Economists sometimes get confused - especially when the real world doesn't fit into their neat boxes.
FERC should consider a two-part tariff to boost transmission investment.
Transmission, rather than generation, is generally the constraint preventing customers from getting the power they desire.
The August 14th blackout, which was not the unique event some journalists described, proves the point yet again. In the past 40 years, the United States and Canada have experienced six major regionwide power failures (1965, 1977, July 1996, August 1996, 1998, and 2003), all caused by transmission line failures. 1 In addition to these regional blackouts, myriad blackouts have resulted from ice storms, hurricanes, wildfires, and other natural hazards. Hurricane Andrew in 1992 cut power to 1.2 million buildings, and 300,000 were without electricity for more than a week. Half the population of Quebec was without power for up to a month in 1998 because an ice storm brought down 770 transmission towers.
The recent blackout is a dramatic manifestation of transmission problems that have been occurring with increasing frequency since the implementation of FERC Orders 888 and 889, which radically altered the use of the transmission system. The number of times the grid was unable to transmit power for which a transaction had been contracted (transmission loading relief events) is shown in Figure 1. 2 These numbers imply that the transmission grid is bending, and sometimes breaking, under the load imposed by deregulation.
Transmission and distribution lines are the most vulnerable part of the network because they are easy to disrupt and they extend for thousands of miles. Contributing to the problem is the failure to expand transmission capacity adequately: Over 40 years, the amount of electricity generated in the United States has tripled, 3 growing at a compounded annual rate of 3.5 percent. During this time, the transmission system has grown at half that rate. 4
The increased attention to generation has increased demands on the grid. The existing transmission system was built to connect a utility's power plants to its customers, with a few ties to neighbors in case a generator went down. That system was never designed for, and is unsuited to, getting power from any generator to any customer in a competitive generation market. To be successful, a competitive generation market requires much more transmission than the old system of geographical monopolies.
Solving Transmission Problems In 2003 and Beyond
Preventing future blackouts requires increasing the capacity and reliability of the transmission grid. This can be accomplished by building more lines as well as by increasing the capacity and controllability of existing lines, which will require billions of investment dollars. New technology, from the FACTS (flexible AC transmission system) to improved SCADA (supervisory control and data acquisition) systems would do much to increase the operational capacity and reliability of existing lines. Research and development promises still larger advances in the future, such as SMES (superconducting magnetic energy storage), FCL (fault-current limiter), and HTS (high-temperature superconductor) cable.
During and immediately after the blackout, political leaders stated that the blackout was unacceptable and should never happen again, but this political rhetoric is unlikely to produce substantial government appropriations or approval of