DOE says slow-moving electric reform laws put reliability at risk

By Staff -- Purchasing, 7/13/2000

As the prospect of summer power outages again looms in select regions of the country, a Department of Energy (DOE) report warns of possible continuing problems during the nation's transition to competitive electricity. Unless existing reliability mechanisms are changed as states move toward deregulated markets, the report says, restructuring "presents a risk to reliability." About half the states have enacted legislation or put into effect retail electricity competition. All the rest are considering the issue, DOE has said.

The report emerged from the June 1999 power outages in the Midwest and New England. DOE's concerns about further spot outages this summer in periods of extreme heat and/or breakdowns in generation or transmission systems are supported by the industry's own reliability organization, the North American Electric Reliability Council (NERC). While most of North America has enough capacity to meet expected demand this summer, NERC reports, unusually hot weather periods or unexpected generation or transmission outages may strain supplies in New England, New York, and the Southwest-California, Arizona, New Mexico, and southern Nevada. While New England and New York have emergency procedures in place, NERC says the Southwest "will be highly susceptible to higher than unexpected demand or unscheduled generator outages."

Meanwhile, the Federal Energy Regulatory Commission (ferc) has moved to counter potential system reliability problems this summer. For the East Central region, it approved an "inadvertent settlement tariff" that requires utilities experiencing low voltages during heavy demand periods to compensate neighboring power systems for electricity that flows to their systems. For the New England region, the ferc approved a proposal for utilities to pay consumers to reduce their electric power loads during peak use periods.

Discussing the longer-term reliability outlook, the DOE report says that the events of last summer show that "necessary operating practices, regulatory policies, and technological tools" to assure acceptable reliability levels are not yet in place. While recognizing that competitive markets will operate in some ways to improve reliability, the report recommends a number of steps, including new or modified institutions "to monitor and enforce compliance with reliability standards."

Among Federal actions needed, the DOE report includes:

• ;Support for development of fair, efficient, and transparent markets for electric power,

• Market rules that allow customers to reduce demand,

• Interconnections standards for distributed energy power suppliers,

• Creation of a self-regulated reliability organization with federal oversight as part of comprehensive restructuring legislation,

• Development of uniform definitions and measurements for reliability,

• Improved regional, state and local electricity emergency measures, and

• State efforts to form regional siting boards for new power plants.

Electric power market restructuring bills have moved, finally, to committee markup stages in both branches of Congress, but significant differences remain between the Republican and Administration bills, according to congressional sources. In addition, the ongoing appropriations battle makes final action unlikely this year, congressional sources say, with the shortened legislative calendar in a presidential campaign year.

DOE Secretary Bill Richardson says the draft deregulation bill circulated by House Commerce Committee Chairman Tom Bliley does not go far enough to clarify ferc's authority over transmission facilities. Richardson says, "a more comprehensive approach is necessary" and that clarification is necessary to ensure that "utilities will be less able to use their ownership of such facilities to inhibit competition."

Richardson reiterates support for the Clinton Administration's bill, which provides for promoting regional transmission organizations, mandatory reliability standards, and preventing "abuse of market power," among other steps.

Industry and consumer groups agree that reliability is a problem but emphasize different approaches to a solution. John Anderson, executive director of the Electricity Consumers Resource Council (elcon), representing industry bulk power buyers, says that reconstituting nerc as an "independent reliability organization" alone "would not improve reliability because it doesn't deal with the market power of individual participants, particularly the incumbent utilities." The Bliley bill "basically codifies the situation we have now and doesn't necessarily assure the market forces to bring about capacity additions," Anderson adds.

Spokesman Jim Owen at the Edison Electric Institute, representing investor-owned utilities, says the DOE's report to Richardson has some potentially helpful items. He notes, however that, "One of the truly big challenges is to expand transmission systems." This is necessary in order to handle new patterns for moving power around the country. Among the measures needed, Owen says, are new pricing incentives, formation of RTOs and help for siting new power lines.