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States control seen grating on grid

Thursday’s massive blackout has sparked calls for a complete overhaul of the national power grid, a task riddled with technical and financial hurdles. — By John W. Schoen
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Thursday’s massive blackout has sparked calls for a complete overhaul of the national power grid, a task riddled with technical and financial hurdles. But the problem runs deeper than raising billions of dollars to string new wires from one part of the country to another. One of the biggest obstacles may be your state’s desire not to share cheap power with the rest of the country. And no state regulator wants to break the bad news that a new transmission line is going to run through your back yard.

THE IMMEDIATE cause of the blackout was the failure of a large chunk of the web of transmission lines that stitches together regional pools of power plants across North America. On Friday, officials were still trying to pinpoint the exact source of the largest blackout in the U.S. power system’s history. Early reports had suggested that a surge in demand from Canada overwhelmed the neighboring power pool in the Northeast U.S.

But it’s easy to blame Canada. The real problem, say analysts and electric power officials, is the lack of national oversight of the system that would force power companies to beef up weak connections between regional pools. Companies trying to build new lines have to get the OK from — and often make concessions to — each state the line would pass through. While the ultimate control over virtually every other critical national network — from interstate highways to natural gas pipelines — rests in Washington, the task of insuring the reliability of the nation’s power grid rests with a vast patchwork of municipal power authorities, state utility regulators, regional transmission organizations, and private, multi-state power companies — each of which is loathe to support increased spending on new power lines unless it can show that ratepayers or investors will see an immediate benefit.

“We have a single grid, but it’s owned by hundreds of different companies who are regulated by hundreds of different regulators,” said Ken Malloy at the Center for the Advancement of Energy Markets

Case in point: Energy officials are currently reviewing a plan to build transmission lines from Indiana to power plants at the Tennessee Valley Authority in Kentucky to free up more power for consumers in New Orleans. The Federal Energy Regulatory Commission says the beneficiaries of such investments would have to pay for it, said Hoff Stauffer, a senior consultant at Cambridge Energy Research Associates

“But it’s just not clear that anyone can pull that deal together,” he said.

Similar examples can be cited across the country. East Coast customers could save billions of dollars if more transmission lines were built into the Midwest, where rates are cheaper, said Stauffer. But Midwest power companies would have to bear the cost of building those lines. They have little motivation to do so, and the Federal Energy Regulatory Commission has no authority to make them do it.

Another example: In Washington state, the Bonneville Power Authority, which is subsidized by the federal government, produces cheap hydroelectric power that lets a customer in Spokane run his or her DVD player for about 4.5 cents per kilowatt-hour, according to Malloy. The power needed to run that same DVD player in New York City costs more like 13 cents per kilowatt-hour. With a national power grid, Spokane consumers could end up paying more, and the decision to build those lines is in the hands of the states. So what Washington state regulator in his or her right mind would approve that idea?

“Who wants to give up 4 cents a kilowatt-hour of cheap hydro power just because some people think markets will be better for the nation as a whole?” said Malloy.

The widespread diffusion of oversight over the nation’s power grid has also created a tug of war among dozens of players — from large multi-state utilities to municipal power authorities. And, as California’s power mess demonstrated, the technical and legal complexities of the debate over power policy have left consumers dazed and confused.

“People aren’t seeing this problem,” said FERC Commissioner Nora Mead Brownell. “They sure should today. But largely, people see their lights go on and rates are reasonably cheap, so they haven’t understood how vulnerable we are in terms of a crisis like this.”

Since California’s energy meltdown, there have been increasing calls for the FERC to step in and mandate upgrades to the grid. Two of the three members of the commission, Brownell and Clinton-appointee William L. Massey, have testified in support of a compromise that would leave states in charge of approving new transmission lines but give the FERC the final call when states can’t agree.

But FERC Chairman Patrick Henry Wood, III, appointed by President Bush after serving as then-Gov. Bush’s chairman of the Public Utility Commission of Texas, has not taken a stand on the issue, according to Bryan Lee, a FERC spokesman.

“The chairman has chosen to remain neutral,” he said. “It’s up to Congress. If Congress wants to give (FERC authority to overrule the states), the commission will take it.”

Some federal policy-makers have been hoping that private investment would help strengthen the national power grid. When the nation’s power industry was deregulated in the 1990s, it was supposed to spur investment, improve efficiency and bring market competition to electric rates, saving consumers money. In some areas, it’s worked. Despite the disaster in California, market-driven power pricing has helped spur investment in new power generating equipment.

But the morass of state-by-state regulators has scared off investment in transmission lines.

“The risk is too high and return is too low,” said Malloy. “You’ve got to be crazy to built transmission capacity in this environment.”

But if the system is to be upgraded, no matter where the money comes from, consumers will likely have to pick up some of the tab.

“We need to raise rates,” said David Burks, an industry analyst at Louisville, Ky.-based brokerage J.J.B. Hilliard, W.L. Lyons. “The consumer will have to bear some of that because of the cost involved.”

And consumers may also have to learn to live with more power transmission lines. The nation’s natural gas distribution system, for example, experiences far fewer bottlenecks. But analysts say that’s because federal law gives the FERC the power of eminent domain to give final approval to the path of a new gas transmission lines.