in an Unregulated Power Market
NEW AGE POWER MARKET
IMPORTANT COST DECISIONS
THE COST OF NOT PROTECTING
In a deregulated power market, the successful power companies will not
only have effective power system operation and maintenance organizations, but also very
reliable wire-line communication networks when fiber may not be cost effective. Very
reliable wire-line communications networks, require a properly protected network using
isolation as a means of protection against the effects of a Ground Potential Rise (GPR).
The Federal Energy Regulatory Commission (FERC) oversees the transmission
and wholesale sale of electric energy in interstate commerce. On April 24, 1996, the FERC
required electric utilities to unbundle transmission services and make their transmission
lines available to other electrical suppliers. It required unbundling in its Order No.
888, "Promoting Wholesale Competition Through Open Access Nondiscriminatory
Transmission Services by Public Utilities; Recovery of Stranded Costs by Public Utilities
and Transmitting Utilities."
FERC believes that unbundling and open access will make the electric
industry more competitive and save electricity consumers $3.8 to $5.4 billion per year.
Unbundling utility services will change who sets the price of electricity. No longer will
a regulatory agency determine prices based on the cost of production; now the price will
be set in the open market, based on supply and demand.
Thus, the stage has been set. Now we must shift our strategies to a very
competitive marketplace, where the bottom line will determine our survival. How can we
enter the 21st Century with a competitive edge?
NEW AGE POWER MARKET
We are entering a new age, the age of a new deregulated power market. It
is the age of uncontrolled electric power market pricing, which will allow power companies
to charge whatever they want and equally allow consumers to buy from whomever they want.
The new challenges electric companies will face in the next few years,
whether they be transmission or generation companies, will be very different from the
challenges of the past. Companies must begin preparations now to meet these changes if
they wish to remain effective players in the new deregulated power market.
Consider the basics. All administration, maintenance, and operation costs
are passed on to the consumer through electric rates. Obviously, that fact is not going to
change with deregulation or the introduction of the power industry to free market
economics. In a deregulated power market, all of these costs will still be passed on to
the consumer through his electric rates just like they were in the regulated power market.
Then what is going to change? The answer is short and simple, "The
consumer will be free to chose the supplier!" In a regulated power market the
consumers were captive and could not change power companies if they did not like their
rates or service. In a free market, keeping consumers will be the first priority and the
key to corporate survival.
In the past, many decisions, that resulted in additions to the bottom
line, were hardly noticed. Even if they were noticed, there was not much fretting, because
the costs would be rolled into the rate base and would likely not show up in more than the
second decimal place of the wholesale or retail electric rate. In addition, the consumers
were not able to change suppliers.
In this new marketplace, some power companies will fail and then be
absorbed by other power companies, because of swings in their electric rates. It is going
to be a new age, an age in which managers and stockholders know that all costs, no matter
how small, are important. They are so very important, because all of the little costs add
up to real and significant additions to the bottom line, which can cause consumers to
choose alternative suppliers.
This obviously means that tougher days lay ahead for all working in the
electric power industry. In the upcoming world of free market competition, everyone will
be held much more personally accountable.
There are many different kinds of problems that may jeopardize the
integrity of wire-line communications. However, let us examine the effect to your company
of one of the most overlooked problems, the problem of the infrequent GPR. The GPR may
only last for a fraction of a second, but can damage or destroy wire-line communications
equipment at substations, powerplants, and switchyards. In addition, this GPR can damage
your system equipment associated with the communications equipment.
Like all things, protection of communications facilities costs money, and
the cost of protection must be compared to the costs, as well as the legal consequences,
of doing nothing. However, with rare exception, the cost for protection is a small
fraction of the costs that may be incurred from doing nothing.
There are three major costs which need to be considered when evaluating
the need to isolate communications equipment from GPR. The first is the direct cost of
having to replace destroyed or damaged equipment. The second is the direct cost of
increased power operations and lost revenue from the failure of real-time communications
with critical metering and switching equipment. The third is the indirect cost of
dissatisfied large consumers being lost to the competition and suing for damages when they
leave, because of broken contracts resulting from power outages. The incidental protection
that isolation equipment also offers to personnel safety and the costs that could be
incurred from GPR induced injuries and fatalities are not considered herein.
There are detailed and well established guidelines that discuss the
technicalities of calculating GPR as well as how to adequately protect against its
effects. Thus, a discussion about the same here will not be attempted.
What will be discussed are two opposing protection philosophies that exist
in the present regulated power market, which will have to be carefully reexamined in the
context of the new deregulated power market.
The first philosophy is the "Let it fail, because the probability of
failure is small" or the "Let it fail" philosophy. The second philosophy is
the "Protect it, because although the probability is small, the cost of failure is
too high", or the "Protect it" philosophy.
The successful electric power company in the new age will be the company
that adopts the "Protect it" philosophy in cases where the benefits of
protection exceed the cost of protection. The unsuccessful power companies will be those
who maintain the "Let it fail" philosophy without evaluating the risks and costs
of not adequately protecting their vital lines of communication.
There are a small number of power companies, some are very large and quite
well known, who have adopted the "Let it fail" philosophy. The time to
reevaluate this philosophy is now, before the free market forces demonstrate what this
philosophy can do to critically important electric rates.
Operations and maintenance costs in the new free market will be much more
highly scrutinized than they ever were in the past. The cost of failing to provide needed
communications protection cannot and will not be tolerated by power companies who wish to
THE COST OF NOT
Let us examine three real world examples from various utility companies
that show how the failure to protect communications equipment from a GPR can increase
operation and maintenance costs, reduce revenues, and thus result in an increase to the
bottom line. The first two examples have to do with providing electric service to large
commercial consumers, and the last example has to do with economy interchange of power
between generating companies.
In the first example, a large commercial consumer who purchases from 6 to
10 million dollars worth of power monthly has a new smart meter that is read by the
supplier through a modem connection. A GPR at the consumer's switchyard could destroy the
communications equipment at the consumer's site. In addition, this GPR may damage the
smart meter, causing a total loss of metering information.
Of course, the supplier will not suffer a total loss of the value of the
power provided to the consumer up to that time, but the supplier will spend a lot of time
negotiating a settlement with the consumer and will suffer the loss of the interest on the
disputed bill for the period it takes to settle. Typically, in such a case, the supplier
would have to settle for a significantly lower payment from the consumer than it would
have received, if the meter information had not been lost. The total billing loss may
reach upwards of ten percent or up to one million dollars. In addition, the electric
company would suffer a loss of interest on the billing amount of up to several thousand
dollars per day for the period of the billing dispute.
In the second example, a large commercial consumer has a manufacturing
facility that requires highly reliable service and has specifications for fault clearing
times in its power sales contract. The fault clearing specifications, if violated, could
typically generate penalties to the supplier from $100,000 to $1,000,000 for each event.
The supplier has a telephone communications link between the breaker
equipment at each end of the transmission line, which guarantees that the reaction time of
the breakers will be fast enough to clear the fault within the contract specifications.
However, without the necessary isolation equipment, communications between the two
breakers may be lost during a GPR and fail to operate, in addition to probable equipment
damage. In this example, the fault would not be cleared within the sales contract
specifications and the supplier could typically be hit with a penalty of from $100,000 to
In the third example, a large generation company makes economy
interchanges with a neighboring generation company. In an economy interchange, two
generation companies decide which one will supply the next increment of power that either
company needs, based on each company's incremental cost. The company that can generate the
power more cheaply will increase its generation and the companies will split the savings.
For large generating companies, economy interchanges can cut operating costs by millions
of dollars per day.
A necessary requirement for economy interchanges is real-time remote
metering of all interties with neighboring generating companies. This is required, in
order to determine the direction and magnitude of power flow attributable to each
generating company. In almost all cases, the metering information at key intertie points
is transmitted to each generating company's central dispatching office by redundant
wire-line and wireless communications services. The problem is, redundancy does not always
guarantee reliability in the event of a GPR. Without the necessary isolation equipment, a
GPR will likely destroy the wire-line communications equipment at a critical intertie
metering facility. In addition it may damage the metering equipment as well, which then
makes the wireless redundant communications system useless.
Without the main information source, there is nothing to transmit on the
redundant communications system. In this case, the generating companies do not know who is
supplying power to whom in real time. Thus, they cannot make effective economy interchange
decisions until the communications and metering equipment is repaired or replaced.
The increased cost of generation for both generating companies could be in
the millions of dollars. Too often, companies fail to adequately protect wire-line
communications from a GPR because they have redundant wireless communications to fall back
on, but failure to protect wire-line communications equipment from a GPR can jeopardize
the redundant wireless system as well.
In a deregulated power market, costs will be scrutinized like never
before. It is one thing to gamble that the cost of replacing communications equipment
damaged by GPR will be lower than the cost of protecting that equipment. However, it is a
whole different matter to gamble that the increased costs for system operations, due to
the loss of real time information, will be less than the cost of communications
protection. It is quite evident that the electric companies utilizing isolation equipment
on their wire-line communication facilities will be better prepared to compete head-on in
the new age of the deregulated power market.