Oil&Gas Journal Online Story (Feb 06, 2001)

Study: Outages rise in New England after deregulation

HOUSTON, Feb. 6—Power plant outages in the Northeast increased nearly 50% in 1999 the first year following full deregulation of the wholesale generation market compared to outages under regulation, a new study says. The question of outages and the effect on the market has set off a raging debate because of frequent price spikes and volatility in the wholesale generation market in that region. Similar questions were raised in California, but a Federal Energy Regulatory Commission audit released Friday found no evidence the audited companies scheduled maintenance or outages to influence prices. The report attributed most of the problems to mechanical wear and aging. In New England, forced outage doubled after deregulation, while wholesale prices exceeded $100/Mw-hr. Utility expenditures on operation and maintenance also eroded significantly before markets were deregulated. These were some of the major conclusions of a study commissioned by the Union of Concerned Scientists (USC) released in mid-January. The New England Independent System Operator (ISO) is conducting its own study of plant outage rates that will be finished by the end of March. New England utilities which divested power plants during restructuring of the market must buy power wholesale to serve customers. Price increases have prompted utilities to file rate cases with state commissions to recover rising costs. The study conducted on behalf of the UCS by Synapse Energy Economics of Cambridge, Ma., found the average amount of generating capacity out of service increased dramatically during the first 12 months following the opening of the competitive market on May 1, 1999. Beginning in May 1999, 47% more capacity was out of service during this time than had been out of service on average during the 12 months prior to the opening of the competitive market. The out-of-service capacity was nearly double the amount of capacity out of service from 1997 to 1998. Fossil fuel plant forced outage rates doubled after deregulation to 24% from 11%. Fossil-fueled plants make up more than half the capacity of the NEPOOL region. Between January 1997 and April 1999 and prior to deregulation the outage rate averaged 11.4%. From May 1999 to December 1999 outages increased to 23.6%. Prices spike Nationally, forced outage rates for fossil-fueled plants declined to 7.72% between 1995-1999 from 7.9% between 1992-1996. Increased outage rates for the Northeast run counter to national trends, according to the study. When wholesale prices spiked to $6,000/Mw-hr on May 8, 2000, 8,440 Mw were out of service, 66% more than on any day in May before deregulation. The study also points out spending on operation and maintenance declined during the 1990s prior to deregulation. “It is unclear from the publicly available data, if the postponed maintenance may in part be responsible for the increase in plant forced outage rates,” the report says. Wholesale market prices exceeded $100/Mw-hr during 122 hours in the new market’s first 18 months of operation, a rare occurrence before deregulation. While spot market clearing prices in New England became more volatile, the amount of electricity sold in the wholesale spot market grew significantly, increasing to 24% by August 2000. Rising oil and gas prices contributed to the higher prices, the study said, but it does not assess to what extent rising fuel prices or outages contributed to the price spikes. The authors said they could not determine definitively whether generators are withholding capacity to raise spot wholesale prices. But they said that by analyzing plant and supplier specific data, it should be possible to determine whether suppliers have withheld capacity. They recommended regulators investigate the following: • Whether higher prices paid after May 1999 for wholesale electricity were due to power plant outages. • Whether plant owners caused the outages through inadequate maintenance during the 1990s. • Whether plant owners participated in anticompetitive behavior since opening of the wholesale market.

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-- Martin Thompson (mthom1927@aol.com), February 06, 2001