The Electric Grid Slide

Rob Sargent

August 16, 2004

A year ago, a massive blackout hit most of the Northeast and parts of the Midwest and Canada. A year later, we might know what caused it, but we're no closer to preventing such crises in the future. Energy policy analyst Rob Sargent says it's got a lot to do with accountability—holding power companies to higher standards and making energy planning public.

Rob Sargent is senior energy policy analyst, National Association of State PIRGs. The state Public Interest Research Groups (PIRGs) are a national network of state-based, nonprofit, nonpartisan public-interest advocacy organizations working on consumer, environmental and good-government issues. The National Association of State PIRGs provides research and policy development assistance to state PIRGs nationwide.

One year ago last Saturday, for 50 million people in the Northeast, Midwest and Canada, the modern world came to a halt. Trains stopped. Factories shut down. Lights went out. No one knew why.

Now, we know that two things caused the blackout: the failure of utilities to follow reliability rules, and the failure of grid operators to react swiftly and appropriately in the early stages of the crisis.

Why does it take a $10 billion disaster to bring about change in a system with many flaws that have been evident for years?  Long before the blackout, experts warned that the utilities’ voluntary system of compliance with reliability rules no longer worked. And evidence of increasing strain on the electric grid has been mounting.

The restructuring of the electric industry has contributed to these problems. Now, evidence is accumulating that restructuring could soon trigger a second crisis—this time, for consumers.

Consider:

• Rates are going up. After nearly two decades of steadily falling rates for residential electric service, rates have increased in real, inflation-adjusted terms in two of the past three years.
  
  
• Natural gas prices are skyrocketing. The increase in electricity rates is partially due to soaring natural gas prices—which are, in part, the result of the poorly planned expansion of natural gas power plants set loose by restructuring in the late 1990s. More plants mean more demand for natural gas, straining domestic supplies. Gas prices have doubled since 1995, with impacts not only for electricity consumers but also for those who use natural gas to heat their homes.
   
• Rate caps are coming to an end. Many states capped electric rates to sugarcoat industry deregulation; which was rushed through many state legislatures.  Now, the caps are about to come off. Utilities in Michigan and Maryland have already warned of upcoming double-digit rate increases of the kind that took place in New Jersey when rate caps were removed last summer. 
   
• Energy efficiency programs have shrunk. Energy efficiency programs which save consumers money and increase reliability, had funding slashed by 38 percent in the era of restructuring between 1993 and 2000.
   
• Major costs to consumers loom. Ratepayers are beginning be asked to shoulder the cost of tens of billions of dollars worth of investments in the national power grid that industry and administration officials have claimed will solve the problems that led to the blackout. Yet, there has been little examination of whether alternatives—such as improving energy efficiency, or moving generators closer to the consumers they serve—can achieve the same goals less expensively.
   

Along with the California energy crisis of 2001 and the blackout of 2003, these developments highlight the flaws in our electric system.  It is now clear that federal officials dragged their heels in response to the hijinks of Enron and other players in California. Similarly, Congress has failed to adopt mandatory reliability standards in response to the blackout.  And there has been little to no effort to diagnose and fix the major problems induced by restructuring.

It is time to restore accountability and order to the electric industry to prevent future crises. Mandatory reliability standards—which have been held hostage by backers of the misguided and expensive federal energy bill in Congress—are a start.

But it is also time to reinject thoughtful long-term planning into our electric system. The past decade has shown us that deregulation—while good for a few large consumers—cannot provide an electric grid that is stable, reliable and affordable. The current system is also failing to harness technological advances in efficiency and renewable power that can reap long-term economic and social benefits. Only planning and regulation—carried out in public and for the public benefit—can achieve those goals.

The 50 million people who lost power on Aug. 14, 2003 demanded answers. Now they have them.  However, without aggressive action from federal and state officials—including a full exploration of and response to the implications of restructuring for consumers—we can only look forward to more crises and disruptions in the years to come.