Utilities That Do the Crime, Will do the Time

Location: New York
Author: Ken Silverstein, EnergyBiz Insider, Editor-in-Chief
Date: Thursday, June 14, 2007
 

For years, it's been the buzz. Next week, it becomes real.

Utilities that violate any of the 83 reliability standards set by an industry oversight group will face penalties. The aim is not to punish; rather, it is to ensure that the nation's grid is as foolproof as possible.

Reliability has long been taken for granted. But disruptive blackouts have prompted federal lawmakers to give regulators more authority, all to help ease the congested lines and overall rigors of a time-consuming permitting process. It's a step beyond voluntary standards and into the realm of mandatory. Now it's up to the Federal Energy Regulatory Commission and the North American Electric Reliability Corp. (NERC) that reports to it to implement and enforce those compulsory standards that could add greater certainties and bring innovative projects to the fore.

"The North American electricity industry has operated one of the world's most reliable electricity networks under voluntary guidelines for decades," says Rick Sergel, CEO of the group. "Voluntary guidelines worked very well to a point, but they were not enough. The electricity industry is no stronger than its weakest link, and a mistake by one entity can affect customers hundreds of miles away, as we saw with the August 2003 blackout that affected 50 million people in the United States and Canada."

The August 2003 blackout that affected 50 million people in the Northeastern and Midwestern regions of the country as well as Canada prompted U.S. lawmakers to make standards obligatory and enforceable via the Energy Policy Act of 2005. Standards relate to the planning and operation of the bulk power system, and cover areas such as balancing customer demand with generation supplies, emergency operations, cyber security, vegetation management and disturbance reporting.

More than 1,400 entities that carry out functions necessary to ensure a reliable bulk power system -- power plants, transmission lines and substations -- must now comply. NERC, along with industry trade groups, has been working with those enterprises to make sure they know what it is required of them.

American Electric Power says it is in touch with the new obligations. Company officials there say that they have dedicated the resources and the personnel necessary to make sure their systems are fine tuned. They will provide documentation at will and if any improvements are necessary, AEP says it will act.

"There's been a cultural change within the organization driving down to the lowest level," says Scott Moore, vice president of transmission operations, in an earlier interview with Energy Central. Like all other utilities, AEP would have to provide NERC with all relevant data that it might need to evaluate the quality of its generation and delivery services -- information that, in the past, AEP might have said was confidential.

The first step toward building a modern infrastructure is the establishment of a so-called Electric Reliability Organization, which will seek to ensure that all entities comply with the new reliability standards. Toward that end, that organization will propose new rules for the full commission to review as well as resolve any inconsistencies in state and federal laws. It will also mediate all disputes in an expeditious manner. Corrective actions can be ordered and subsequent fines of up to $1 million a day can be imposed.

Utilities understand implicitly their roles -- to produce and deliver safe, reliable and cost effective power. But the attention of those at the top has been diverted and the job of fixing any problems associated with those goals has been the responsibility of those who are more technically oriented. But now that the law has more bite, those at the top of the chain of command are expected to be more involved.

Those in the trenches have always known that the capacity of the transmission system is insufficient and will be unable over a sustained period to support huge increases in power demand. The same infrastructure, meantime, is outdated. Translation: The difficulties in winning permits coupled with lack of capital flowing to transmission projects has meant that the risks of large-scale reliability problems have increased because of inadequate or congested transmission lines.

According to the National Transmission Grid Study released a few years ago, the demands on the network will grow by 20 percent in the coming decade but the capacity to carry electrons will only increase by 6 percent. At the same time, it is expensive to build transmission lines, estimated to be at least $1 million a mile.

For their part, utilities are trying to allocate scarce resources across all business lines. That fact, coupled with the daunting task of getting transmission projects approved by the appropriate authorities and landowners, has delayed growth in this area. Furthermore, the rate of return that FERC has allowed transmission owners to earn on investments in networks has been low when compared to the risk of completing a project. Capital, therefore, has been driven to other areas of the economy.

That's why Congress has gotten involved. The 2005 Energy Act didn't just give federal regulators more authority. It also provided incentives to get utilities to invest in their transmission infrastructure. By establishing incentive-based rates and using its backstop permitting authority, the FERC says it will enhance reliability and cut the cost of delivering power because there would be less congestion.

Clearly, the wires business must evolve to meet the needs of a high tech society. The delivery system was designed a century ago and the technologies that run it are half as ancient. It's about maintaining capacity. That's something that will only intensify as more and more development occurs and the demands on the system expand.

Providing reliability is a multi-pronged strategy. Motivating utilities to invest is one of the steps while streamlining the permitting process is another. And now, utilities and regulators are ready to make the transition from a voluntary compliance system to a mandatory one.

Republished with permission from CyberTech, Inc.  EnergyBiz Insider is published three days a week by Energy Central. For more information about Energy Central, or to subscribe to EnergyBiz Insider, other e-newsletters and EnergyBiz magazine, please go to http://www.energycentral.com/.