July 1, 2001
L.A. Loves a Loophole
There's no getting around it...
Blackouts? never Again! (But...)
We ask merchant grid developers if anything can ever be done.
The blackout of August 2003 should have come as no surprise. The Department of Energy's May 2002 National Transmission Grid Study finds growing evidence that the U.S. transmission system is in urgent need of modernization.
Out of 186 transmission paths modeled in the East, 50 are used to their maximum capacity at some point during the year, and 21 paths are congested during more than 10 percent of the hours in the year. The study shows that the highest levels of congestion are found along the transmission corridors from Minnesota to Wisconsin, the Midwest into the Mid-Atlantic, from the Mid-Atlantic to New York, and from the Southeast into Florida.
As the finger-pointing for the blackout continues, industry veterans are proposing their own remedies for the ailing U.S. transmission system.
Bernie Schroeder, president and COO of Trans-Elect Inc., an independent merchant transmission company, thinks prevention of future blackouts may be as simple as pouring financial resources into the grid.
He points to the Edison Electric Institute's estimate that the transmission system is under-invested by about $58 billion. But he doesn't find the grid's neglect surprising. "The transmission system is fairly benign, it doesn't have a lot of moving parts, doesn't have an operator on site," he says. "It's not like a power plant where there are 40 engineers running around watching every dial and switch, and things are happening all the time. [Transmission] would be the last place an executive of an integrated utility company would put his or her investment," Schroeder explains.
According to Kemm C. Farney, principal, Electric Power North American Energy Group at Global Insight Inc., the fundamental problem with the grid is exactly the same as that on the generation side of the business-the huge overhang of deferred maintenance and deferred capital spending in transmission-related facilities. He places the blame for the situation on regulatory uncertainty. Owners of the transmission facilities "truly don't know how long they will remain the 'owners' of the facilities in the current sense," he says. "They may be faced with transfer of ownership, they may be faced with transfer of control, but whatever happens, they face the possibility that the money they spend today may be money down a rat-hole tomorrow."
Farney does not believe huge rate increases justify fixing the grid. "It's a great system and it works. I don't believe we need to throw money at the system," he maintains. "If the current owners of these assets … knew what to expect in the future, they would take care of these assets. They would make sure the present value of those assets is as great as it can be given their custody of these assets," he argues. "Getting rid of the regulatory fog is much more important than some public program that directs resources toward the problems."
Ed Krapels, director of energy development services at Energy Security Analysis (ESAI), would spend money on the grid, but in a very targeted way. "I think the blackout wasn't really a