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Fortnightly Magazine - April 15 1998

ON ECONOMICS OF RELIABILITY. I think Karl Stahlkopf's and Philip P. Sharp's comments on reliability ("Reliability in Power Delivery: Where Technology and Politics Meet," Jan. 15, 1998) fail on three issues, all of them involving money.

First, the authors imply annual savings "from deregulation" of around $9 billion per year. Are we really going through all this trouble for so little? Or has something been lost in the rounding process?

Second, they assert that the cost of power disturbances are $26 billion per year. What is the cost of eliminating those disturbances, and do the beneficiaries of the elimination want to foot the bill? If not, could we not argue that they are getting the level of service that they want? For that matter, is the most economic means of correction to improve the grid or to encourage those most affected to put in devices that distribute reliability?

Third, they describe the new technologies that could improve the system, but do not explain why utilities have spent so little on transmission recently, and what incentives they propose to induce investment in the future. Is it possible that the utilities cannot figure out how to make a profit appropriate to the risk of the investment? Will we return to a Stalinist system in which somebody orders the installation of equipment, or do we provide market incentives?

When serving on the NERC Electric Reliability Panel, I was struck by the difficulty (perhaps impossibility) of separating reliability from commercial and economic considerations. Is reliability really a political issue, instead?

Henry Youngman wrote: "Don't believe all the baloney people tell you when they're describing what they're going to do for you someday soon. Nem di gelt." That is, get the money. Perhaps only when we understand how much reliability is an economic issue, provide what customers want to pay for, and pay the providers enough to bring them into the market, we won't face a reliability problem.

Leonard S. Hyman

Senior industry adviser

Salomon Smith Barney

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