Supply and Demand Forces Questions about Proposed Gas Plants

Recent news about the 2017/2018 price for energy should make Entergy rethink their plans to build gas plants in New Orleans East and Lake Charles. Two weeks ago, the Midcontinent Independent System Operator (MISO), which manages the transmission of electricity in a region comprising 15 states, including Louisiana, and the Manitoba Province of Canada, held its annual auction to set the price of electricity for the next year. The MISO auction resulted in the incredibly low price of $1.50/MW per day.  [1]

​Four Years of Declining Electricity Prices

This capacity auction ensures that utilities have enough energy to cover customer demand on hot summer days. In comparison to this year’s $1.50/MW day cost, last year’s price in the southern region (including all of Louisiana) was $2.99/MW per day, and in the northern part of the system costs were as high as $72/MW per day. This decrease represents the fourth year in a steady price decline for the southern region. Three years ago the Louisiana price was $3.29.

The lower-than-expected price shows that the abundant supply of electricity greatly exceeds the shrinking demand for it, even as old polluting generation is shut down[2]. This reduced price for electricity raises some important questions. What is causing the reduction in demand for electricity and can it be sustained? And perhaps most importantly, does it make sense to build new gas plants to produce more electricity at a time when there is an over-supply?


Miscalculations Lead to Electricity Surplus

Last summer, there was a surplus (or “reserve”) of 17.4 percent of the electricity supply for the MISO system. This represented a substantial portion of the energy supply that was not needed by utility customers. Foreshadowing the low price set at the MISO auction in April, a March survey of energy producers showed the surplus grew to 19.2 percent for this summer. This surplus arose from decreased demand during hot summer days when electric use is the highest.

Entergy New Orleans, Inc. has routinely developed plans predicting high customer demand that trends upwards.  Over the last three years Entergy has had to make corrections that lowered this demand, but stubbornly maintains an upward tick. Most recently, Entergy was compelled to request 90-day time-out from the City Council’s proceeding on its application for a proposed gas plant in New Orleans East based on its analysis showing even lower customer demand. The fact is, Entergy isn’t alone. Utility companies routinely predict increased customer demand for electricity and, based on this prediction, make plans for meeting this demand with new power plants. [3]

Additionally, Entergy companies have also predicted that the cost of buying electricity from the MISO market would be more expensive than building a new power plant.  The plans by the Entergy companies do not reflect the reality of the downward trends of electricity prices based on abundant supply in the MISO market. Utility predictions of high customer demand and high MISO prices are one of the miscalculations driving the oversupply of electricity. These miscalculations show up as steep bill increases for customers when the power the utility has cannot fetch the value the utility expected. [4]


Reducing the Peak

What is causing the decrease in customer demand for electricity? Long story short: we are using less energy these days. A significant factor is energy efficiency. Federal energy efficiency standards and utility energy efficiency programs, along with consumer awareness is paring down energy use for both residents and businesses. Additionally, utility companies can reliably reduce customer use, through demand response, specifically on those peak days when energy demand is at its highest and the price is most expensive. Demand response describes the methods by which utility companies can arrange for customers to reduce energy use by turning down air conditioning units or shifting the time of industrial operations.

Both Energy Efficiency and Demand Response can be bid into the auction just like a gas plant, and in April’s MISO auction, efficiency and demand response represented more than 7,000 MW of purchased supply. This was an increase over last year’s results, and follows the national trend of using less, rather than generating more.
 

Making and Moving Renewable Energy
The increase of electricity supply generated from the sun and wind has also brought down the price of electricity on the MISO market. Today, there are more than 11,000 MW of wind energy generation in the MISO system and another 7,000 MW of wind energy projects coming online in the Midwest.

In the last 12 months, there has been considerable progress in moving power from one MISO region to another. Reduced “constraints,” which allows power to move more freely, has contributed to driving down the cost of renewable energy purchased on the MISO market.  As a result, customers will see lower bills when their utilities purchased capacity through the market.


Change of Course

The MISO auction reinforces the need for a change of course that Entergy companies, busy with plans to build new power plants in New Orleans East and Lake Charles, should not ignore.The electricity generated from renewable solar and wind energy and saved through energy efficiency and demand response are now contributing factors in lowering the need for and price of electricity in MISO and across the country.

The era of traditional power plants as the primary source of electricity is over. In the US, power plants are the leading source of carbon pollution contributing to climate change. Seventy-eight percent of power plants are located near communities that are predominantly people of color, who are exposed to pollutants that can damage the heart and lungs and cause cancer. Smart planning is now required to meet – not exceed or stand in the way of – customer demand for energy that is safe, sustainable, affordable, and equitable. We all have a role in developing this plan.





[1] MISO, “MISO clears fifth annual Planning Resource Auction,” April 13, 2017. (https://www.misoenergy.org/AboutUs/MediaCenter/PressReleases/Pages/MISOclearsfifthannualPlanningResourceAuction.aspx)

[2] Dynegy to Shut down Multiple Central and Southern Illinois Coal-Fueled Units. Business Wire, May 3, 2016. (http://www.businesswire.com/news/home/20160503007094/en/Dynegy-Shut-Multiple-Central-Southern-Illinois-Coal-Fueled)

[3]Load Forecasting in Electric Utility Integrated Resource Planning. 2016, (https://emp.lbl.gov/publications/load-forecasting-electric-utility)
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[4] Californians are paying billions for power they don’t need. Ivan Penn & Ryan Menzes, February 5, 2017, Los Angeles Times. (http://www.latimes.com/projects/la-fi-electricity-capacity/)