Electric Industry Deregulation May Affect Water Utilities

Many experts feel that recently passed or newly proposed state laws deregulating electrical utilities may have widespread implications for water and wastewater utilities. Twenty-one states have passed comprehensive measures to restructure how electricity will be marketed to wholesale customers, including water utilities.

Many experts feel that recently passed or newly proposed state laws deregulating electrical utilities may have widespread implications for water and wastewater utilities. Twenty-one states have passed comprehensive measures to restructure how electricity will be marketed to wholesale customers, including water utilities.

Proponents of deregulation suggest that deregulation may resemble the breakup of the airline industry in the 1970s, dramatically increasing competition and opportunities for cost savings. An industry newsletter notes that deregulation will provide water and wastewater utilities with ?an opportunity to develop comprehensive and aggressive energy management plans? and with ?the ability to maximize energy cost savings.?

There remains, however, a scarcity of information about the extent to which, or even if, there will be reductions in power costs for water and wastewater treatment utilities.

How could deregulation influence the cost water utilities pay for electricity? A good rule of thumb is that roughly 25 percent of a water or wastewater utility?s operations and maintenance expenses can be attributed to power costs. Assuming the amount of funds spent to buy electricity could be cut by 10 percent, a recent report projects that annual savings could be as high as roughly $1.7 million for the city of Dallas and $500,000 or more in four other major Texas utilities. Another recent analysis suggests the cost for water utilities to purchase power may be reduced by a wide margin (5 to 20 percent) in a deregulated environment.

Some experts believe the deregulated environment could result in less stable prices. However, the risk will be shared by all parties involved ? power generators, marketers, and the public. Some states have written deregulation legislation so that price variations for individual customers initially will be frozen and, thus, controlled.

At the most basic level, restructuring represents a dramatic departure from the way in which electric power traditionally has been bought and sold. Under the existing paradigm, electric power is marketed through a regulated monopoly, which in large part is closed to new entrants. Success for power-generating firms depends on doing well in legislative and rule-making arenas. Customers have a limited voice and utilities place little emphasis on retaining them.

In contrast, in the new regulatory environment the emphasis is on passing and implementing laws that stress market competition and are driven by price. As a consequence, the marketplace will be open to a flurry of new entrants in power generation and transmission. Many companies are making tough choices about which part of the electricity business they want to participate in (generation, transmission, or distribution), and how to position themselves against competitors. At the same time, many power-generating companies have postponed investing in new facilities while regulations are in a state of flux.

To really understand this new environment, one needs to know what the key players want most from a deregulated marketplace, said Susan Hersey, an analyst with Navigant Consulting. According to Hersey, ratepayers seek lower rates for power, enhanced services, and pricing schemes that can be tailored to their specific needs. Regulators want to introduce more competition and choice for consumers while, at the same time, lowering rates and improving service. Power providers hope to be able to recover stranded costs (expenses incurred when power was fully regulated that may never be recovered) and an opportunity to compete and grow their business.

Implications for Water Utilities

How should water and wastewater utilities prepare for the arrival of electricity deregulation? Many experts offer a few general guidelines. It?s critical that utilities gather data on many aspects of how they use power, including detailed load profiles, energy efficiency, data about power use by specific processes, and whether there are opportunities to alter how and when power is needed. It may be feasible to modify the operations of a water treatment plant so that more processes are performed at night, thus shifting energy needs to times when demands and prices are low.

A strategy often proposed for utilities to reap the greatest benefits from deregulation is to aggregate loads. Aggregation is simply a strategy in which groups of customers increase their influence and buying power by joining other power purchasers with complimentary load profiles or metering capabilities. An aggregation can consist of as little as two members or large groups of users within the same industry or geographic area. For those purchasers who choose to aggregate, some of the most critical data that needs to be obtained includes information about annual and monthly energy consumption.

Although it seems that the most significant saving will likely accrue to users of large blocks of power, a study from California suggests that agricultural water districts also may be in an ideal position to benefit. This suggests it may be desirable to aggregate the low-electricity use patterns or irrigation districts with usage trends of other water users.

In California, the Association of California Water Agencies was formed as an agent to purchase power for utilities. More than 380 utilities have banded together and, as a group, purchased roughly $710 million of electricity annually. Experts suggest that aggregation may reduce electricity costs by 5 to 20 percent.

In Rhode Island and Massachusetts, many of the largest electricity and natural gas users formed a 70-member aggregation unit to represent them. Many water utilities that participate in this effort report at least 5 percent savings in electricity costs, while those with higher loads anticipate greater reductions.

Some leaders in the field suggest the greatest savings may accrue when individual power purchasers develop detailed information about their power needs and then find a tailor-made supplier. They argue that, when a diverse group of users aggregate, many potential site-specific benefits may be lost when individual usage traits are merged with others.

Saving Money with SCADA

Many experts suggest that the use of supervisory data control and acquisition (SCADA) systems and related technologies may help water utilities cut power costs. The idea is that the utility will be in the best bargaining position when it knows the most about its power consumption trends.

In basic terms, SCADA systems are used to acquire data about specific water use trends. Data obtained through SCADA technologies can then be incorporated into software programs which optimize energy use or which consider water quality parameters along with power consumption.

A 1998 report published by the American Water Works Association Research Foundation (AWWRF) reports on efforts to quantify the extent to which SCADA systems may reduce costs. One study which tested a SCADA-based energy and water quality management system suggests that altering the operating schedule of pumping and treatment plants can reduce costs as much as 20 percent. The key is to change high energy-consuming processes to the times of the day when the lowest rates for electricity are available. The report outlines the cost of developing and implementing this technology for a major California utility.

College Station, Texas-based PowerWare Solutions, Inc. (PSI) has focused its research on the application of SCADA technology for water utilities. A pilot project in Irving, Texas, used the firm?s ?WaterSuite? software and saved 14 percent in electricity costs.

SCADA systems may be able to help managers better understand power price structures, convey cost information in real time, allow a water plant rapidly to send anticipated power loads data to energy providers, and facilitate the continuous monitoring and exchange of data. The use of these technologies may allow utilities to develop comprehensive, detailed profiles of historic use as well as forecasts of short-term water demands.

About the author:

Ric Jensen is in charge of public affairs of the Texas Water Resources Institute, which is a research center at Texas A&M University. For more information, contact Jensen at telephone: 409-845-8571 or RJensen@twri.tamu.edu, or visit the Institute?s web site at http://twri.tamu.edu.

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