As Mercury Plummets, Price of Electricity Soars Across Region

Tom Johnson | January 8, 2014 | Energy & Environment
Record cold weather puts strain on power grid, creates seller's market for electricity suppliers

polar vortex
Record cold temperatures may be causing misery for millions, but power suppliers are enjoying a rare seasonal windfall as prices for electricity soared to record levels in the past few days.

As people bundled up to cope with the coldest air mass to descend on much of the country in 20 years, the nation’s largest operator of a regional electric grid struggled to meet demand, which set a record yesterday for power use in winter months.

That demand led to an enormous spike in power prices. Typically in the $40 to $60 per megawatt range at this time of year, they skyrocketed as high as $1,800 per megawatt hour across the entire PJM region, including New Jersey. A megawatt of electricity is enough to power about 1,000 homes.

PJM Interconnection, the operator of a power grid serving 61 million people that stretches from New Jersey and other mid-Atlantic states to Illinois, said the frigid weather caused a myriad of problems for power plants.

Some broke down because of the cold. Others were unable to obtain the natural gas that fuels them. And some power plants that were not used to running at maximum capacity for extended periods — as urged by PJM — also faltered.

Going into the evening’s peak (which was expected to set a new record for demand), PJM projected 36,600 megawatts of power plants being shut down because of outages, or about 20 percent of installed capacity, according to Paula DuPont-Kidd, a spokeswoman for PJM.

How bad the spike in prices will affect customers remains uncertain, Kidd said.

“Because we are still managing these extreme conditions, we haven’t done a lot of analysis yet on prices and operational events,’’ she said. “Right now we are just responding. However, I can say that prices across the RTO (Regional Transmission Organization) are likely new records because they are higher throughout.’’

Paul Patterson, an energy analyst with Glenrock Associates in New York, said the confluence of the two events is not a surprise, even if it is only a temporary aberration.

“It is pretty rare, but then again, we’ve got pretty rare temperatures, too,’’ Patterson said, referring to the spike in prices and huge drops in temperatures. “It appears the unusual level of demand has led to an unusual disparity in power prices.’’

Complicating the problem is the fact that many steps the grid operator takes in summer months when electricity demand is much higher are not a viable option in the summer, such as reducing power to air conditioners to reduce electricity usage.

That led PJM to call on all available units to produce electricity to their maximum production levels, a step that inevitably leads to higher prices for power suppliers.

In response to the extreme weather, PJM called on customers to conserve power by turning off unnecessary lights and avoid using heavy appliances between 3 p.m. and 7 p.m. It also is reducing voltage by 5 percent, which makes lights appear a bit dimmer.

What is unusual about the recent cold wave is its magnitude, according to Michael Kormos, executive vice president of operations for PJM. “It’s across our entire system and our neighbors’,’’ he said.

PSEG Power — one of the largest operators of power plants in the region — also has experienced problems with forced outages in its fleet, according to Paul Rosengren, a spokesman for the company.

“Plants tend to break down when they have not been used for longer periods of time,’’ he said, declining to cite how many and what plants were disrupted because of proprietary reasons.

Some plants have been unable to obtain the natural gas needed to run the units, he said, largely because of a long-running policy that gives priority to getting the fuel to homeowners who rely on the gas to heat homes during such events.

Still, PSEG Power had about 1,000 megawatts of peaking plants running yesterday, units that typically run infrequently and at times of peak demand.