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The Blackout of 2003: Why We Fell Into The Heart of darkness

The road to the current reliability crisis is paved with four decades of bad policy decisions.
Fortnightly Magazine - September 15 2003

contested at the local, state, and federal level. This is the "not in my backyard" syndrome. The consequence is that utilities and public officials have lost the power of eminent domain.

The new business model for the electric utility sector as envisioned by regulators, politicians, and environmental and allied conservation groups included:

  • Small is beautiful. The smaller the production and delivery technology the better. Co-generation and distributive generation became popular concepts. The idea was to have neighborhood generation eliminating the need for central station power plants and large transmission facilities. PURPA (passed in 1978) was the quintessential policy statement on this concept. But the small is beautiful model flies in the face of electric power economics and how to ensure the reliability (i.e., the need for interconnected systems).
  • The greening of the electric power sector. To the degree that generation was needed, it should be renewable or at least be perceived as environmentally benign. The result is the current emphasis on windmills, other solar, biomass, and low-head hydro. It matters little that even with large tax and other financial subsidies they are uneconomic, born out by the fact that all these technologies combined produce less than two percent of electricity consumed in the country. To the extent that conventional generation is acceptable it must be fueled by "clean burning" natural gas.
  • Conservation. Conservation was deemed a public policy good that the power industry should accomplish. Regulators acting at the behest of environmentalists, soft energy advocates, and federal and state government policy-makers, mandated utilities institute conservation programs under the rubric of least-cost planning. Least- cost planning meant any demand-side program (except raising prices) was preferable to building new plants. Conservation was too important to be left up to the marketplace and individual decisions, but it had to be implemented by utilities directed by regulators and their "soft path" allies.

These policies became politically correct, and advocates believed they could stabilize electricity consumption at zero or extremely low growth rates. This meant no investment was required in conventional electric systems, renewable forms of generation would eventually displace coal and nuclear, the impact on the environment would be minimal, and rate increases to support new investment would be unnecessary. Utility executives, being politicians as well as business executives, saw where the political winds were blowing and embraced this new power industry business model. The federal government is funding renewable energy and conservation initiatives, and Congress has passed tax credits encouraging investment in renewable and conservation technology.

The essential point is that ensuring economic and reliable service had become secondary to delivering politically correct technologies and services. It also became secondary to enacting an environmentally idealized version of the power industry. The bottom line was that investments that once went to ensuring economic and reliable electric service were going elsewhere.

Restructuring, Deregulation, and the End of the Commitment to Reliability

As the economic expansion that began in the early 1980s surged into the 1990s, and with it continued growth in electricity demand, it became clear that some mechanisms had to be put in place to satisfy