(Adds government, industry reaction) By Chris Baltimore WASHINGTON, April 5 (Reuters) - A huge blackout last year that hit about 50 million people in the United States and Canada highlights the need for utilities to have mandatory standards, investigators said in a report on Monday. The Aug. 14-15 outage began in Ohio and cascaded through eight U.S. states and part of Canada on an unprecedented scale. Nearly eight months later, a U.S.-Canadian report on the probe said the blackout -- which closed airports, subways and manufacturing plants and left thousands of commuters stranded -- was largely preventable. In a 238-page final report, the investigators concluded that "compliance with reliability rules must be made mandatory with substantial penalties for non-compliance." Currently in the United States, the North American Electric Reliability Council sets voluntary standards for the industry, but no federal agency has authority to enforce them or penalize those that break them.

. The company failed to keep trees around its power lines trimmed, and did not have adequate alarms or computer equipment to flag a looming grid overload, investigators said. The utility "did not recognize or understand the deteriorating condition of its system," the report said. FirstEnergy and Midwest-area grid operators should fix such problems by June 30, 2004, the report said. By then, industry inspectors have pledged to audit readiness of 20 separate utility grids that serve 80 percent of U.S. electricity users. About 62,000 megawatts of generation went offline in the outage, shuttering factories and halting economic activity that cost U.S. companies between $4 billion and $10 billion, the report said. In Canada, gross domestic product slumped by 0.7 percent in August and 18.9 million work hours were lost, causing Ontario's manufacturing shipments to fall by C$2.3 billion. The Bush administration has been pushing for mandatory power grid reliability standards, which are part of a broad-ranging energy bill now stalled in the U.S. Senate. The administration and Republican sponsors want Congress to pass a comprehensive energy bill that includes the standards as well as billions of dollars in tax incentives to encourage more production of crude oil, natural gas and renewable energy.