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ELECTRICITY IS ALL AROUND US, silently performing
tasks we take for granted. It is essential for virtually all
aspects of modern existence, and we expect it to be available
at the flick of a switch. Despite the importance of electricity,
most of us rarely think about it, except for the occasional
memory jogs we get, for instance, when plugging in a toaster
or power drill. But nothing fixes our attention more than
those moments when the lights go out, the TVs dim, and the
stereos are silenced. Blackouts provide sudden, dramatic reminders
of our dependence on electricity and of the fragility of the
system that produces and delivers energy to us in this convenient
form. About 50 million people got a wake-up call of this sort
last August 14 when a blackout that originated in Ohio spread
to other states in the Midwest and Northeast, as well to the
Canadian province of Ontario, causing billions of dollars
in economic losses.
Are blackouts like this inevitable, something we need to
put up with? Or do they point to an energy sector in need
of major overhaul? The answer to both questions is yes, according
to researchers at the Harvard Electricity Policy Group (HEPG)
at the Kennedy School of Government. Interconnectivity, which
is the defining feature of the electric power grid, can surely
enhance reliability, notes HEPG Research Director William
Hogan. “The more interconnected the system is, the easier
it is to absorb lots of little shocks. The downside is that
there’s a better chance of a large power failure spreading
over the network.
“If I had a generator and you had a generator, each
might fail once a week, but when my lights go out, yours stay
on,” Hogan explains. “If I hook my generator up
with yours, they will seldom fail together, but sometimes
failure of one causes failure of the other. When that happens
both of us are in the dark.” Extending that scenario
to 1,000 generators and millions of customers provides a sense
of the current situation.
The North American power grid is a trillion-dollar empire,
more than 200,000 miles of transmission lines in all, linking
generating stations to more than 280 million human users.
Since electricity is not readily stored in large quantities,
the power produced by these plants must at all times match
the demand (or “load”), which entails a delicate
balancing act: When too little or too much power is produced,
blackouts occur.
Further complications stem from the fact that the electric
grid — unlike telephone lines or water and gas pipelines
— is not a switchable network. You can’t turn a
nob and send electricity down a particular path. Instead it
flows freely, at the speed of light, spreading out among all
possible avenues. “When you send power from Ohio to New
York, some of it takes a roundabout path, going by way of
Canada,” Hogan explains. “That’s why decisions
made in Ohio or New York can cause the lights to go off in
Ontario, which is basically what happened last August.”
As experts in complexity theory point out, vast interconnected
and interdependent networks like the power grid are bound
to fail sometimes, even when things are working reasonably
well. The actions taken on August 14, however, fell far short
of perfection: A combination of managerial lapses and computer
glitches at an Ohio utility contributed directly to the August
2003 blackout (see accompanying sidebar, “Anatomy of
a Blackout”), the largest in North American history.
Yet Hogan and HEPG Executive Director Ashley Brown, who headed
the Ohio Public Utilities Commission from 1983 to 1993, see
a deeper cause — a nationwide deficiency in the management
of power. The events of last summer, they suggest, are an
indirect consequence of the deregulation (or “restructuring”)
of the electric power industry and an attendant breakdown
in public policy.
Changes in the electric power industry were spurred by the
1992 Energy Policy Act, which attempted to break up monopolistic
utilities and thereby reduce the price of power. “The
idea was to make electrical generation, distribution, and
transmission separate businesses rather than a single, bundled
service,” says Brown. The rationale behind deregulation
is to encourage greater competition among generators, while
offering customers greater choice, adds Hogan. “But there
is a problem in the middle: the grid and how to use it.”
Deregulation has promoted widespread shipping of electricity
from one region to another, as planned. The catch is that
existing transmission lines were not designed to support that
kind of activity. The system was built for vertically integrated
utilities that sell power to local loads. Today’s challenge
is to make that infrastructure work in a different context.
New problems, such as line congestion, can easily arise when
multiple producers try to sell electricity in the same area.
Better coordination can help. Investments are also needed
to alleviate congestion — either by building new lines
or by increasing the capacity of existing lines — but
the market has failed, thus far, to provide adequate incentives.
In most states, Brown explains, “companies recover 100
percent of their transmission costs no matter how well they
perform. They still get their money, even if they’re
inefficient. So where’s the incentive to invest?”
Expenditure in this area has also been hampered by a confusing
split in jurisdiction between state and federal governments,
according to Brown. States have the sole ability to license
and site new transmission lines, whereas the federal government
focuses on how the grid is used. As a result, individual states
can veto the construction of new lines that would benefit
multistate areas. “Regional markets can’t work properly
if parochial interests rule,” Brown says. For that reason,
the federal government should assume a bigger role in siting
new transmission facilities.
Hogan similarly wants the federal government to exercise
stronger control over the operation of the grid, coordinating
its use in a precise and consistent manner. Control needs
to be in independent hands, in the same way that air traffic
controllers operate independently of the airlines, he says.
“The government has to set the rules here. Participants
can’t make up the rules as they go along.” When
a customer wants power from a particular source,” Hogan
asks, “how do you do that without burning down the wires?
And how do you price it?”
Although the task may seem overwhelming, markets for electricity
can work, Hogan says, provided there are rules that explicitly
support competition. Successful markets have several vital
elements, including coordinated scheduling, “locational
marginal pricing” — a mechanism for setting different,
but interrelated, electricity prices at various locations
— and “financial transmission rights,” which
guarantee monetary compensation if electricity is not delivered
as promised. Customers purchase power in spot-market auctions
held every few minutes, with prices adjusted continuously.
An independent system operator — equipped with a powerful
computer and a staff of hundreds — is needed to orchestrate
this activity.
Hogan has played a key role in establishing viable, competitive
markets in the Mid-Atlantic region, New York, and New England,
which incorporate these features. “This is the only market
design offered so far that works,” he says, while cautioning
that even a well-engineered system can be brought down by
flaws in another part of the grid. That’s why the approach
must be adopted nationwide. Recognizing this fact, the Federal
Energy Regulatory Commission (FERC) has placed this same model,
called “Standard Market Design,” at the core of
its national strategy.
The new Energy Policy Act, which stalled in Congress last
fall, proposed delaying FERC’s implementation of standard
markets until 2007 — a big mistake, in Hogan’s opinion.
The bill itself is a mixed bag, with some positive items —
such as a provision to give the federal government authority
to enforce reliability standards — along with “some
heavy-duty, pork-barrrel aspects,” according to Brown.
“Making reliability standards mandatory is a no-brainer.
Yet the Bush Administration says we can’t do that unless
we allow drilling in the Arctic National Wildlife Refuge.
It’s an ugly process and a bad way of making policy.”
Hogan believes that some portions of the bill, the electricity
section in particular, might still pass this year. In the
wake of the blackout and a new U.S.-Canadian report that details
the problems leading to it, he says, “it will be extremely
embarrassing to Congress if they don’t do anything.”
Even if the best elements of the bill are enacted, we’ll
never eliminate the possibility of future blackouts, Hogan
says. “You can’t design a system with human beings
involved that never fails.” The challenge will be to
make events like August 14 rare by shoring up weak links in
the chain. When power outages occur, the consequences can
be mitigated by utilizing technologies that “fail soft
rather than hard.”
Deregulation, for better or worse, has facilitated the bulk
transport of electricity across the nation. Hogan can’t
say whether deregulation will pay off in the long run, but
he’s convinced that it’s too late to do anything
else. At this point, it would be extremely difficult, as well
as prohibitively expensive, to revert to our old ways of doing
business, he says. “Basically, we’ve embarked on
an experiment where we don’t know the outcome.”
While some may find that disconcerting, Hogan sees ample precedent:
“All big policy changes are experiments in this sense.
When you do something in an entirely different way, you can’t
say for sure where it will end up.”
Steve Nadis is a freelance writer living in Cambridge.
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