The rapid transition to a competitive power industry wasresponsible for last summer’s outages and brownouts, and a repeatcould be in store for this year, according to the results of theDepartment of Energy’s (DOE) final report on reliability issues.

The report, which was issued last week, said that while acompetitive structure for the electricity industry should reduceoutages and brownouts, “the transition to that new structurepresents a risk to reliability.” Consequently, it called on thefederal government, states and the power industry to “proceedexpeditiously through this period of transition,” which has beenmarked by constrained transmission capacity and power providersmore interested in competing for markets than reliability ofservice.

The states are moving quickly towards a competitive powerindustry, as 24 states and the District of Columbia already havepassed legislation or regulatory orders that permit customers tochoose their electric providers. Congress, on the other hand, hasbeen dawdling over electricity restructuring for the past threeyears, and is nowhere near a final bill.

In a speech to the National League of Cities last Monday, EnergySecretary Bill Richardson said “it [was] high time for Congress toact” on a comprehensive restructuring bill, or face “more long, hotsummers of outages” across the nation.

Speaking in another forum, Federal Energy Regulatory CommissionChairman James Hoecker suggested that “even if [the Congress] actedtoday on some pretty good reliability legislation before it, itwould probably be unable to solve whatever problems might arisethis summer…..”

“…..I fear that if the electricity system is perceived to beat risk [from a reliability standpoint] by American consumers, themovement towards competition will be allowed to languish and, infact, it may even be reversed,” Hoecker warned during theconference sponsored by The Energy Council in Washington, D.C. This”would be a terribly wasteful detour from the competitive 20thcentury energy markets that are now within our reach.”

The DOE report was compiled by a team of experts from inside andoutside the department, who reviewed extensively eight poweroutages that occurred last summer. They discovered that the”necessary operating practices, regulatory policies andtechnological tools for assuring an acceptable level of reliabilitywere not in place yet.” The experts proposed 12 recommendations toavoid future outages.

Foremost, the report concluded the current system of voluntarycompliance with reliability standards was “inadequate.” Instead, itfavored mandatory compliance by all electricity providers. Congressshould create a self-regulated reliability organization withfederal oversight to develop and enforce the standards for bulkpower systems as part of a comprehensive bill.

It also stressed that federal guidance over the restructuringeffort was needed to improve reliability. “Many states have madesignificant progress in developing competitive electricitymarkets,” according to the report, but their efforts in developing”market-based mechanisms for promoting electricreliability…..have been less aggressive.”

Additionally, the DOE-sponsored study suggested that the federalgovernment eliminate barriers to distributed energy resources bysupporting the development of interconnection standards for thesenew technologies. This would enable utilities to respond morequickly to surges in power demand in areas where consumptionalready is high, Richardson said.

It believes more reliability-related research and development iswarranted as well, particularly during this transition period.”Industry investments in reliability-related R&D have declinedsteadily over the past few years” partly because “the ‘clients’ fornext-generation investments, such as regional transmissionorganizations, are still in their formative stage,” the reportsaid. Moreover, “the independent system operators currently do notown the transmission assets and are non-profit institutions.”

The study also proposed the creation of regional siting boardsfor new generation and transmission facilities. Andenergy-efficient measures should be promoted as a way to improvereliability as well.

In the interim although FERC has “no express responsibility” forreliability now, “in the past [few] years…..we have been drawninto this area by industry, which is struggling on its own to meetthe challenge and has now begun to fear it will not be able to doso without our help,” Hoecker said. “Clearly the Commission will becalled upon to respond to this critical need……In my remainingtime as chairman, therefore, I think reliability will be a criticalfocus of Commission activity.”

The restructuring of the energy markets, according to Hoecker,”is occurring much too slowly, and [as a result] the cost toconsumers, to the economy and to energy providers may be verysignificant.” This should be of particular interest to the naturalgas industry, he said, given that “electric generation is where[the greatest] increment of natural gas consumption will come from”in the future.

Susan Parker

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