Power traders go for lowest cost

State auditing bid for 16% rate hike

RALEIGH -- It's 6:45 a.m., and outside Progress Energy's office tower in downtown Raleigh the day is already promising to be a scorcher, signaling heavy electricity demand ahead.

Up on the 10th floor, energy traders have been on the job through the night preparing to meet that demand at the lowest possible cost. Round-the-clock traders use instant messaging to buy and sell electricity from and to other utilities. Others work the phones by day to nail down coal contracts that will dispatch mile-long trainloads to fuel Progress Energy's power plants.

All summer, state auditors will be taking a close look at how well the 10th floor performs. Progress Energy, citing rising fuel costs, has asked for a 16.2 percent rate increase, one of the largest in a half century. Utilities are allowed to pass on fuel costs to customers, but Progress Energy must prove to the N.C. Utilities Commission that its electricity purchases are prudent and that it's not overpaying for coal.

The Public Staff, the state agency that represents utility customers, says the company has a reputation for squeezing maximum efficiency out of fuel contracts, power plant operations and electricity deals. One key measure: Progress Energy runs its nuclear plants 93 percent of the time, beating the national average.

"They're very experienced at this," said James McLawhorn, director of the Public Staff's electric division. "They are among the most efficiently performing coal plants in the country. They are top performers in terms of nuclear -- there's no question."

Is bias built in?

Some say the high praise for Progress Energy reflects a bias in the state's system of utility regulation: It rewards utilities for satisfying the public's hunger for cheap electricity. Indeed, major power companies are planning new nuclear plants and coal plants to meet customers' growing demand. Only last year did the state legislature create a mechanism to reward utilities for lowering electricity consumption by encouraging customers to adopt energy efficiency measures at home and at the office.

Environmentalists contend that if regulators and lawmakers exerted greater pressure on utilities to reduce energy demand, the utilities could could avoid the expense of building some plants. In holding down the cost of electricity, they say, conservation is more effective than the 10th floor.

"The system is biased toward running power plants and building more power plants," said Stephen A. Smith, executive director of the Southern Alliance for Clean Energy. "If the utilities invested in energy efficiency they would hedge and moderate their customers' exposure to these fuel prices. The system needs to be designed so it's not skewed toward more power plants."

The soaring price of fuels and power plant construction is beginning to force the state to require conservation alongside efficient energy acquisition. But as the state weighs Progress Energy's rate-increase request, it will scrutinize the hive of activity that hums of the 10th floor.

Progress Energy recently opened the usually closed operation for a tour by a News & Observer reporter. Sasha Weintraub, who directs the 10th-floor operation, said for years, as long as fuel prices were stable, the traders had grown accustomed to working in obscurity.

"When fuel prices go crazy as they have in the past few months, everything we do is in the spotlight," he said.

An early start

The 10th-floor routine starts at 5:30 a.m., when power-demand forecasters assess that day's energy needs, weighing plant availability, temperature forecasts and other factors. A congested interstate transmission line, for example, means that Progress can't count on buying or selling power with Southern Co. in Georgia.