The bottom line is this—the blackout of 2003 exposed the need for upgrading the transmission grid with estimates for modernization up to $100 billion. Chances are good that electrical contractors will be called to install and maintain the new advances in cabling, controls and communications needed. The question is, will they be ready? Manufacturers are introducing new technology that contractors must master. For example, 3M is testing a new ceramic composite high-voltage conductor. The new cable can transmit two to three times more power than conventional power cables of the same diameter without adding weight, stretching distance between transmission towers.

Now is the time for your firm to review its utility business objectives and capabilities. Perhaps the organized electrical contracting industry should approach this not as a crisis, but as a challenge. Management and labor can work toward a common objective that benefits both. You may be needed—here’s what you’ll need to know.

Everybody wants in

Following the blackout on Aug. 14, 2003, groups with opposing agendas had one common purpose, to claim that the blackout proved them right. The press reported that among those bragging “I told you so” were regulation and deregulation factions, environmentalists and anti-environmentalists, conservation proponents, nuclear power haters and authors with a nifty theory or two. Despite all this, there may be light at the end of the tunnel for some electrical contractors.

But first, the feverish attempts to assign blame for the 2003 blackout are predicted to get worse. It’s not just technical experts and regulators who want to find the cause. It’s also tort attorneys, some of whom think utilities should pay dearly. The threat of lawsuits and the corresponding insurance coverage to protect against them is hitting the utilities hard. But some utilities are filing claims of their own. DTE Energy said it will seek state approval to raise electricity rates to recover the $35 million to $40 million the utility lost during the blackout in the Midwest and Northeast.

U.S. Energy Secretary Spencer Abraham, together with Canada’s Minister of Natural Resources, Herb Dhaliwal, headed a joint U.S.-Canadian task force to track down the cause(s) of the blackout and find out what can be done to prevent a recurrence. But he warned, “We will not provide the public with an incomplete picture. We will follow the facts wherever they take us. We will not jump to conclusions. This process will take some time.”

In addition, the North American Electric Reliability Council (NERC), a voluntary watchdog utility group, has a team of experts analyzing real-time data collected from the grid the day of the blackout and is reconstructing the “events timeline” essential to further analysis. NERC earlier said the blackout shut down the five-state region in less than 10 seconds. The investigators are compiling readings from thousands of data points along some 34,000 miles of high-voltage lines and hundreds of power plants, any one of which could have played a role in the blackout.

A bit of history

To understand the present quandary, it is useful to review how we got to this point. Edison’s electric light attracted many entrepreneurs during the first third of the 20th century. By the 1930s, they were merged into 15 holding companies that dominated the market for electric power. That stimulated the Public Utility Holding Company Policy Act of 1936 that broke up the cartels and granted states rights to control monopoly companies. Until the 1970s, electricity was supplied by monopoly utility investor-owned companies that were given state charters in return for providing electricity reliably, economically and profitably in a limited jurisdiction. Exceptions were municipal utilities and rural electric co-ops. Each company generated the power, transmitted it to communities and made local distribution to the meter. The systems were self contained, except for a few connections with neighboring systems for emergency supplies. States used the fuels to fire steam boilers that were the most economical choice, considering transportation and environmental factors. Some emphasized coal, others gas, others nuclear, some preferred oil and others relied on hydro-dams. The electric system was a “black box” to the users, who enjoyed reliability and predictable controlled prices—but had no idea how it worked. They wanted reliable economical electricity when they turned on the switch.

The OPEC oil embargo in 1973 prompted Congress to enact the Public Utilities Regulatory Policies Act that forced utilities to buy power from any private generator who had excess capacity to sell from non-oil sources. This created independent generators and also spurred development of renewable sources. Biomass, gas turbine, wind, solar and fuel cell sources gained ground, while additional nuclear power was terminated. In the late 1980s, multistate users convinced Congress that power generation was a commodity that should be available from the lowest bidder and delivered by a national market, as natural gas and oil had become. It was akin to asking kids who think milk comes from the grocery store to redesign the dairy industry. The result was the Energy Policy Act of 1992.

Power generation was split off from transmission and distribution, and states were granted the authority to legislate competition for local area distribution. California was the first state to replace the working system with a flawed one that led to shortages of electricity and spiking spot market prices that, in part, resulted in a vote to recall Gov. Gray Davis. About half the states—those with higher than average electricity prices—followed California, and the others stood by and watched. The state plans are so inconsistent the process is being called “restructuring” instead of “deregulation” by DOE, which has not issued any state updates since last February. Utilities responded by setting up holding companies again and dividing revenues from generation, transmission and distribution plus other unrelated business units into separate companies. Companies were formed to invest in so-called “merchant generator” plants mostly fueled by gas in the new wholesale market.

Now, generation is totally deregulated, interstate power transmission remains regulated by the Federal Energy Regulatory Commission (FERC), and local distribution is still controlled by the states. A market developed for trading in electricity futures that led to the Enron scandal and accusations of market gaming and trader collusion to control supplies to drive up prices. Systems that were previously integrated are fragmented and providers must make separate plans for generation, transmission and distribution capital investments. FERC is urging adjacent states to set up nonprofit Independent System Operators (ISO) to attempt coordinating the flow of power across state lines from generators to users via a transmission grid that became less controllable and more outdated.

The transmission system was assigned to perform a role similar to the highway system, carrying the electrons from randomly selected power plants across the country like trucks delivering goods. But it was not designed to work that way. Utility owners of transmission lines have no incentive to modernize and expand merely to provide a wider highway for independent generators. The power grid now is the nation’s ultimate black box. It has become so complex that perhaps it is no longer manageable by any single company, or even a group of companies.

What’s next?

Which brings us back to today. James Torgerson, CEO of the Midwest Independent System Operator (MISO), told Indiana state regulators on Aug. 25 that his organization had not then determined the cause of the blackout. MISO evaluates transmission capacity and coordinates up to 2,000 transfers of power each day. But it does not have authority to control transmission and is trying to improve its ability to communicate warnings to utilities within its 15-state operating area. “Congestion comes about when there are more transactions than can be physically handled on the lines,” Torgerson told investigators who are studying line failures at Akron, Ohio-based FirstEnergy Corp. to see what role they may have played in the outage. FirstEnergy Corp. is not yet a MISO member. As transmission lines failed and generating plants tripped offline on Aug. 14, technicians at the MISO control center north of Indianapolis could only telephone utilities with advice on how the stop the outage from growing. “It’s not very efficient when you have to start calling everybody,” Torgerson said.

Proposed solutions come from groups that have diverse ideas and services to sell. FERC wants to organize four regional transmission organizations to operate the grid system independently of its company owners. Providers of alternative generating equipment think the solution is abandoning the grid and installing power generation at the point of use, called distributed generation. Other providers think the solution is expanding the grid with more efficient equipment such as superconducting cables. Still other providers think that modernized automated communications and controls are needed to manage the system. Traditionalists want to return to the state-controlled monopolies. Conservationists and environmentalists wish to invoke mandatory conservation.

Use of the blackout as an agenda advancer is likely to reach its peak as the Congressional conference committee again takes up a new national energy policy reconciling opposing bills passed in the House and Senate. One proposal contains what many involved agree is a good idea, which is giving NERC the power to actually enforce reliability standards and impose sanctions. It has been proposed before but keeps getting lost in the chorus of other agendas. A solution probably must accommodate all of the above. EC

TAGLIAFERRE is proprietor of C-E-C Group. He may be reached at 703.321.9268 or [email protected].