Outages due to Lack of Available Supply

September 12, 2013
Energy Choice Matters
Paul Ring

In what is ultimately a failure of a mandated reserve margin to keep the lights on -- despite the billions of dollars in costs that it annually imposes on customers -- PJM was forced to direct utilities to involuntarily curtail tens of thousands of customers on Tuesday, due to "unseasonably" hot conditions.

According to some published reports, some of the load sheds lasted for nearly seven hours.

PJM reported that record demand for September, "combined with local equipment problems" forced emergency and involuntary load shed in Indiana, Michigan, Ohio and Pennsylvania.

"PJM was forced to direct local utilities in those areas to immediately and temporarily cut electricity to some customers to avoid the possibility of an uncontrolled blackout over a larger area that would have affected many more people," PJM said.

Although PJM blamed, in part, "local equipment problems," the scope of the outages clearly indicate a lack of available capacity -- despite customers paying to meet the mandated reserve margin.

Indeed, PJM concedes that many power plants -- likely including plants receiving capacity payments -- were not available, because they were down for maintenance.

"Extreme heat in the western region of PJM resulted in record demand for September at a time when many power plants and some transmission lines were off for seasonal maintenance," PJM said (emphasis added).

"Our only option to prevent a potential equipment overload and failures that would cause a much bigger interruption was to call for emergency relief in the form of controlled outages," PJM said.

While plant maintenance must occur regardless of market construct, in the energy-only market, plants offline and unavailable to respond to scarcity conditions are penalized, by missing a rare opportunity to recover fixed costs and earn margin. Therefore, plants are incentivized to be available when most needed, including minimizing outages to take advantage of unexpected and transient conditions producing scarcity pricing.

In contrast, it is unclear if the offline plants in PJM will be penalized at all, depending on if the units were actually required to be available at that specific time. However, more broadly, even if certain plants are penalized, that's only a fraction of the total costs paid by load to assure the avoidance of involuntary load shed. Clawing back a few million dollars can't compensate customers for the billions they paid to avoid involuntary load shed through a mandated reserve margin which turned out to be a wasted investment.

"We sincerely regret that conditions on the grid yesterday required us to call for emergency reductions in consumer demand," Terry Boston, PJM CEO, said.

That regret pales in comparison to the regret customers are no doubt feeling from being compelled to pay billions of dollars in capacity payments to generators, but also still being subjected to hazardous and economic-loss-producing involuntary load shed.

Even if the PJM outages were solely due to transmission lines tripping out of service due to heat -- which does not appear to be the sole cause of the load shed -- it shows that all the installed capacity in the world cannot prevent load shed during black swan events. The focus should, therefore, be on enabling price responsive demand and enabling voluntary load shed, rather than paying for a mandated reserve margin that's useless when meeting the real challenges facing the electric grid and being forced, still, to rely on involuntary load shed to keep the lights on, despite paying to meet a mandated reserve margin.

<- Go Back