Overloaded Circuits: Outage Signals Major Weakness in U.S. Power Grid
By REBECCA SMITH Staff Reporter of THE WALL STREET JOURNAL
Last week's massive blackout could be the shock to the system needed to draw attention to critical flaws in the nation's power grid.
It won't be clear for a while exactly what triggered the cascading collapse that removed enough power from an eight-state, two country system of generating plants, substations and high-voltage power lines to leave millions of people in the dark. For now, the leading theory is that power lines failed in the Cleveland area -- perhaps coincidentally with plant shutdowns in the Midwest -- causing disruptions that rippled toward the Northeast.
But the crisis, which knocked out twice as much power as during the last big U.S. blackout in 1996, and lasted far longer, highlights weaknesses in the electricity system that could produce more traumatic events. That's particularly true if the economy picks up steam, increasing demand for power.
The main defects are transmission systems badly in need of improvement and a chaotic combination of regulated and deregulated markets. The unsteady regulatory situation, among other factors, inhibits the investment that is critically needed to improve transmission equipment.
The nation is stalled in the middle of a massive but incomplete shift from old-fashioned state-regulated utilities -- which generate their own power, move it over their own transmission lines, and sell to local customers -- to a system in which ownership of plants and transmission lines is broken up among a variety of players, and government oversight is fractured.
"What we have created is an unstable environment here for our energy infrastructure because some of it is regulated and some of it is deregulated," says Andrew Lundquist, a former Bush White House aide on energy policy. Clearer rules and penalties would discipline power-company behavior and boost investor confidence in the capital-starved industry, he adds.
But in the short term, the great Northeast blackout -- the worst in U.S. history -- will probably add more confusion to the debate over how to ensure that the nation's electrical system, for all its flaws, remains one of the world's most reliable. Opponents of deregulation are blaming market forces run amok and demanding new government oversight. Those who praise markets argue a lack of investment is the culprit. Nuclear supporters are banging the drum that more nuclear plants would stabilize the system. Fans of distributed generation -- small, stand-alone generators that operate off the grid -- see it as the answer to reducing dependence on big power plants and big power lines.
The main problems date to a deregulatory movement that began in the early 1990s, but never completely took hold. In 2000, the deregulation drive sputtered in the midst of a series of electricity-related crises. First came the near meltdown of California's power market that year and the next. Supply shortages, combined with unscrupulous practices by power merchants taking advantage of poorly drafted rules, produced soaring electricity prices and rolling blackouts in the state. Then came the December 2001 bankruptcy filing of Enron Corp., a pioneer of free-market electricity trading that collapsed amid fraud allegations.
Today, some power generators report to state commissions, while others are overseen by federal agencies in Washington. Some power is sold by heavily regulated traditional utilities at slightly above cost, while some is sold by new independent power companies for whatever price the market can bear. Some transmission lines -- the critical conveyor belts of power -- are owned and run by utilities, while others are managed by a new breed of quasi-public independent grid operators whose jurisdictions encompass many utilities, often in several states.
Few in Washington or at the state level want to return to the days when local utilities served only local customers, and when wholesale markets -- where electricity can be bought and sold by traders and generators, much like any other commodity -- didn't exist. Wholesale markets in theory allow power to shift to areas where it is in highest demand and should foster competition that drives down prices. But that's about the extent of the consensus.
Some progress could be made with pending legislation. The House and Senate have each passed energy bills, and the blackout doubtless will focus efforts on completing a compromise bill that gives teeth to the North American Electric Reliability Council. That organization is a self-regulating industry body set up after a big East Coast blackout in 1965.
Currently, the reliability council is responsible for ensuring cooperation among the utilities, independent power companies and transmission-system operators. For example, the council sets technical standards aimed at preventing power lines from becoming overloaded at times of high demand. But the group operates by consensus and has no authority to punish offenders who might contribute to overloaded lines or other dangerous conditions.
In addition to the regulatory mishmash, the other major problem facing the power market is the urgent need to upgrade rapidly aging transmission systems. Much of the technology was developed in the 1950s. If the grid isn't fixed, more blackouts will occur, costing billions in lost productivity.
No one knows for sure what a total makeover would cost, but most experts agree it is money that must be spent. "If you adjust for inflation, today we're making the lowest yearly investment in [transmission] since the Great Depression," says Clark Gellings, a vice president at the Electric Power Research Institute in Palo Alto, Calif., an industry group. While electricity demand has grown by 35% over the past decade, the carrying capacity of the nation's high-voltage transmission system has increased by only 18%.
Traditionally, utilities charged their local customers for transmission upgrades and were assured of payment. More recently, the various players in the splintered energy market have been more hesitant to invest in equipment that others use but may not pay for. The energy legislation that emerges from Congress is expected to reinforce steps that the Federal Energy Regulatory Commission, or FERC, is already taking to make sure that those who benefit from transmission upgrades bear the costs. Under this approach, costs are picked up jointly by multiple utilities, which get reimbursed through fees they charge electricity suppliers that use their lines. The approach has enjoyed some success in New England and the mid-Atlantic region, but it is just getting off the ground in other areas.
Improving transmission has become especially important, given the additional stress that deregulated markets place on the networks of power lines and substations. Under the old regulated system, utilities had little incentive to sell power outside their service areas because they had to share the profits with their ratepayers. Electricity generally didn't travel huge distances.
Today, many of these utilities have been broken apart into separate generation and transmission companies. These new-breed companies have tended to invest in deregulated businesses where they can get the biggest bang for the buck, since they get to keep all of the profits. In the go-go years of power deregulation in the late 1990s, it was generation that drew investment.
Unregulated utility affiliates and independent power companies built power plants far from their home markets, in parts of the country where demand is high or where there are plentiful supplies of natural gas -- to produce power -- as well as regulators likely to grant the necessary permits. The new arrivals anticipated not only competing with existing local utilities but also shipping any excess power to yet other locales where they might find customers.
This put an additional strain on parts of the transmission system. More complications developed as some local utilities, in response to the new competition, tried to guard their home turf more aggressively by curtailing access to the power lines they controlled.
To address the problem, FERC began pushing utilities and the state commissions that regulate them to relinquish control of transmission lines to a new kind of independent regional grid operators. Seven of these organizations operate in North America. But the change in control has been anything but smooth. Some of the regional operators run all of the transmission systems in their area; others have only partial authority. Investigations of past major blackouts have shown that widespread failures often are preceded by one region's neglect to warn a neighbor about a sudden problem, although it isn't clear yet whether this issue played a role in last week's crisis.
Amid the change and turmoil, there is room for self-interest to cause problems. In addition to being used for such familiar purposes as illuminating or cooling buildings, electricity is also needed to make the grid run smoothly -- for example, to boost voltage levels if they sag. Utilities used to provide so-called voltage support for free. Today, generators sell electricity to the regional grid operators for this purpose. But in many cases, generating companies would prefer to sell their juice to consumers because that pays better than providing voltage support. As a result, generators sometimes skimp on their obligations to the grid operators.
Similarly, years ago, engineers were careful not to run power plants at full blast, around the clock, says Terry Winter, chief executive of the California Independent System Operator, which runs the grid in that state. Utilities were reimbursed their costs, plus a regulated profit, regardless of how much power they sold. "
Today, if you are a merchant, you want to sell 100% of your power," and are more likely to run your plant accordingly, because you get paid only for what you sell, Mr. Winter points out. There are other complications, too. Utilities generally used to run their plants according to predictable schedules. In contrast, the independent grid operators now order units revved up or down every hour of the day. These "dispatch instructions" often are dictated by deregulated markets that favor the cheapest sources of power. The constantly changing mix of suppliers makes grid operations hugely complex and puts tremendous pressure on operators to prevent problems such as overloaded transmission lines.
The complexity has become so great, says Mr. Winter, that engineers in the Midwest may not have realized last Thursday how close their systems were to instability until it was too late. In addition to these operational issues, there are geographical ones as well. There are several places in the U.S. that are transmission choke points -- New York, San Francisco and San Diego, to name a few -- where demand for power often outstrips what local generators can produce. That requires them to import juice from afar. In the case of New York, electricity coming from a vast network of hydroelectric plants in eastern Canada often gets bottled up in Quebec. Similarly, there are often problems moving electricity around the natural barriers created by the Great Lakes. These bottlenecks will become even more of a problem as the economy picks up.
Easing the problem by building more transmission lines is difficult because getting state approval and public acceptance of this kind of investment is very hard. Few communities want unsightly transmission towers and humming lines anywhere near them. Many power companies have simply stayed away from building new towers and high-power lines because they don't want the hassle of a public fight. Another concern is split jurisdiction: States control where lines can be built, but the federal government usually sets rates.
All of these issues came into play in June, when a key transmission project known as Valley-Rainbow bit the dust in California. Residents near San Diego had waged an aggressive multi-year campaign to prevent its construction. Susan Kennedy, a commissioner for the California Public Utilities Commission, says that the lines are necessary to provide San Diego adequate power to meet its vibrant growth. But shortly before the commission voted 3-2 to kill Valley-Rainbow, she flew over the intended route by helicopter. "Entire communities were built in the path of the transmission route in the time it took to decide the case," she says.
Ms. Kennedy points out that many of the companies that signaled their intention to build power plants in the region before the California and Enron debacles of 2000-01 now can't raise the money needed to plunge ahead, even if they wanted to. "I don't think our old models take into account the dynamic state of these markets," she says.
Indeed, since 2001, dozens of proposed power-plant projects have been canceled. Several of what had been the most aggressive merchant-power companies -- those that sell power to any big buyer, whether a utility or a factory -- are now among the worst off financially. Some, including Mirant Corp., based in Atlanta, Ga., San Francisco-based PG&E Corp's National Energy Group unit, and Minneapolis-based Xcel Energy Inc.'s NRG unit, have filed for Chapter 11 bankruptcy-court protection. Others, ranging from San Jose, Calif.-based Calpine Corp. and Houston's Reliant Resources Inc. and Dynegy Inc. are in the midst of difficult financial restructurings that put debt-reduction first and new construction second. Rising power needs that aren't met by new generating capacity inevitably put more of a burden on transmission systems.
In the short term, though, much of the focus won't be on Capitol Hill, but on the North American Electric Reliability Council investigators who will fan out starting this week to pinpoint how the problem got started and how it spread. They will gather data from thousands of locations -- power plants, transmission lines, substations, grid-operator control rooms -- and merge the information into vast databases. While plane-crash investigators look for the black box, analyzing a grid collapse requires gathering the equivalent of thousands of black boxes.
That task may be complicated by the multiplicity of jurisdictions involved. FirstEnergy Corp., an Akron, Ohio, company that owns seven utilities, is believed to have suffered some of the first power-line failures that may have contributed to the cascading blackout. Part of its system is run by the Midwest Independent System Operator and part by PJM Interconnection, the grid operator that controls the mid-Atlantic region. Some of First Energy's utilities own their own power plants and some sold them off to others. First Energy reports to no fewer than three state commissions and the FERC.
In 1996, it took two months for officials at the reliability council to complete their report on a 30,000-megawatt outage that lasted up to five hours. But because last week's outage was twice as big, and lasted more than two days in some places, discovering the root cause could take longer. David Nevius, the council's senior vice president, says he wants to know "what information did grid officials have and what did they do with it."
Until the investigation into the causes of the blackout is completed, the only thing that's sure, says Branko Terzic, a former FERC commissioner, is that "people with a fixed agenda will try to find something in this tragedy to support their political positions."
--John Fialka contributed to this article