Arizona Public Service and Salt River Project trade power with other utilities to help balance needs and ensure there's enough electricity for peak needs. These efforts also save money for customers.
Russ WilesArizona Republic
It’s the monsoon, and that means big power utilities like Arizona Public Service and Salt River Project are busy buying and selling electricity behind the scenes to keep things in balance and, potentially, to save millions of dollars for customers.
Power trading is a full-year, round-the-clock activity, but it can pick up when monsoons and other strong storms down transmission lines, dim solar output or otherwise disrupt the normal flow of energy or change the estimates for what utilities think their customers will need.
“It can be quite busy on a day with storms and monsoons,” said Tayla Beckham, who, as manager of real-time operations, oversees APS’ staff of 18 of these traders who monitor energy flows and prices and place trades around the clock.
APS, SRP and other large utilities trade power with one another and with their utility counterparts in the West, including sometimes those in Canada and Mexico. APS and SRP also trade with each other because each company has different supply and demand needs.
And crazy as it sounds, utilities on occasion will pay others to take energy off their hands. “Sometimes, we’ll pay to get rid of it,” Beckham said. “Otherwise, you’d have to turn off generation,” which can be more costly.
Buying and selling megawatts
Trades are placed in megawatts, with each megawatt typically providing enough energy to power at least several hundred homes. Purchases or sales might range from 20 or 25 MWs to several hundred. Depending on the season, demand needs and other factors, a utility might pay less than $30 or $40 on average per megawatt hour of power, or closer to $150 or even $250, Beckham said.
While computer monitors and screens dominate the trading areas — showing generation output, electricity demand, megawatt prices and other information — trades with other utilities are placed over the phone. Prices are negotiated, and trades are typically wrapped up within a few minutes.
“We’re looking to buy megawatts for an hour or two; what’s your price?” Beckham said, mimicking what a trader might ask a counterpart at another utility.
Even when not engaged in a purchase or sale, traders often will call up their counterparts at other regional utilities to check on power needs and supplies. "It's a little situational awareness," said Pam Syrjala, SRP's supply and trading senior director.
On a busy day, a utility might place dozens of trades worth several thousand dollars each, with the power typically scheduled to be delivered or obtained maybe two to four hours later in the day, Beckham said. Trading can be slowed if many utilities are buying or selling at the same time, as that can clog transmission capacity, delaying deliveries. “It’s like having too many cars on the road at once,” she said.
Sizable annual cost savings
APS takes the money earned on advantageous trades and uses it to adjust, or reduce, the rates paid by customers. APS said its trading activities last year saved more than $100 million for customers. SRP has a similar focus on reducing expenses and said it too achieved more than $100 million in savings for its customers.
SRP, APS and Tucson Electric Power cooperate with one another, as all three have an interest in maintaining power reliability throughout Arizona, Syrjala added.
Summer storms can spur more buying and selling for various reasons, such as cloud covers that reduce solar generation, cooler temperatures that might lessen demand and damage to transmission lines or other infrastructure that can interrupt electricity deliveries.
Arizona’s big utilities don't necessarily buy more power on high-temperature days and might be doing more selling. Utilities plan for higher demand by boosting generation in advance, but the forecasts aren’t always accurate, which is where trading comes into play. “It’s all about keeping the system in balance,” Beckham said.
APS, SRP and other utilities also buy and sell natural gas, even though neither company supplies gas to homes or businesses. But they do use natural gas as a fuel, and trading can help to lower costs. Also, Beckham said, the pressure in gas pipelines must be kept at certain levels, and that can require buying or selling to keep gas supplies in balance.
Impact of seasons and batteries
In general, the big Arizona utilities are looking to buy more power in the hot summer months, when demand rises, and they tend to sell more in winter, when demand is lower. But even Arizona utilities might be selling electricity on hot days.
Utility trading reflects the reality that electricity must be used as it’s generated. “Power must be consumed at that time,” Beckham said. “It can’t be saved.”
In recent years, utilities have been moving to save power in industrial-scale battery plants. These facilities help utilities store power during low-demand periods, such as during early morning summer hours, for release later in the day when demand peaks.
Both APS and SRP have been aggressively adding battery-storage capacity, such as two new complexes that came online in Avondale and Gilbert for SRP and one that was started earlier this year in north Phoenix for APS.
Battery facilities don’t eliminate the need for power purchases and sales, Beckham added, though they can help to smooth out supply volatility. Syrjala agreed, calling them "another tool in the toolbox."
Power trading by utilities isn't new but has been going on for decades. Power purchases and sales help lower costs or increase revenues, but the main focus is on balancing supplies against demand.
"It's not widely understood (by outsiders), but it's a critical function to ensure system reliability," Syrjala said.
Reach the writer at russ.wiles@arizonarepublic.com.
