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Prepared Witness Testimony The House Committee on Energy and Commerce
Blackout 2003: How Did It Happen and Why?
Full Committee on Energy and Commerce
Ms. Elizabeth A. Moler
Mr. Chairman and Members of the Committee: Thank you for the opportunity to testify today on the recent blackout and its implications for our national energy policy. I am Elizabeth A. (Betsy) Moler, Executive Vice President, Government and Environmental Affairs and Public Policy for Exelon Corporation. Exelon is one of the nation's largest electric utilities and is a registered utility holding company. Our two utilities, Commonwealth Edison (ComEd) of Chicago, and PECO Energy of Philadelphia, serve the largest electric customer base in the U.S. with over 5 million customers, a combined service territory of over 14,000 square miles, and a population of nearly 12 million people. Exelon owns and operates transmission lines in Illinois, Indiana and Pennsylvania. Our transmission facilities in Pennsylvania are part of the PJM Regional Transmission Organization (PJM), which provides operation, planning and reliability coordinator services. In Illinois and Indiana, ComEd provides these services working closely with neighboring transmission operators to comply with reliability rules and to manage daily operation the grid. Since February, PJM has also been the reliability coordinator for our Chicago area transmission system. We plan to fully incorporate the ComEd transmission system into the PJM system later this year. Exelon also has one of the industry's largest generation portfolios -- more than 40,000 megawatts of owned or controlled capacity resources -- with a nationwide reach. Exelon Power Team, our wholesale power marketing division, markets the output of our generation throughout the continental United States and Canada with a perfect delivery record. At Exelon, "Keeping the Lights On" is job number one. It is a commitment that is engrained in our corporate vision statement and is shared by each of our 20,000 employees. During last month's blackout, Chicago and Philadelphia were far enough from the origin of the problem, and Exelon's transmission system was strong enough, well managed enough, and - above all - fortunate enough, to escape the cascading outages of transmission lines and power plants that struck much of the Northeast and Midwest regions of the country. Nevertheless, there are important lessons to be learned by us from this experience. The primary lesson learned is that the wholesale electricity grid is highly interconnected and interdependent. Given this physical reality, the electricity system requires carefully designed and consistent rules of the road so any investment will bring the maximum benefit to consumers throughout the region. The Committee has requested that I address several issues related to the cause of the blackout, its impact on Exelon and actions that can be taken to avoid such events in the future. Exelon's views on these issues are contained in our response to a separate letter from Chairman Tauzin that I have attached to my testimony. I would like to focus my remarks today on the primary question facing Congress and other Federal policymakers: how to improve the reliability of the nation's electric transmission grid to prevent a recurrence of last month's blackout. There are three primary actions that Congress must take to improve the reliability of the nation's electric grid: 1. authorize the establishment and enforcement of mandatory reliability standards; 2. provide incentives for, and remove barriers to, the expansion of the nation's electric transmission infrastructure, both by addressing barriers to siting new lines and by clearing the way for increased investment in the power grid; 3. facilitate the development of regional transmission organizations to oversee competitive wholesale power markets. Mandatory Reliability Standards In the aftermath of last month's blackout, there is near universal agreement that mandatory reliability standards are needed to improve the reliability of the nation's electric grid. The nation's transmission grid is really three separate systems: the Eastern Interconnection, which was the site of last month's outage; the Western Interconnection, which suffered a serious outage in August, 1996.; and the Electric Reliability Council of Texas, or ERCOT, which is virtually an electric island. While our nation's transmission system's reliability is the envy of the world, the grid is suffering growing pains. Compliance with the North American Electric Reliability Council's (NERC) reliability standards is entirely voluntary. Expert after expert has called upon Congress to give FERC authority to oversee an enhanced NERC with authority to make compliance with its rules mandatory for all market participants. It is time to heed those calls. As an aside, I vividly remember attending a meeting in Chicago that then-Secretary of Energy Hazel O'Leary called in September 1996, following the Western blackout, where all in attendance recognized the need for mandatory reliability rules. The mantra at that meeting was, "We are only as strong as our weakest link." That was true then; it has been demonstrated again today, but we are still waiting to see this much-needed legislation enacted. This Committee should be applauded for its repeated support for legislation to address the reliability of the electric grid. The Energy Policy Act of 2003 (H.R. 6), approved by the Energy and Commerce Committee and passed by the full House of Representatives in April of this year, includes provisions that would create an electric reliability organization to develop and enforce mandatory reliability rules. I urge the Committee to work with the Senate to assure these provisions are included in comprehensive energy legislation that must be enacted as quickly as possible. Expansion of Transmission Infrastructure While it is essential for Congress to empower an electric reliability organization, reliability standards alone are not enough. Expansion of the nation's transmission infrastructure is critical to ensuring the reliability of the electric grid. The nature of the electric power industry has been fundamentally transformed in the decade since Congress passed the Energy Policy Act of 1992, from a system of largely local electric utilities that relied on the transmission grid to engage in transactions with neighboring utilities to a complex system of utilities and merchant power generators that regularly buy and sell large blocks of electricity on a regional basis. It is clear that last month's blackout was not the result of an inadequate supply of electricity. Mr. Chairman, as you noted in your letter soliciting testimony at today's hearing, electric power supplies in the regions affected by the blackouts have generally been more than adequate to meet peak summer demands, with capacity margins exceeding 20 percent or more. The policies put in place by Congress in 1992 have been successful in spurring the construction of electric generating capacity in many regions of the country. Having adequate generation resources in place, however, is not enough to keep the lights on. To provide a reliable supply of electricity to homes and businesses, companies must be able to get power from where it is generated to where it is needed. Unfortunately, the nation's transmission infrastructure has not kept pace with the changing nature of the electric power markets. If you think of the electric transmission grid as being similar to the nation's interstate highway system, it is easy to understand why we need to expand our transmission infrastructure: we have a lot more "cars" on the "road" today than we did 10 years ago. While we can, and must, build distributed generation and embrace conservation to give people incentives to stay off the road. That alone will not do the job. We simply must build new roads and expand the highway from two lanes to three in parts of the country where the grid is inadequate. H.R. 6 contains a number of provisions to address the need for additional transmission facilities. The legislation includes provisions to attract capital investment by directing FERC to utilize innovative transmission pricing incentives and by repealing the Public Utility Holding Company Act of 1935, an antiquated law that effectively prevents many potential investors from investing in the construction of transmission facilities. The bill also amends the Internal Revenue Code to provide for accelerated depreciation of electric transmission assets from 20 to 15 years and to remove barriers for companies to sell their transmission assets to FERC-approved RTOs or independent transmission companies. H.R. 6 also addresses siting issues by granting FERC backstop transmission siting authority to help site transmission lines in "interstate congestion areas" designated by the Department of Energy if states have been unable to facilitate such siting and by reforming the transmission permitting process on federal lands. Some have been leery of embracing these vital transmission siting provisions, arguing that states should remain supreme in the siting area. Simply put, that will not work any more. As we saw vividly last month, blackouts do not stop at a single state's border. We must recognize that an adequate transmission network is a national priority that requires a national perspective. Frequently you need to enhance transmission in State A to serve customers in State B or even C, D or E. Authorities in State A may be loath to act to approve a transmission enhancement to serve State B if they see no benefit to their citizens. Indeed, they may not have authority under state law to approve facilities that benefit customers in another state. FERC, working with DOE, must be given the tools to ensure that the transmission grid infrastructure is adequate to the task or we will undoubtedly have recurring outages. We at Exelon congratulate this Committee, and the House Ways and Means Committee, for their support of these critical initiatives. Energy legislation passed by the Senate in August includes some, but not all, of these provisions. We strongly urge the conferees to adopt the House-passed provisions. Regional Transmission Organizations Since the blackout, we have heard much about the need for mandatory reliability standards and additional transmission facilities. Largely ignored, however, has been the important role that RTOs can play in assuring a reliable grid. Some have urged Congress to quickly pass electric reliability legislation and to forgo efforts to address a broader range of electricity issues as part of the comprehensive energy legislation. While electric reliability and the structure of wholesale electric markets may appear at first blush to be separate from one another, these issues are, in fact, inextricably linked. Policy decisions regarding reliability will ultimately affect the operation of competitive wholesale markets; similarly, decisions about the structure of wholesale power markets will have significant implications for the reliability of the grid. The Secretary of Energy's Electricity Advisory Board considered the reliability of the power grid last year. I had the opportunity to Chair the Board's Subcommittee on Transmission Grid Solutions, which examined in detail many of the questions facing this Committee today. The Subcommittee's Transmission Grid Solutions Report (available at http://eab.energy.gov), in addition to identifying many of the initiatives included in H.R. 6, highlighted the importance of Regional Transmission Organizations. The Subcommittee unanimously concluded, "RTOs can provide the key to the success of a long-term, dependable, reliable and competitive wholesale energy market." Exelon's PECO Energy affiliate is a member of the PJM RTO, which serves 25 million people in 8 states. Unlike some regional organizations, PJM operates the entire system under its control and is the control area operator, balancing load and generation on a real-time basis. As a result, there is a single decision-maker who sees everything that happens in the region as it happens and who can take actions necessary to effectively manage the grid. PJM experienced only minor outages on August 14, when neighboring systems in the Northeast and Midwest crashed. Some have blamed RTOs for contributing to last month's blackout, citing the fact that the blackout appears to have begun in an area within the Midwest Independent Transmission System Operator (MISO). It is important to note that, in contrast to PJM, MISO does not control the transmission operations of its member companies. There are 23 separately operated Control Areas in MISO, an area that includes portions of 15 states and serves 20.5 million people A properly designed energy market, such as that operated by PJM, enhances reliability. In a PJM-type market, congestion is relieved in real-time by generators and load reacting to price signals, effectively preventing the types of system overloads that threaten reliability. In non-market systems, the system operator must deal with congestion by canceling transactions - a process that can take up to 30 minutes and divert the attention of the operator from other matters. PJM redispatch occurs every five minutes, allowing congestion issues to be addressed as they arise. Currently, MISO does not operate an energy market; nor does it redispatch generation. Operating facilities in multiple states has taught Exelon the value, security and strength of regional coordination and planning, especially in times of crisis. RTOs offer a sound mechanism for addressing many of the barriers to the expansion of the nation's transmission grid. You cannot plan a viable, efficient transmission system on a state-by-state basis. Nor can you make the best decisions about the need for additional generation. RTOs can assess transmission needs on a regional basis, work with states to coordinate transmission planning and siting, and manage the daily operation of an energy market and regional transmission assets. Thus, while Congress must act to authorize mandatory reliability standards and to facilitate expansion of the transmission infrastructure, it is equally important to ensure that the structure of power markets will facilitate the effective operation of the electric grid and allow reliability standards to be enforced in an appropriate manner. I cannot over-emphasize this point: electric power markets are regional. Regional Transmission Organizations are essential for assuring reliability of electric power grid. Properly functioning RTOs operate as multi-state electrical regions. RTOs must closely coordinate with each other, and the borders between RTOs must be seamless. The market rules in New England must be compatible with those in New York and PJM; MISO and PJM need to work closely together, too. Given the catastrophic events of August 14, it would be irresponsible for Congress to halt progress towards the establishment of a wholesale electricity system that would better ensure reliable operations and provide the regulatory certainty essential to encouraging investment needed to modernize our wholesale electricity infrastructure. Thank you for the opportunity to appear today. I look forward to working with the Committee on these important issues.
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