As it happens, Vernon Smith’s column in the WSJ (discussed by Lynne here) wasn’t the only public marking of the two-year anniversary of the August 14, 2003 blackout. A number of newspaper stories and opinion columns have marked the event.
Of particular interest are the comments of two people that are particularly well informed, Carnegie Mellon University economist Lester Lave and U.S. Secretary of Energy Samuel Bodman. Lave and Bodman have nearly diametrically opposed views on the amount of progress that has been made over the past two years, and in my view both are wrong.
Lave, as quoted in the Pittsburgh Post-Gazette, said that not only is another blackout possible, one is likely. “Almost nothing has been done,” he said.
The reason, Lave said, is that neither the improvements made to the operation of America’s electric grid since the blackout nor additional changes included in the energy bill address a fundamental problem in the way that electricity is delivered to American consumers.
The problem according to Lave is that the generation, transmission and distribution of electricity is increasingly performed by separate entities, and that we can’t be certain that the different entities will cooperate in a way to ensure reliability. He suggests we need an independent federal overseer to monitor grid reliability. The electric reliability provisions of the new Energy Policy Act will not ensure sufficient coordination, according to Lave, since “Even under the energy bill, individual transmission lines are still controlled by individual companies.”
Secretary Bodman, on the other hand, says in a USDOE press release that “we have made significant improvements” since the blackouts. He places much emphasis on the recently passed Energy Policy Act:
As we continue to improve our electricity grid, the Energy Bill signed by President Bush will greatly assist our efforts by increasing investment in infrastructure, improving power generation and requiring a high standard of reliability, Secretary Bodman said.
Bodman’s full list of improvements is laid out in a list of eight changes since the blackout and four initiatives underway. Five of the twelve improvements address reform efforts at NERC, the industry’s reliability organization, three of the points cite efforts to improve information available to grid operators, two points cite government agency changes and participation in task forces, and the final point is enactment of the Energy Policy Act. (I discussed one of the NERC changes in NERC COMPLIANCE AND THE SCARLET LETTER.)
I couldn’t help but notice that Bodman’s list displays the bureaucrat’s overwhelming urge to measure progress by inputs rather than outputs. Most of Bodman’s list describes governmental and quasi-public efforts devoted to addressing a problem, and none of the “improvements” actually identify improvements in service delivered to electric power consumers. Two common ways of measuring grid reliability look at the frequency and duration of outages: the system average interruption frequency index, SAIFI, and the system average interruption duration index, SAIDI. It would have been nice to see at least one newspaper account that described these data over the past few years.
But who is right about the changes since August 2003? Is it Lave’s “almost nothing” or Bodman’s “significant improvements”?
They both get some things right, but they both ultimately miss the key point. I think Lave is right to focus on electric industry structure and coordination issues; and if we limit our attention to Ohio and the surrounding area, then I think Bodman’s “significant improvements” is the right conclusion. But Bodman misses the real reasons to expect significant improvement in Ohio, and economist Lave overlooks reasons to expect the separate entities involved in electric generation, transmission and distribution to cooperate.
What both have missed in their explanations is the recent establishment of energy markets integrated with grid operations in Ohio. Over the past two years, transmission owners in Ohio have become affiliated either with PJM or the Midwest ISO. PJM has been running energy markets integrated with system operations for a number of years, and the MISO initiated energy markets integrated with grid operations earlier this year. At the core of these two grid operations are procedures founded upon bid-based, security-constrained economic dispatch, and these procedures make a big difference.
To be clear, I am not saying “markets solve all problems” nor that the PJM and MISO markets are ideal, nor that the current approach is the only one that can work. What I am saying is that the markets now in place as integrated with reliability practices will result in significant improvements in service quality, as compared to the administrative approaches used to manage transmission reliability in Ohio in August 2003.