August 2008

Power traders

chasing the best deals on a hot commodity

Rising prices are driving up the cost of power at TVA and utilities around the nation.

It’s bad enough when gas prices go up another cent on the gallon. For Megan Holman and Steve Settle, rising fuel costs mean millions of dollars a day.

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Gas Scheduler George Ivey is part of the team responsible for assessing the most cost-effective and reliable means of transporting natural gas from a variety of sources to multiple destinations. With the goal of meeting gas plant-generation needs, schedulers must consider pipeline constraints and capacity issues, contract capacities, meter capabilities and other pertinent data including weather conditions, threats to generation and threats to natural-gas availability.

Working in TVA’s Power Supply & Fuels, Holman and Settle are energy traders. They make minute-by-minute decisions on when TVA buys and sells power and gas, especially the power needed to meet peak demands.

As power and fuel prices continue to climb, Holman, Settle and the rest of the power and gas teams work hard to make the best buys for TVA at anytime of the day or night, even on weekends and holidays – for good reason.

The cost of fuel and purchased power are TVA’s single largest expense, accounting for a third or more of every TVA revenue dollar. In fiscal year 2007, TVA spent more than $3.4 billion on fuel (including coal) and purchased power, and these prices have increased dramatically. As a result, utilities across the country are battling rising power costs. “If I can buy power for TVA at a lower price, it means my electricity at home will cost less,” says Holman. “That helps TVA and my checkbook, too.”

At their computers in the Chattanooga Office Complex, Holman and the rest of the PS&F team buy and sell power in real time and for future years, as well.

She works with other traders to determine how TVA can meet peak demands at the lowest cost – either by generating its own power or buying from others. And when TVA does buy, she competes with other utilities for the best price.

“If it’s less expensive to buy power on the market than it is to buy natural gas for our combined-cycle units and/or combustion turbines, then we make a purchase,” Holman says. “If it’s a really warm day and lots of utilities are buying power, then it’s usually cheaper for us to use our own gas assets.”

The natural gas used by TVA’s combustion turbines represents some of the most expensive fuel TVA must buy. Despite that, TVA traders have to make sure TVA has enough natural gas available, even when the need can go up or down quickly. “A rain shower in Memphis that lowers the temperature two degrees can change power demand dramatically, especially if those showers move across the Valley,” says Settle.

Sudden decreases in peak demand mean TVA needs less natural gas for generation, and the gas Settle just bought may need to be stored – for a fee, of course. But buying and storing may still be cheaper than buying later.

To figure out how they can get the most for every dollar, the team of traders creates a “power/gas strategy plan” for every day and every weekend. That lets TVA buy and store gas when prices are lower, and avoid buying gas on days when prices are highest.

Traders like Holman and Settle typically have business or engineering backgrounds. And like their counterparts who buy coal for TVA’s 11 fossil plants, they’re on TVA’s front line against rising fuel and power costs.

Says Holman, “We continually watch the national and international markets. Knowing what the prices are and what other utilities are buying and selling helps us make the best decisions for TVA.”

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The coal hard facts

On average, TVA burns about 75 tons per minute to generate about 60 percent of TVA’s electricity. In one hour, that’s enough coal to fill three barges, 45 rail cars or 174 semi trucks.

U.S. coal prices have gone up more than 100 percent in the past year. Growing economies in China and India are using more coal than ever before. This has reduced coal exports from China and helped push prices up around the world.

TVA uses long-term coal contracts to lock in good prices and dependable supplies for most of its coal. It turns to the spot market for some coal, like when flooding in the Midwest interrupted scheduled deliveries.

While TVA’s actual coal costs are up 59 percent over the past five years, if we were buying that coal on the spot market, our costs would be up about 240 percent.

TVA uses about 9,000 railcars to deliver coal. Lined in a row, end to end, that many railcars would stretch from Chattanooga to Knoxville (110 miles).