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LEADER: The hole in the heart of the grid   Financial Times;  Aug 25, 2003

The investigation into the Great North American Blackout has made a sound start. Americans and Canadians have stopped catcalling and started co-operating. The joint taskforce led by the US
Department of Energy has already isolated the probable cause of the shutdown. It seems a transmission problem in northern   Ohio  turned into a power failure that cascaded through eight states and   Canada, leaving 50m people without electricity. 

Whatever the precise chain of events, politicians and regulators have quickly rallied around a slogan: fix the grid. Quite apart from the $50bn-$100bn price tag, this is easier sad than done. The US regulatory framework is antiquated and fragmented between the states and the federal government. Deregulation is patchy. While competition has flourished in the wholesale generation market, the transmission industry has escaped the invisible hand of Adam Smith. 

Experts agree that the shortage of transmission capability is the hole in the heart of the national grid. Demand for electricity in the US has risen 30 per cent over the past decade, while transmission capability has increased 10 per cent. This mismatch has created bottlenecks and under-capacity in the network. The future looks blacker. Over the next two decades, demand is set to rise 46 per cent. Yet current plans envisage an increase in transmission capacity of just 4 per cent. 

Investment in the transmission industry requires regulatory certainty and a decent rate of return. At present, neither is guaranteed. Federal and state agencies are at odds over who controls the lines. Private utility monopolies with powerful friends in Congress both generate power and run statewide grids. Their power base is in the south east and   north west. They have little incentive to allow outsiders to build new lines and compete for their business. Yet the lesson of the Great Blackout is that the combination of interlocking regional power centres and a deregulated market makes a more efficient transmission system imperative. In the end, this is a political issue. It will require action by Congress and the individual states. In the past, states' rights have trumped the federal interest in creating a nationwide transmission network that can handle the patchwork of local generating systems. The same weaknesses have stymied the Federal Energy Regulatory Commission's efforts to encourage more innovative pricing strategies to improve the rate of return for investors. 

President Bush has called the blackout a "wake-up call". It is time for Congress to respond. One obvious place to start is the Energy Bill, now in its final stages. Lawmakers in the House and Senate can take the first steps in fixing the grid by prodding the electricity industry towards more competition where feasible. If Congress fails to rise above regional and sectional interests, it will bear the blame the next time the lights go out across  North America. 

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