No single authority is in charge of the grid, and few have an incentive to invest the money needed to improve its reliability.
Deregulation is actually a misnomer for the restructuring of the power industry, because only the generation of electricity was freed from strict government controls, beginning in 1992.
Companies were allowed to charge market-based rates for generating electricity, creating the financial incentive to build more power plants.
Power companies received only a relatively low, government-set return on their investment in the grid, so they allocated far less money to improving transmission reliability than to building power plants.
As a result, much more electricity is moving over virtually the same transmission wires, pushing them to carry loads they were not built to handle, according to many regulators and experts.
"Right now we have a highway" to transmit power, said David Owens, executive vice president of the Edison Electric Institute, an industry lobbying group. "But we need a superhighway."
Federal regulators and some industry groups realized long before the blackout that sweeping measures were needed to improve the reliability of power supplies. For the last four years, mandatory reliability standards have been proposed for the grid, along with the creation of independent regional operators to enforce those standards.
These plans, if passed by Congress, would produce greater regulation of the grid than existed in the days of utility monopolies, but politics have stymied their progress. While some plans may win approval in the wake of the blackout, other ideas may be delayed amid confusion and finger-pointing.
The transformation of the American electricity industry began because businesses in California and the Northeast, where electricity rates have historically been high, threatened to abandon those regions for places with cheaper power. Federal and state governments, determined to cut rates, remade the industry, dismantling monopolistic utilities and encouraging new companies to compete to supply power.
As deregulation started to take hold, investment in transmission waned. The old utilities understood that they might be compelled to divest themselves of some assets, so they delayed many investments, including transmission upgrades.
"The transmission network needed for a wholesale market should be much larger," said Frank A. Wolak, an economics professor at Stanford University and chairman of the market monitoring committee at the California Independent System Operator, which runs the state's transmission grid. "The utilities said, `If we don't know what kind of returns we'll be getting or whether we get to keep our assets, then don't build it.' So leading up to restructuring, they didn't build transmission."
Nick Winser, group director of transmission for National Grid Transco, which owns and runs the grid in England and Wales, said the United States needed to invest $60 billion to $100 billion to make its grid big enough and robust enough for a fast-growing, deregulated market. But he estimated that the United States had spent $800 million a year over the last decade.
Industry analysts say that Mississippi provides an example of the folly that sometimes characterized restructuring. Merchant generation companies, which build power plants, rushed there in the late 1990's, drawn by financial incentives. Their plan was to pump electricity into growing markets in Florida and Georgia, the analysts said.
By the end of the year, Mississippi will have about 30,000 megawatts of excess capacity, industry experts said, but there is no way to transmit that electricity to the intended markets because no one wants to build the transmission lines. [NIMBY, anyone?]
Industry regulators and experts warned Congress and power companies years ago that the grid could not easily handle increased power loads over long distances. In July 2001 the North American Electric Reliability Council, an industry group formed to monitor transmission after a blackout in 1965, told Congress that "the grid is now being used in ways for which it was not designed." [Quick-acting critters, weren't they?]
"We're Americans, and we think if it wasn't invented here, it wasn't invented," Mr. Wolak said. "A lot of problems could have been avoided if we had looked at other countries' experience that deregulated before us, like Australia, New Zealand, Norway, Sweden and the U.K."
Regulators at FERC envision a system in which power generation remains deregulated to encourage competition, while transmission becomes a much more heavily regulated monopoly. The system would be shaped by new rules and controlled by regional transmission groups closely supervised by the commission.
Others in the industry also favor this approach. "When you do this stuff state by state, it doesn't work," said Craig Glazer, vice president of government policy for PJM Interconnection, the independent operator of the transmission system for all or part of seven Northeast states and the District of Columbia. "It's like having an air traffic control system state by state."
Utilities are also seeking further deregulation by trying to persuade Congress to repeal the Public Utilities Holding Company Act, a Depression-era law that prohibits companies from owning several utilities in scattered parts of the country. Congressional proponents of the repeal, who have inserted it into the energy bill, say it would allow new capital reserves to flow into the industry and the grid. But consumer groups say it would concentrate the industry in a few powerful hands and would be a burden on ratepayers. [not repeal a Depression-Era "solution"? Great thought, "consumer groups"....]
Any significant changes, from building new transmission lines to providing better technology for existing ones, will require sizable investment. Most likely, consumers will have to foot the bill, but transmission constitutes a small portion of that bill, industry analysts say. [As I've written before, ain't nobody else going to pay for it, 'cause the power companies don't print money....]
So, media, blame the utilities, right? Duh!
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