U.S. Electric Grid Is Reaching the End Game
Sep 22, 2006 - Martha Freeman - EIR
(Executive Intelligence Review
This Summer, three decades of underinvestment
and looting of the U.S. electrical industry grid system
came home to roost. A week-long blackout in New York
City, calls for "voluntary" conservation, the shutting
off of power to large industrial enterprises, and
lowering of voltages across the nation, were all evidence
of the wreckage that has been made of this most critical
For the past three decades, financial
warfare, and attacks by anti-technology fanatics and
free-market ideologues, have created the "perfect
storm" that has left the U.S. electric grid in a condition
of increasing instability. The restructuring of the
electric utility industry, begun during the mid-1970s
Carter Administration, has changed the rules of the
road that had created an electric generation and delivery
system that was the envy of the world.
was accomplished by changing the axioms. From the
time of President Franklin Roosevelt's regulation
of the industry in 1935, the intention of the engineers
who designed the electric grid was to deliver reliable,
economical electricity, to every farm, family, and
factory in the United States. Now this extraordinarily
complex and fragile system has been degraded into
a hodgepodge of hundreds of competing interests, run
not by engineers, but by financiers and lawyers, where
states are increasingly losing regulatory oversight,
and reliability has taken a backseat to shareholder
The first sector of the electric
utility industry to be deregulated was the network
of high-voltage transmission wires, which were designed
to make bulk power transfers, over relatively short
distances, from large power-generating plants to the
cities and towns where the power was needed. They
were built by the utility company that had built the
power plant, and as the grid grew, local lines were
connected to other utilties' power lines to be available
in case of emergencies. During the 1977 blackout in
New York, for example, power was transferred in from
the Tennessee Valley Authority system in the Southeast,
to restabilize the grid.
After the mid-1970s Middle
East War and orchestrated "oil crisis," which quadrupled
prices, the Carter Administration proposed, and Congress
passed, the 1978 Public Utility Regulatory Policies
Act, which promoted "conservation," and poured billions
of wasted Federal dollars into the development of
small non-utility power generators, using "non-traditional"
sources of power, such as biofuels, solar, and wind
energy. This insane turning back the clock to pre-industrial
19th Century methods was reinforced by attacks on
nuclear power, reversing the policy of massive additions
of new nuclear plants then underway. The 1978 law
required the traditional utility companies to purchase
power from these expensive "alternative" power sources.
The utility companies objected to this potential anarchic
use of the transmission grid, and refused to provide
these non-utility generators access to their systems.
So, the Federal Energy Regulatory Commission, which
had been established to restructure the industry,
promulgated a superceding Federal rule forcing "open
access" for these new non-utility generators to the
This "open access" rule was the
foot in the door for the chaos and congestion in the
transmission system that exists today. One of the
huge electric industry conglomerates, American Electric
Power, is an instructive case in point.
On Dec. 20,
1906, a certificate of incorporation was filed in
Albany, New York for the American Gas and Electric
Company. Over the ensuing 30 years, the company began
electric, gas, water, steam, transit, and even ice
services, in New Jersey, New York, Pennsylvania, West
Virginia, Virginia, Ohio, Indiana, Michigan, and Illinois.
In 1928, the Federal Trade Commission launched a comprehensive
inquiry into the entire electric power industry, as
abuses mounted, from financial pyramid schemes and
the stock market speculation of the "Roaring Twenties."
The investigations culminated in the 1935 passage
of President Franklin Roosevelt's Public Utility Holding
Company Act, which forced the breakup of many holding
companies, and several of American Electric Power's
holdings were divested. Other legislation made it
incumbent upon utilities to provide universal service,
and gave the states overall regulatory oversight.
While what became American Electric Power still maintained
operations stretching from Virginia to Michigan, each
state regulated its utility companies, defined the
level of reliability to be maintained, and, in return,
assured each company a modest return on investment.
AEP built the first high-voltage transmission line,
between Muncie and Marion in Indiana in 1911, the
first long-distance line, transmitting electricity
from a coal mine mouth plant, and the first commercial
nuclear power plant on Lake Michigan, at the two-unit
Donald Cook station, in the early 1970s. The wheeling
of power, which is the transfer of electricity from
one supplier over the transmission lines of another
system, to where it was needed by a third customer,
was used by regulated utilities to increase the reliability
of regional grids, in case of an unscheduled shutdown
of large generating units, such as from storms or
other acts of nature.
But deregulation was marching
In 1992, the National Energy Policy Act created
another class of non-regulated electricity producers,
known as exempt wholesale generators. This broadened
the authority of FERC to wrest control of the industry
from the utility companies and the states. As has
often been noted, FERC has never met a utility merger
it didn't like. More and more companies were exempted
from the restrictions of the Public Utility Holding
Company Act, as mega-monoplies were formed to wheel,
not just electrical power, but newly concentrated
economic and market power.
In 1995, FERC proposed
another rule to mandate open access, this time by
any producer, to the transmission network. Under Order
888, implmented the following year, the wheeling of
electricity, through multiple transmission systems,
over any distance by any generator, was fair game.
The Order "unbundled," or segregated, electrical energy
generation from the transmission systems the generators
had built. For the first time, "economy transfers"
were enabled. The transmission grid would be used
to enforce "competition."
If a utility, such as the
far-flung AEP, could buy power halfway across the
country that was even marginally cheaper than what
it could produce locally, it could wheel that power
hundreds, or thousands of miles to its customers.
Even the largest utility holding company today, Exelon,
owns only about 5% of the nation's electric generating
capacity, with AEP coming in third. But it is not
the size of the concentration of electrical power
capacity that is creating the chaos; it is the "free
market" concentration of economic power, which allows
a handful of companies to maximize profits by buying
up power lines, looting infrastructure through disinvestment,
and setting prices to maximize profits.
At the same
time that FERC was tearing apart the 50-year-old regulatory
compact between producers and consumers for providing
reliable power, states were being convinced by pirates
waiting in the wings—most aggressively, Enron—that
electric bills to their citizens could be lowered
by forcing incumbent utilities to divest themselves
of their generating capacity, and sell their assets
off to unregulated holding companies, which would
buy power for them through a "spot market in electrons."
As NERC warned a decade ago, the transmission system
was not designed to handle rapidly-changing bulk,
so-called "economy" power transfers. On the three-year
anniversary of the "Great 2003 Blackout," NERC vice
president Donald Cook explained, "There's no question
that the grid is being used now in ways for which
it wasn't really designed. It was built to connect
neighbor to neighbor, over the last several decades.
It was not designed to move large blocks of power
from one region to another. "
The Federally built
Tennessee Valley Authority system is illustrative.
TVA built, owns, and operates 17,000 miles of transmission
lines, to service its customers over an area including
all or parts of seven Southeastern states. FERC has
been trying to force the TVA to join a Federally regulated
Regional Transmission Organization, which would require
it to cede control of its transmission grid, and force
it to build new transmission capacity (for which its
customers would have to pay), not to service its own
ratepayers, but to allow "economy" wheeling over its
wires. So far, the TVA has refused.
It is often stated
that the solution to this transmission congestion
is to build new power lines. But while more transmission
capacity is certainly needed, that in itself, will
not solve the problem.
the August 2003 blackout, which left 50 million people
from the Midwest to the East Coast in the dark, multiple
Congressional hearings and a Federal investigation
were conducted to examine the problem and propose
solutions. The Department of Energy was tasked with
identifying the cause. Its final report blamed everything
possible—including operators and fallen trees—except
But the Congress mandated that the Department
produce a report, the National Electric Transmission
Congestion Study, which it released in August 2006.
The report duly noted what everyone already knew—that
areas of Critical Congestion included the New York
City and Connecticut service areas, with Congestion
Areas of Concern all the way from New York through
Northern Virginia. The Los Angeles area was noted
as a Critical Congestion area, with parts of the West
Coast, from Seattle to San Diego, in the Areas of
Concern category. But it is not in these regions that
profit-conscious, and even foreign-owned companies,
are proposing to build new power lines, or the new
local generating plants that would obviate the need
for long-distance transmission lines. Why?
to 30 years of irrational "environmentalist" brainwashing
of sections of the U.S. population, particularly in
"liberal" large urban regions such as New York and
California, it is almost impossible to build new generating
capacity—much less nuclear power plants—where the
greatest needs are. Therefore, these regions, which
do not generate enough power locally, are forced to
import power from other utilities. Thanks to the efforts
of the same so-called environmentalists, these cities
have not even been able to build enough power lines
to bring in the electricity from elsewhere.
the no-holds-barred market of deregulation, this "elsewhere"
has moved further and further away from the large
cities, with their large power requirements, to areas
of the country where power can be produced more cheaply,
and new plants can be built with the minimum amount
of local political opposition and legal interference.
For example, PJM is a regional transmission interconnection,
which coordinates the operation of the transmission
grid that now includes Delaware, Indiana, Illinois,
Kentucky, Maryland, Michigan, New Jersey, North Carolina,
Ohio, Pennsylvania, Tennessee, Virginia, West Virginia,
and the District of Columbia. It oversees 56,070 miles
of transmission lines, and plans regional transmission
expansion to maintain grid reliability and relieve
In March, PJM identified transmission
constraints in its region, which were standing in
the way of "bringing resources to a broader market."
PJM identified two transmission paths requiring significant
investment: a high-voltage line from the coal fields
of West Virginia to Baltimore and Washington, D.C.
and another, extending from West Virginia to Philadelphia,
New Jersey, and Delaware. However, these lines, hundreds
of miles long, would not be necessary, if the mandate
existed to build new nuclear plants where the capacity
would be near the load centers.
While Virginia and
Maryland utilities are considering such new builds,
most of the nuclear power plants that are under consideration
by utilities are in the semi-rural Southeast, where
there is political support for new plants, and building
more high-voltage transmission lines to carry the
power is unlikely to be held up for 15 years by "environmental"
court challenges. Some of that new nuclear-generated
power from the Southeast will be used locally, for
growing demand, and some will be wheeled to the energy-short
regions of the mid-Atlantic and Northeast, which refuse
to build their own capacity. Companies that have been
buying up transmission capacity will make a bundle,
in the process.
Investment in new transmission capacity
overall has left the grid system vulnerable to even
small instabilities. The industry estimates that $100
billion is needed in new transmission capacity and
upgrades, as quickly as possible. The 2003 blackout
did spur some increase in investment industry-wide,
from $3.5 billion per year to $6 billion in 2006.
But profit-minded companies are only willing to invest
funds where there is a profit to be made, namely to
carry their "economy transfers," regardless of how
that destabilizes the grid system overall.
In a July
2006 article, three former electric utility executives,
who formed the organization, Power Engineers Supporting
Truth (PEST), out of disgust with the refusal of the
government to pinpoint deregulation as the cause of
the massive grid failure, after the 2003 New York
blackout, stated that the "core issue is an almost
fundamentalist reliance on markets to solve even the
most scientifically complex problems... [P]olicy makers
continue to act as if some adjustment in market protocols
is all that is required, and steadfastly refuse to
acknowledge the accumulating mass of evidence that
deregulation ... is itself the problem. Social scientists
call this kind of denial, cognitive dissonance."
engineers, who have among them, more than five decades
of experience in the electrical utility industry,
insist that "new transmission lines will not by themselves
improve reliability. They may increase transfer capacities,
and hence improve commercial use of the grid," but
will not necessarily improve performance of the system.
"Reliability standards have already been reduced to
accomodate greater use of the grid for commercial
transactions," they warned (Table II).
There has been
a huge penalty for this disruption of the functioning
of the electric grid. PEST estimates that the 2003
blackout incurred economic losses in excess of $5
billion. The California blackouts cost in excess of
$1 billion each. The national impact of declining
reliability and quality, they estimate, is in excess
of $50 billion.
Where To Go From Here
When the California
energy crisis of 2000-2001 was raging, distraught
state legislators and the embattled Gov. Gray Davis
searched for a solution. Although they knew what that
solution was, they protested that it would be impossible
to put the toothpaste of deregulation back in the
tube. Lyndon LaRouche and EIR proposed that that was
exactly what needed to be done.
On Monday, July 17,
2006, in the midst of an intense Summer heat wave,
one of Con Edison's 22 primary feeder lines failed,
below the streets of the City of New York. Over the
next several hours, five more feeder lines were lost.
Voltage was reduced 8% to limit the instability, and
the utility was faced with 25,000 customers—about
100,000 people—in the heat and dark. It took until
midnight July 23—seven days later—to restore 20,000
of the affected customers, according to Con Edison.
The New York City blackout was the result not of a
Summer heatwave, but of the decades of underinvestment
in the infrastructure that distributes electric power
from central feeder lines, through transformers, to
the wires that deliver power to each home, school,
factory, office building, small business, and hospital.
Some of Con Edison's underground infrastructure goes
back almost as far as Thomas Edison's first central
generating station and underground cable, on Pearl
Street in lower Manhattan, in 1882. It was a length
of 59-year-old cable whose failure was a factor in
the July blackout.
A couple of years ago in Philadelphia,
workers for PECO Energy found that some underground
utility cable still in service dated to 1899. In July
1999, the failure of outdated cable was blamed for
power outages in Manhattan affecting 200,000 people.
In San Francisco, a failed cable in December 2003
created an outage for 100,000 residents. "We've been
using equipment far beyond its original intended life
because we've been concerned with the cost of replacement
and the need to keep utility rates down," remarked
Dean Oskvig, president of Black & Veatch, an engineering
firm based in St. Louis, last month.
there is agreement that weaknesses due to the age
of the underground distribution cable have been exacerbated
by the way the system is run in today's deregulated
world. To "save money," the industry has turned to
a policy of "run to failure," where a company waits
for a failure before replacing aged power lines and
other equipment. Black & Veatch reports that although
utilities currently spend more than $18 billion on
local distribution systems, most of that is to string
new wire to new housing developments (which will likely
come to an end soon, along with the housing boom),
and that an additional $8-10 billion per year is needed
to replace obsolete and corroded equipment.
of this disinvestment policy, local distribution systems,
like the transmission system, are being stretched
beyond their design limits. In addition to chronological
age, overheating of equipment that is caused by heavy
electricity use and is repeatedly stressed will age
faster, and is more likely to fail suddenly.
Con Edison began a program to replace all of its older
cable with a newer design. It is spending about $25
million per year, and at that rate, the utility will
not finish until 2024. By that time, some of its replacement
cable will be 38 years old. Con Edison delivers electricity
to 3.2 million customers, through 95,000 miles of
underground cable, and 33,000 miles of overhead wires.
Estimates are that about 27% of its underground cable
needs to be replaced. Why is it taking decades to
replace old cable?
According to media reports, recently
Southern California Edison sought approval from the
state Public Utilities Commission to replace 800 miles
of aging underground cable, after concluding that
cable failures were the leading cause of outages that
could be prevented. But "consumer advocates" opposed
the utility's request to recoup the $145 million cost
of replacement, on the grounds that the utility's
records were not adequate to ensure the worst cables
would be replaced first. The utility will proceed
and spend $250 million more than is recouped in customers'
bills anyway, because they "don't want to get too
far behind." Apparently the shareholder-driven "consumer
advocates" never added up the economic, and sometimes,
life-threatening costs, of the alternative—blackouts.
Before deregulation, companies like Con Edison would
make investments in infrastructure that were deemed
necessary, to maintain a level of service and reliability
that met industry-wide standards, assured that state
regulators would allow them to recover the costs,
and maintain their financial health. Today, many states
have no authority to either order investments or compensate
companies that make them, leaving Wall Street and
the "free market" to decide who shall have reliable
Between 1990 and the year 2000, utility
employment in power generation dropped from 350,000
to 280,000, as utilities looked for ways to slash
costs, to be "competitive." Over the same decade,
employment in transmission and distribution went from
196,000 to 156,000, in a system that is growing more
complex by the day. Today, the average age of a power
lineman is 50 years.
"Quick profit," deregulation,
shareholder values, environmentalism, have all run
their course, and nearly taken down the electricity
grid. It is time to change the axioms.
Transmitting Power, or Just Profits?
Yes, there need to be more
power plants built, to make up for the deficits in
electric-generating capacity in many parts of the
country. It is also the case that entire regions,
in particular the West and East Coasts, have so much
congestion on their transmission lines, that they
cannot import the power they need. And as seen in
New York City this past July, breakdowns in 100-year-old
underground local distribution systems are now leaving
tens of thousands of people in the dark, and must
But it is foolhardy to think that the
needed investments will be made under the present
regime. Today, thanks to deregulation, a company can
earn more profits by not building anything, and instead
charging more for what they already produce, by creating
shortages. This strategy was implemented to perfection
six years ago by Enron and other power pirates in
California, which withheld power to raise prices through
the roof, allowing them to steal tens of billions
of dollars out of the pockets of electricity consumers
throughout the West Coast.
Today, unregulated utility
companies do not plow a large portion of their profits
back into improving infrastructure, but instead pay
out higher dividends to stockholders. If even a regulated
company has any hope of raising hundreds of millions
of dollars on Wall Street to finance growth, it must
prove itself creditworthy, by cutting costs and showing
it can abide by shareholder values.
no longer cooperate to ensure the overall reliability
of the electric grid. They compete to build power
plants and transmission lines based on their return
on investment, not on the physical requirements of
a regional system. They make themselves "competitive"
to undercut the competition by cutting maintenance
costs and getting rid of as many employees as they
For two decades, industry officials and the North
American Electric Reliability Council (NERC) have
warned that restructuring the electricity system would
destroy it. An understanding of that danger provoked
Dr. Anjan Bose, former Dean of Engineering at Washington
State University, to comment, citing the advancement
of power systems expertise in China and India that
"the next time a grandstanding politician in North
America compares our grid to that of the Third World,
he may actually mean it as a compliment."
no way to "fix" the system, as Congress has tried
to do, by piling on more and more Federal regulations,
to try to patch up the gaping holes in the broken
system that now exists. The only remedy is to return
the intention of the industry to one of providing
universally reliable service, by putting the toothpaste
of deregulation back in the tube.
The nearly two dozen
states that have restructured their local industry,
forcing utilities to sell their generation assets
to conglomerate holding companies, in order to "compete,"
must return responsibility and oversight for electric
generation and disribution to the state utility commissions.
These public servants should decide what should be
built, and where, on the basis of providing for the
general welfare, not the profit profiles of companies
headquartered a half-continent away.
and unstable long-distance high-voltage transmission
systems that criss-cross the nation must be used for
the purpose for which they were intended: to enable
bulk power transfer in case of emergency, not to wheel
power from one end of the country to the other so
a company can import cheaper power, charge a few cents
less, and beat out the competition. Responsibility
for the transmission system should be taken out of
the hands of the Federal deregulators, and returned
to the regional reliability councils that formulated
the rules of the road to keep the system robust.
are no shortcuts. Decisive action is needed to reverse
the past thirty years of failed policies. Subscribe