A quick break … this commentary on electricity grid vulnerability from November 2001 is still, or even more, relevant today, even though my focus in this commentary was terrorism. A teaser:
While the Sept. 11 attacks disrupted communications and business operations on a massive scale, many businesses recovered their data quickly, and telecommunications companies restored service quickly, because they had built backups when creating their networks. Even companies like Cantor Fitzgerald that lost major operations in the World Trade Center and 700 employees recovered and resumed operations. It has become standard practice in financial services and other data-intensive industries to perform real-time backup of data and transactions to multiple off-site storage locations. Similarly, telecommunications companies that provide the backbone for such systems build redundancy into their lines, wireless relays, routers, and so on.
This same realization of the security value of redundant systems in other industries should inform and change the regulatory treatment of electric utilities, which have for decades been regulated on the premise that a single owner and a single set of infrastructure is the least-cost way to provide electric service. The basic concept underlying this idea, that of a natural monopoly, is that building multiple sets of generation facilities, transmission wires, and distribution grids would be a wasteful capital investment because one set of infrastructure is cheapest. Unfortunately, recent experience in the telecommunications industry undercuts the notion of “the fewer the better.”
The telecommunications industry has been in a dynamic building flurry in the past several years while electric transmission networks have remained static. The regulatory treatment of electricity transmission as a natural monopoly is largely responsible for this contrast between two networks that otherwise have strikingly similar economics. As James Liles observed recently in Public Utilities Fortnightly, “in dry economic terms, one network is viewed as a contestable market; the other is viewed as a natural monopoly.” The recognition in the telecommunications regulatory environment that potential competition creates a dynamic industry has helped transform our lives and the creative, unforeseen ways that we can use technology.
Perhaps this blackout will be the tipping point crisis that enables us to transform the regulatory treatment of electricity, and create a dynamic industry with a robust, adaptive and flexible network infrastructure.