COMMENT: Political will could solve the electricity crisis By John Dizard  Financial Times;  Aug 25, 2003

The investigation into this month's blackout in the US will probably find the immediate cause. It seems to have been a failure in the servicearea of FirstEnergy, an Ohio  utility. Through slow action and poor co-ordination that failure spread throughout the system. No doubt there will be congressional hearings featuring sweating executives giving inconsistent and incomprehensible answers to belligerent questions. 

All of this will be a diversion from the real issue. There will always be individual and corporate failures. The problem with the   US  electricity grid is that it has neither the physical capacity nor the ownership and governance structure to overcome those failures. It was built for an era of local power systems that were nearly self-sufficient, that imported little of their daily requirements and that were interconnected mostly as a back-up measure. For that purpose, and to accommodate the long-distance lines required by facilities such as hydroelectric dams, the legacy grid was over-built. That over-building made possible the huge increase in merchant generation and electricity trading over the past decade. Now, though, the spare capacity has in effect run out. 

The public has been told that another $50bn (£32bn) to $100bn will have to be spent on the grid. Unfortunately, the US  policy wonk industry is now in its quadrennial mode of coming up with bumper-sticker slogans rather than solutions. Both political parties can take credit for the current mess. Democrats are most closely identified with the not-in-my-backyard "environmental" opposition to new power lines. Republicans oppose giving the federal government the power to overcome that opposition, on the grounds of "states' rights". Elsewhere, Democrats and Republicans have joined forces to prevent their local utilities from losing their monopoly profit, from owning both transmission lines and generating plants. Getting a well organised and well capitalised grid is not impossible. The outline of what needs doing over the next few years is clear. Beyond that, we may have more help from emerging technologies. 

First, the federal authorities need to be given power to order the construction of transmission lines where they are needed to relieve congestion. While this would not please environmentalists, an improved transmission grid would in fact reduce the requirement for new fossil-fuel or nuclear electricity generation. 

Then the federal and state regulators have to accept that transmission facilities must be added to the industry's rate base. The Federal Energy Regulatory Commission has identified serious congestion points that could be relieved with $12bn in estimated spending on transmission facilities. Power engineers say that significant improvements could be made with $25bn in spending.

In the context of an industry that charges more than $200bn a year for its services, the amortisation of $25bn over a useful life of 15 or 20 years would be trivial. 

It would represent a significant increase over the approximately $2bn that private electricity companies now spend each year on transmission facilities; but consumers would not have to pick up even larger bills for blackouts. 

It would be a mistake for the rebuilding of the grid to be left in the hands of the legacy monopoly utilities. These companies have an incentive to manage their sections of the grid in a way that ensures their generators are favoured, whether or not they are the most efficient sources of power and the public pays the bill. The FERC tried to force these companies to divest their transmission facilities, then backed off in the face of fierce opposition from north-western and south-eastern politicians this spring. Congress should now back FERC in forcing divestiture. The transmission systems should then be managed and regulated as common carriers. 

Last, the regulators and the industry should press forward with emerging technologies such as integrated grid control with solid-state switching. They should also press for tariff structures that encourage the adoption of real-time metering and pricing of electricity. The shaving of peak demand that would result would avoid blackouts with small capital investment and no increase in total charges for the consumer. There are no real technical barriers to the grid the US needs. All that is missing is the political will to put it into place. 

The writer is a Financial Times columnist based in   New York   

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