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-------------------------------------------------------------------------------- Tuesday July 27, 5:59 pm Eastern Time Heat wave raises doubts about U.S. power supplies By James Jelter

SAN FRANCISCO, July 27 (Reuters) - Record heat across much of the United States has dramatically highlighted the fact that there is a limit to the nation's electricity supply, and that limit has been reached.

Pleas to conserve power are becoming common fare whenever temperatures soar, and millions of Americans have experienced voltage reductions and even blackouts this summer, raising concerns about the reliability of the power system.

On the surface, blame the weather.

The Midwest and Northeast are seeing one of their hottest and driest summers in years, and scores of deaths have been linked to two especially brutal heat waves this month.

``This is probably going to be the warmest summer in the Ohio Valley since 1988,'' said Dave Taylor, a meteorologist with Weather Services Corp. in Cambridge, Mass.

Cincinnati, at the heart of the heat, has seen 90 degrees Fahrenheit (32 degrees Celsius) 15 times so far this July, nearly twice the eight-day norm for the full month.

Much above normal temperatures have also baked the Northeast and Mid-Atlantic states, causing equipment failures that knocked out power to parts of New York City and triggered rolling blackouts in neighboring New Jersey.

The heat has repeatedly forced utilities from Missouri to Maine to urge the public to turn down their air conditioners to ease loads on the system or face widespread outages.

``This kind of weather occurs only once in several decades,'' said Gene Gorzelnik, spokesman for the North American Electric Reliability Council (NERC), the Princeton, N.J.-based group that sets operating standards for the industry.

``When we were over 100 degrees (38 C) in the Northeast, this is not the kind of thing you can design for. This is much more severe weather than you can accommodate,'' he said.

But beyond the obvious weather factor, many are asking if the precarious state of the grid might be linked to efforts to deregulate this $230 billion a year industry.

Deregulation, in its simplest terms, seeks to end power companies' local monopolies by introducing competition for customers and pricing electricity like any other commodity.

The idea here is that competition will push utilities toward greater efficiency, providing better and cheaper service to customers who now have a choice of suppliers.

But it is a staggering change in an industry that for nearly a century relied on state regulators to set the price of electricity based on the cost of generating and distributing it, with a reasonable profit added in to sustain the business.

Nor is it a tidy process. The industry is deregulating state-by-state, stitching together a legislative crazy quilt that baffles producers and consumers alike and is seen by many in the industry as a big reason behind recent shortages.

``With the movement toward a competitive environment and the rules of the road not clear, companies have been reluctant to build new generation,'' Steve Brash, spokesman for Cincinnati-based Cinergy Corp., said.

``We've also had significant economic expansion that has eaten into generating reserves,'' he added.

According to the East Central Area Reliability Coordination Agreement, the group that oversees the Midwest's power grid, generating reserves there are currently 10.8 percent of forecast peak summer demand, down from 14.5 percent in 1996.

At the same time, power companies are relying more heavily on ``interruptible'' contracts with industrial customers in order to meet their commitments to commercial and residential users.

Interruptible power is typically sold at a discount to heavy manufacturing companies like steel mills on the understanding that service can be cut off on short notice if supplies are running dangerously low.

In the past, when reserve margins were more robust, this was a fairly safe bet for industrial customers.

But with supplies stretched thin and electricity demand growing at about 1.5 percent annually, they are finding themselves increasingly cut off, turning what had been big savings into costly production losses.

A key reason for the dwindling reserves is what some industry analysts call ``historic overcapacity'' of power generation up until the early 1980s, when generating reserves were typically 20 to 30 percent more than anticipated loads, compared with 10 to 15 percent today.

That overcapacity reflected a rapidly-vanishing price structure in which regulators allowed utilities to pass the cost of new power plants down to consumers.

Henry Fayne, executive vice president of finance at American Electric Power Co. (AEP) in Columbus, Ohio, argues the drop in generating reserves actually reflects a better supply-demand balance in a competitive marketplace.

``Tighter reserves are appropriate...They are not intentionally low. They are right about where they should be.''

And while supplies are stretched to the breaking point, most industry analysts see this as a short-term problem, with independent, or ``merchant'' power producers looking at closing the gap as a good business opportunity.

Already, some 93,000 megawatts (MW) of new merchant power, or 11.2 percent of the country's existing 830,000 MW generation capacity, are either on the drawing board or under construction, according to the Washington-based Electric Power Supply Association.

Over 90 percent of the new plants are being designed to burn natural gas, which means they can be built far quicker - usually within a year of being licensed - than any comparable coal, oil, hydro or nuclear facility.

No one expects all of the proposed plants will be built, but analysts believe those that are will likely add significantly to the supply pool by next summer.

While deregulation offers financial incentives to build more power plants, there is a nagging suspicion it might be to blame for the spate of equipment failures like the one this month that that knocked out power to upper Manhattan at the height of a three-day heat wave.

Maintenance is expensive, and power companies, now competing with one another, are looking at ways to cut costs.

But most industry analysts and officials say it is too early in the deregulatory process to blame outages on lean maintenance budgets.

``Only time will tell,'' said NERC's Gorzelnik. ``But remember, your customers are your lifeblood. In this environment, why would you give them an excuse to turn to a competitor?''

-- Mike Lang (webflier@erols.com), July 27, 1999

Answers

This is right on the money. The air conditioner has not been off for a week here at the old homestead. I can't put water in my pool because of the drought. I am watering the y2k lower fourty with water from my cistrin. The grass is dead and the trees are soon to follow. If I hadn't got the old cistrin up and running again for y2k, the garden would have been gone long ago. I planted the garden mostly for seed for next year. So for all the pollies out there, it has already paid off to prepare for y2k!!!!!!!!!!! Your arguments are MOOT.

-- FLAME AWAY (BLehman202@aol.com), July 27, 1999.

FLAMEAWAY- Popped through your burgh last week (that would be Pitts) and you guys are in a REAL bind for water. The trip down 79-579-279 is not great to see, with the trees under heat and drought stress. you are going to lose a lot of them. This is not good. Besides the fire hazard, that drop into town is one of the best in the Country, particularly in October, as far as the view.

Chuck, who prefers the trips to Detroit (more money) but likes the trip to Pittsburgh for the scenery (particularly downtown)

-- Chuck, a night driver (rienzoo@en.com), July 27, 1999.

On NPR this evening = the problem was not that there wasn't enough electricity, it was a lack of available transmission lines....we in good old (cold, brrrr, this whole summer on the north coast) California have "plenty" of extra zinging electros, but there is no way to get it over to the good old (hot, whew, and then some) midwest and east....at least that is the way I heard it. LuLou

-- LuLou (luana@walkon.net), July 29, 1999.

On NPR this evening = the problem was not that there wasn't enough electricity, it was a lack of available transmission lines....we in good old (cold, brrrr, this whole summer on the north coast) California have "plenty" of extra zinging electros, but there is no way to get it over to the good old (hot, whew, and then some) midwest and east....at least that is the way I heard it....in my longjohns....LuLou

-- LuLou (luana@walkon.net), July 29, 1999.