Top of the Week: Optimistic Expectations from NERC

By Chris Posey, Online Editor

The outlook for electricity reliability during the summer of 2008 is “generally good,” according to the recent 2008 Summer Reliability Assessment released by the North American Electric Reliability Corporation (NERC).

Capacity Margins
The NERC summary noted capacity improvements in a number of regions including Boston, Southwest and Greater Connecticut, Texas and the Southeast. Northeastern improvements came as a result of added transmission and supply and demand side resources. The Southwest also saw improvements as a result of transmission investments. Growth in Texas came from an increase in existing wind generation resources, and to a certain extent, biomass resources.

On the whole, net capacity margins in the U.S. increased by 1.9 percent. Conversely, Canadian net capacity margins decreased by 1 percent. These admittedly small changes may have been influenced by the changes in NERC’s capacity categories. These changes were intended to improve consistency and increase the granularity and transparency of how regional resource projections are represented, according to NERC. Specific changes include the replacement of previous capacity resource designations of “committed” and “uncommitted” with “existing,” “planned” and “capacity purchases and sales” designations.

Change in U.S. Projected Net Capacity Margins from Summer 2007 to Summer 2008

Change in Canadian Projected Net Capacity Margins from Summer 2007 to Summer 2008

Despite capacity resource increases and system reinforcements, California and the Southeast continue to be monitored closely because of the constant threat of drought. California will require significant imported power in order to fortify supply. This results in transmission that is bogged down and unreliable. The California Independent System Operator’s April 28 summer assessment states that “…voluntary conservation and on-call interruptible loads could be needed more frequently than normal.” In the Southeast region, recent transmission investments have improved the reliability of power supply, but the region could also face capacity concerns if projected rainfall drops below what is forecasted.

Coal Inventories
Prices for thermal and coking coal have increased as a result of a shortage of coal internationally. This shortage may be seen as a double-edged sword: coal exports have increased; however, domestic supply (namely, supply for eastern electric power generators) has dwindled for summer 2008.

The broad shortage of coal inventories has forced power generators to rely on the coal inventories on hand at power plants. For the most part, power plant inventory levels are healthy. Powder River Basin coal inventories were unusually high and Central Appalachia coal inventory levels were also strong despite a recent lull in coal inventories in January and February. On the other hand, Northern Appalachia coal supplies were relatively low, as this coal entered the export market earlier than any other thermal coal. These lower coal supply levels have not been significant enough to cause alarm, and it is expected that eastern power generators should have no reliability concerns related to coal inventories.

Natural Gas Inventories
Natural gas inventories were reported healthy on all fronts. According to the NERC survey results, U.S. dry production of natural gas experienced a net increase of 2.2 BCFD in 2007 averaging 52.8 BCFD. This increase comes on the heels of record drilling levels. The increase was due in part to a focus on unconventional resources such as Barnett shale and the Rocky Mountain region supply. These sources helped offset a decline in natural gas supply from the mature Gulf of Mexico region and contributed to a record level of natural gas capacity added to the U.S. pipeline grid.

North America will be seeing the addition of six LNG regasification terminals throughout 2008. U.S. imports of LNG will likely rise in 2008.

Despite providing a very positive outlook on U.S. natural gas supply, the NERC report did also note the potential for disruption of U.S. Gulf natural gas production due to the threat of a predicted eight hurricanes and 15 named storms. Both predictions reflect a number that is notably above average. Should these predictions play out, severe weather could cause temporary natural gas supply interruptions.