Denver Post - 10/22/06 By Martin Rosenberg

 

Despite a few nasty pockets of outages, the country managed to weather the summer with no large-scale, prolonged blackouts similar to the epic Northeast power failure of three years ago.

We likely will not be so lucky in years to come, say many of the executives responsible for producing electricity for America.

When the country thinks about its energy problems, it often focuses on our dependence on foreign oil and the recent high prices of gasoline. Petroleum provides 40 percent of our energy and is particularly vulnerable to geopolitical swings in unstable regions of the world.

But utility executives worry that Americans are failing to appreciate another aspect of the energy picture, namely that the power plants using coal, natural gas and nuclear power to produce electricity may soon not meet our growing needs.

"My biggest fear is that we are running out of generation," said Michael G. Morris, chairman and chief executive of American Electric Power, with 5 million customers in 11 states. "That is an issue that the average person doesn't know a thing about. When we tell corporate America, they say, 'What do you mean you're running out of power?"'

The executives' concern is echoed by the North American Electric Reliability Council, which last week said in its annual report that in two to three years, the margin between power supply and demand will drop below levels necessary for reliability in Texas, the Northeast and the Midwest. Other parts of the country could reach that point in the next decade.

The council's report said demand for electricity is expected to rise 19 percent by 2015, but generation capacity will grow by just 6 percent.

During the last round of power-plant construction, most new units were designed to burn natural gas, which was then available at prices much lower than today. Deciding on the next fuel of choice will be more difficult.

"The next couple of years will be a key period for companies to make decisions what to build," said Daniel Yergin, chairman of the Cambridge Energy Research Associates. "By 2020, we will need another 20 percent in generating capacity." Given the lead time for designing and constructing these complex facilities, these issues must be addressed now.

"People don't realize how dangerously close we're moving to not having enough capacity," said Walter M. Higgins III, chairman and chief executive of Sierra Pacific Resources, which serves Las Vegas. "I'm worried about where the natural gas is going to come from for all that generation."

One executive urged that the industry be cautious about embarking on a massive building effort.

"We all say we need energy. But in the past, we have been terrible as an industry at predicting how much," said Peggy Fowler, CEO of Portland General Electric. "At times, we built excess and that created some of the situation we're in now. We need to find a way to do it more carefully and thoughtfully, and understand the economic impact. Decisions I make today will impact customers 50, maybe 100 years from now."

Amory Lovins, head of the Rocky Mountain Institute, based in Snowmass, said a significant and fast-growing share of the world's electricity demand is met by co-generation plants that produce electricity and hot water or steam, distributed generation, wind, photovoltaics and biomass. Such "micropower," Lovins said, is meeting more than half of Denmark's power needs and close to 40 percent of the requirements of Finland and the Netherlands. California and a few other states are aggressively pursuing energy efficiency, load-management and new technologies, but most of the country and the power industry that serves it lag behind the rest of the world, Lovins said.

"Utility executives are talking too much to each other and not paying attention to what is going on in the world market," he said. Some utility executives want to embrace new tools and approaches. Michael Chesser, CEO of Great Plains Energy in Kansas City, Mo., said, "The least appreciated opportunity is energy efficiency and demand management. For the 2010 to 2015 time frame, it's going to be the most cost-effective, least-risky investment we can make."

Chesser recently ordered a study of energy use in Great Plains' headquarters, a 1970s-era leased office building. . The cost of upgrading the energy-management system, air conditioning and lighting was about 70 percent of what it would cost to build enough generating capacity to create the amount of electricity saved by the upgrades. "It's compelling from an economic standpoint," Chesser said. "The challenge is the regulatory model, getting compensated" for investment in efficiency.

Dealing with global warming will also be costly, but the public increasingly wants the problem to be addressed, and utilities are listening.

"The United States has had the benefit of cheap energy that has produced carbon for an extended period of time and gained the economic benefit from that," said Jeffrey Sterba, CEO of PNM Resources, based in Albuquerque.

"Now we want to tell other countries, 'You shouldn't be allowed to.' We have to be careful about how we do that. We're obligated to lead. If we put it \[conservation and efficiency\] off too long, the price tag is going to be much higher than any of us can imagine."

Meanwhile, consumers have a responsibility to get smarter about energy consumption, and manufacturers should have incentives to produce more efficient appliances, utility executives say. Richard Kelly, CEO of Xcel Energy, said, "A plasma TV uses five times as much power as a regular TV. It's like having an extra refrigerator in your house. Everybody buys them. We're very poor at conservation." Xcel serves metro Denver and some other parts of Colorado.

Another problem that retards innovation is the nature and condition of the country's $1 trillion transmission grid. It was designed for a system in which cities were served by nearby power plants. It was not designed to move power across regions, something that is increasingly needed.

Wind farms are now spouting in distant locales, and many expect solar power installations to proliferate in the Sunbelt as innovations make that technology more viable. A more robust grid would tie it all together. Instead, the grid has suffered from neglect as a result of confusion over the business and regulatory models governing the industry.

Currently, about $10 billion a year is spent building new transmission and distribution power lines and upgrading existing lines. That needs to grow to $18 billion a year, said Dean Oskvig, president and CEO of B&V Energy in Kansas City, Mo.

As Gov. Bill Richardson of New Mexico puts it, "We're still a superpower with a Third World electrical grid."

Richardson, former U.S. energy secretary, faulted utilities for being slow to respond to investment incentives contained in the sweeping energy act passed in 2005. "The grid is in very bad shape," he said. "Blackouts are still happening. The promise of the energy bill was that it would be taken care of."

He also said the federal government "is falling asleep" when it comes to fixing our energy infrastructure. "The public is not aware, and neither are policymakers, that the investments in transmission are not happening."

Meanwhile, utilities worry that the costs constraints they face will worsen.

"There is upward pressure on cost from virtually every angle that we look at," Sterba of PNM said. "Our rates have gone down 23 percent in nominal terms since 1993, but we're now facing all these pressures that are going to move our prices up significantly. We're going to have to increase electric prices for the first time in 22 years. Trying to get people to understand that is a real concern."

Martin Rosenberg is the Editor-in-chief of EnergyBiz magazine, a national bimonthly published by Energy Central in Aurora.

For far more extensive news on the energy/power visit:  http://www.energycentral.com .

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