Summer did not officially arrive until June 21, but we all know Mother Nature doesn’t adhere to the calendar in Kansas. We have already seen a wide range of temperatures, with some areas of the state reaching at or near 100 degrees as early as May.
High temperatures increase electric demand when electric consumers crank air conditioners to stay cool. In recent reports, the North American Electric Reliability Corp. (NERC) and the Federal Energy Regulatory Commission (FERC) said high temperatures, combined with other conditions, could lead to an unstable electric supply during peak summer conditions. Other conditions include widespread droughts, which increase electricity demand for irrigation; the growing possibilities of extreme weather events; naturally diminished wind energy output during hot days; and rail shipping interruptions and export issues for coal deliveries to power plants.
The reports by NERC and FERC indicate the Southwest Power Pool (SPP), the regional grid operator manages the transmission grid in 14 states including Kansas, is included in the areas of elevated risk for
summer reliability issues.
While the recent reports by NERC and FERC were not optimistic news for electric utilities, meeting electricity demand is always at the forefront of operational and financial strategies. Sunflower continually evaluates anticipated electric demand and takes strategic steps to meet not only the typical energy demand of electricity consumers served by our seven member distribution utilities but also the energy demand in energy-peaking situations, such as very hot summer days.
The recent reports underscore the importance of Sunflower’s balanced generation resource portfolio and calculated operating strategies. Sunflower’s fuel-diverse generation fleet—which includes coal and natural gas units, as well as energy contracts for wind, solar and hydro—serves as a hedge against rising prices of a particular fuel resource. For example, the price of coal is very stable compared to the volatility of natural gas pricing and is an effective hedge against the price of market energy, which is usually correlated to the price of natural gas. Coal-based Holcomb Station was certainly a shining star during the Winter Storm Uri event in 2021.
As previously mentioned, however, current coal deliveries are impacted by railroad staffing issues. Therefore, Sunflower is re-evaluating how to deploy the unit to capitalize on its benefits during summer peak conditions. Sunflower has also proactively purchased more market energy products to guard against possible exceptionally high prices this summer and continue our mission of providing reliable energy to our member-owners at the lowest possible price.
“There are a lot of variables intrinsic to supplying reliable energy as economically as possible,” said Corey Linville, Sunflower’s vice president of power supply and delivery, “but we are analyzing future scenarios to best prepare for possible unusual summer conditions. We believe we have a strong operating and financial hedging plan in place to help guard against electric interruptions and high cost spikes.”
SPP is also modifying its strategies to fortify the electric grid during extreme conditions. The SPP requires its member utilities to have fuel resources equate to 12 percent more than their annual peak load requirements, but Winter Storm Uri revealed potential issues with available capacity during such events. Some of these issues are associated with forced outages — along with electric generating resources having fuel supply issues, such as lack of availability to natural gas — during these times. The lack of availability of energy from renewable resources is also an issue. Last summer there were several periods when the reliability margin (difference between available capacity and load + contingency reserve requirements) in SPP dropped below 20 percent.
It will take several years to fully implement SPP’s new supply adequacy rules and for load serving entities to firm up existing capacity and procure any needed new capacity to comply with the new rules. In the meantime, SPP will, at times, continue to operate with a relatively low reliability margin.
“The electric industry is ever evolving,” said Stuart Lowry, Sunflower’s president and CEO. “The regional energy market brings many benefits but also many new challenges, including the risk of generation resource and operational decisions made by other utilities. Our members and those they serve can have confidence we will analyze and respond to these risks with their best interests in mind.”
A BNSF train delivers coal to Holcomb Station in southwest Kansas. Sunflower purchases sub-bituminous coal mined in the Powder River Basin near Gillette, Wyoming; the coal can only be economically delivered one way: rail