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Power Crisis: The Omission of Transmission
An issue paper on the U.S. Northeastern Blackout, August 14, 2003

9.4.03   Elliot Roseman, Principal, Power & Transmission, ICF Consulting

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    The recent massive power outage, affecting 50 million people in seven states and Canada, stems from the way in which the transmission system has been planned and developed over the past 20-30 years. Transmission has been a second-class citizen in the array of facilities required to bring power reliably to consumers, with scant attention paid to it until recently. Hopefully, this event will be a wake-up call.

    What are the root causes of the problem? While the specific cause of the outage is still being determined, the signs of substantial deterioration in the power grid have been building for years. For example:

    • The cost of transmission congestion in the most developed market in the US, the PJM serving the mid-Atlantic region, has grown nearly eight-fold in the past three years, reaching $401million in 2002. Nationwide, the figure is in the billions. Thus, the wholesale cost of power in 2002 was several percentage points higher than it would have been without congestion. Importantly, this trend points to the increasing stress and loading of the transmission system that leads eventually to a breakdown.

    • According to the North American Electric Reliability Council (NERC), power deals that could not be fulfilled due to transmission constraints increased five-fold to nearly 1,500 instances in 2002 compared to 300 in 1998.

    • Major utilities have been seeing transmission problems grow substantially. For example, the ability to move power out of Entergy has deteriorated significantly in recent years. Southern Company has estimated the near-term need for $2-3 billion in transmission investments, nearly doubling their current asset base.

    • According to the Electric Power Research Institute (EPRI), roughly 2 million businesses have been losing $46 billion per year in lost production due to power outages and another $6.7 billion annually due to power quality issues.

    • According to the Edison Electric Institute (EEI), transmission investment has fallen $115 million per year for 25 years, from about $5 billion in 1975 to $2 billion in 2000 (in 1997 dollars).

    • The Midwest Independent System Operator recently released its first Transmission Expansion Plan, identifying the need for at least $1.3 billion in transmission upgrades and additions by 2007. Nationwide, we estimate the need for new transmission investment in the range of $30-60 billion in this decade.

    What this all shows is that transmission system operators have for years been pushing the transmission system to its limits. These lines have very real constraints in terms of their thermal capacity, stability (voltage limits), and overall capacity to carry power. Operators have frequently been pushing the more congested lines to carry power right up to these limits in recent years, as the system volume has grown sharply. Eventually, something has to give.

    Why has this situation been allowed to develop?

    It’s been a combination of factors. One reason is that transmission has been planned and approved largely on a utility- and state-specific basis, without sufficient regional coordination. Where there has been regional coordination, such as in the PJM, the regional entities have not had the authority to require lines to be built, since the right to approve and site power lines remains with the states, even when the lines and the power they carry cross state lines. At the state level, “not-in-my-backyard” (NIMBY) concerns and its cousin, “build-absolutely-nothing-anywhere-near-anything”(BANANA) have stymied construction. It’s almost like having a separate Federal Aviation Administration for each state.

    A second reason is that utilities and independent power producers in many parts of the country have been dueling over who will build new transmission. Except for a few regions such as the PJM, each utility has had its own procedure. When new plants are built, there is often a need for new transmission to accommodate the power from those plants. However, the challenge is often to distinguish between the need for transmission to improve overall reliability versus the need for transmission to accept power from these plants. The Federal Energy Regulatory Commission recently issued a ruling on generator interconnection that would help resolve this question, but it has not yet been implemented.

    Finally, there is no accepted standard for transmission reliability. With power generation, we use the concept of “reserve margin” to identify the extra capacity to generate power that utilities should have, over and above their expected demand for power. When generation is projected to be short, utilities must build plants or buy power to ensure that supply will be sufficient. In transmission, however, there are a patchwork of “best practices”, but nothing that requires transmission to be built when the system reaches a critical level. The operators are just left to fend for themselves until the regulatory or political logjam allows a new line to be built.

    What should happen next? We recommend the following:
    1. A Federal “Marshall Plan” to build or upgrade transmission capacity in the most congested corridors in the country. The argument is at least as strong for doing this as it was for the Federal Highway System.
    2. Federal legislation to provide for “backstop” authority to build new lines if states or regional organizations defer in building lines that the FERC or DOE believes are necessary.
    3. Greater regulatory certainty and regional responsibility to assess the need for new transmission. Power flows do not respect state boundaries, so state regulators on their own cannot guarantee the reliability of the grid. To balance state and regional/federal authority, state regulators could be required to jointly consider new transmission lines under the auspices of a regional transmission organization (RTO) or other entity.
    4. There should be incentives for performance. In the United Kingdom, National Grid was able to retain millions of pounds in exchange for reducing transmission congestion by hundreds of millions. We should make a similar bargain with our utilities.
    5. Greater use of new technologies such as FACTS (Flexible Alternating Current Transmission System) and superconductivity, so that we can push more “juice” through the existing lines and corridors.
    6. Greater use of private investment to supplement the funds that utilities have available. Many utilities are in difficult financial straits, and may wish to leverage outside investment to maintain their credit ratings. Pension funds, equity investors, and others should be attracted to the fixed rates and attractive returns that transmission offers.

    In the process, we should expect the cost of transmission to rise, leading to slightly higher rates for consumers. But this would be a cheap insurance policy to buy. Isn’t this a small price to pay to avoid blackouts of the type that happened recently and to lower the costs of congestion? Now more than ever, the answer is yes.

    Copyright 2004 CyberTech, Inc.

    Readers Comments

    Date Comment
    Wallace Brand
    9.4.03
    A few years ago, a study by Arthur D Little suggested that while the average historic cost of transmission and distribution was $500 per kW, the current cost was $1,260 per kW not including substations which would add another $50 to $300 per kW. I have been using $1,500 per kW but my numbers area few years old. Do you have a durrent number that would approximate the cost, per kW of adding transmission to make up for the lag in construction of transfmission following 1989 or 1992 when FERC was given the authority to compel utilities to wheel the energy of other utiliities or Independent Power Producers over their transmission line and ownership of transmission no longer conferred monopoly power in the wholesale market?

    You say the $100 billion in new transmission construction would result in a "small"price rise in the cost of electric power. The current average cost nationwide, the last time I looked, was about 7 a kWh overall for industrial, commercial and residential service, and 8 on average for residential service only. I agree with you that new transmission, by relieving congenstion would significantly reduce the cost of wholesale energy. But I believe the cost of the new transmission would exceed by far those savings. If the retail cost were to go up as much as 3 to 5 per kWh, that would likely exeed the cost of electric power from fuel cells which are one of the kinds of distributed generation. They would not need either transmission or distribution lines and their installation would reduce the load on the transmission system. Over time, when sufficient DG had been installed there would no longer be the danger of cascading transmission line outages. Along with that benefit, we would get a virtual elimination of toxic pollution, an great increase in the kind of reliability we need for the digital age where blinks and voltage sags of just a few microseconds will cause a computer to crash, we would be able to add generation in small increments more nearly approximating local load growth, there would be no need to add transmission lines snaking through the wilderness nor through Connecticut suburbs, there would be real competition in electric power supply, and they could be a lower price. It seems to me that the cost of transmission is rappidly rising but DOE says that the production/cost curves of fuel cell production would sharply decline with an increase in volume.

    If you agree with me on this point, would it not make sense to switch to a decentralized system design from a centralized design. The latter was an excellent design for the last one hundred years. But now that the system planner has in his tool kit the option of tiny but extremely efficient fuel cells, is it not time to plan decentralized bulk power supply systems?

    Regards,

    Webrand.

    F.Allen Morgan
    9.9.03
    It seems to me, much of the criticism of the transmission system, is due to its success. An underutilized system, is one we spent to much money on. Any machine that can operate without interruption for 20 years, is a great machine. As much as the blackout showed faults in the system it also showed that a cascading blackout can be isolated and stopped. We all have lived through nature inspired blackouts, yet we don't clamour for a redesign of the distribution system - why is that? Perhaps, we should focus more on isolating grids, rather than designing the perfect - monolithic "overbuilt" system.

    I'm not accusing this author of this, but how many other parties "talking up" the blackout are really trying to sell product or services?? I saw within 2 days of the blackout, DSM providers touting their product as blackout preventers.

    Jack Ellis
    9.9.03
    You analysis includes several examples where cost savings can be realized but it overlooks the costs of new facilities. As Mr. Morgan points out, transmission congestion is not necessarily a bad thing. A transmission system that is never congested is overbuilt and underutilized. Consumers are forced to pick up the tab for this overbuilt network since they don't have the option of using a less expensive transportation system.

    You also omit any discussion of alternatives to building more transmission, such as siting new power plants more effectively, adopting more aggressive conservation and demand management strategies, and installing distributed generation. All are valid alternatives that may provide more timely, cost-effective congestion relief than attempting to site, fund, design and build new wires.

    Your reference to the Federal Interstate Highway system is not appropriate. While many physical goods can cost-effectively be moved over long distances, electricity generally cannot. It is usually cheaper to build generating facilities close to demand centers and transport fuel than it is to generate close to fuel supply and move power over long distances. Moreover, siting generation close to demand reduces the power system's vulnerability to atural disasters and terrorist threats.

    Jack Ellis

    Robert O. Johnson
    9.9.03
    The article presents an interesting collection of capacity needs and reasons why such a situation has developed. In addition to the infrastructure problems presented, there is an overriding economic reason for neglect of development in transmission capacity. Operating in an ostensible atmosphere of "deregulation," transmission remains the most heavily regulated (largely under FERC), and presents the least appealing potential for investment. The other two major segments of the electrical utility industry, generation and distribution, continue to offer varying amounts of appeal for profits, depending on circumstances of local markets.

    Unless a federally funded "Marshall Plan" for transmission construction is created, which appears unlikely in current circumstances, capital and system organization must come from the private sector. This will require a combination of revisions in FERC authority & policy, and mechanisms to allow (and possibly guarantee or subsidize) profits by private investors.

    Additional "distributed generation" by utilities, to offset the peak demands on transmission systems, face the same barrier. Capacity to offset transmission peaks will by definition fulfill a peaking function. Unless subsidized or provided economic guarantees of minimum electrical production, investment will not be attracted. Distributed generation at the homeowner level remains relatively at micro-industry capacity, requiring growth of two and a half orders of magnitude to meet incremental generation capacity needs. This is, of course, many years ahead.

    If we are to address the transmission problem in the near future, we are left with the one alternative of addressing the political & economic circumstances of the transmission industry. Given the inertia of public institutions and public apathy toward direct subsidy of the energy industry, this is a formidable task. It does, however, offer the only current route to addressing this situation.

    Bob Johnson, SolarInsights LLC

    Lorin Black
    9.9.03
    Dear Mr. Roseman, the one flaw in many of the discussions regarding the bulk transmission system in the USA is the failure to recognize that the Transmission System was planned and developed on the basis of locating the generation close to the load and supplying the power over relatively short transmission lines. Along comes the Federal Government with what they think is a better idea and all of a sudden we are switched over to sending power over long distances to the load being served...something the existing Bulk Transmission System was never designed to do. To add insult to injury, they are now saying the transmission system is antiquated.

    In your article above you say "According to the North American Electric Reliability Council (NERC), power deals that could not be fulfilled due to transmission constraints increased five-fold to nearly 1,500 instances in 2002 compared to 300 in 1998. " This is classic proof of the fact that the system was not designed for this purpose and is not being used in the way it was originally intended to be used. To say the system is old and antiquated is deceptive because it is based on the new deregulatory environment, not on how the transmission system was originally designed. In short, the system may be old but it is not antiquated, it is only being mis-used.

    The real cause of the blackouts in New York and elsewhere is the Federal Regulators who chose not to plan their proposals properly and instead trusted the open market to resolve issues such as transmission congestion which didn't appear until Deregulation was in full tilt. We should not blame our utilities for not doing their jobs, but the people who made these foolhardy decisions in the first place. The height of arrogance is emblazoned on the name of the FERC 888 NOPR that started this whole mess. It comes from the address of the Federal Energy Regulatory Commission itself!

    It will cost billions of dollars to plan and design our bulk transmission system to provide power over long distances, a considerably different concept from before deregulation started. Take my word for it: "It will not be economical or efficient to do so!" and if you think putting mandatory reliability concepts into place will change anything, then God Bless You because you will need it.

    I take great pride in the hard work and planning that has taken good care of the service territory my company serves. It is at times a thankless job, but it doesn't matter, because I know all of the people whom I work with have sacrificed many long hours working to provide outstanding service to the community around them. I wish the people at First Energy well as they try to recover from this latest outage and the regulatory snafu that surrounds them.

    "PLANNING INFLUENCED BY FEDERAL CHAOS IS NOT PLANNING...IT'S AN OUTAGE WAITING TO HAPPEN!"

    Lorin A. Black, Jr. Principal Engineer System Planning Department El Paso Electric Company El Paso, Texas

    LBlack1@EPElectric.com

    Martin Koller
    9.10.03
    Dear Mr. Roseman.

    In item 5 of "what should happen next" you mention new technologies to be applied in order to put more juice through the existing luines. At this point I'd like to mention storage. Storage could be applied to transport the energy during low load hours, store it, and consume it during peak hours. This kind of levelling of the energy flow would increase the capacity of the transmission system dtastically.

    One possibility to store electrical energy is CAES (compressed air energy storage), a technique that was applied first in 1978 by the Alstom Company in the Huntorf plant in Germany.

    Martin Koller Alstom (Switzerland) Ltd martin.koller@power.alstom.com

    John Sheppard
    9.10.03
    These are all great comments on a serious problem. Mr. Roseman indicates that congestion has increased eight fold during the last three years to a $401 million dollar market. Has anyone considered that the congestion model is flawed?

    The load hasen't grown eight fold in three years, maybe the congestion market is being gamed.

    Vytau Virskus
    9.10.03
    In order to develop a comprehensive solution a broader view must be taken, which would include exploring most of the points made above. In fact, it will be necessary to step back and review the current energy policy and regulatory structure which does not promote distributed generation. I am not speaking of base load mini-plants (although fuel cells will have a part to play in the future), which are far more expensive to operate than a conventional coal or nuclear plant. I am referring to conventional fueled .5 to 1.0 MW units that can be installed in many of the millions of small industrial and commercial buildings that populate our most intensively populated areas of the country. Many of them already have small stand-by generators, required by fire codes) that can only feed the emergency lights during a power outage.

    Various energy strategy descriptives have come into vogue in recent years, like "renewable energy", and "sustainable energy", and "distributed generation", but it may be time for a new concept such as Diversified Capacity.

    Generation providers have no incentive to promote the installayion of small generating units (i.e. industrial, institutional, commercial) into the system. LDC's, along with their affiliates, do not promote the expansion of interruptable tariffs to to provide displacement capacityduring high peak periods, PUC's do not require appropriate economic incentives for interruptable tariffs, and there are no federal incentives. In addition, retail electric providers are not required to offer any interruptable rate programs that could provide additional displacement capacity. Finally, there are no code requirements or economic incentives for displacement capacity (stand-by/displacement generators ) to be installed in new construction which would reduce the growth of capacity requirements, therefore transmission requirements, for peak periods.

    One issue that always seems to be given short shrift in discussions about generation and transmission is Demand Side Mamagement. Anyone in the demand side industry knows that energy consumption can be reduced by as much as 40% - even more - with the technology that grew lqargely out of the Energy Policy Act of 1992. (Policy does make a difference) Also, electric demand can be reduced by 30-40% (100% if displacement strategies are included). All of this can be done (and IS done every day) with off-the-shelf technology such as converting to T8 lighting, installing varible speed drives, and integrating building operations with the new generation of internet-based energy management systems, which allow viewing energy consumption and demand in real time.

    Generation and transmission problems must be addressed, but Diversified Capacity and Demand Side Management must be part of the short and long term solution - and maybe should be the first place to start.

    Vytau K. Virskus Millenium Energy Company

    TERRY MEYER
    9.19.03
    SMELLS OF CORPORATE WELFARE

    TERRY MEYER
    9.19.03
    While Mr. Roseman didn't come right out and suggest building transmission at taxpayer expense to be used for corporate profit, the discussion got way too close for me.

    Sure, airlines, railroads, and trucking have always had their subsidies in the form of infrastructure, but is that any excuse?

    Raise my taxes for socialized profits if you must, just don't insult my intelligence by using the term "deregulation" in the same article.

    Terry Meyer "All power to the people."

     

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