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Utilities find new flexibility in meeting power needs

In 1979, the New England Electric System (NEES), a public utility holding company based in Westborough, Mass., generated 78 percent of its power with oil. Today that figure is down to 20 percent. And coal, not used at all four years ago, provides 55 percent of the system's fuel needs.

In those four years, six NEES power plants have been converted to coal. Three of them meet present pollution standards; the other three are operating on a temporary waiver while they are being fully upgraded to meet higher standards. Partly as a result of this, NEES recently handed residents of parts of New Hampshire, Massachusetts, and Rhode Island a 4 percent cut in their rates.

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For Guy W. Nichols, NEES chairman, there is a name for this kind of strategy: flexibility. ''There's a huge advantage to flexibility or diversity,'' Mr. Nichols says. ''All of the major power sources seem to have difficulties at one time or another. A few years ago, there were natural gas shortages. Then we had a coal strike. Then Three Mile Island caused troubles for the nuclear industry. And last year a major drought raised hob with hydroelectric power.

''That's why we have retained the ability to use different fuels as the need comes up.''

Mr. Nichols's policy is considered one of the most aggressive examples of the strategy of building more flexibility. Without any major new plants coming on line, he has also benefited from not having to ask regulators for rate increases to pay for them.

''There are problems in the regulatory area,'' notes Lester P. Silverman, senior researcher at McKinsey & Co., a consulting firm. ''But that doesn't absolve utility management from its responsibility to meet demand by a number of alternative methods.''

''We foresee the need for additional energy supplies in the future,'' said John Cagnetta, vice-president for corporate and environmental planning at Northeast Utilities, a utility holding company in Hartford, Conn. ''But this additional electricity can take many forms. It does not have to take the form of large central power stations.''

Some other signs of flexibility include:

* In California, Pacific Gas & Electric Company has signed some 175 contracts with manufacturing companies, small power producers, and others to provide PG&E with ''cogeneration'' power. Any excess power produced by a private company or individual must be purchased by the utiltity in the area at the same price it would cost the utility to generate that power itself.

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''A lot more utilities are turning to private systems to add power,'' notes William Meade, a research assistant with the Renewable Energy Institute in Washington.

* In the South, Florida Power & Light Company, working to meet that state's rapidly growing electricity needs, is buying coal-generated power from Georgia Power Company.

* In the Northeast, several utilities recently signed an 11-year agreement with Hydro Quebec to buy hydro power from Canada - a less worrisome prospect than trying to build a new nuclear plant.

* In the nation's capital, the Potomac Electric Power Company has changed its fuel mix from 56 percent coal in 1973 to 92 percent coal last year.

* Since 1982, the Duke Power Company in North Carolina has canceled six nuclear plant construction projects. Duke executives have cited many of the same reasons for the cancellations as their colleagues at other utilities. These include uncertainties over whether additional funds could be raised to complete construction; over whether the company would be able to include any of the construction work in progress - known as CWIP - in its present rate base; and about possible changes in nuclear regulation that could be made during construction; also, the reluctance of other utilities in the region to share the plants' construction costs.

Now Duke figures it has about a five-year ''window'' in which to examine the region's economic development, see if the financing climate changes, and look for ways to buy electricity from other regions or add nonnuclear power.

In the meantime, Duke has embarked on an aggressive load management program, a technique designed to reduce peak load demands by modifying or managing the daily, weekly, and monthly loads. Since May 1982, the company figures, its load management program has reduced its winter peak by 1,200 megawatts and the summer peak by 888 megawatts - about the output of one nuclear plant. By 1996 the company hopes to reduce winter peak load by over 6,300 megawatts and the summer peak by some 5,000 megawatts.

While a list of flexible strategies for utilities is not hard to put together , it is harder to assess which strategy is most effective and to evaluate other, negative aspects of these strategies. Much of the blame for acid rain, for example, has been placed on coal-fired power plants, particularly in the Midwest , that burn high-sulfur coal.

There is a wide variety of estimates of the cost of burning lower-sulfur coal and adapting power plants with ''scrubbers'' to minimize the effects of high-sulfur coal. But all the estimates are expensive.

The Edison Electric Institute, the utility industry's trade group, has stated that legislation pending in Congress to control acid rain pollution would raise electric bills in some parts of the US by as much as 50 percent. EEI's survey of 24 Eastern utilities found that half the companies anticipate rate increases of more than 14 percent during the first year of new pollution controls on coal-fired power plants. For utilities like Duke and the New England Electric System, however, which are already burning mostly low-sulfur coal or have adapted their power plants to reduce emissions, the rate increases would only be 4.9 and 3.9 percent, respectively.

Other options are available. At one utility, McKinsey's Mr. Silverman notes, groups of managers were asked to come up with alternatives to meet expected needs for the next several years. They came up with 121 suggestions, including various forms of cogeneration, efficiency improvements, load management, and conservation.

''The fact that we're not looking to build any new large power plants for a while,'' Mr. Meade of the Renewable Energy Institute observes, ''has helped the industry move forward and look for ways to meet our energy needs other than through big new plants.''

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