THE SCRAMBLE IS ON. Politicians who have spent decades watching our vulnerability to power outages greeted the recent massive blackout with the plaintive cry, “If only you’d listened to me . . .” New Mexico governor Bill Richardson, secretary of energy when Bill Clinton was cavorting in the White House, grabbed lots of airtime by claiming, “We are a major superpower with a third-world electrical grid.” President Bush, without specifying who has been asleep at the switch, said, “We will use this rolling blackout as a wake-up call for the need to modernize our electricity delivery system.” But the Republican mayor of New York, Mike Bloomberg, seems unlikely to be awakened from his slumber. “There are worse things than taking a summer Friday off from work,” he told New Yorkers, many of whom had been trapped in elevators and subways, and were forced to sleep on the city’s none-too-soft pavement before spending their delightful Friday off trying to get home for the weekend.
Environmental groups, of course, chimed in. If only Americans weren’t so wedded to their air conditioners and electrical gadgets; or were willing to spend thousands of dollars on conservation devices that would save a few dollars’ worth of electricity; or (more sensibly), if only the utilities would create economic incentives for some users to back off the system when capacity is strained, none of this would have happened. Not to be left behind in the race to write a prescription before the problem had been properly diagnosed was the gaggle of technopatriots who glory in America’s technology. They rushed onto the air and into print to blame the Canadians, who they alleged started the blackout that took more than 100 power plants out of service and darkened 60 million consumers in New York, Detroit, Cleveland, and great swaths of the Northeast and Midwest. Alas, it turns out that the Canadians were co-victims, not perpetrators in this black comedy of errors: The failure began with a nine-second instability in power flows in the Midwest and cascaded into Canada, not the other way around.
Vice President Dick Cheney’s much maligned National Energy Policy Development Group (the one that outraged Democrats by consulting in confidence with experts from the energy industry) can rightly claim a bit of foresight. The group’s May 2001 report pointed out, “The transmission system is the highway for interstate commerce in electricity. . . . Transmission constraints limit these power flows [between regions], and result in consumers paying higher prices for electricity. . . . Federal law governing the responsibility for siting transmission facilities was written in 1935. . . . Much has changed since 1935.” The report goes on to recommend that the president direct the secretary of energy to “identify transmission bottlenecks and . . . measures to remove transmission bottlenecks.”
But, just as in 1965 and 1977, nothing much happened.
Those earlier blackouts, the latter of which led to a major breakdown of law and order in New York City, produced little change in the way we operate the thousands of miles of wires that bring power from generators scattered around the country to homes, farms, factories, and offices. The transmission of power is the issue, not its generation. A surplus of generating capacity has kept electricity prices down in most places, as suppliers compete with one another for customers in this partially deregulated industry. But excess generating capacity in upstate New York is of little use to New York City because of inadequate transmission facilities.
It is the transmission infrastructure that failed us in 1965, 1977, and again in 2003, just as the Cheney report and others predicted it would. But the gap between recommendation and effective legislative and regulatory action is as large now as it ever was. True, after the 1965 outage we did establish the North American Electric Reliability Council to set rules that would preclude another such incident. But as Michehl Gent, president and CEO of that organization, admits, “If we’ve designed a system for this not to happen, then how did it happen? I’m embarrassed I can’t answer that.”
It is also true that we have no reason to be surprised by the most recent collapse of the transmission grid. Five years ago, a panel of experts told the Department of Energy that failure to improve the grid “will leave substantial parts of North America at unacceptable risk.” Two years ago, the general counsel of Gent’s council announced, “The question is not whether, but when, the next major failure of the grid will occur.” And, after digesting the Cheney report, the Department of Energy as recently as last month warned, “The nation’s aging electromechanical electric grid cannot keep pace with innovations in the digital information and telecommunications network.”
The task force set up by Energy secretary Spence Abraham and his Canadian counterpart will undoubtedly figure out precisely what went wrong this time. Not that the immediate cause of this incident, whether it be a failure of some bit of equipment or human error, is of great importance. The real fault, dear readers, lies not in our equipment, but in ourselves, and our fondness for the laws and institutions that make it difficult to construct a rational transmission policy. Solutions there are, but all involve costs we might not be willing to bear.
Start with “due process,” one of the greatest of our institutions. We have an elaborate set of adversarial procedures and safeguards designed to prevent innocent people from being hanged or incarcerated. Over time, however, we have transplanted a good many of those courtroom rules into administrative and regulatory proceedings, such as the ones that approve new electricity transmission lines.
The predictable results include squabbling over how much time is to be allowed the parties to appraise the evidence; briefs on often obscure points of law; interventions by parties directly, indirectly, and often not-at-all affected by the planned facilities; and the host of lawyerly moves and countermoves that might be needed when a life is at stake, but go a long way towards hampering the expeditious and expert decision-making process that administrative tribunals were set up to deliver.
This adherence to procedural due process favors any party that opposes approval of a project, for delay adds to cost and may eventually discourage investors to the point that they withdraw their application. This fact is not lost on environmental groups, competitors who might be threatened by approval, or local folks most affected by the inevitably intrusive nature of many of these projects.
The solution seems simple: Change the rules under which these hearings are conducted. But that would mean sacrificing the principle that only vigorously contested adversarial proceedings can produce a just and reasonable result, and that everyone affected by an agency’s decision has a right to be heard directly, or at least represented. Besides, the courts are ever on the alert for violations of procedural due process, and they are inclined to reverse the decisions of administrative agencies that do not give all parties an opportunity to be heard–and heard, and heard.
EVEN IF we were willing to change the rules that govern siting in the interests of expedition, we would run into another cherished belief–that decisions affecting the lives of individuals should be made at the level of government closest to them. Although the Federal Energy Regulatory Commission has the power to grant rights of way to natural gas pipelines, it has no such power over electric transmission facilities. That power resides in the states. And, as the Cheney report points out, “State decisions on where to locate transmission lines often do not recognize the importance of proposed transmission facilities to the interstate grid.” Which is a polite way of saying that NIMBY (not-in-my-backyard) reigns.
Officials in Connecticut saw no reason to approve a transmission line that would run under Long Island Sound and bring much-needed power to Long Island. After all, local environmentalists opposed the line–something to do with oyster beds, if I recall–and Long Islanders don’t vote in Connecticut. Similarly, a Vermont farmer sees no reason why he should stare at a transmission tower so that New Yorkers too dumb to move north can run their air conditioners all night.
There are two ways to solve this problem. Economists recommend bribes, or what they prefer to call market incentives. Pay the state of Connecticut a sum that will enable it to finance programs that its citizens value more than oysters. And pay the Vermont farmer for the intrusion on his view. A New York utility executive who managed to get high-voltage transmission wires strung across the state told me that he had gone from town to town asking each community what it wanted. He then distributed a fire engine here, a new swimming pool there, a skating rink in still another town. The line was built. Another executive tells me that the best way to get a town to approve the siting of some utility facility is to make a modest donation to the volunteer fire company. Whatever.
But such a market is not easy to organize. Which is why the Cheney group hit on an easier solution: federal preemption of state and local rights to approve the siting of new transmission facilities. “The siting process must be changed to reflect the interstate nature of the transmission system…with the goal of creating a reliable national transmission grid.” If you love big and bigger government, you will love this idea. If you think that the folks who brought you an energy policy that enriches corn growers in Iowa (subsidized ethanol) and corrupt royals in Riyadh should determine the structure of our grid, you will love the federal preemption idea even more.
Fortunately, or unfortunately, depending on your point of view, most governors and mayors hate the idea. As do politically potent state regulators, who fear that the feds will approve expensive facilities, forcing major increases in the rates paid by consumers. As the state bureaucrats see it, the feds will get the credit for increased reliability, and the state regulators will get the blame for higher rates.
Then there is the small matter of where the estimated $50-$100 billion for upgrading the transmission system will come from. The government is the preferred source for those who have long believed that our interests would be served by nationalization of the electric grid. But even if the federal government could come up with the funds for such a project, it is not clear that we want to see a federal takeover of our transmission system, or even a part of it. Again, imagine a system operated by the long line of political has-beens who have been rewarded with the job of secretary of energy only because it would be too risky to make them postmaster general.
Which means that we must rely on private capital. Small problem: Private investors complain that the returns regulators allow on investments in transmission systems are too low to reward them for the costs and risks of financing such facilities.
I have been around electric utility executives long enough to know that many are the financial equivalents of nymphomaniacs–they can never get enough. Some will appear one day on Wall Street to regale analysts with glowing reports of current earnings, and will appear the next day in their state capitols or in Washington to share with regulators sad tales of impending bankruptcy. But ultimately, we need more investment in transmission facilities–perhaps not for the massive duplication of existing lines that excites the imaginations of engineers eager for something to build, but for the construction of lines around bottlenecks and, equally important, for investment in technologies and equipment that will enable us to isolate trouble spots by means other than plunging a good part of the country into darkness. Private investors’ inaction speaks louder than words: There just isn’t enough profit available to make the game worth the candle.
The solution might be to allow competitive bidding for the right to augment existing transmission systems with more capacity or improved technology, with the project to go to the bidder who offers to do the job at least cost to consumers. I understand that such a system is working well in Australia, and it certainly seems worth considering here before we turn more responsibility over to a federal government not famous for the efficient operation of such facilities as it now controls–think forest fires, undelivered mail, Iraq’s electric system.
Unattended, the problem will get worse. The anemic economic growth of the past two years has reduced the rate of growth of electricity consumption, and therefore the strain on our transmission system. But thanks to the dynamic duo of Greenspan (low interest rates) and Bush (tax cuts), the economy is again growing, probably at an annual rate of around 4 percent. That surely means that we will be using more electricity in the near future, taxing the transmission grid beyond its ability to provide reliable service unless upgraded.
We will never eliminate the possibility of human error or equipment failure. But we can reduce both the frequency of such events and their consequences. All we have to do is surrender some due process protections, replace local with federal control of where transmission towers and lines may be sited, and add several billions to our electric bills. Perhaps an occasional blackout–it is, after all, 25 years since the last one of this magnitude–is the lesser evil, especially if we can arrange future outages for the summer Fridays that Mike Bloomberg feels we are entitled to have off.
Irwin M. Stelzer is a contributing editor to The Weekly Standard, director of economic policy studies at the Hudson Institute, and a columnist for the Sunday Times (London).
