By the OGJ Online Staff
HOUSTON, Mar.8, 2001Electricity supply not deregulation poses the bigger question for the U.S. economy, according to research by Wall Street’s SalomonSmithBarney.
Reserve margins are extremely tight in many parts of the country outside the West and California, suggesting that “trend-setting state’s woes could spread east as economic recovery bolsters moribund industrial sector demand for electricity,” said Tobias M. Lekovich in a new report.
In a wide swath of the Upper Midwest, including the Dakotas, Minnesota, Iowa, Nebraska, plus portions of Wisconsin, and Canada’s Manitoba, and Saskatchewan, demand is projected to exceed supply for the next three years. There the reserve margin in the Midcontinent Area Power Pool (MAPP) is expected to be an average -1.04%, between 2001-2003, according to the North American Electric Reliability Council (NERC).
By comparison, the Western System Coordination Council (WSCC), including most of the U.S. West, plus parts of Canada’s British Columbia and Alberta, boasts a relatively hefty average 18.94% reserve margin between 2001-2003.
The reserve margin in the Southeastern Electric Reliability Council (SERC) which covers the Carolinas, Tennessee, Mississippi, Alabama, Georgia and most of Arkansas, Virginia, and Louisiana, is a skinny 3.41% between 2001-2003. At such levels, the California grid operator prepares to call its highest level of emergency in anticipation of possible forced outages.
These low reserves suggest Atlanta, Chicago, New York, and San Francisco could experience blackouts this summer, “if it is a hot one,” said Lekovich. Many parts of the country escaped problems last summer thanks to unusually cool weather. Fast track projects planned to boost the power supply in New York this summer have already run into consumer opposition.
Weak economic conditions are masking electricity needs because industrial customers, which account for one-third of U.S. power consumption, are consuming below trend, Lekovich said, making reserve margins look healthier. For the moment, the warning signs are being overlooked, he said, but the problems will become apparent when the industrial sector recovers.
Some experts are touting conservation, Lekovich was not optimistic scaling back will dampen U.S. demand significantly. Compared to Europe where sensors turn off escalators at night when they are not in use, for example, most U.S. office buildings run escalators all night, he noted.
If history is an indicator, what this rather bleak picture points to is a continuation of the burst of power plant and other industry-related construction activity for the next 3 years, he said. The last time utilization was this high in the 1960s, “we were on the verge of a major buildout of new capacity that lasted 10 years.”
The need is not restricted to generation. Demand has risen 30% in the last 10 years, but the transmission system has been expanded only 15% and spending on distribution facilities declined 10% in real terms. Outages and citizen outrage prompted Chicago’s Commonwealth Edison Co. to allocate $1.5 billion for upgrades.
All things considered, insufficient capacity additions “might be a greater concern in certain regions due to supply limitations rather than an overbuild situation,” Lekovich said.