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Electricity chaos has a hidden extra cost
By ROD MYER
ENERGY
Saturday 5 February 2000

The Victorian Government could face a bill running into many millions of dollars for this week's chaos in the electricity market.

Under a little-known agreement, the Government must underwrite a significant share of the cost of keeping the electricity system's ancillary services in operation.

An indication of the cost came in a memo to the electricity market on Thursday issued by NEMMCO, the Government-owned company that runs the national electricity market.

It warned electricity companies that the costs of ancillary services is expected to be very high.

"At this stage it is difficult to predict the actual ancillary service costs but it will likely be $3 million to $5 million per day," it said.

Ancillary services are provided by generators to keep the supply system operating. They involve ensuring a steady rate of current.

Usually the services amount to between $500,000 and $1 million a day and are paid for by retailers and customers. Generators provide them at a market rate depending on conditions. Heavy use of air-conditioners pushes up the demand for ancillary services, making them more costly to provide.

At one point on Thursday, generators seemed to withdraw from the market, resulting in a shortage and forcing NEMMCO to issue a memo to generators saying "some ancillary services had withdrawn their service and this is contributing to a shortage ... NEMMCO would like to encourage all contracted service providers to ensure they make all possible service available to the market at this critical time".

Generators came back into the market but the conditions meant prices and costs were high. It was a critical time. Overloading and heat on the New South Wales interconnect had forced NEMMCO to reduce power imports. Had the interconnect blown out then, the entire power systems of NSW, Victoria and South Australia would have been threatened.

When a blow-out in ancillary services occurs, a little-publicised power industry agreement requires the Victorian Government, through the old SECV shell, to pick up a proportion of the costs.

The balance is passed on to business users. Electricity supply contracts usually specifically allow for the passing on of ancillary costs.

Ancillary costs have been a headache for Victorian businesses since the national electricity market was introduced just over a year ago.

At first it was envisaged that ancillary costs would be 50 cents per megawatt hour. However, they have risen quickly and are now $2 to $2.50 per MW/hour on normal days. On Thursday they were reported to have been much higher.

At present, residential users are spared the impost of ancillary service costs. However, from January next year, when the residential market is deregulated, ancillary costs will be able to be passed on to residential consumers.

Because the power crisis was caused by an industrial dispute, force majeure provisions have pegged spot electricity prices at $110 MH/hour. However, electricity passed down the interconnect from NSW is not subject to those provisions and so will be charged at higher rates to Victorian retailers.

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Comment:

I post this to show interested Americans that our debacle happening Down Under has many other 'hidden' problems.

Regards from a cooler Saturday Down Under

-- Pieter (zaadz@icisp.net.au), February 04, 2000

Answers

And I thought that electricity costs on Kaua'i were high!

-- Mad Monk (madmonk@hawaiian.net), February 04, 2000.

Pietre, I am sorry to hear of the distressing heat in your country and the subsequent problems arising as a result. Since that is ahead for us in a few months would you mind posting information about what people are doing to survive and maintain in these conditions---other than buying a generator. Also, have you given thought to putting in a woodburning stove for your upcoming winter?!!! Bet you can get one there cheap now!!!

New

-- New Here (newhere@mindspring.com), February 04, 2000.

This is so true about "hidden" problems and costs. Thank you for keeping us informed Pieter. Many concerns with this issue.

Best wishes, ~Dee

-- Dee (T1colt556@aol.com), February 05, 2000.