chapter 8
ELECTRICITY

Since 1879, when Thomas Edison flipped the first switch to light Menlo Park, New Jersey, the use of electrical power has become nearly universal in the United States.

ELECTRICITY DEFINED

Electricity is a form of energy resulting from the movement of charged particles, such as electrons (negatively charged subatomic particles) and protons (positively charged subatomic particles). Static electricity is caused by friction, when one material rubs against another and transfers charged particles. The zap you might feel and the spark you might see when you drag your feet along the carpet and then touch a metal doorknob is static electricity—electrons being transferred between you and the doorknob.

Electric current is the flow of electric charge; it is measured in amperes (amps). Electrical power is the rate at which energy is transferred by electric current. A watt is the standard measure of electrical power, named after the Scottish engineer James Watt. The term "wattage" refers to the amount of electrical power required to operate a particular appliance or device. A kilowatt is a unit of electrical power equal to one thousand watts, while a kilowatt-hour is a unit of electrical work equal to that done by one kilowatt acting for one hour.

Electrical Capacity

The generating capacity of an electrical plant, measured in watts, indicates its ability to produce electrical power. A one-thousand-kilowatt generator running at full capacity for one hour supplies one thousand kilowatthours of power. That generator operating continuously for an entire year could produce 8.76 million kilowatt-hours of electricity (1,000 kilowatts × 24 hours/day × 365 days a year). However, no generator can operate at 100% capacity during an entire year because of downtime for routine maintenance, outages, and legal restrictions. On average, about one-fourth of the potential generating capacity of an electrical plant is not available at any given time.

Electricity demands vary daily and seasonally, so the continuous operation of electrical generators is not necessary. Utilities depend on steam, nuclear, and large hydroelectric plants to meet routine demand. Auxiliary gas, turbine, internal combustion, and smaller hydroelectric plants are normally used during short periods of high demand.

An Electric Power System

An electric power system has several components. Figure 8.1 illustrates a simple electric system. Generating units (power plants) produce electricity, transmission lines carry electricity over long distances, and distribution lines deliver the electricity to customers. Substations connect the pieces of the system together, while energy control centers coordinate the operation of all the components.

U.S. ELECTRICITY USAGE

In 2003, net generation of electricity totaled 3.8 trillion kilowatt-hours. Table 8.1 shows that electric utility retail sales (electricity use) in the United States has increased almost every year since 1949.

In the United States coal has been and continues to be the largest raw source for electricity production, accounting for slightly more than half of the electricity (about 52%) generated in 2003. (See Figure 8.2 and Figure 8.3.) Nuclear power was the second largest source of electricity (approximately 20%), followed by natural gas (14%), hydroelectric power (a renewable energy source, 7%), and petroleum (3%). Very little electricity (2%) was generated in the United States by all other renewable sources combined, such as geothermal, solar, and wind power.

The Energy Information Administration (EIA) of the U.S. Department of Energy (DOE), in its Annual Energy Review 2003 (2004), noted that coal accounted for the

FIGURE 8.1

generation of approximately 2 trillion kilowatt-hours of electricity in 2003, while natural gas contributed 629 billion kilowatt-hours and petroleum only 118 billion kilowatt-hours in all sectors. Nuclear power accounted for 764 billion kilowatt-hours, and hydroelectric generation totaled 275 billion kilowatt-hours. All other renewable energy sources, including geothermal, wood, municipal waste, wind, and solar energy, produced only 84 billion kilowatt-hours in 2003.

From 1949 through the early 1990s the industrial sector was the largest consumer of electricity in the United States, but since then sales to the residential sector have generally been higher because of changing economic factors. In 2001 sales in the commercial sector became higher than in the industrial sector as well. (See Table 8.2.) In 2003 about 1.3 trillion kilowatt-hours went to residential use, 1.0 trillion kilowatt-hours to industrial customers, and 1.1 trillion kilowatt-hours to commercial users.

Consumption of electricity in general is growing because electricity has increasingly taken over the tasks formerly done with coal, natural gas, or human muscle: manufacturing steel, assembling cars, and milking cows. Electricity is being used extensively in technology fields, such as the computer industry. Residential and commercial use of electricity is increasing with new appliances, air conditioners, computers, and many other developing applications.

THE ELECTRIC BILL

The price paid by a consumer for electricity includes the cost of converting energy into electricity from its original form, such as coal, as well as the cost of delivering it. In 2000, according to the EIA's Annual Energy Review 2003 (2004), consumers paid an average of $20.04 per million Btu for the electric power delivered to their residences, compared to only $5.68 per million Btu for natural gas and $12.01 per million Btu for motor gasoline.

TABLE 8.1

FIGURE 8.2

The unit cost of electricity is high because of the amount of energy expended in creating the electricity and moving it to the point of use. In 2003, for example, about 39.6 quadrillion Btu of energy were consumed by electric utilities to generate electricity in the United States, but 13.1 quadrillion Btu was the net generation, after accounting for energy used by the power plants themselves. (See Figure 8.2.) Most of the remaining 25.8 quadrillion Btu was lost during the energy conversion process. Additionally, about 1.2 quadrillion Btu is lost during the transmission and distribution process (T & D losses). In the end, for every three units of energy that are converted to create electricity, slightly less than one unit actually reaches the end user.

Between 1960 and 1970, the price of electricity declined, but it began to increase during the 1970s because of the OPEC (Organization of the Petroleum Exporting Countries) oil embargo. (See Figure 8.4.) From the mid-1980s to 2003 the price of electricity, in general, dropped because of the decline in energy resource prices. Prices varied depending upon the location. As Figure 8.5 shows, in 2002 electricity was most expensive in the New England states, New York, New Jersey, Pennsylvania, California, Nevada, Alaska, and Hawaii. According to the EIA's Electric Power Annual 2002 (December 2003), the average price of electricity sold to the residential sector was 8.5 cents per kilowatt-hour in 2002, while the commercial sector paid 7.9 cents per kilowatt-hour. Industrial users paid less per kilowatt-hour, 4.9 cents in 2002, because the huge amounts of electricity they use allow them to receive volume discounts. The average price for all sectors across the United States in 2002 was 7.2 cents.

DEREGULATION OF ELECTRIC UTILITIES

Regulated for decades as "natural monopolies," much like the railroad and telecommunications industries, electric

FIGURE 8.3

utilities are in the midst of a radical, highly controversial shift toward unregulated markets and increased competition. In 1978 Congress passed the Public Utilities Regulatory Policy Act (PURPA; PL 95-617), which required that utilities buy electricity from private companies when that would be a lower-cost alternative to building their own power plants. The Energy Policy Act of 1992 (PL 102-486) gave other generators greater access to the market, resulting in a flurry of activity in state and federal legislatures as a host of interest groups debated regulatory, economic, energy, and environmental policies. State public utility commissions conducted proceedings and designed rules related to competition in the electric utility industry.

California was a leader in deregulation activities. In the summer of 2000, however, the state experienced rolling blackouts and electricity bills doubled for many. Fearful of the blackouts and price spikes that afflicted California, by the spring of 2001 most other states had slowed or stopped their efforts to deregulate their electricity markets. At that time, twenty-four states and the District of Columbia had begun deregulation. Then, during an investigation of Enron Corporation, documents were found that showed that Enron electricity traders used strategies that added to electricity costs and congestion on transmission lines for their own profit. These revelations lowered public confidence in power companies in general. As a result of these events and an eroding confidence in deregulation, only seventeen states plus the District of Columbia were actively engaged in restructuring activities as of February 2003, as shown in Figure 8.6 from the

FIGURE 8.4

Energy Information Administration (EIA). In addition, five states had delayed the restructuring process, and one state (California) suspended its restructuring activities. Restructuring was not active in twenty-seven states.

TABLE 8.2

INTERNATIONAL ELECTRICITY USAGE

World Production

In 2002 approximately 15.3 trillion kilowatt-hours of electricity were generated around the world. (See Figure 8.7.) As reported in the EIA's Annual Energy Review 2003 (2004), the United States accounted for 25% of this production; China, 10.4%; Japan, 6.5%; and Russia, 5.8%. Figure 8.8 shows net generation of electricity by type and by region of the world.

World Consumption

According to the EIA in Annual Energy Review 2003 (2004), world total electricity consumption continued to increase, rising from 353.3 quadrillion Btu in 1993 to 411.6 quadrillion Btu in 2002. North America, Central America, and South America accounted for 34% of the world's total consumption in 2002; Asia and Oceania, 28%; Western Europe, 18%; and Eastern Europe and the former USSR, 13%. The Middle East and Africa used 5% and 3%, respectively. (See Figure 8.9.)

FIGURE 8.5

FUTURE TRENDS IN THE U.S. ELECTRIC INDUSTRY

In Annual Energy Outlook 2004 the EIA predicted that from 2002 to 2025, residential U.S. electricity consumption will grow at a rate of 1.4% annually. This compares with 7% growth per year during the 1960s. Several factors led to this decreased growth of electricity consumption, including increased market saturation of electric appliances and improvements in efficiency. Commercial demand is expected to grow by 2.2% per year because of growth in commercial floor space, while industrial demand will likely increase by 1.6% per year as industrial output rises.

Historically, the demand for electricity in the United States has been related to economic growth. This relationship will continue, but electricity use is expected to grow more slowly than the gross domestic product (GDP), a measure of economic growth. Figure 8.10 shows how electricity sales are related more to economic growth (the GDP) than to population growth. Also, the phrase "five-year moving average" means that each point on the graph is an average of that year and the previous four years'data. This type of averaging is often done to get a better idea of what the real long-term averages would be, without heavy influences on data from cyclical influences, like business or weather cycles.

The issue of electric growth is important and carries financial risks for electric companies. If the industry underestimates future needs for electricity, it could mean power shortages or losses. However, excessive projections of the nation's needs could mean billions of dollars spent on unneeded equipment.

The EIA estimated that the United States will need 356 gigawatts of new generating capacity from 2002 to

FIGURE 8.6

2025 to meet growing demand for electricity and to replace retiring units, most of it after 2010. From 2002 to 2025, sixty-two gigawatts of capacity will most likely be retired, accounting for nearly all old fossil-fired plants that are not competitive with newer types of fossil-fired plants.

The EIA's Annual Energy Outlook 2004 projected that electricity prices will decrease by 8% from 2002 to 2008 and will then remain somewhat stable until 2011. From 2011, however, electricity prices are expected to increase gradually by 0.3% per year to 2025.

Continued concerns about acid rain and global warming could result in tightened environmental emission standards, which may have an impact on electrical utility expansion decisions, prices, and supply. Continued advances in solar and wind turbine technology could make renewable sources of electrical power more economical in the future. Some energy experts and environmentalists claim that increased efficiency and conservation efforts are the most sensible alternatives to new construction or to the burning of more fossil fuels in existing plants.

FIGURE 8.7

FIGURE 8.8

FIGURE 8.9

FIGURE 8.10