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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
Mr. Sonny Popowsky
Chairman Tauzin, Chairman Dingell and Members of the House Energy and Commerce Committee: Thank you for inviting me to testify on this matter of extraordinary importance to electricity consumers across the Nation. My name is Sonny Popowsky. I am the Consumer Advocate of Pennsylvania. I am a state official and I have spent the last 24 years representing the consumers of Pennsylvania on matters involving their utility service. I have served as the President of the National Association of State Utility Consumer Advocates (NASUCA) and I currently serve on the Executive Committee of that organization, whose members are state-designated consumer representatives in 40 states and the District of Columbia. In 1997, I was elected to serve as the first representative of residential electricity consumers on the Board of the North American Electric Reliability Council (NERC). I served on the NERC Board until 2001, when the governance of NERC was transferred to an independent non-stakeholder board. Since that time, I have continued to serve as a consumer representative on the NERC Stakeholders Committee. As an advocate for electricity consumers and as a participant at NERC, I received two shocks as a result of the events of August 14, 2003. The first shock was that this massive cascading outage could have happened in the first place. This is precisely the type of event that NERC standards were designed to prevent. Indeed, this is the very type of event that NERC itself was established to prevent. In other words, unless someone was operating outside of NERC reliability standards, or unless there is a serious gap in NERC standards that we didn't know about, this catastrophic event simply should not have occurred. My second shock was when I read on Monday August 18 that Secretary of Energy Abraham had stated on a Sunday morning news show that consumers will have to pay up to $50 billion in higher electric bills to modernize the Nation's transmission system. As stated by Secretary Abraham: "Ratepayers, obviously, will pay the bill because they're the ones who benefit." I agree that consumers will ultimately pay the costs of any necessary improvements to the transmission network. I also agree that consumers are, or at least ought to be, the primary beneficiaries of a reliable transmission system. Ask any consumer who has had to dispose of a refrigerator or freezer full of spoiled food after a long outage, and they will tell you that they are more than happy to pay their fair share of the costs of a reliable electric system. I don't think, though, that it should simply be assumed that spending $50 billion of ratepayer money on new transmission facilities (or higher equity returns on new and existing facilities) will solve the problems that caused the blackout. If the events that gave rise to the August 14 catastrophe were operating failures and communications failures, then building more power lines or increasing utility profit levels is not the solution. Fortunately, one possible immediately constructive response is already before the members of this Committee and Congress, and that is the establishment of mandatory reliability rules that has been proposed in legislation that is supported by NERC and by a wide range of organizations including NASUCA and the Edison Electric Institute (EEI). I would venture to say that this may be the only provision of the Electricity Title in either the House or Senate Energy Bills upon which NASUCA and EEI agree. I think that is because nearly everyone in the industry recognizes that voluntary reliability rules that were enforced in the past by peer pressure and mutual self-interest will simply not work in today's more competitive wholesale bulk power market. The people who operate the transmission grid must understand the rules as well as the consequences for violating the rules. We don't have voluntary speed limits and traffic rules on our interstate highways, and we can no longer rely on voluntary reliability standards for operation of our interstate electric grid. Another area where the need for improvement seems clear is in the area of communications and coordination between system operators within regions and between regions. As a representative of Pennsylvania consumers, I feel fortunate that most of our electric utilities are members of the PJM Interconnection and indeed became members of PJM many years before the acronyms ISO and RTO were ever invented. The utilities of the original PJM have operated on an integrated basis for decades and, for reliability purposes, the entire original PJM system was operated as a single control area. What that means is that if something goes wrong anywhere on the PJM system, the information appears immediately in the PJM control center, where the problem can be evaluated and corrective actions taken in order to protect the overall reliability of the system. PJM is in a position to operate every part of the system in a way that maximizes the reliability and economic benefits of the entire system. Significantly, in recent years, PJM has evolved to the point where the system operators and management of the organization are truly independent of the individual utilities whose transmission facilities comprise the physical backbone of the PJM Interconnection. What that means is that PJM's employees can design and operate the system in a manner that serves the grid as a whole, and not the potentially conflicting financial interests of a particular owner or user of the grid. Whatever one thinks about the market design of PJM and the use of PJM as a model for a standard market design across the Nation, I think a great deal can be learned from the way the original PJM has operated (along with the Mid Atlantic Area Reliability Council, whose boundaries also coincide with the traditional PJM control area) as a framework for reliable regional operation, particularly in the highly interconnected Eastern grid. As shown by the experience of August 14 in the New York ISO, however, and even in parts of PJM in Northern New Jersey and Northwestern Pennsylvania, the mere presence of an independent system operator cannot prevent a failure from one part of the Eastern Interconnection from cascading into another area of that Interconnection. This clearly points to the need for better communications and coordination between and among regional operators. This communication must occur in the hours leading up to a potentially catastrophic failure, not just in the few seconds it takes for such a failure to spread across a wide swath of the Nation. I do not agree, however, that the events of August 14 demonstrate that America is served by an antiquated or "third world" transmission grid. NERC has stated on countless occasions that the North American bulk electric system is "the most reliable system in the world." Again referring to PJM, our utilities committed to more than $700 million in transmission improvements in 2001 and 2002 pursuant to the PJM Regional Transmission Expansion Plan, which is a regional planning process that identifies potential reliability problems in the PJM region and develops cost-effective solutions to address those concerns. The PJM transmission planning process is now being expanded to include projects that are necessary to resolve economic transmission bottlenecks as well as reliability concerns. I am not trying to say that we do not need significant continuing transmission improvements, either in PJM or around the Nation. We do. There are many areas that require additional investments to ensure that we have a robust, reliable transmission network. I also agree that transmission owners ought to recover the costs of needed facilities, including a fair rate of return on their investment that is commensurate with the risk of those investments. I think it is a mistake, though, to assume that the current level of returns authorized by the Federal Energy Regulatory Commission - such as the 12.88% return authorized by FERC to transmission owners in the Midwest ISO - is somehow inadequate to attract sufficient capital. Though not risk-free, transmission facilities are a relatively safe investment, certainly much less risky than many of our utilities' ill-fated investments in competitive generation, trading, and foreign subsidiaries. It is those unregulated investments, not investments in regulated transmission and distribution facilities, that have led some of those companies up to and over the brink of bankruptcy. As members of the Transmission Access Policy Study (TAPS) group have pointed out, "there is no lack of capital available to fund transmission construction that will provide a solid year-in and year-out 12% return on equity with very small risk. Ask anyone with an IRA." I also believe it is important to find out what went wrong on August 14 before we can determine where to make the investments that will ultimately be supported by ratepayers. To the extent the widespread outage was a result of operational failures or non-compliance with NERC standards, or to the extent the NERC standards failed to provide appropriate guidance for this particular series of events, I would say again that the answer is not necessarily massive construction of new power lines. Consumers should expect to pay the costs of a reliable transmission network, and the cost of that network may be substantial. But consumers should also expect that the network will be operated in the public interest and within the rules that have been put in place to ensure that the system is safe and reliable. It has been widely reported that the potential for significant transmission problems in parts of the Midwest was identified in a Report by NERC that was issued in May 2003. What that Report actually stated was that "As long as transmission limitations are identified and available operating procedures are implemented when required, no cascading events are anticipated." The corollary to that comment, however, is that if transmission limitations were not identified, or if available operating procedures were not implemented when required, then the events of August 14 could indeed occur. Accidents will happen. Tree limbs will fall on power lines. Ice storms will wreak havoc in certain locations. There is no such thing as a perfectly reliable electric system and, even if there were, it would be infinitely expensive. But the North American electric system is designed and is supposed to be operated so that a failure in one part of the system does not grow into an uncontrolled cascading outage like the one experienced on August 14. I believe that the investigators from NERC, DOE and the affected system operators will get to the bottom of what happened from a physical and technological standpoint on August 14. America's consumers will then look to the members of this Committee and other state and federal policy-makers to use the results of that investigation to take steps to ensure that this type of event does not happen again, and that all Americans continue to receive reliable, and reasonably-priced electricity service. Thank you again for permitting me to testify at this hearing. I would be happy to answer any questions you may have at this time.
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