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As AEP/Southwestern Electric Power Co. seeks to balance its power production costs between natural gas-fired and coal-fired baseload generation, the allocation of those costs is becoming a factor as municipal utilities such as Hope Water and Light Corp. consider their own cost structures.
SWEPCO has built gas-fired generation units in Arkansas and Louisiana, and coal-fired baseload generation at the John W. Turk, Jr., Power Plant at Fulton. Kirchhoff said the gas-fired units are “peaking” units, used only when demand exceeds generation capacity of SWEPCO’s coal-fired generation.
“Those are gas-fired, and when they run, they drive the average per kilowatt hour cost up; I say drives it up, even at gas rates today versus coal rates it isn’t anywhere near what it was in August, 2008,” HWL General Manager Jim Kirchhoff said in a recent interview. “That was a historical high for natural gas.”
That 2008 spike produced a one-time cost to the consumer which was not built into base rates, but passed through in billing charges. HWL reacted to that pass through without affecting base rates locally.
Then, the national economy tanked.
“Things have settled down considerably, but it’s kind of hard to put everything together because the economy has made some horrific changes in our business in terms of load and industrial use, as well as residential use,” Kirchhoff said. “The impact, obviously, has been a decrease in electric consumption and demand. It goes right along with companies cutting production, employees, and so forth.”
Suddenly, the allocation of those pass through costs became more important.
“Natural gas plays into the wholesale power cost equation when big demands exceed the baseload capacity of coal-fired plants, which run 24/7 and run at full capacity because they’re the cheapest units to run,” Kirchhoff said.
Gas-fired plants, he said, are at the mercy of the market in terms of fuel costs; and, because they are typically not “baseload” facilities, they are used inconsistently.
“Typically, we have a Power Cost Adjustment in our bill similar somewhat to fuel adjustments you see with SWEPCO, Entergy,” Kirchoff said. “Historically, the PCA is operated as a reflection of fuel prices; and, up until about three years ago, the prices fluctuated and we’d have credits or charges.
“You could see as the economy was strong, homebuilding was strong, industrial production and manufacturing was strong that their PCAs were starting to climb, pretty much a reflection of a cheap baseload capacity being exceeded more and more,” he said.
Consequently, “purchased power” on the open market became more necessary for suppliers such as SWEPCO during periods of extraordinary demand, Kirchhoff said.
As AEP/Southwestern Electric Power Co. seeks to balance its power production costs between natural gas-fired and coal-fired baseload generation, the allocation of those costs is becoming a factor as municipal utilities such as Hope Water and Light Corp. consider their own cost structures.
SWEPCO has built gas-fired generation units in Arkansas and Louisiana, and coal-fired baseload generation at the John W. Turk, Jr., Power Plant at Fulton. Kirchhoff said the gas-fired units are “peaking” units, used only when demand exceeds generation capacity of SWEPCO’s coal-fired generation.
“Those are gas-fired, and when they run, they drive the average per kilowatt hour cost up; I say drives it up, even at gas rates today versus coal rates it isn’t anywhere near what it was in August, 2008,” HWL General Manager Jim Kirchhoff said in a recent interview. “That was a historical high for natural gas.”
That 2008 spike produced a one-time cost to the consumer which was not built into base rates, but passed through in billing charges. HWL reacted to that pass through without affecting base rates locally.
Then, the national economy tanked.
“Things have settled down considerably, but it’s kind of hard to put everything together because the economy has made some horrific changes in our business in terms of load and industrial use, as well as residential use,” Kirchhoff said. “The impact, obviously, has been a decrease in electric consumption and demand. It goes right along with companies cutting production, employees, and so forth.”
Suddenly, the allocation of those pass through costs became more important.
“Natural gas plays into the wholesale power cost equation when big demands exceed the baseload capacity of coal-fired plants, which run 24/7 and run at full capacity because they’re the cheapest units to run,” Kirchhoff said.
Gas-fired plants, he said, are at the mercy of the market in terms of fuel costs; and, because they are typically not “baseload” facilities, they are used inconsistently.
“Typically, we have a Power Cost Adjustment in our bill similar somewhat to fuel adjustments you see with SWEPCO, Entergy,” Kirchoff said. “Historically, the PCA is operated as a reflection of fuel prices; and, up until about three years ago, the prices fluctuated and we’d have credits or charges.
“You could see as the economy was strong, homebuilding was strong, industrial production and manufacturing was strong that their PCAs were starting to climb, pretty much a reflection of a cheap baseload capacity being exceeded more and more,” he said.
Consequently, “purchased power” on the open market became more necessary for suppliers such as SWEPCO during periods of extraordinary demand, Kirchhoff said.
SWEPCO said in a press statement Tuesday that frigid temperatures in Arkansas produced a new all-time winter peak of 4.5 million kilowatts of electricity on Jan. 8, some 400,000 kilowatts higher than had been reached in February, 2007. That, according to SWEPCO, was 13.6 percent over the company’s projected customer load for the entire winter. The company did not say in the statement how it met the demand.
“Differences in temperature or a power plant goes down; and, fortunately, the power is available, but for a price,” Kirchhoff said.
In those extraordinary instances, power consumption by large-scale users, such as local industries, typically does not fluctuate; while retail consumer usage tends to increase, he said.
“Manufacturing for the most part, if they are, say a three shift operation, are level loads; they don’t fluctuate much on an annual basis,” Kirchhoff said. “All other things being equal, they are pretty much a level load. Small industrial, commercial, less than three shift operations, and residential is typically very volatile in terms of load. Those are the customers, for the most part, that cause the peaking requirements.”
An industrial customer with 1,000 kwh demand, with a “load factor” of 75 percent, has an average demand for the billing period, generally, of 750 kwh, he said.
“That means they consume at 75 percent of their peak demand. You get down into the manufacturer with one shift operation, probably down in the 30-40 percent range, commercial fluctuates based on how many hours a day he’s open, and residential has typically 15-20 percent load factor,” Kirchhoff said. “If that residential customer needs 100 kwh capacity to run the air conditioner, pool pump, freezer, refrigerator in the summer, it means on average they only use 15 percent of that 100 kwh.
“You have to build your lines accordingly, where in the winter time you might use a certain grade of conductor, but in the summer time, the same group of houses, or subdivision, or group of customers, requires something much bigger,” Kirchhoff said. “And, then, you have to build to that.
“It’s very difficult to isolate an instance or a problem; we’re going through an economic problem, and, there is a swapping off,” he said. “A certain amount of some of these bills, they have got some minimum requirements in them.”
Those requirements define how usage will be treated relative to peak demand for high-volume users typically under direct contract with HWL, Kirchhoff said.
“If you go from three shifts to one shift, you’re probably not going to see some minimum demand charges until those past months flow by,” he said. “As time goes on, if those production patterns don’t change, then those minimum charges will start dropping off, and they will be set to some extent.
“If you’re an industrial customer and made a decision on Jan. 1 to drop two shifts and go to one shift, it really gets complicated because your demand, your capacity requirement for that one shift is the same for each shift; so, it isn’t a cumulative thing,” Kirchhoff said. “The thing that has a cumulative effect is the kilowatt hours. So, if you cut out two shifts, your kilowatt hours go down, but your demand cost is the same because those transformers are out there, that line is out there.”
