A Little Premature?

A series by Mike Giberson and Lynne Kiesling

The government’s final report on the blackout has arrived on the doorstep of the nation’s electricity consumers just 7+ months after August 14. Doesn’t it strike you as a little early for a post-blackout baby boom? But there they are, 46 brand new, little recommendations: cute as buttons and all boxed up in blue.

The U.S.-Canada Power System Outage Task Force Final Report on the August 14, 2003 blackout is an impressive tour de force. Jam-packed with informative explanations and analyses, it provides a thorough examination of the blackout�s causes and consequences. It explains the technical and institutional workings of the North American physical power system clearly and carefully. For example, the discussion of the role of reactive power and how to generate it is a great introduction to the topic.

But for all the effort that went into the report, some pretty obvious parts of the picture were missing. Some of what was included looks a little suspect. Beginning on Monday, the two of us are going to be posting commentary on the blackout report, examining both what was in the report and what was left out. A good place to start is with the report’s explanation of what happened on August 14.

The report ruled out weather, deregulated power markets, unusual loads or cross-region power flows as the causes. The report groups the causes into four categories, summarized as: Inadequate system understanding on the part of FirstEnergy and ECAR (the Regional Reliability Organization); Inadequate situational awareness at FirstEnergy; Inadequate tree trimming in transmission rights-of-way; and Inadequate diagnostic support by Reliability Coordinators. While “what failed” were physical components of the system, the report rightly focuses on the systemic problems that allowed the failure of a few lines in Ohio to turn into an event that knocked out the power system throughout a good chunk of the Northeastern United States and Canada, too.

As an aside, in energy economics, economists are often critical of engineers for missing the big picture (and engineers critical of economists for getting the details wrong). One thing engineers are very good at is understanding how things can fail. And when things do fail, engineers are great at discovering what went wrong. The blackout report is a fine example of engineering detective work — they’ve done a good job of getting the details right-.

-and missing the bigger picture. What we need in the way of recommendations is a set of principles that will deliver a more flexible, dynamic system; a transmission grid that better adapts to the demands that are placed upon it. The recommendations propose more rules, more government oversight, more penalties for non-compliance, regulatory review of a reliability surcharge to fund an electric reliability organization redesigned by government committee, and a number of other initiatives to expand government involvement in transmission system reliability. All of those recommendations focus on government review of supply side reliability decision-making.

This hidebound, typical, supply-focused response overlooks the very substantial role that the demand side can play in enhancing reliability, especially in situations that are unpredictable. The report has no discussion of how demand bidding in wholesale markets can smooth peaks, or how bidding demand reductions into capacity markets can provide another source of reliability. Nor does it discuss whether consumers actually want to pay for a more reliable long-distance transmission system, and what alternatives consumers may have. Thinking more creatively about markets and the beneficial tensions of supply and demand would have led to some insights related to a crucial factor in the blackout � reactive power management.

You can tell a lot about the perspective in the report from the heading in Chapter 2: “The North American Power Grid Is One Large, Interconnected Machine”. But this “one large machine” picture produces a misconception, or let’s call it an over simplification, of reality on the grid. This misconception is that reliability on the bulk power grid is an either/or proposition: either it is working, or it isn’t, and we’re all in this together. The implication is usually that we’re all bound together by one gigantic externality problem, and if you believe it then the answer is you need to pay more money to improve supply-side system reliability.

This mechanistic perspective reveals just how deeply the industry, regulators and policymakers still take a very physical supply-oriented view of the system. They would be more innovative, and come up with better policies for more robust networks, if they treated the power grid as an organic, dynamic system.

4 thoughts on “A Little Premature?

  1. I am too. However, I note that each of the sentences in your seventh paragraph really ought to have the phrase “in theory” inserted somewhere. Personally, I think appropriate pricing on the demand side can produce the very benefits you think it can, but you can’t blame people for being skeptical of an idea that to date does not have a long track record.

  2. That’s precisely why economic experiments are so valuable. Over and over and over in the lab we see demand response doing the kinds of things Mike and I describe here. Not in theory. In practice. Buyers exercising their own choice and their own power to say NO.

  3. It strikes me from your brief overview of the reported cause of the blackout was a failure on behalf of First Energy to properly supervise operations (transmission lines) under their control. If the answer contained in the report is more government rules, oversight and penalties, then the report is a massive failure. These are all after-the-fact blame shifting remedies. All stick, and no carrot. The report should contain a series of recommendations and potential solutions that encourage the safe operation of the system, that functions to the satisfaction of its customers, thereby ensuring the likelihood that such a future problem doesn’t similarly spin out of control. A rules-based, penalty laden regime could result in periodic and/or sporadic load shedding, so as to avoid such fines and penalties. Without knowing the specifics of these penalties, it seems highly unlikely that the blackout would’ve been prevented were such a regime in place. I look foward to your commentary on the report.

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