Mr. Kiesner

Security & Safety

The Blackout: Can it Happen Again?

By Steve Kiesner, Director of National Accounts, Edison Electric Institute

The result is greater congestion on the lines. This can lead to higher power prices for hotels and all customers. It also stresses the electric system, which creates the potential for reliability problems.

Federal legislation is needed to address these issues. The nation's electric companies encourage the hotel industry to support it.

The Grid

The nation's transmission "grid" is really three grids: the Eastern Interconnection, which connects the Eastern seaboard and the Plains states and Canadian provinces; the Western Systems Coordinating Council Interconnection, which includes the Pacific coast and the Mountain states and provinces; and the Electric Reliability Council of Texas, which operates within Texas.

Each grid transmits electricity from generating plants to population centers within its region. From there, low voltage power lines distribute the electricity to homes and businesses. About 12 percent of all power lines in the country are high voltage transmission lines.

The interconnected nature of each transmission network improves system reliability. It benefits electric utilities by giving them alternative paths to move electricity to wherever it is needed. As was the case in the August 2003 blackout, however, this interconnected approach also brings with it the risk that a local problem could cascade into a regional one.

Safeguarding the Grid

In early April 2004, the U.S.-Canada Power System Outage Task Force issued its report on the power blackout: "Final Report on the August 14, 2003 Blackout in the United States and Canada: Causes and Recommendations" (http://www.nerc.com/~filez/blackout.html). The main conclusion of the Task Force was that to prevent blackouts of this scale from happening again, the grid needs clearer reliability standards with mandatory enforcement, and oversight that is more independent.

Earlier this year, the North American Electric Reliability Council (NERC), whose mission it is to ensure that the bulk electric system in North America is reliable, adequate and secure, began converting its existing operating policies and compliance templates into standards. Completion is expected by the end of 2004, and adoption by the NERC board planned in February 2005.

Although NERC has no enforcement authority for these standards, it has approved a set of formal guidelines for reporting and public disclosure of its audits and policy violations. After due process, it will publicly identify any entity that fails to comply.

This is a welcomed start, but to be truly effective, an electric reliability organization, with oversight by the federal agency that regulates the wholesale power industry, Federal Energy Regulatory Commission (FERC), should be created to develop and enforce reliability standards on all electricity market players, and given the ability to fine and apply other sanctions upon violation. This proposal is contained in national comprehensive energy legislation now pending in Congress.

Other steps to protect against another blackout include audits to ensure that those who are charged with running the electric system are properly trained and have the equipment to do the job. The power industry has also standardized how it trims trees and other vegetation to help ensure that overgrowth does not interfere with power lines, as it did in the August 2003 blackout.

Increasing Congestion

These reliability measures, with independent oversight, will help to make the grid more reliable in the short term. To keep up with the demands it will face in the 21st century, though, the grid needs to be expanded. Billions of dollars are being spent annually on new transmission facilities, but the bulk of the new transmission being built is to help serve local customers and to connect new generation to the grid.

In the early 1970s, the annual growth rate in lower voltage line-miles that support localized grid operations and interconnections was 1.9 percent, while the annual growth rate for high-voltage line-miles was 3.2 percent. By the latter half of the 1990s, this relationship had reversed: the higher voltage line-miles were growing at only 0.3 percent, while lower voltage line-miles were growing at 3.5 percent.

This drop in transmission investment is creating transmission bottlenecks across the country. Transmission congestion limits, and in some cases denies, access to less expensive power that may be available to utility customers. It also hinders the development of competitive electricity markets. Widening and strengthening the existing network will give power buyers and sellers more flexibility, which could lead to lower power costs.

For example, FERC estimates that if the reduced transmission congestion resulted in just a 5 percent savings in generation costs, retail consumers would see more than a $1.50 decrease in their average monthly bills. If the generation savings from reduced congestion were 10 percent, the average monthly bill for consumers would drop by $4.00. Therefore, a small increase in transmission investment can reap a much more significant benefit in lower generation costs.

Siting Issues

A number of factors have accounted for this drop in transmission investment. Difficulties in siting transmission lines are chief among them.

The competitive electric energy markets that are developing are regional in nature. However, the states currently have sole jurisdiction over where to build new transmission lines. And most state siting laws are focused on state needs, and do not recognize the development of these regional markets, nor the role that new entities such as regional transmission organizations (RTOs), regional state committees (RSCs), and independent transmission companies that buy and operate transmission networks, will play in transmission planning and siting.

As a result, the emerging competitive electricity markets will need a siting process that has the capability to consider regional, as well as local needs. National energy legislation has proposed to create this regional approach to siting by granting the federal government, through FERC, a very limited backstop authority to site transmission facilities, if states cannot or will not act on a timely basis. Currently, FERC has authority to site natural gas pipelines, but it does not have any authority over transmission line siting.

The federal transmission permitting process also needs streamlining. Problems here include a lack of harmony between federal agencies with potential jurisdiction, and the tendency by these agencies to require multiple and duplicative environmental reviews. National legislation can streamline the federal permitting process by giving the U.S. Department of Energy lead agency authority for coordinating and setting environmental and permitting process deadlines.

Transmission Incentives

Beyond resolving transmission-siting issues, the grid needs greater investment. Legislation is needed to grant electric transmission assets tax treatment similar to other major capital assets. This can be done by amending the U.S. tax code to accelerate depreciation of transmission assets from 20 years to 15.

FERC and the states should also use innovative transmission pricing incentives to attract the capital necessary to fund this needed investment in transmission. Opponents of transmission investment incentives claim these incentives will increase consumers' electricity rates. In fact, the opposite is likely to be true.

According to a 2001 FERC study, a $12.6 billion increase in transmission investment would add 87 cents to the typical electric customer's average monthly bill. The generation cost savings arising from an expanded grid, however, would more than offset these investment costs.

Benefits of Energy Efficiency

Everybody is aware that becoming more energy efficient can mean greater value for their energy dollars. Energy efficiency can also help the grid operate more efficiently. This is especially true on hot summer days when demand for power is at its peak. Using energy efficiently then will help to reduce stresses on the transmission lines, which in turn will help to prevent overloads.

For cost-effective advice and assistance in becoming more energy efficient, hotel managers are encouraged to contact their electric company. Electric companies typically offer free advice on using energy wisely, and many offer no- or low-cost programs that can help hotels take control over their energy use.

Hotel Chain Assistance

To help hotel companies with regional or national properties get the energy advice they need, the power industry set up the National Accounts Network as a free service [www.eei.org/na]. At no cost, the National Accounts Network will put hotel executives in touch with a single contact at each of the electric companies that serve their properties. Giving a hotel company a sole point of contact for each power company will cut down on phone calls and the time involved in dealing with many utility reps at different field offices. The Network can also help hotel chains to take advantage of any energy efficiency incentives that electric companies may be offering.

Reliable, affordable electricity. The blackout of 2003 showed how vital it has become. It also pointed out the growing problems in delivering it. Comprehensive national energy legislation and greater energy efficiency will help to ensure that all electricity customers can continue to take it for granted.

Steve Kiesner is Director of the Edison Electric Institute’s National Accounts Program. Based in Washington, D.C., Edison Electric Institute (EEI) is the association of United States shareholder-owned electric companies, international affiliates and industry associates worldwide. Our U.S. members serve approximately 90 percent of the ultimate customers in the shareholder-owned segment of the industry, and nearly 70 percent of all electric utility ultimate customers in the nation. They generated almost 70 percent of the electricity generated by U.S. electric utilities. Mr. Kiesner can be contacted at 202-508-5000 or skiesner@eei.org Extended Bio...

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