[Congressional Record (Bound Edition), Volume 146 (2000), Part 9]
[Extensions of Remarks]
[Pages 13296-13298]
[From the U.S. Government Publishing Office, www.gpo.gov]



                       ELECTRIC UTILITY INDUSTRY

                                 ______
                                 

                             HON. ED BRYANT

                              of tennessee

                    in the house of representatives

                        Wednesday, June 28, 2000

  Mr. BRYANT. Mr. Speaker, at a time when this Congress is beginning 
the debate over the future of our electric utility industry, I call to 
the attention of my colleagues an article in the current edition of 
Forum For Applied Research and Public Policy. The article is entitled 
``Electricity: Lifeline or Bottom Line?'', and it is by Terry Boston, 
Executive Vice President of the Tennessee Valley Authority's 
Transmission and Power Supply Group. Mr. Boston oversees TVA's 17,000 
miles of transmission lines, one of the largest transmission systems in 
the country.
  The article largely embodies information I received from Mr. Boston 
in a briefing earlier this month. The news media has given considerable 
coverage recently to the expected demands on our electric utility grid 
this summer and how those demands will almost certainly strain the 
system. Mr. Boston makes the point that more is being invested in 
generation and marketing than in transmission, distribution and 
reliability, and that until these two different facets of the business 
are brought more into balance, the strains on the system will continue.
  All in all, the article will enhance Member's understanding of the 
problems we face this summer and the challenges that are before us as 
we confront the complex issue of electric utility restructuring.

    [From Forum for Applied Research and Public Policy, Summer 2000]

                 Electricity: Lifeline or Bottom Line?

                           (By Terry Boston)

       On a blistering day last July, two large cables at a 
     Chicago substation failed, triggering a local blackout that 
     sent hundreds of air-conditioning deprived residents to 
     hospitals and a few, tragically, to cemeteries. At its worst, 
     the blackout left more than 100,000 people without 
     electricity, and thousands remained that way for the better 
     part of three days.

[[Page 13297]]

       This was only one in a string of blackouts during the 
     summer of 1999 that afflicted hundreds of thousands in New 
     York City, Long Island, New Jersey, the Delmarva Peninsula, 
     and four Gulf states. And the problems were not confined to 
     local power companies; several high-voltage transmission 
     systems--designed to deliver vast amounts of power over great 
     distances in all sorts of weather--strained to keep up with 
     demand. Over the course of five tense weeks, two other 
     blackouts hit Chicago while other electric systems suffered 
     with voltage problems and a few teetered on the brink of 
     collapse.
       What's happening here? Why is the world's strongest, most 
     reliable electric grid scrambling to keep up with hot, but 
     not unprecedented, summer weather? And why is it hard for 
     some transmission operators to make eye contact when asked 
     about the prospects for this summer? The reasons are complex, 
     and agreement is lacking, but many point to the pressures 
     competition is placing on an industry still learning how to 
     compete. In short, the move to restructure the electric 
     utility industry has the industry sprinting toward 
     competition before it can walk. As a consequence, the long-
     sacred focus on reliability is beginning to blur. Instead of 
     filling its traditional role as a lifeline, electricity is in 
     danger of becoming just a bottom line.


                               Lights Out

       Blackouts--small or large--are nothing new; but the reasons 
     for some of last summer's blackouts and near misses are 
     disturbing. For example, the U.S. Department of Energy cited 
     Chicago's Commonwealth Edison for scrimping on its substation 
     maintenance budget--which went from a high of $47 million in 
     1991 to just $15 million in 1998--as it shifted money into 
     its nuclear program and preparations for competition. Other 
     systems, including TVA's, were threatened when operators were 
     unable to predict the massive amounts of power flowing across 
     their systems from eager new sellers on one side to eager new 
     buyers on the other.
       Unless transmission operators understand exactly where and 
     when power will flow across their system, lines that are 
     already overboundened by severe weather can fail, triggering 
     widespread disruptions. Looking at the blackouts of 1999. DOE 
     concluded that ``* * * the necessary operating practices, 
     regulatory policies and technologies tools for dealing with 
     the changes [resulting from a restructured environment] are 
     not yet in place to assure an acceptable level of 
     reliability.''
       Energy Secretary Bill Richardson and Federal Energy 
     Regulatory Commission Chairman James Hoecker have warned of 
     more blackouts this summer, and Richardson criticized 
     policymakers who ``haven't kept pace with the rapid changes 
     in the electric utility industry.'' While many would welcome 
     legislation to ensure reliability, the industry desperately 
     needs something more--time. Unless the industry has time to 
     strengthen the grid, time to understand the new pressures 
     that competitive pricing brings, and time to develop the 
     complex computer modeling and analytical tools needed to 
     safely manage the phenomenal increase in electricity 
     transactions, many fear the grid may be headed for the most 
     severe outages since the New York blackout of 1965. The 
     Electric Power Research Institute estimates that power 
     failures in the United States cost the economy approximately 
     $50 billion per year.


                      The World's Largest Machine

       Someone once called the North American electric grid--the 
     massive conglomeration of generators, wires, switches, 
     breakers, and related equipment that produces and moves 
     electricity to almost every point on the continent--the 
     world's largest machine. It's an apt description.
       Originally, utilities were built to serve specific 
     geographic regions and were physically isolated from one 
     another. America literally had islands of electricity haves 
     and seas of electricity have-nots. In fact, where TVA was 
     created in 1933, only 3 percent of farms in the Tennessee 
     Valley had electricity. As technology improved and power 
     plants increased in size, these islands grew and began to 
     connect with one another. Many of the connections were 
     established to promote reliability in the wake of the 1965 
     New York blackout, allowing power to be routed in any number 
     of ways to circumvent local problems.
       Today, a single massive, interconnected grid serves the 
     eastern United States and eastern Canada, while two other 
     grids serve Texas and the western half of the continent. On 
     that grid, large transmission lines--some operating at up to 
     765 thousand volts--move electricity from generators to 
     lower-voltage local distribution systems where smaller lines 
     take it to individual consumers.
       Transmission is critical because electricity cannot to 
     stored. Natural gas can be kept in tanks and pork bellies can 
     be stored in freezers, but electricity is consumed the moment 
     it is produced. The challenge then is to make electricity 
     instantly available in the exact amounts demanded 24 hours a 
     day, seven day a week. If the amount of power delivered 
     equals the amount consumed--every second of every day--and if 
     power plants, lines, switches, breakers, and insulators all 
     do their jobs properly, we have reliability. If any part of 
     the machine fails, however, power is interrupted. 
     Interruptions can range from a few milliseconds, unnoticed 
     except by sensitive computer equipment and VCRs, to outages 
     that plunge a single street or entire regions into darkness.
       Balance between neighboring power systems is also critical. 
     If one system under-generates--either deliberately to 
     exchange power, or accidentally because a power plant shuts 
     down--imbalance results and electricity flows in from other 
     systems like water through a breached levee. When that 
     happens, systems can overload, and because they are designed 
     to prevent problems from spreading, they automatically shut 
     down. In the most extreme conditions--when weather forces 
     heavy demand for electricity, and equipment over a wide area 
     gets loaded to the maximum--losing a line many shift the 
     burden to other lines, overloading them and causing them to 
     fail. In those cases, power systems can begin to resemble a 
     row of dominoes, which is what caused the West Coast blackout 
     of 1996.


                           Enter Competition

       Changes in national energy policy have encouraged the 
     growth of independent power producers, electricity marketers, 
     and brokers--all of whom differ fundamentally from existing 
     utilities: they don't own their own lines. Consequently, 
     these new entrants to the industry must rely on established 
     transmission owners to provide the critical trade routes that 
     move their product to market--even though at times they 
     compete with those same transmission owners for capacity to 
     serve native load customers. In fact, to promote competition, 
     the Energy Policy Act of 1992 required utilities to provide 
     these new players with transmission service virtually 
     identical to the service they provide their own generators.
       Traditionally, nature has posed the major threats to a 
     reliable power delivery system. Tornadoes and ice destroy 
     transmission structures. Lightning knocks out equipment. 
     Trees grow and fall into power lines. And while those hazards 
     still exist, competition challenges reliability in ways that 
     we are just beginning to recognize and address.


                          Planning in a Vacuum

       Location is always a key consideration in building a new 
     generating plant. Historically, plants were built where the 
     transmission system could handle, or could be made to handle, 
     the added power. In short, planning for new power plants 
     always occurred in lockstep with planning for transmission. 
     Plants were built where it made the most electrical sense, 
     often near large concentration of customers to minimize 
     transmission problems.
       Today, however, power plants are built wherever it makes 
     the most economic sense for the growing number of new 
     players. The most attractive locations seem to be where 
     natural gas pipelines converge with transmission 
     interconnections between utilities. The pipelines provide 
     fuel for the plants; the interconnections allow quick access 
     to market. However, the existing transmission facilities may 
     not be adequate or may be used up by the introduction of more 
     generators, exposing everyone who depends on the transmission 
     system to greater risk of interruptions.
       And we are not talking about a handful of new power plants. 
     Gulf States near natural gas wellheads are seeing hundreds of 
     requests to connect from independent power producers with a 
     combined generating capacity that the existing grid cannot 
     possibly accommodate. At the same time, due to environmental 
     and land-use concerns, building new lines has never been more 
     difficult.
       And while new plant owners must pay for any transmission 
     upgrades necessary to connect to the grid, homeowners 
     question the need for improvements and others complain that 
     utilities may be using the connection process to restrict 
     access.


                          Operating Conflicts

       Adopting the mindset of blue-water sailors--always assume 
     that the boat is trying to sink and do your best to keep it 
     afloat--transmission operators are doing their best to ensure 
     reliability. Doing so is no easy task. Each day on the TVA 
     system alone, hundreds of thousands of calculations are made 
     to determine the demand for power, which plants to run, which 
     to keep on backup, and which to shut down for maintenance. 
     Operators also need to know which lines, substations, and 
     switching equipment must be available at any given time, and 
     which they can afford to take out of service temporarily for 
     maintenance. Finally, they must know how much power will be 
     flowing across their systems from producers on one side to 
     consumers on the other. Without all that detailed 
     information, the transmission system is extremely vulnerable, 
     and ensuring reliability is simply not possible. And even 
     with it, better tools are needed to instantly analyze the 
     data and enable us to provide relief to the right place at 
     the right time.
       Competition means that more and more power is flowing in 
     more and more directions on the grid as the number of deals 
     between suppliers and customers grows exponentially. While 
     TVA had about 20,000 interchange transactions with other 
     utilities and marketers in 1996, it had nearly 300,000 in 
     1999. Since electricity follows the path of

[[Page 13298]]

     least resistance and respects no political or system 
     boundaries, utilities sometimes find their lines clogged with 
     power that they neither generated nor planned for. Because of 
     the limited ability to predict how power actually will flow 
     from moment to moment, power from most utilities--including 
     TVA--sometimes inadvertently flows into or through 
     neighboring systems.
       In times of crisis, the added traffic can confound the 
     efforts of operators to prevent a calamity. On a hot day last 
     August, 10,000 megawatts--an output equivalent to that of 
     eight large nuclear plants--flowed through the TVA system, 
     three-quarters of it unplanned. The result: TVA--despite all 
     its efforts--was one thin mishap away from a widespread 
     blackout. In the future, as dozens of new plants are added to 
     the grid, these inadvertent power flows--and the problems 
     they cause--will only increase.
       There is also concern about the ways some new merchant 
     power plants--which are built to sell power to a particular 
     buyer, rather than to serve a specific area--are being used. 
     One marketer that owns merchant plants in TVA's region, aided 
     by a puzzling interpretation of the rules by the National 
     Electric Reliability Council--a utility-sponsored 
     organization that promotes reliability--determined that its 
     power plants can serve as transmission control areas and 
     points of delivery for power transactions. Normally, a 
     transmission control area contains generators and consumers 
     of electricity and a control center responsible for ensuring 
     that both the supply and demand for electricity are kept in 
     balance. As a control area, the marketer would have the right 
     to reserve space on TVA's transmission system, ostensibly to 
     have large quantities of electricity delivered to its power 
     plants.
       Since a power plant consumes only minuscule amounts of 
     electricity, however, delivering large amounts of power to 
     one is physically impossible; and in fact, this marketer has 
     no intention of receiving electricity at its plant. Instead, 
     the arrangement serves the marketer by securing a needed path 
     into TVA's transmission system. Later, when the marketer 
     finds a buyer, it can inform TVA--with as little as 20 
     minutes' notice--that thousands of megawatts will be flowing 
     across the transmission system, ready or not. We consider 
     this a dangerous misuse of the transmission system and have 
     determined that we will accommodate the marketer's 
     transmissions only if reliability can be protected.
       Established electric utilities don't always wear the white 
     hat. Competitive pressures can bring out rogue behavior in 
     many organizations. Last summer, for example, one midwestern 
     utility had more demand for electricity than it could supply. 
     Normally in such circumstances, the price of power rises when 
     demand exceeds the supply. If a utility cannot meet its 
     contractual requirement, it should interrupt noncritical and 
     keep critical loads, like hospitals, from being at risk. 
     Instead of interrupting lucrative sales when power prices 
     were exorbitantly high, however, the utility simply allowed 
     its system to become a ``black hole'' on the grid. Because 
     electricity flows to where it is needed, the utility sucked 
     in power from other utilities without paying the high prices 
     for it and increased the risk of blacking out its neighbors.


                      Build It and They Will Come

       What would happen if, with air travel booming, there were 
     suddenly a freeze on building new airports or expanding old 
     ones? Air travel would likely peak according to the number of 
     planes that airports could safely handle, and then level off. 
     That is not what's happening in the electric utility 
     industry. Nationally, electricity sales are growing at a rate 
     of about 2 percent annually, closer to 3 percent in the 
     southeastern region. To meet this growth and possibly make 
     large profits during periods of extreme demand, new 
     generating plants are being built at an unprecedented rate. 
     At the same time, investment in transmission systems 
     nationally has almost bottomed out. In airline terms, we are 
     building planes and sending them from the gate with hoards of 
     travelers onboard, even though we are dangerously short of 
     runways. To make matters worse, those planes take off and 
     land without talking to the control tower about their flight 
     plan.
       Most of the nation's extra-high-voltage transmission lines 
     were built after the infamous blackouts of the mid-60s. They 
     were intended to enable bulk deliveries of power over long 
     distances in the event of emergency--thus ensuring 
     reliability. Today, however, those lines are largely used for 
     day-to-day commerce. New players in the market
       The societal cost of having too much transmission capacity 
     is small compared to the societal cost of having too little. 
     Yet industrywide transmission is not being built to support 
     the new market. In 1990, utilities' 10-year plans called for 
     a total of 13,000 miles of new transmission lines. After 
     passage of the Energy Policy Act in 1992, those plans began 
     to nose-dive. By 1999, only 5,600 miles were still planned. 
     TVA, I'm pleased to note has not followed this trend. While 
     the miles of panned transmission lines in the United States 
     have been halved, TVA has doubled its transmission capital 
     budget. We built more than 160 miles of transmission line 
     last year and will build a comparable amount this year to 
     enhance reliability within the region.


                            The Public Good

       Handled properly, competition can bring genuine benefits to 
     society. Regions that have been plagued with high power costs 
     may one day see lower rates. New participants in the industry 
     may play an important role in bringing about this parity, and 
     they should be encouraged to take part. Obstacles to a fair, 
     open, and diverse marketplace should be removed, but 
     carefully and for the right reasons. The public has far too 
     much at stake to allow competition to jeopardize reliability. 
     Already, the pendulum has swung so far in the direction of 
     open competition that reliability is being compromised.
       New participants in the industry tend to think of 
     electricity as a commodity, to be bought and sold like any 
     other. They are fond of comparing electricity to natural gas 
     and seek an industry structure in which they can trade 
     electricity without limits. But as long as electricity is 
     dependent upon instantaneous tranmission--until it can be 
     stored efficiently for later use--we cannot afford to treat 
     it as a simple commodity. The risk are far too great to 
     permit this mindset to govern energy policy. New players, 
     policymakers, and even many established utilities must come 
     to realize that electric system reliability doesn't happen by 
     itself. It takes planning, resources, and time to ensure that 
     the nation's electric grid will continue to operate smoothly.
       The North American grid can become a balanced playing 
     field--accessible to all, supportive of open competition, and 
     robust enough to withstand the worst that nature and growth 
     can throw at it. Or it can decline into a choked and 
     inefficient war zone where interruptions are commonplace, as 
     industry players try to outdo each other in search of short-
     term profit. Restructuring can help create that balanced 
     field by encouraging new generators to enter the market and 
     relieve the current shortage of electricity production. 
     Without comparable improvements in transmission, however, we 
     may be putting out the fire with gasoline.

     

                          ____________________