President Bush late Thursday vowed his administration would carry out an investigation to find out what triggered the cascading power blackouts that pulled the plug on up to 50 million people in New York City and other major cities across the Northeast, Midwest and in eastern Canada last week (see related story). Energy experts and analysts believe an aging electricity infrastructure was to blame. But a definitive answer, some say, could take weeks or months.

The government needs to “take an assessment of why the cascade [of the outages] was so significant,” Bush said from San Diego, CA, where he was attending a fund-raising event. This will be a “very important part of the investigation.”

Bush called the blackouts a “massive national problem,” and said they highlighted the need for a more “modernized” electric transmission grid.

New Mexico Gov. Bill Richardson, who headed up the Department of Energy (DOE) under the Clinton administration, echoed the sentiment, saying the failure on the grid was a “wake-up-call” for Congress to pass broad energy legislation that promotes more investment in the nation’s aging transmission facilities and mandates reliability standards.

The United States is a super power, “but we have a Third World grid,” he said late Thursday on CNN’s “Larry King Show.” The nation’s transmission system, particularly on the East Coast, is “very vulnerable to this kind of overload.” National Grid Co.’s Niagara Mohawk grid in Upstate New York, which some initially cited as the source of the problem, “has always been overloaded,” he noted.

But Michehl Gent, CEO of the North American Electric Reliability Council, said he took “great issue” with Richardson’s comments that the U.S. has a “Third World” grid. “I think we have the finest electric grid in the world,” he said in a conference call with reporters on Friday. “I know it’s hard to make that claim today, but we have the finest technology, we have the finest people, the most highly educated people running it,” Gent said.

It “appears what we have is an old grid,” disagreed Charles Schwab energy analyst Christine Tezak during another conference call Friday. The nation’s focus on building power generation during the past years has led to a “paucity of investment in transmission.” She said she was convinced the power failures were caused by transmission overload. They weren’t generation-related or sparked by lightning, as had been reported initially, she noted.

FERC Chairman Pat Wood said he saw an “urgent need for more investment in the nation’s transmission grid,” which he called a “complex, highly interconnected machine” that has been taken for granted over the years.

Studies by the consulting firm R.J. Rudden Associates Inc. report that electric utilities and transmission owners need to be spending about $63 billion for distribution improvements and about $25 billion for transmission upgrades over the next five years. This averages out to about $13.5 billion a year for distribution and $5.3 billion a year on transmission. However, the studies said utilities spent only $8.5 billion on distribution upgrades and $3.7 billion on transmission in 2001.

“Without clear legislative and policy direction [from Washington], and an assurance that capital expenditures can be recovered through rates in a timely fashion, utilities and the financial community will be reluctant or financially unable to make the investment required to maintain reliability levels,” said Richard J. Rudden, CEO of the company that bears his name.

“The cascading events of Aug. 14 are not simply a regional anomaly, but underscore a potentially broader industry problem, and the need for national consensus,” he noted.

Events of the past three years — California’s blackouts, Enron Corp.’s collapse, the meltdown of the energy trading sector and now the blackout of a third of the United States and Canada — “signify that the nation’s energy leaders have been asleep at the switch,” said Ken Malloy, CEO of the Center for the Advancement of Energy Markets, a nonprofit, independent energy think tank in Washington, DC.

“There is plenty of blame to go around. The lack of serious attention to problems of the nation’s energy infrastructure has been a bipartisan failure,” and is shared by lawmakers, lobbyists, energy executives and consumers alike, he noted.

“I believe that this terrible [event] is now going to wake up Congress” to pass a comprehensive energy bill this session that includes mandatory reliability standards, Richardson said. The nation needs these standards “so people don’t overload the system.”

Power utilities also “have to stop trying to be monopolies in certain parts of the country” and make the necessary investments in the grid, he noted.

In addition to probing the cause of the grid failure, “we need to answer how is it going to be prevented in the future,” said Sen. Hillary Clinton (D-NY) on CNN. “We just haven’t made the type of national investments we need, particularly in transmission systems.” She criticized the Bush administration for not being “really focused” on the problem.

“We just take electricity for granted,” said California Gov. Gray Davis, who added that he was “optimistic” the blackouts would be a “wake-up call” to the Bush administration, Congress and the states.

“This is a real shocker; this kind of broad-based outage was not supposed to happen [after the] similar blackouts we had decades ago,” said Merrill Lynch analyst Steve Fleishman. “In the near term, we view it as a black eye on the sector and do expect a number of reviews and investigations to determine what caused this to happen, and most importantly, who should be blamed.”

If it’s concluded that lack of investment in the grid was responsible for the blackouts, that “would be potentially positive for utilities because they would be the ones to make that investment and would likely have a new area to grow their regulated business,” Fleishman observed. If the problem turns out to be with system control or controlling the grid, he believes this could put a damper on the independent system operator (ISO) process at FERC, which “would not necessarily be bad for utilities because they would be the ones to come back and replace the ISO in managing the grid.”

Rep. W.J. “Billy” Tauzin (R-LA), chairman of the House Energy and Commerce Committee, said his committee investigators already were looking into the grid failure, and that a full committee hearing would be held immediately when Congress returns to work in early September.

“It is not especially surprising to me that there has been a failure of a major North American power grid,” he said in a statement, adding that the “massive blackouts…highlight the critical need for Congress to enact a comprehensive national energy bill this year.” He said he hopes to have an energy bill on the president’s desk before Thanksgiving.

Meanwhile, Charles Schwab’s Tezak said the outages “could ultimately prove to be a catalyst to resolve the logjam” on electricity issues in the pending energy bill in Congress. She indicated that more contentious issues, such as oil and natural gas drilling in the Arctic National Wildlife Refuge, may be stripped from an energy bill to get it passed this session.

“While a majority of senators have been trying to hold the Federal Energy Regulatory Commission back from implementing market stimulating incentives until 2007, it is clear in the wake of yesterday’s events that such a course is probably bad for the economy, bad for national security and bad for politicians,” Tezak wrote.

The analyst believes the blackout is positive for transmission-owning utilities in the Northeast, Mid-Atlantic and Midwest if an energy bill is passed “and Congress decides not to include Senate language that would put a moratorium on FERC’s efforts to improve the investment climate.”

Tezak said that if other language in the current electricity titles from both sides of Capitol Hill is ultimately passed — and the moratorium language proposed by the Senate is dropped — “we see a positive outlook for transmission infrastructure growth, particularly for Midwest, Mid-Atlantic and Northeast utilities.”

Specifically, she cited the following power companies: NSTAR, Northeast Utilities, PSE&G, Exelon, National Grid Group, PPL Corp. and Consolidated Edison.

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