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End the Gridlock: Why Transmission is Ripe for New Technology
grid-ultimately may hold the key to its successful completion.
The Competitive Supply-Monopoly Grid Paradox
The power grid is the platform that supports competition among power supply options in any given region. If industry reforms are to yield robust and effective competition, this network must handle a variety of power flows reliably. Indeed, in other network industries, the key to successful deregulation lay in technological innovation and massive new investment, not just in commodities and services, but in the physical network itself.
Consider telecommunications, an industry in which monopoly regulation of the old Bell System clearly impeded innovation. Following the breakup of AT&T, broad deployment of new technologies (e.g., optical fiber, CATV, wireless, and satellite technology) drove geometric increases in communications "bandwidth," enabling an unprecedented range of new services. In two decades, over half a million miles of optical fiber cable were laid, mostly in unobtrusive underground corridors that engender no public opposition.
Likewise, reforms in interstate natural gas to foster wellhead competition and reduce commodity prices spurred billions of dollars in construction of underground pipelines, compressor stations, and information systems. These investments drove sharp increases in both total volumes and overall pipeline capacity utilization rates, and opened many new markets to gas.
Both cases highlight a critical point. Competition went beyond the delivered commodity (i.e., bytes of information and molecules of methane) to the means of delivery itself-the physical network. Spurred by the prospect of gaining or losing market share, new entrants and incumbents alike-both the MCIs and the AT&Ts-invested heavily in new delivery paths and new ways of reaching customers. Across both industries, new technologies and customer services flourished. As this network competition intensified, reliability in both industries improved.
By contrast, the debate over power industry restructuring remains largely bound by the paradigm of a regulated, monopolistic power grid operating under mandatory open access. Beginning with the Energy Policy Act of 1992 and moving through a series of orders from the Federal Energy Regulatory Commission and efforts at the state level, yesterday's vertically integrated, state commission-regulated monopolies are being supplanted by large, regional FERC-regulated monopoly transmission service providers under the rubric of regional transmission organizations (RTOs). Efforts to impose an open-access model on the industry have been difficult and politically contentious, and remain incomplete. Lines of responsibility remain unclear, investment languishes, and reliability clearly has started to suffer.
Why is power transmission commonly viewed as a monopoly enterprise? First and foremost, because of physics; flows across interconnected, alternating current power systems are highly interactive, requiring centralized monitoring and control. Investments in AC grid capacity yield generalized benefits that are hard to capture and capitalize. Other theoretical bases for monopoly regulation include perceived economies of scale, and environmental and land-use impacts. In the public imagination, transmission facilities are large, intrusive installations consuming broad swaths of forests, farmlands, and suburbs. Despite several reassuring studies, opponents of new lines continue to cite health concerns related to the electromagnetic fields produced by alternating current. In general, public policy has favored strategies that minimize the need to construct new AC transmission facilities.
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