Blackouts and Blunders
The Failure of Electric Power Policies in the
Power Engineers Supporting Truth
703-569-3579
Blackouts and Blunders
The Failure of Electric Power Policies
in the
The restructuring of the electric power industry in the
Part I focuses on the roles of industry and government, particularly the Federal Energy Regulatory Commission (FERC) and the Department of Energy (DOE). It discusses problems and deficiencies in the functioning of these institutions, and suggests corrective actions.
Part II concerns the bulk power transmission systems. It focuses on reliability, and examines the roles and failures of the North American Electric Reliability Council (NERC). The roles of the Regional Reliability Councils, control areas, ISOs and RTOs are also reviewed.
Both sections of the report include brief discussions of the
government’s investigation of the
The authors welcome comments, and would be happy to provide
further assistance in dealing with the issues raised in the report. Comments may be submitted to the authors or
to the
Jack Casazza
Frank Delea
George Loehr
Members – Power Engineers Supporting Truth (PEST) – a not-for-profit organization
(Brief resumes for the authors are given in Appendix A.)
BLACKOUTS AND BLUNDERS
PART I
DOE and FERC’s Roles
The Failure of Electric Restructuring
Causes of the August 2003 Blackout
Introduction
The August 2003 Blackout of the
The purpose of this document is to comment on whether all of the problems have been identified, and whether the remedial actions being taken are sufficient. The authors believe the answer is a resounding “no!”
Of paramount concern is the question of whether deregulation and the restructuring of the electric power industry, as promoted by the United States Government, set the stage for the blackout. We believe the answer to that question is a resounding “yes.” The efforts of the Department of Energy (DOE) and the Federal Energy Regulatory Agency (FERC) to restructure the electric utility industry in order to facilitate wholesale power transactions, as mandated by the 1992 Energy Policy Act (EPAct92), were major contributors to the blackout.
The EPAct92 provided for the
creation of exempt wholesale generators (EWGs), exempt from regulation in a
wholesale electric market. To enable
these EWGs to compete, the law also gave FERC authority to order public
utilities with transmission facilities to provide wholesale transmission
services to others on the same basis as they provided to their own generation;
this is known as “open access.” The hope
and rationale underlying the EPAct92 was that entrepreneurs entering the electric
market would provide competition, thereby lowering the price of electricity to
consumers. Meanwhile, the high
reliability of supply that was a characteristic of the
Implementation of the provisions of the law fell to the FERC, which in turn published and continues to publish orders and directives addressing a variety of issues impacting the new market.[1] Most of its focus was on ensuring non-discriminatory open access to the nation’s transmission grid. It is apparent to many that FERC has in fact failed to establish a widespread wholesale electric market which is reliable, free from manipulation, and able to provide low cost electricity. In the process of trying to establish the framework for a wholesale electric energy market, both FERC and DOE have paid inadequate attention to maintaining the high standard of service reliability U.S. customers have come to expect and demand. At a more fundamental level, the assumption that a viable and reliable wholesale electric market can be developed was and still is unproven.
The comment is often heard that the nation’s electric grid is inadequate to accommodate the wholesale power transactions contemplated by policy makers. It is! It was never designed with that objective in mind. Instead of acknowledging this fact, policy makers have attempted to paper over it by a series of bureaucratic actions:
· Government policies required the separation of responsibility for generation from the responsibility for transmission. In many instances, this lead to the breaking up of vertically organized utilities which had overall responsibility for the reliability of supply – without the formation of an adequate alternate, thereby increasing the probability of system failures.
· Massive restructuring has resulted in many new participants entering the industry, increasing the complexity of operations and planning. Many of the new participants lack experience in the operation of power systems and are concerned mainly with profits for their companies.
· One of the many results of this fracturing of the industry into competitors is that the traditional spirit of cooperation, which was a hallmark of the industry for decades, was significantly weakened. For example, companies began to withhold information of commercial use to competitors, but important from a reliability coordination viewpoint.
· FERC policies mandated the establishment of new organizations to manage the transmission system and the new markets, thereby adding a new layer of operational complexity. Then, in the approval process for these new organizations, FERC focused primarily on issues impacting the commercial functioning of markets, not their reliable operation.
· FERC did not ensure that these new organizations had sufficient, well trained staff, clear operational instructions, and adequate communication and control systems to deal with the increase in operational complexity which FERC itself was causing. Instead, FERC relied on the North American Electric Reliability Council (NERC) for advice on and control of reliability matters – while at the same time publicly acknowledging NERC’s lack of authority.
· One particularly onerous requirement was the establishment of a stakeholder process, wherein each commercial participant, no matter what its role or responsibility, is effectively given veto power over reliability.
· Government authorities acquiesced in weakening of the existing reliability criteria while they should have been mandating more stringent criteria in recognition of the increase in operational complexity they had caused.
· FERC rather blindly went ahead without any provision or plan as to how additions to strengthen the grid would be financed and built.
Bad enough that the actions of policy makers had a distinctly negative impact on the reliability of electric supply in the nation, but their efforts have even failed to achieve the goal of producing lower cost electrical energy to the American consuming public.
The goal of a more efficient market has been treated as a truism in numerous DOE sponsored studies, and has been supported by a number of flawed after-the-fact studies. No one has as yet produced an unbiased study demonstrating the supposed savings from the new market. Studies to date, usually by market proponents, have either claimed savings without acknowledging those wholesale sales that would have been in effect absent any market restructuring, have not addressed the significant burden of additional costs to manage the new market, or have claimed savings that are so marginal as to be laughable.
Contrary to the many statements
made by government officials, our electric system is not that of a third world
country, but it could become so if market enhancement and market structure
remain the dominant driving forces. The
authors of the DOE’s Blackout Report, however, continue to worship at the altar
of market forces. “Market mechanisms
should be used where possible.”[2] One only need look as far as
The DOE’s Blackout Report does
recognize that changes in industry structure have resulted in the increased
transmission of electric power. Add to
this the increase in the number of participants, the complexity of transactions
involved, the lack of technical knowledge of those setting policy in government
and in industry, and the growing concern with profits rather than reliability,
and you have a prescription for disaster. The DOE Report does not address these issues. It does, however, recommend the “commission of
an independent study of the relationships among industry restructuring,
competition, and reliability.” FERC, in
its April 2004 response to the final blackout report, recognized that it had
failed to consider the impact of its decisions on reliability. Yet,
inexplicably, as of the beginning of 2005, no follow-up action has been taken by
either FERC or DOE to implement this recommendation.
We have reviewed the relevant policies, roles and activities of governmental agencies and other organizations involved in the electric power industry. We believe their actions both set the stage for and contributed to major system blackouts and instances of corrupt manipulation of electric power markets.
The Need for
Technical Competence for Policy Makers and Managers
The DOE Blackout Report identifies
the failure to transfer lessons learned from past blackouts as an important
contributor to the August 2003 Blackout. While it stresses the urgency for prompt
adoption of its recommendations, including the need to properly train
operators, the report fails to take the next step and address the importance of
the qualifications of the individuals appointed to enforce them. For many years, appointments to top policy
positions in FERC, DOE and other key government agencies – and in the electric
power industry – have lacked the necessary technical backgrounds. While government policy has attempted to
improve the competence of appointees to positions requiring technical and scientific
knowledge, political considerations still govern. (See Appendix B.)
Past experience has shown that having
technical standards and procedures to govern the operation of the industry is
not as important as the qualifications of the individuals appointed to apply
and enforce those standards and procedures.
In response to the new preeminence of market concerns, appointments to
key industry regulatory and reliability organizations, operating entities, and
planning and operating positions in utility companies consist of individuals
totally lacking in technical experience. Many appointees to key electric energy policy
positions, such as FERC Commissioners, do not have experience relevant for their
positions, or are beholden to certain segments of the industry.
A significant contributor has been the lack of technical competence of power industry executives and managers. In many cases the lack of technical and economic understanding of electric power systems, and an obsession with immediate profits, has led to Board of Director approval of company policies and extensive incentive programs, which has often led to unethical and sometimes illegal practices. Appointments of key managers have too often been based on their marketing skills rather than their ability to plan, design and operate a power system that will meet the public’s needs economically.
The
Government’s Role
Recent years have witnessed an increasing politicization of technological decisions. Almost every organization is proud to claim it has representation from all stakeholder groups. Both the DOE and FERC rely on stakeholder views as a key input to their decisions. Who are these stakeholders? They largely consist of organizations having significant commercial, political or personal power interests. Deregulation and restructuring have passed control of key decisions from experienced personnel to new appointees focused on the market and profits. Consequently, the importance of the Laws of Physics in electric power system planning and operations is either ignored or dismissed.
An unfortunate outgrowth of this trend has been the efforts by the Federal Government to take control of key technical decisions. In spite of warnings, FERC became obsessed with implementing market forces. For example, it approved the operation of the Midwest ISO organization before it was capable of meeting its reliability obligations. FERC could have and should have exercised more technical oversight in its approval processes
The DOE’s Blackout Report argues for taking control of NERC funding away from those with whom NERC deals in the industry, and recommends increased government regulatory control over technical operations. While NERC and the reliability councils certainly need improvement, the pros and cons of such a step need careful evaluation, lest such a change make matters worse.
The Role of
DOE
The Department of Energy (DOE) has sponsored a series of studies addressing issues attendant to implementing a wholesale electric market. These studies have been based on the premise that such a market could be established, and that it would achieve lower costs to consumers while maintaining a reliable system. It was assumed by the report writers and many academics unfamiliar with the operation of the electric system that market forces could be put into place which would ensure a reliable system.
The entire governmental approach for achieving reliability has been focused on institutional mechanisms and market forces rather than on the Laws of Physics. It is an approach heavily dominated by lawyers and economists who ignore past experience for achieving reliability and the need to coordinate technical and institutional solutions.
In many cases, those who implemented industry changes were ill suited to the tasks with which they were charged. They either lacked the necessary technical background or came to the task with pre-conceived biases. As a result, their efforts were flawed in many ways.
Of overriding concern is the unproven assumption that the market will solve all problems, most specifically the need to maintain a reliable system.
The Role of
FERC
In April 1996, FERC issued Orders
888 and 889. Order 888 is entitled, in
part, “Promoting Wholesale Competition through Open Access Non-discriminatory
Transmission Services by Public Utilities.”
FERC stated that it wanted “to remedy undue discrimination in access to
the monopoly owned transmission wires that control whether and to whom electricity
can be transported in interstate commerce.” It estimated that the potential quantitative
benefits from the Final Rule were approximately $3.8 to $5.4 billion dollars
per year. The FERC evaluations failed to
compare the benefits from the new procedures with the benefits in excess of $15
billion per year that had been produced by former cooperative procedures.[4]
As part of this rulemaking, FERC started its restructuring of the industry by requiring vertically integrated private utilities to separate their generation and transmission functions, losing considerable benefits that had been achieved by coordination of transmission and generation.
Perhaps FERC is finally beginning to revise its policies. It recently created an Office of Reliability, and it will now verify a proposed ISO’s ability to operate reliably prior to giving its approval. It is unfortunate that it took a massive blackout to get to this point. But it demonstrates the futility of any system that relies on policymakers lacking the requisite expertise.
Response of
Companies to the New Environment:
A “Profits
Now” Mentality
The Government has ignored the
effects of its policies on the decisions of companies involved in the electric
power industry. The increasing stress on
“profits now” has resulted in sharp reductions in personnel; not only administrative
staff but operating staffs as well. U.S.
Department of Labor data shows that, over ten years, employment in electric
generation declined from 350,000 to 280,000 and employment in transmission and
distribution declined from 196,000 to 156,000.
These reductions have had significant impacts on the availability of trained
people to deal with emergencies such as blackouts and major storms, as well as
on the ability to adequately train personnel and transfer past lessons to the
next generation. The policies have also
had a major impact on expenditures for maintenance; these have fallen
nationally to about 60% of prior amounts.
And yet reductions continue, and un-maintained equipment continues to
deteriorate.
The transcripts of the discussions
between system operators on
The philosophy that electricity prices can be lowered by market forces has had other unintended consequences. Companies, both regulated and unregulated, have resorted to actions which have had serious negative effects. Continually mounting evidence points to the unethical and illegal means used by some unregulated companies involved in the wholesale energy and trading markets to increase their profits, benefiting executives with large bonuses but deceiving investors. Nor have regulated companies been immune from taking actions deleterious to reliability. Many companies have resorted to drastic reductions in personnel, training and maintenance under the guise of lowering the cost of electricity. Unfortunately, these actions can contribute to reliability problems as equipment fails and personnel are not able to perform their jobs.
Efforts to
Establish Wholesale Electricity Markets
In response to FERC’s directives, a number of wholesale markets have been established. Unfortunately, the rush to establish them was at the expense of any careful consideration of their exposure to manipulation, to the increased complexity of operations, and to the attendant requirements needed to maintain reliable service. Complicating matters, FERC has attempted to implement markets in a piecemeal and seemingly uncoordinated manner. This has resulted in a mishmash of different market rules across the country, each with its own set of weaknesses. Some were more flawed than others; e.g., the rules of the California ISO in the late 1990s and early 2000s. A Standard Market Design (SMD) based on Location-based Market Pricing (LMP) was established without adequately addressing the issues of how to ensure that there would be sufficient generation and transmission capacity.[5]
A functioning competitive market has a number of characteristics. It assumes that there are economic forces which will balance demand with supply. As structured, however, the electric industry lacks this fundamental requirement. Electric customers for the most part do not see the financial impacts of their decisions to use electricity until well after the fact. In times of short supply, there is a no price sensitive demand reduction mechanism in place. This situation results in suppliers being able to raise their prices in the spot market with little or no restraint.
There are other characteristics of the electric industry which exacerbate the difficulties of establishing a competitive wholesale electric market:
· When shortages of supply are expected, electricity cannot be stored to accommodate later increases in demand. There are no “warehouses” as in other commodity industries where large inventories can be maintained for such situations.
· Although the industry has the physical capability to disconnect large undifferentiated groups of customers when there is insufficient electric capacity, it cannot disconnect select customers who are unwilling to purchase electricity when there is sufficient capacity but the price is too high.
· When there is a capacity shortage, the time required to provide new generating capacity or to implement demand reductions by increased use of efficient appliances and processes is measured in years.
· The wholesale market envisioned by policy makers encompasses large geographic regions of the country. The existing transmission system was not planned for such a mission. No preplanning of the transmission infrastructure required to support such a large market was done, much less implemented, before markets were approved for operation. Such a process is still not in place.
· A viable wholesale market covering large geographic areas needs a consistent set of rules, both commercial and operational. This requirement reflects the reality that electricity flows over transmission systems based solely on the laws of physics and not on organizational or commercial boundaries.
· The impact of non-consistent market rules did not become evident to policy planners until well after they began implementing their own policies. To this day, this has not been adequately addressed. FERC has proposed a Standard Market Design so that commercial rules would be consistent across the nation, but this proposal has met vigorous political opposition and is essentially in limbo.
·
The practice
of approving power sale contracts using transmission “contract paths” ignores
the fact that power flows via many parallel transmission paths based on the electrical
characteristics of the transmission lines, often causing problems in other
systems.
· Since the August 2003 Blackout, FERC has gone to great lengths to maintain that it has no jurisdiction over the operational rules impacting the reliable operation of the industry. It has relied on continued voluntary compliance with industry reliability rules developed by NERC and the Regional Reliability Councils. There is a widespread belief that, for the reliability of a viable market, these rules must be mandatory. This point is arguable, and will be discussed in Part II of this report. Even so, attempts to secure Congressional approval of a process for establishing mandatory rules have been stalled for over four years.
Faith in
Market Forces
Various DOE studies made prior to the August 14th Blackout reviewed examples of transmission (economic) congestion. These studies counted on “market forces” to provide transmission reinforcements to relieve constraints. But the entire government approach for achieving reliability has been focused on institutional mechanisms and market forces rather than on the Laws of Physics. It is an approach heavily dominated by lawyers and economists. And it ignores past experience for achieving reliability and the need to coordinate technical and institutional factors.
Those knowledgeable in the physics of planning and operating transmission systems believe strongly that market forces will never be able to provide a reliable and low cost system to meet future needs. The design of such systems is a complex technical task requiring extensive coordination and consideration of many technical design issues.
Manipulation
of the Process
DOE’s studies and FERC’s
activities have all been heavily influenced by the views and policies proposed
and supported by the lobbying efforts of the new entrants into the electric
power industry: merchant power plant owners/operators and power marketers.
Their efforts have included influencing the political aspects of the process. Enron was a leading proponent of industry
restructuring, and took actions to influence the restructuring process at both
the national and state levels. It
believed that such restructuring offered great opportunities for profits. Enron even exerted influence over government
appointments. As discussed in Appendix
B, the emphasis on past political and business affiliations of government
appointees was a key factor in such manipulation.
Setting
Public Policy
In recent years there has been an
increasing emphasis on public involvement in policy decisions, particularly in
areas involving the environment, energy, and health. This participation has often been through
public hearings, formation of new organizations, and political activities. All of these involve the collection, review
and analysis of information, and advocacy of specific viewpoints. While review of past data is essential, the
ability to project future developments and the consequences of alternative
policies is the main objective. The
results of this projection process have important commercial effects, altering
the future profits of various companies.
They also have a political impact and both short-term and long-lasting
consequences for society.
As a result, commercial and
political organizations mount campaigns to convince the public that their position
is the best for society. In the process,
public relations experts and lobbyists have become the media through which
various points of view are argued.
Unfortunately, those presenting the argument are essentially “hired
guns” paid to achieve a certain result.
Large funds are provided by those with sufficient monetary resources,
with the general public left out. In
other words, dollars, not people, are voting.
Almost every organization involved
in technical activities, from regulation to research, establishes an advisory
committee or board which includes “stakeholders.” The belief is that this procedure will build
the consensus needed to develop good policies.
This would be true if the stakeholders had the required technical and
economic background and experience. But
stakeholders generally have financial, political, or personal power
concerns. Only if they provide a fair
representation of the population their decisions affect will this approach
achieve the desired result – good policy for all those affected, whether
consumers, stakeholders, employees, or the general public.
To assist the democratic process,
the general public must be better informed.
Better understanding by the media, who often print information provided
to them with little investigation of its correctness, is central. It is essential that the public gain a better
understanding of how power systems work, so that individuals can better assess
the key issues.
Need for a
National Power Survey
A number of times in history, the
Such a survey would not provide a blueprint, but a guide for those in the ISOs/RTOs who would plan specific transmission and other reinforcements. It would also review the effects of various market policies on transmission requirements. If we blindly try to expand and reinforce the transmission grids, and make transmission additions piecemeal based on profits – or if transmission is added on a “generation project by generation project” basis without considering other impacts or the needs of other projects – overall reliability will be compromised and a lot of ratepayer’s money wasted.
Recommendations
1. Initiate action on a key recommendation in the DOE Blackout Report by appointing a Task Force to investigate the relationship of restructuring, competition, and reliability. This task force should be appointed by Congress and should include analyses of FERC, DOE, and industry actions. Its members should be limited to experts who are unaffiliated with any organizations having commercial interests in the electric power industry.
2. Perform a “National Power Survey” to provide the framework for future transmission system development. This should include analyses of long term future transmission needs and technical requirements for the national transmission grid.[6] It should also evaluate the size and complexity of the present synchronous interconnections, and the advantages and disadvantages of dividing them into smaller areas. The effect of various market policies on transmission system design and costs should be included.
3. Develop standards for the technical qualifications required for key government and industry positions responsible for establishing electric power policies and for management, design and operation of the transmission grid. (See Appendix B.) Technical qualifications should be established as soon as possible for all top government and regulatory positions that involve supervision and policy direction of the electric utility industry. These should be a key factor in selecting individuals for management and executive positions.
4. Stress education of the press, media and the general public to bring about a better understanding of how electric power systems work and the effects of proposed new policies.
5. Insure that only competent, experienced, independent power system engineers, unaffiliated with any commercial interests, be involved in any oversight of utility planning and operations.
6. Review
reasons why past technical and economic knowledge about power systems has not
been transferred to the current generation.
PART II
NERC and Industry Organizations
The Bulk Power Transmission System
Blackout Report Deficiencies
Control Areas, RTOs and ISOs
The operation of the bulk power electric system in the
Following the passage of the Energy Policy Act of 1992,
changes occurred in the structure of these organizations in response to governmental
direction. Additionally, to accommodate
the directions of FERC in its attempt to create a wholesale electric market,
new organizations – Independent System Operators (ISOs) and Regional Transmission
Organizations (RTOs) – were put into place.
All private utilities were required to build “firewalls”
between those parts of their companies involved in the generation and those
involved in transmission. At the same
time, the process of “deregulation” or “restructuring” proceeded in many states
and provinces. The key change was to go
a step further and separate the ownership of generating resources and high
voltage transmission. The former
vertically integrated electric utilities in these states (except utilities
which were publicly owned) sold essentially all of their generating facilities
to independent generating companies. In
the new parlance, the former utilities are known as “transmission owners.”
These changes have greatly increased the complexity of
operating the electric grid, resulting in increased pressures on the ability of
operators to maintain reliability. They
have also increased costs to the consumer.
Evidence of these impacts is demonstrated by the supply crisis in
A. The Bulk Power
Transmission System
An idea widely circulated since the
Third world grid? Nothing
could be further from the truth.
The electric power systems of
• Isolated
generation – generating units are disconnected from their own grid and
synchronized with a neighboring
grid;
• Isolated
load – electrical load is disconnected from its own grid and
synchronized with a neighboring
grid;
• High Voltage
Direct Current (HVDC) transmission ties.
The Eastern Interconnection encompasses more than half of
the geographic area of the continental
Complications of
Restructuring[FJD1]
As discussed earlier, restructuring has caused a large
impact on the reliability of our transmission systems. Some of the changes having effects on
reliability are:
Ø
An aging transmission infrastructure
Ø
Aging and downsized work force
Ø
Decreased personnel training
Ø
Cutbacks on system maintenance
Ø
Market driven transmission
Ø
Increased dependence on communications and
computer systems
Ø
Many more participants complicating operations
All of these make maintaining reliability more difficult,
increasing NERC’s problems.[9]
More Transmission – Greater Reliability?
The “third world grid” myth has encouraged the notion that
more transmission equals greater reliability.
This, too, is totally incorrect.
Reliability is a function of the standards or criteria used to plan and
operate a grid, and how well they are complied with; it is not a function of the amount of wire in the air. More transmission increases the capability of
a grid to move power from place to place – but, in and of itself, it does not
improve reliability.
A distinction must be made between, on the one hand, the
capability of a grid to support commercial transactions, and reliability on the
other hand. More transmission, if
properly planned, can and will increase the ability of the grid to transfer
larger amounts of electric power, but reliability will remain the same as long as the same criteria or standards
are used. Only more stringent
standards will make the system more reliable.
More transmission serves the interests of generating companies and power
marketers, but does not improve the reliability of the transmission
system.
In fact, an increase in transmission, without an increase in
the stringency of planning and operating criteria, could make the grid less
reliable. Adding transmission to an
existing synchronous interconnection makes the grid electrically smaller.[10] Thus
To accommodate higher levels of interregional power flows,
more transmission may well be desirable.
However, no study has been performed to identify the size, nature, or
location of any transmission changes. Nor
has any evaluation been made of who would benefit from and who should pay for
any transmission additions.
To prevent the spread of power disturbances over a large
grid, one proposed solution is to sectionalize the two larger grids into a
series of smaller synchronous interconnections, tied together by the use of
HVDC transmission.[11] Such an arrangement would provide better
control of power flows and constrain any wide-scale power disturbances that
might otherwise occur, simplify market operations, retain for each region
control of its own policies, and improve national security.
The final reports on the August 14, 2003 Blackout by the
US-Canada task force and by NERC provided a great deal of information but
omitted answers to a number of key technical questions that are important to
establishing future policies:
1. Transmission
lines in the ECAR area are generally equipped to automatically reclose after a
fault occurs and is cleared. The initial
tree contacts for the lines involved would create a huge arc and should have
burned off the tops of the trees causing contacts. The automatic reclosing should have restored
the line to service. Why didn’t it?
2. Apparently,
40% of the generators tripped unnecessarily as a result of their protective
relaying. Of concern is the degree to
which these unnecessary trips contributed to the cascading outage that
occurred. If these generators had not
tripped, would the blackout have been less extensive, or restoration faster?
3. There
is no discussion in the government (or NERC) reports on the effects if some of
the transmission ties to other regions had not tripped. One possibility is that sufficient
stabilization power would have been contributed from other regions to have
limited the extent of the disturbance. Or,
the disturbance could have been far more extensive. The answer to this question is important in
determining the design of future transmission grids.
4. The
times taken to restore customer service following collapse of the bulk power
system were unconscionably and unacceptably long in many places. Why system restoration in much of the
affected area was measured in days rather than minutes or hours should be
investigated.
NERC
and its Reliability Standards
In the first 65 years of the 20th Century, most
electric utility companies established and maintained their own planning and
operating standards – or “criteria,” as engineers more typically refer to
them. But the November 9, 1965 Northeast
Blackout changed everything. The need
for better cooperation and coordination was immediately understood, and the
industry responded by establishing Regional Reliability Councils – one of whose
responsibilities was to establish and maintain regional reliability criteria
(standards). By the late 1960s,
virtually all continental
In 1968, the National Electric Reliability Council (NERC)
was formed. As more Canadian systems
became involved, NERC changed its name to the North American Electric
Reliability Council. Early standards or
criteria in NERC were limited to guidelines – statements of items that should
be included in the regional councils’ reliability criteria. In a few years NERC merged with NAPSIC. NAPSIC’s more specific operating criteria,
based on the familiar “n-1” concept, were adopted by NERC. But the definition of what constituted “n-1”
was left to the regions.[12]
By the 1990s, NERC had established more specific standards
for bulk power system planning and operations, but these were clearly intended
as minimum standards – a sort of reliability “floor.” Any Regional Reliability Council could
include more stringent requirements in its standards, and most did. This approach has served the industry and the
customers well, and remains in place today.
The reliability criteria in effect
in each region were created at a time when virtually all utilities were
vertically integrated and had responsibility for both resource adequacy and
transmission reliability in their service areas. [FJD4] Although there was no open access to the transmission system
as understood today, transmission was built to accommodate large scale
power transfers within and between regions, usually linked to specific
projects. Examples include the Southern/TVA 500 kV development, Niagara/St.
Lawrence hydroelectric power to New York City, PJM/Minemouth to the New
Jersey-Washington megalopolis, Pacific Northwest to California, Hydro-Quebec to
New York, Hydro-Quebec/New England Phases 1 & 2, Four Corners to Los
Angeles, the Intermountain Project, etc.
Today’s criteria may have been
appropriate before deregulation and “open access,” but the authors strongly believe
that they are not appropriate now. There is a need for more stringent criteria
in the open access environment.
NERC’s New Role
In a deregulated electric power
industry, with separation of the generation and transmission functions, NERC’s
role has changed. It now represents
interests with different and, at times, divergent views regarding the operation
of the bulk power system; generating entities are more concerned about selling
electricity, and transmission entities more with maintaining a reliable system.
The authors believe that NERC
cannot represent commercial and reliability interests simultaneously. FERC has ruled that the transmission and
generation functions in each company may not communicate with one another. But NERC has both generation and transmission
interests voting on reliability criteria. Over the past few years, the industry has
tried to adapt to the new environment.
This has resulted in an organization which is politically correct, but
ineffective in dealing with its real purpose: assuring the reliability of the grid.
Two examples of how this has
occurred can be cited:
• The NERC Board of
Trustees;
•
NERC’s Process for Approving Standards.
NERC
is governed by a Board of Trustees. The
qualifications considered for election to the Board have changed with the
nation’s restructuring effort and the change in the role of NERC. Its members no longer have technical
backgrounds in the electric utility industry, but rather backgrounds one would
expect to see in a commercial enterprise.
Only a few of the fourteen NERC
Board Members have had actual hands-on experience in electric power systems
design, operation, or management. Only
two are members of the professional organization of electric power
engineers. Those concerned with
operation of the market are a controlling voice in NERC decisions and policies,
while those with technical concerns constitute a small minority.
Present
selection criteria for trustees appear to stress legal, financial and
regulatory experience, apparently to facilitate the establishment of wholesale
commercial markets. However, the primary
mission of NERC was and remains the reliable operation of the nation’s bulk
power electric system – not its commercial operation. NERC should be a bulwark against the
degradation of reliability to facilitate commercial activity.
The potential for conflict
of interest is also a concern.
Individuals with legal or financial affiliations have been selected as
trustees, yet large investment banking firms are entering the wholesale
generation business at an increasing rate.
The former often have significant ties to the latter.
NERC’s process for reviewing, establishing and modifying
criteria is incredibly long, complex, and cumbersome. It can take years for a standard to be
approved and implemented.
Even more of a problem, though, is its voting system for
approving new or modified standards.
There are nine balloting “segments,” each purporting to represent some
portion of the electric power industry.
In effect, every segment has an equal weighting. The affirmative vote percentages in the nine
segments are averaged, and that must equal at least two-thirds to approve a
standard.
The problem lies in the composition of the various segments. All of the regional reliability councils, ISOs, RTOs, and other reliability entities are lumped into a single segment – yet these organizations constitute the only participants with no commercial interests and a primary commitment to reliability. All of the other segments represent various commercial interests, and reliability is mostly a secondary priority. Further, the number of entities in the segments varies widely. In a recent vote, for example, there were 49 entities in the RTO/ISO/Regional Council ballot pool, but only a single entity in each of the two End Use segments. Thus the vote of each of two end users carried the same weight as 49 entities specializing in reliability. This is hardly appropriate. It’s difficult to avoid the suspicion that the system was intentionally “stacked” to provide heavy leverage to a few special interests, and very little influence to those who are most knowledgeable about</