April 3, 2001

Indiana Utilities Prepare for Possible Early-Summer Energy Crunch

By Lynne McKenna Frazier

A sudden heat wave hit early in the season. Utilities, caught off guard, had several power plants out of service. Consumers were urged to cut back their power usage, but some utilities resorted to rolling brownouts when they couldn't supply enough power to meet demand. Large interruptible industrial users, whose contracts allow them to switch to another power source in a crisis, faced electric prices dozens of times the normal rates on the open market.

And when the immediate crisis passed, there was plenty of blame and finger-pointing.

California 2001? No, the Midwest, summer 1999.

The last electric power crisis to strike this part of the nation was brief. Soaring temperatures in June 1999 caught utilities by surprise. Scheduled maintenance had taken several plants out of service; companies had wanted to get the work done before the usual July and August peaks.

Power was wheeled throughout the nation's eastern power grid, but the usual buffer wasn't adequate -- it was too hot in too many places. Commonwealth Edison's Chicago area was particularly hard hit, blamed not only for economic hardships but deaths.

Two years later, no one expects a repeat, nor an echo of California's continuing power problems. But that doesn't mean electric supply isn't on the minds of utilities and consumers as winter slowly winds down. And a cascade of things going wrong could pinch supplies.

"One of the things we learned is that you need to have different kinds of resources -- base line, peaking, interruptible," said David Vincent, spokesman for the Wabash Valley Power Association, the power- buying cooperative for electric co-ops, including those in northeast Indiana. The organization was stung in 1999 when it had to buy power on the spot market to meet those early summer peaks.

That was difficult, Vincent recalled, not only because of the high prices but because so many utilities were scrambling to buy power all at the same time.

"Looking forward into summer, you know it's going to be a hot spell, but you don't know when," said Mike Brian, spokesman for American Electric Power's Indiana operations. AEP's interruptible industrial customers, including the Steel Dynamics mini-mill in Butler, found themselves scrambling to find reasonably priced power during that crunch.

AEP was caught short not only because it was hot throughout its then-six- state operating territory, an unusual occurrence, but also because its Donald C. Cook nuclear plant was shut down in summer 1999. The Cook plant was out of service for 33 months because of problems with its cooling system found during routine maintenance.

But this summer the Cook plant will be operating at full power for the first time since September 1997. Northern Indiana Public Service Corp., which supplies power to northwestern Indiana and parts of north central and northeast Indiana, also expects all its generators to be running this summer.

The power outlook this summer actually is a little better than a year ago, said Paul Kure, an engineer in the operations and resources division of the East Central Area Reliability Council, a consortium of electric utilities for the region including Indiana.

"Could it happen here?" he said of shortages this summer. "Anything can always happen. Do we expect it to happen? The answer is no."

A combination of existing power and some new generation coming on line should put the region in good shape to deal with all those air conditioners being switched on high when the temperature hits the 90s.

Coal will keep most of those generators going. That's another major difference between Indiana and California. Indiana overwhelmingly relies on coal for its electric generation -- 85.8 percent of the state's total electric generation in 1998, according to the U.S. Department of Energy.

California uses no coal for electric generation.

Coal-fired generators raise their own series of environmental issues. But costs have held steady, even after the switch over to low-sulfur coal to meet air pollution requirements.

But you don't see any new coal plants being built. AEP finished the state's newest one, Rockport in southern Indiana, in 1984. The average age of coal-fired plants in the state was 25 years in 1998, according to the DOE.

You're unlikely to see any new ones springing up. The reason is intertwined with electric deregulation.

California's long series of disasters halted any hint of deregulation efforts in the Indiana General Assembly this year. But the issue has not gone away. And planning at some of the state's largest utilities such as AEP and Cinergy, which operate in deregulated states as well as Indiana, is colored by those deregulation plans.

Deregulation is changing how electricity is produced. A split is growing between companies that generate electricity and those that transmit it to homes.

Every deregulation plan has aspects of that split, but different states are approaching it differently.

California, which was the first state to deregulate, forced electric utilities to sell off their generating plants, then buy power on the spot market. In most states, companies are splitting their generating and transmission operations into separate subsidiaries. That still gives those companies' transmission arms access to a reliable power source.

But it's unlikely those internal sources will fill that demand indefinitely, particularly if summer peaks keep surging.

Electric usage grew by 2.5 percent annually in Indiana from 1988 to 1998, according to DOE. That's slightly more than the national increase of 2.3 percent annually during those years.

Utilities serving northeast Indiana say their demand is growing from 1 1/2 percent to 2 percent a year. That's a crawl compared to fast- growth areas. In Arizona and Florida, electric demand spurted by 3.7 percent a year from 1988 to 1998, DOE reports.

But California's total demand only rose 1.2 percent annually during that period, despite a growing population. That was mostly because of extremely low growth from industrial customers.

Continued growth in demand -- from all those PCs, home entertainment centers and spa baths as well as new business demands -- ensures that at some point, today's relatively comfortable reserve levels will shrink to perilous levels.

Where is that power going to come from?

For NIPSCO, it's coming from some of its customers.

Primary Energy, another subsidiary of NiSource, the utility's parent company, has built co-generation stations at three major industrial sites. That helps in two ways, said Larry Graham, spokesman for the Merrillville-based company.

The industrial customers can generate some of their own power, and if they don't need it, can send it back into the grid. And customers like U.S. Steel and Inland Steel also produce enough steam from co- generation to use in their processes.

The two steel companies and the BP Amoco Refinery in Whiting combined produce enough electricity through co-generation to free up 500 megawatts on NIPSCO's grid, the equivalent of about one unit of a generating station, Graham said.

Power can also come from two or three states away. That's the role of ECAR -- the East Central Area Reliability Council. The utilities in northeast Indiana are all members of the organization, which oversees the grid rolling power through Indiana, Ohio, Michigan, Kentucky, West Virginia and the eastern sections of Pennsylvania, Tennessee, Maryland and Virginia.

More controversially, power -- especially electricity to handle all those air conditioners running full blast in July -- is increasingly going to come from merchant generation plants.

"The power needs of Indiana and the country are going to continue to grow and merchant plants are going to have to be one part of the picture," Graham said.

One such plant now is under construction in southern Wells County. And, as is true most places, the DPL Energy plant will be natural gas- fired.

The surge in natural gas prices this winter bears part of the blame for the soaring price of electricity in California, which is heavily reliant on the fuel for generation. But the environmental costs of other types of power, especially coal and oil, have become so prohibitively expensive that gas continues to be the favored fuel.

But what about those alternative sources of energy? There's more discussion about solar power and wind power than at any time since the early 1980s, the last time the United States got shook up about energy costs.

Twenty years ago, interest in alternative energy died because it just didn't make economic sense. It's a combination of much higher prices, tax subsidies and, in some cases, state requirements that is pumping up interest again.

In Texas, which AEP entered with last year's purchase of Central Southwest Power, utilities must implement some kind of alternative energy plan. AEP is building a wind farm which will begin supplying power late this year. But the acres of windmills will produce only 130 megawatts of electricity, compared to 1,300 megawatts from the Rockport coal plant, Brian said.

And in northeast Indiana, large-scale wind farms are not feasible. The area just doesn't have enough sustained wind of sufficient velocity, according to analysis of wind viability by DOE.

On the other hand, this area does produce a lot of garbage, which in landfills produces methane gas. NIPSCO and Wabash Valley are tapping into this source, called biomass. But, again, such fuel is powering only very small generators.

Environmental Groups and the Citizens Action Coalition, the state's largest consumer-based utility lobbying group, also are urging a return to tax subsidies for conservation efforts, as well as tax credits or other means to support renewable energy sources.

They say that California abandoned successful efforts to support renewable sources when the state deregulated the electric system. But DOE reports show Californians -- just like the rest of the nation -- had little interest in renewable energy when prices were cheap. From 1988 to 1998, electricity generated from renewable sources declined by 0.8 percent annually in California.

Renewable energy, outside of a few enormous windmill farms on the windswept Great Plains, seems likely to remain a tiny part of the energy picture, barring an enormous technological breakthrough.

But another technology might make a comeback.

A few companies are beginning to talk about building nuclear-powered plants, said Vincent at Wabash Valley. The nuclear power plant industry was brought to a virtual standstill by the Three Mile Island accident in 1979. Two major nuclear plant projects in Indiana were abandoned in the early 1980s, dealing crushing financial blows to NIPSCO, Public Service Indiana and Wabash Valley, which owned a share of the PSI project.

Nuclear -- probably on a smaller scale than previously -- is becoming more attractive because of the soaring natural gas prices. "That's a change in just the past few months," Vincent said.

CAC, meanwhile, says more attention needs to be placed on keeping demand in check.

Indiana was among the top 10 states in eliminating programs targeting energy conservation in the past decade, said Grant Smith, utility and environmental policy coordinator for CAC. One major program remaining -- a $1,000 tax credit for home insulation -- is 20 years old and needs updating, he said.

CAC joined with other Midwest environmental and consumers group earlier this year to present a study promoting conservation and renewable energy resources as an alternative to building more power plants.

Although that conjures up images of wind farms and solar panels, Smith said the biggest single hit for residential use could come from substituting long-last compact fluorescent light bulbs for the usual incandescent bulbs. "It's a mix of approaches that reduces demand," he said.

Cost is still the big driver in reducing demand. California's decision to sharply raise electric rates may do more to drive conservation than all the pleas to dial back thermostats and turn off idle computers.

There's probably going to be plenty of power generated this summer, Kure said. "The problem is one of cost, not reliability," he said.

copyright 2001 The News-Sentinel