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Don't believe the myths, the power grid can be fixed -- if Congress and displeased business interests get out of the way
The Great Blackout of 2003 may be over, but the debate over how to make the power grid safer is running on alarmingly low voltage. Even people who should know better are making statements that demonstrate evidence of rolling intellectual brownouts. Among the myths we've all heard lately:
• The U.S. has a Third World transmission system. Wrong.
• The main solution is to build more lines to carry power between different parts of the country. Wrong.
• Upgrading the grid will be expensive. Wrong.
Here's what's true:
The U.S. transmission grid, while imperfect, is still among the most reliable in the world. Yes, the mid-August blackout was frightening, and it may be a sign of vulnerabilities that still aren't fully understood. But even a good system can fail when an unusual confluence of events occurs. And let's keep things in perspective. The last time there was a blackout approaching the size of this one was 1965, when the Texan in the White House was Lyndon B. Johnson.
While more investment is clearly needed, it shouldn't be poured into tightening the linkages between neighboring sectors of the grid so more power flows over long distances. That would only increase the risk of cascading failures. "In the perfect storm, if one mountain climber slips, he brings everyone down with him," observes Jim Letzelter, a managing director of The McGraw-Hill Companies' Platts Research & Consulting energy service.
As for Myth No. 3, making the grid more robust needn't be expensive (see BW, 9/01/03, "How to Fix the Electrical Grid"). While the Electric Power Research Institute says a complete, state-of-the-art modernization would cost $50 billion to $100 billion over the next 5 to 10 years, Edison Electric Institute President Thomas R. Kuhn says a lot could be accomplished by simply raising annual investment in transmission from its current $3 billion a year to around $5 billion a year. Contrast that with more than $100 billion that's been invested in just the past three years in new generating plants.
IN LIMBO. Today, transmission costs account for only about 7% of utility bills. After what has happened, almost everyone would agree that spending a bit more on the grid is cheap compared with sweating (or maybe next time freezing) in the dark.
The fact is that the grid does indeed need upgrading. The obstacle is neither money nor technology. Nor is it a paucity of ideas. The problem is politics. In the absence of new rules from Congress, the electrical grid is trapped in limbo between the vertically integrated industry of the past and the horizontally integrated industry of the future. The result is confusion. No one has both the responsibility and the undisputed authority to make the grid operate reliably. And investors are reluctant to pump more money into the grid when they can't predict the outcome of the political stalemate over regulatory reform in Washington.
That's a shame, because there's one plan on the table that could go a long way toward clearing up authority over grid management and creating clear incentives for investment. It's the plan being pushed by Pat Wood III, President George W. Bush's appointee as chairman of the Federal Energy Regulatory Commission (FERC). Wood understands that the core problem of the transmission grid is what economists call "the tragedy of the commons." Like a fishing ground or a pasture, the grid is overused when there's no effective means of charging people for it or excluding them from using it.
COMMONS TRAGEDY. FERC's plan would create perhaps seven or eight regional transmission organizations with undisputed authority to decide who can use the grid in their regions and when. Companies would also split themselves vertically, divorcing transmission from generation -- and then grow horizontally, by expanding in either wires or power plants. The end result: increased efficiency, which would slightly lower the national average retail cost of electricity, the Energy Dept. predicts. More important, the plan would lessen the risk of blackouts caused by underinvestment, miscommunication, incompetence, or Enron-style market manipulation.
Copyright 2003, by The McGraw-Hill Companies Inc. All rights reserved.
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