Booms strain on electrical grid continuesSep 3 - McClatchy-Tribune Regional News - Corey Paul Odessa American, TexasThe machinery and manpower behind the Permian Basin's oil boom brought surging electricity prices that have slowed somewhat from a costly 2012 but nonetheless prompt worry, as oilfield production continues to outpace new transmission infrastructure. Some utility and oilfield experts foresee a crisis in coming years akin to the much-discussed strain on roadways, water supplies and municipal services -- barring an aggressive infrastructure build-out. Companies that braced for large surcharges on their electricity bills this year saw some improvement from last summer, after the state electricity regulator ordered the fast-tracking of local infrastructure projects. Still, high prices remain. "It's a problem that's likely to exist as we continue to grow out in West Texas," said Brad Jones, The Electric Reliability Council of Texas' vice president of commercial operations, to a group of concerned commercial customers at a meeting in Midland this week. West Texas's electricity grid struggles with what is known as "congestion," which occurs when heavy demand for power requires the electricity grid managers to draw from more-expensive power sources, such as an older less-efficient power plant. From 2009 through 2012, energy use in West Texas increased about 23 percent to about 13 million megawatt-hours, according to ERCOT, which manages the flow of electric power to 23 million Texas customers, representing 85 percent of the state's electric load. Over the past five years, the area's load has increased by the total usage of the city of Arlington, according to Oncor, the controlled-monopoly that distributes electricity here. The congestion related charges are relatively new here, dating to 2010, when the state started restricting them to the regions where they were incurred. As a result, congestion costs from the Permian Basin's oil boom stayed here. Residential customers are largely protected from congestion costs, but not businesses. In 2012, there was an average congestion cost of $11.47 per megawatt hour, according to John Bick, an electricity broker with Priority Power Management, which buys power for municipalities and businesses in West Texas -- primarily large independent oilfield companies. "We had customers in 2012 that were paying 30 percent more in electric bills in some months than what they were used to paying," Bick said. For some, that amounted to tens of millions of dollars. So far this year, congestion costs are averaging $6.65 per megawatt hour, according to the brokerage firm. That's a reduction of 42 percent but still about double 2011 prices. Bick and others attributed that slowdown to Oncor's improvements to the local infrastructure, which included new transformers, load-shifts and transmission lines. Those came after businesses lobbied the state to direct Oncor to do the improvements, many of which were upgrades that could be fast-tracked. Oncor is limited in how quickly it can build new infrastructure, which requires a lengthy planning and approval process that includes public hearings, according to Sue Mercer, Oncor's area spokesperson. Oncor must pass on capital investments like a new substation to consumers, and it's restricted in how much it can raise rates. "We can't just go out and build Cadillac systems if the need is not there," Mercer said, adding that the price increases of last year have now established that need. One improvement -- replacing a transformer at the Odessa North station -- targeted what ERCOT listed as the top constraint in the state, representing $140 million in congestion costs. Oncor plans several more transmission improvement projects, but they will take up to three years. Experts call this a mid-term solution. Long-term solutions could include expensive new power plants in the area and upgrades to inefficient existing ones brought online during congestion. In the meantime, businesses are trying to cut costs. Apache Corp., one of the main oil producers in the Permian Basin, reported that congestion largely contributed a 15 percent bump in average costs here, with power topping $50 million in 2012, according to an article this summer in the Wall Street Journal that quoted an area vice president for operations. To help cut those costs, Apache began running pumps at times of day when power demand was lowest and surcharges were least likely, the article continued, and began using natural-gas-fired power turbines that allow the company to disconnect from the electricity grid. (A company spokesman declined to revisit the topic this week, saying such cost information is typically kept private) Increasingly, businesses are also turning to temporary power services. Houston-based Aggreko North America, which specializes in renting natural gas and diesel generators, opened a Midland office this summer and has since seen "exponential" growth, according to Brian Fahnestock, a vice president and general manager of the mid-south region. Fahnestock said the appeal of Aggreko's service includes an offer of mobility with changing well sites and a way to avoid depending on new transmission infrastructure in rural areas that presents a long wait and a risky investment. Aggreko power runs more expensive than a utility but a rate immune from congestion. "At the end of the day that's what drives the vast majority of our demand for power," Fahnestock said. For its part, the electricity provider TXU said it's been advising commercial clients on ways to reduce consumption such as promoting "Smart Meters" that allow businesses to track usage and by sending consultants about specific on-site practices. It also promotes a "reduction rewards" service that asks companies to remove themselves for the grid during high-demand periods in exchange for money, while they perhaps use a generator instead. "They can help the whole system, they can help themselves," said Juan Elizondo, a TXU spokesman, also offering an example. "You've got a dual cycle piece of equipment. Can you run it on a single cycle that's going to consume less?" TXU is also marketing alternative contracts, wherein they assume congestion risk in return for a higher front-end price. The provider hosted the Midland meeting Wednesday between commercial customers, the electricity producer Luminant and Jones to discuss congestion and other market conditions, including a proposal before the Public Utilities Commission to change the wholesale market structure (intended to lure more generation to parts of the state in need, but largely a separate issue from congestion). "The planning process has not necessarily kept up with what's happened in West Texas," Jones told the group. Typically, planners look at load growth over the past few years to predict the next. That didn't account for the rapid expansion, he explained, so now Oncor and other utilities are using applications for rig permits to better calculate. That may better inform a market where electricity providers can try to hedge costs by buying electricity in advance. But near-term solutions for congestion are difficult, with wind generation that fluctuates and oilfield activity that moves around among other challenges. Congestion has worsened as a result of construction to support the state's $6 billion project to build transmission that will move West Texas wind energy to major metropolitan areas. But that project, the Competitive Renewable Energy Zone (CREZ) initiative is scheduled to wrap up at the end of the year. Meanwhile, oil production in the Permian Basin continues to grow. The U.S. Energy Information Administration has projected an increase of an average 1.37 million barrels per day in 2014. "In combination with our growing cities and the stress we are put on the infrastructure, a lot of this electricity we are generating here locally to export out to the bigger cities is now needed in our area," said Kirk Edwards, president of Las Colinas Energy Partners.
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