" develops.
We asked what kind of reaction he had to his
dramatic speech in June to the Council on Economic Development.
He had told the power industry that it's at a
crossroads between transformation and decay and that technical innovation is the
key to a positive outcome.
For him the question is whether the bulk power
system evolves to become the critical infrastructure of the coming century or
becomes a relic of the last one at the hand of distributed generation.
"Sometimes I feel like I'm preaching to the
choir.
A number of people are very much "believers in this," and give Yeager
credit, he admitted, but "a large fraction of the community regrettably is
in a bit of a denial about it."
Some say "I don't know what's wrong but I
don't really want to finish my career," he quoted.
What the industry faces is big and takes
leadership to change from what the business has been for a century, he observed.
"We really have to have some committed
leaders," not just in the utility industry but customers at all levels to
demand it, predicted Yeager.
As long as the industry's standard of service is
"just keeping the lights on," that "becomes a major
impediment," he added.
Yeager called for regulators and policy people to
"see the vision and begin to enable it.
"The rules aren't clear and in many cases
they are still focused on simply keeping the lights on."
The market power issue is dominating the debate,
said Yeager, and while that's an important factor -- "you can't let it be
the only factor that drives policy."
Has progress been made since the August blackout?
He's seen tactical progress but not much strategic
progress -- citing advances in tree trimming, training and making sure that some
of the management software is working.
He called that progress "a quick fix."
That kind of work boosted confidence that the
summer of 2004 will pass, "knock on wood, without any major incidents, but
strategically we haven't addressed the fundamental problems.
QUOTE OF THE DAY: The capacity in the system relative to the demands that will likely be made on it is still very marginal. The whole digital transformation that we talked about -- there's very little being done about that.
As the economy
improves and the demand for power grows, Yeager worries that the grid won't keep
pace.
Even if outages are not on an Aug 14 scale he's
seen local distribution systems go down recently and when you add those events
up they are "much more expensive."
EPRI counts that as a 50¢ surcharge on every
dollar of power bought "in terms of the reliability costs that really get
rolled over into the cost of goods and services.
"That's a pretty large number to stomach...
driven largely by the digital revolution," noted Yeager.
"You've got a blip and somebody's assembly
line goes down and it takes hours -- even sometimes days -- to get it back up.
"Firms have to build-in all sorts of backup
systems and protection on their side of the meter and add those costs to the
price of their products."
With industry revenues at about $250 billion/year
that means at least $100 billion on top of that is buried in the costs of goods
and services.
QUOTE OF THE
WEEK: In our efforts to maintain an artificial cost on electricity
we're simply rolling the real costs over into another dimension and there's no
price signal for reliability today. In a digital society the reliability
of power is at least as valuable as the energy itself but we don't have any
price signals for reliability. We don't measure it -- in a digital way --
so in effect there's no value put on it and nobody captures the 'rents' on that.
We've got to begin recognizing that ... digital reliability is a very valuable
item and as I said it's worth nominally about 50¢ for every dollar of
electricity and we've got to start figuring out how we're going to deal with
that.
Yeager proposes spending 5¢ on the dollar to transform and rebuild the grid to
eliminate the 50¢.
Without action that 50¢ will grow and in 10 years
might hit a dollar or more for every dollar of power bought, Yeager forecast.
We can invest a fraction of that in the power
system and basically eliminate that reliability surcharge and at the same time
create all new opportunities for productivity and economic growth that are
possible but which we are leaving on the table effectively today.
That he calls a "no-brainer."
EPRI subsidiary Primen interviewed a wide variety
of firms to find out if they were willing to pay an extra 5% for their power to
upgrade the grid.
About 40% of the firms would.
Another 40% said "absolutely not" and
the dividing factor was the trust the firms have in local power suppliers. Many
doubted the utility would use the money to solve the problems, Yeager said.
Does Yeager think FERC's plan to have utilities
meet reliability standards before joining an RTO will help or work?
"The real solution is the mandatory
reliability standards that were written into the now-stalled energy bill,"
that he expects to come out next year.
"I don't know anybody in the industry that
doesn't support that because everyone's concerned that the system is only as
good as its weakest link," he said.
The other question for him is what is reliability
in the 21st-century?
If the industry starts with keeping the lights on
it should then push the envelope and raise standards for a digital society, he
added, for transmission and distribution.
"We don't get into the policy business, but
we certainly will do all we can to inform through the trade associations, NERC
and others.
Yeager sees a need to encourage PUCs to foster
investments in technology.
"Unless you have some mandatory requirement
that the states are accountable ... they tend to resist allowing rate increases
or investment requirements that are necessary to fund this kind of thing,"
Yeager explained.
What has Yeager accomplished in his time at EPRI?
Maybe the biggest was to morph EPRI from a
research institution relevant to a vertically integrated monopoly industry into
one with the flexibility and diversity to serve the restructured industry,
Yeager replied.
"It would have been very easy for EPRI simply
to have gone away," he added, and some thought EPRI wasn't relevant
"in the wake of what they expected was going to become a competitive
industry.
"Had we not transformed EPRI creating a
family of companies that can relate to the much more diverse industry, then we
probably would have gone away" or become irrelevant, Yeager explained.
New goal -- electrify the world. EPRI is not as
strong as he'd like it to be, "but it's strong enough to make a difference
and to move towards our goal of electrifying the world."
We watched in the 1990s how EPRI came alive to
play a role in the unfolding competitive retail and wholesale competition and
asked how EPRI sees the development of competition today.
The power industry is a public-private partnership
-- has been for 100 years and needs to stay that way, Yeager replied.
It was built and run as a vertically integrated
monopoly but "we certainly can run the public-private partnership in a
market-based system."
The power industry is set up like a series of
private toll roads "and that's not compatible with a market-based system
where you want open access superhighways.
"That was the fatal flaw in
restructuring," said Yeager. "Politicians
think markets work only one way -- lowering prices.
They see power as an entitlement and (competition)
as a way to lower the cost.
They didn't recognize -- or didn't choose to
recognize that in all markets sometimes prices go down and sometimes prices go
up.
Economists tend to look at power like any other
commodity, noted Yeager, yet power flows the laws of physics.
Power "has the unique properties of having to
be produced and consumed in absolute balance at all times -- literally at the
speed of light -- without any significant storage capacities to balance it.
"That is really just a tremendously
remarkable feat and the fact that we've been able to do it so well that the
public views it as an entitlement -- basically like air and water -- is just to
me the most remarkable accomplishment literally in the 20th century."
Competition in electricity has to be looked at
very carefully, noted Yeager, because it requires several components.
One is an infrastructure that will support it.
"We don't have that," he noted.
And the T&D system has to be run as a common
carrier -- like the national highway system -- with an industry solely devoted
to maintaining the system.
"We don't have competitive highway systems in
this country. We have competitive automobile firms and gas stations and
the rest."
He believes a model based on the highway analogy
is needed for power and telecom or "the best we'll have is a few Model Ts
and principally horses and buggies going forward.
"We don't have an incentive for a (Henry)
Ford to come forward and even build Model Ts today.
But Yeager sees the system positioned to take
advantage of competition although it lacks incentive for risk-takers.
"We use the word competition but we haven't
had the intestinal fortitude to really recognize what it takes.
"It's a very complicated process and you have
to invest in the infrastructure to make it possible.
"Markets are the most effective instrument
that man has come up with for the efficient allocation of resources and to
create value but you can't do it when you decree 'I have a market but don't put
any of the realities -- either policy or infrastructure in place that will allow
those markets to operate," said Yeager.
Published in Restructuring
Today on August 31, 2004