Electric Utility Resource Planning

Economics, Reliability, and Decision-Making

Steven Sim

• Publisher: CRC Press
• Year: 2017
• ISBN:
  9781351832632
• Edition: 1
• Topic: Physical Sciences
• Subtopic: Energy

Most people—including many legislators, regulators, and other decision makers in the electric utility industry—have misconceptions about how electric utilities really "work" and plan for the future. This lack of understanding can lead to poorly informed decisions and policies that directly affect the choices utilities must make.

Using easy-to-understand text and examples, Electric Utility Resource Planning: Economics, Reliability, and Decision-Making clarifies how utilities operate their systems and prepare for the future. This explanation will show readers that both expected and counterintuitive results can occur (i.e., conservation might result in higher air emissions, or lowering costs could lead to higher electric rates).

Taking readers step by step through this process, the book (in the following order):

• "Creates" a hypothetical utility
• Explains how and why a utility operates its system of generating units
• Discusses the planning methods that a utility would (or should) use
• Guides readers through each stage of a planning analysis for the hypothetical utility, examining various resource options (conservation, new power plants, and solar)

In addition, the author introduces four Fundamental Principles of Resource Planning that should guide utilities. He also offers opinions on how certain trends in utility regulation and legislation can hinder utility planners' efforts to identify and select the best resources for the utility's customers.

With this book, author Dr. Steven Sim applies his experience and insights from more than two decades of resource planning for Florida Power and Light (FPL). As one of the largest utilities in the United States, FPL has faced a multitude of resource planning challenges, and Dr. Sim has performed and supervised thousands of analyses designed to meet these obstacles. He has also served as an FPL witness in regulatory hearings on a wide variety of topics, ranging from the economic implications of nuclear, conservation, coal, gas, and other resource options, to the non-economic impacts (air emissions, fuel usage, system reliability, etc.) they present.

1

Introduction

Why Write This Book?

In my career at Florida Power & Light Company (FPL), I have been fortunate to have opportunities to interact with numerous individuals, both on a one-to-one basis and in group situations, in discussions that address a variety of issues pertaining to electric utilities. These individuals generally have two things in common. First, they are not electric utility resource planners. Second, despite this unfortunate choice in their life’s work, they have a genuine interest in energy issues, particularly those relating to electric utilities.

These discussions frequently focus on the issue of what “resource options” FPL was considering, or had already chosen, in order to continue to provide electricity reliably and at a reasonable cost. These resource options could include any (or all) of the following:

• The utility building a new power plant that would be fueled by either natural gas, coal, or nuclear fuel;

• The utility purchasing power from new or existing power plants owned by a neighboring utility or a non-utility organization;

• The utility lowering its customers’ demand for, and usage of, electricity by implementing demand side management (DSM) programs; and,

• The utility building, or purchasing energy from, renewable energy (i.e., solar, wind, etc.) facilities.

In regard to the discussions I have had regarding these resource options, and the decisions that were being made about them, most of the discussions were characterized by what I will term a sincere intellectual curiosity. In such cases, the individuals who were discussing the topic with me seemed truly interested in learning what specific resource options had been considered and why a particular decision was made. In other cases, the discussions could be characterized as outright disbelief, and/or open hostility, on the part of the individual who was certain that he/she already knew what the “Correct Decision” was. More than a few of these conversations were similar to the following hypothetical exchange:

Questioner“Did the utility really decide to go with Option A (insert appropriate name of new power plant, new energy conservation program, etc.) instead of Option B (insert the name of an alternative favored by the Questioner)?”

Me“Yes.”

Questioner. “What were you______* thinking of? It is obvious that the decision should have been Option B!” (Appropriate facial expressions, tone of voice, and/or hand gestures may also be supplied by the reader’s imagination.) * Please insert an appropriate reference such as “people,” “doofuses,” “buffalo heads,” etc.

However, contrary to this hypothetical exchange, most of the discussions I have had have been very pleasant. One such exchange took place a number of years ago with a women’s civic group in South Florida that was sponsoring a panel discussion regarding energy-related issues. I was invited to represent FPL as a panelist. I single out this particular discussion because it influenced this book in two ways.

Both of these ways are related to a question I was asked at one point in the proceedings. During the discussions, one issue that emerged was whether an individual could generate one’s own electricity rather than purchasing it from the utility.^† The questioning up to that point had actually been a bit intense when one lady in the audience raised her hand and then asked: “What do I have to do to become an electric utility?”

Blindsided by this unexpected question, and attempting to buy time until I could think of how best to respond to her question, I blurted out: “Well, first you’ve got to get a smokestack.”

Fortunately for me, the response resulted in a few giggles that seemed to lighten the mood considerably. The discussion then continued in a much more relaxed atmosphere and actually proved to be quite productive. Grateful for that fact, I have remembered that exchange and actually used my stumbling response to her question as the initial working title for this book (until sage advice from reviewers convinced me to use a more “proper” title).

The second, and much more important, item I took away from this particular meeting was a perception of why a number of questions were being asked. During the discussion I realized, perhaps for the first time, that many (if not most) people have a number of misconceptions regarding: (i) how electric utilities actually operate, and (ii) how utilities plan for the future. Since that time, this perception has been reinforced in virtually every subsequent meeting I have participated in that discussed utility-related energy issues.

It was apparent that a basic understanding of how a utility actually operates, particularly in regard to the utility’s existing generating units, would be very useful if one is to understand how utilities plan for the future. With that in mind, Chapter 2 of this book is designed to provide this basic understanding of how a utility actually operates its many generating units.

This basic understanding of utility operation of its generating units in Chapter 2 sets the stage for the remaining chapters of the book. In those chapters the other subject of the book is discussed: how do electric utilities plan for the future? We will refer to this issue as “resource planning” for a utility.

Who Is This Book Written For?

The information presented in this book is primarily intended for two distinct audiences which I view as equally important.

The first audience is comprised of a wide variety of individuals who do not work for electric utilities, but who are interested in energy issues, especially issues related to electric utilities. From my experience, a number of different types of individuals would be included in this audience. These include, but are not limited to, the following:

• Individuals working in municipal, state, and federal governmental organizations, including those who regulate various aspects of electric utility operations and planning;

• State and federal legislators who make laws that impact electric utilities and their customers;

• Journalists who report on utility and energy matters;

• Environmentalists, especially including representatives of numerous environmental organizations that frequently intervene in utility regulatory hearings;

• Educators and students involved in energy and environmental education; and,

• Others who simply wish to know more about energy issues.

A better understanding of how electric utilities actually operate and plan their systems, and just as important, why they do so, should help to eliminate—or at least minimize—numerous misconceptions that get in the way of meaningful discussions about electric utilities and their plans for the future. In turn, this understanding should result in more informed discussions that lead to better decisions regarding energy issues.

The second audience this book is intended for is a variety of individuals who work for electric utilities in many different areas. The information in the book should prove especially useful for utility engineers and analysts who are relatively new to utility resource planning. In addition, I believe the book’s information will also prove useful to people who have other jobs in utilities: executives, attorneys, designers of utility DSM programs, individuals working in the power plant business units, individuals working in the power purchase business units, etc. Such individuals may seek a quick education or refresher on a concept/issue that is either new to them, or is one which they have not addressed in some time.

This utility audience also includes individuals in various utilities around the United States (as discussed a bit more in Chapter 2) that are turning their attention back to the concepts discussed in this book after being away from them for a decade or more due to decisions in their respective states to change the fundamental structure of the electric utility business. In recent years, I have received a number of calls from individuals in such utilities. The conversations often proceed with my cell phone ringing at an inconvenient time with the following type of exchange:

Caller: “Help! We used to do utility resource planning like you guys do, but we have been away from it so long that we don’t remember how to do it. Can you help us?”

Me: “Yes. I will be glad to help, but right now I’m on the golf course lining up my putt for a score of 8 on this par 3 hole. I will call you back when this athletic crisis has passed.”

If this book helps minimize such tragic distractions to my golf game, then I may benefit as much from this book as I hope the two types of intended audiences will.

An Overview of the Book

The remaining eight chapters of this book present information in the following sequence:

Chapter 2 lays the foundation for much of the rest of the book by explaining certain fundamental concepts of electric utilities. The difference between “regulated” and “unregulated” utilities is discussed, along with an explanation of why this book focuses on regulated utilities. Next, the major operating areas of an electric utility, including those areas that are the primary focus of this book, are presented. The different types of electric generating units (i.e., power plants) a utility typically utilizes are then presented along with an explanation of how a utility decides which generating units to operate at a given time. The chapter concludes by “creating” a hypothetical utility system. This hypothetical utility system will then be used throughout the remainder of the book to illustrate a variety of topics.

In Chapter 3, we introduce the three key questions that utility resource planning must continually answer. We also introduce different types of analytical approaches that are used to answer these three key questions.

Chapter 4 then utilizes the hypothetical utility system we have created to illustrate how analytical approaches designed to answer the first and second of the three key questions are actually implemented. The answers to these two questions are then used in subsequent chapters as we develop answers to the more complex (and, for most people, more interesting) third question.

Chapter 5, Chapter 6 and Chapter 7 then illustrate how the third key question is answered using our hypothetical utility system and a number of basic types of “resource options.” These resource options represent choices a utility has to meet its future resource needs to ensure that it can maintain a reliable and economic supply of electricity.

Chapter 5 focuses on one of two basic types of resource options. This type of resource option is new electric generating units (or “Supply” options). The list of Supply options that could potentially be selected by the hypothetical utility to meet its resource needs includes new generating units that could be fueled by natural gas, oil, coal, nuclear energy, or renewable energy. In this chapter we will select a few generating unit examples and perform the economic analyses to see which of these would be the best economic choice for our hypothetical utility if it chose to meet its resource needs with new generating units.

The focus of Chapter 6 is on the second basic type of resource option. This type of resource option does not supply additional electricity, but instead reduces the demand that a utility’s customers have for electricity and the amount of energy that customers use. These options are traditionally referred to as demand side management (DSM) options. Similar to the approach used in Chapter 5, we will select a few DSM examples and perform economic analyses to see which of these selected DSM options would be the best economic choice for our hypothetical utility if it chose to meet its resource needs with DSM options.

In Chapter 7, we bring together the information developed in the previous two chapters that focused on Supply options and DSM options, respectively. We now look at all of the Supply and DSM options examined in the previous two chapters to determine which resource option is really the best economic choice for our hypothetical utility. In addition, we then take a look at these resource options from non-economic perspectives of our hypothetical utility system (such as the types of fuel used, total system air emissions, etc.) Then, armed with the results from the economic and non-economic evaluations, our hypothetical utility will make its selection of the best resource option with which to meet its resource needs.

Once we have completed Chapter 3, Chapter 4, Chapter 5, Chapter 6 and Chapters 7, the three key questions for the hypothetical utility will have been answered. The analyses we will have performed to get to these answers for the hypothetical utility are intended to be both illustrative as to the importance of certain fundamental principles of resource ...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• Acknowledgments
• Author
• 1 Introduction
• 2 How Does an Electric Utility Actually “Work”?
• 3 Overview of Utility Resource Planning
• 4 Reliability Analyses for Our Utility System
• 5 Resource Option Analyses for Our Utility System: Supply Options
• 6 Resource Option Analyses for Our Utility System: DSM Options
• 7 Final Resource Option Analyses for Our Utility System
• 8 Are We Done Yet? Other Factors That Can (and Will) Complicate Resource Planning Analyses
• 9 Final Thoughts (Including Some Opinions)
• Appendix A: Fundamental Principles of Electric Utility Resource Planning
• Appendix B: Glossary of Terms
• Appendix C: Mini-Lesson #1— Concepts of Revenue Requirements, Present Valuing of Costs and Discount Rates, Cumulative Present Value of Revenue Requirements, and Levelized Costs
• Appendix D: Mini-Lesson #2— Further Discussion of the Limitations of a Screening Curve Analytic Approach
• Appendix E: Mini-Lesson #3— Further Discussion of the RIM and TRC Preliminary Cost-Effectiveness Screening Tests for DSM
• Appendix F: Mini-Lesson #4— How Can a Resource Option Result in Lower Costs, but Increase Electric Rates?
• Appendix G: Mini-Lesson #5— How Can a Resource Option That Produces Emissions Lower a Utility’s Total System Emissions? (“The Taxi Cab Example”)
• Index