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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
The Honorable Alan R. Schriber
Mr. Chairman, Members of the Committee, my name is Alan R. Schriber. I am the Chairman of the Public Utilities Commission of Ohio and the Ohio Power Siting Board and am here today to answer what questions can be answered to date and express our views. I appreciate the opportunity to appear before the House Energy and Commerce Committee. I respectfully request that the written statement submitted under my name on behalf of the Public Utilities Commission of Ohio be included in today's hearing record as if fully read. The Public Utilities Commission of Ohio is charged with the duty of regulating the retail rates and services of electric, gas, water and telephone utilities operating within our jurisdiction. Specifically, with respect to electricity, we regulate the distribution of power but not transmission. Additionally, since Ohio has restructured the industry, we no longer regulate generation. We have the obligation under State law to assure the establishment and maintenance of such energy utility services as may be required by the public convenience and necessity, and to ensure that such services are provided at rates and conditions which are just, reasonable and nondiscriminatory for all consumers. You have asked what factors and events led up to the blackouts that occurred on August 14. I am personally honored to be able to serve on the U.S.-Canada Joint Task Force on the Power Outage, and I am certain causes will be identified as expeditiously as possible. Following that, recommendations as to remedial action will undoubtedly be forthcoming. To this point, many of the events that took place in Ohio have been documented via timelines. However, the entire picture of what happened August 14th will take serious analysis well beyond the scope of Ohio alone. Its effect upon the citizens and businesses of Ohio were documented for you earlier by Governor Taft. In the aftermath, the Governor charged my Commission with the challenge of scrutinizing events as they occurred in Ohio and will complement those of the U.S.-Canada Joint Task Force. As we pursue our quest for causes and solutions to the outage, I think that we will find that the electrical system in this nation is by no means "third world". It is a very complex, interconnected system that has in fact worked very effectively. The system operated as it was designed to operate on that unusual day in August. Lines tripped, plants tripped, and systems were isolated to prevent further blackouts, just as they were designed to perform. If the systems had not operated as above, not only would the loss of power been far more extensive, but severe damage would have resulted to our infrastructure. While it is reassuring that the situation was "contained" to some degree, and that remarkable restorations were implemented, we cannot ignore the fact that weaknesses exist that call for repair. Much like the Interstate highway system, traffic patterns on the wires have changed, congestion has increased, and wires need fixing. Above all, we learned how vulnerable we are, and how dependent we are on our electric system. You will undoubtedly hear from opponents of deregulation that states such as Ohio that have promoted retail competition collectively contributed to the 2003 outage. I must take issue with this stance. The type of competition that has been promulgated at the state level is one of retail competition, wherein end users purchase their power from marketers who, in turn, buy in the wholesale market. The grid as we know it today has always been the vehicle over which wholesale transactions take place. It was built to accommodate transactions between utilities. This is nothing new. Nothing has really changed that principle except for the number of transactions that travel the wires, which is a measure of the overall increase in the demand for electricity. The electrons know nothing except that the quickest way to get somewhere is along the shortest path. Therefore, if you live in Illinois and buy electricity from New Jersey, you'll write a check to the generator in New Jersey. However, the electrons that you end up with will come from close by, while the New Jersey generator's electrons will stay closer to home. That is the difference between the contract path and the physical path. All of this is to say that deregulation, which has been adopted by less than half the states with a modicum of success, should not be a relevant consideration. The real challenge that lies ahead, and one that Congress must confront, is molding the electric grid into one that can accommodate the economic realities of today. The reality is that demand has shifted and so to have the suppliers. Parenthetically, one should note that, in the aggregate, generation supply is sufficient to meet demand. The problem is that the suppliers are not necessarily lining up through the grid with the demanders. The reason for this misalignment is a patchwork of overseers of the grid; regional transmission systems, private transmission systems, and systems within the vertical structures of utility companies are accountable to no single boss even though they all interconnect at some point. If we had many discreet, non-interconnected systems, I suspect we would have more blackouts than fewer, although of less duration, since there would be no interconnected neighbor to help out on a hot day. On the other hand, a regionally coordinated transmission system with a super-large geographical footprint would enhance the ability to work through all kinds of contingencies, some of which are simply beyond the scope of smaller control areas. Everyone should want to see our transmission resources allocated in an optimal manner. I am prepared to argue that its achievement is predicated on the super-regional transmission system alluded to above. To this end, FERC is the federal agency endowed with the authority to make it happen. Congress should support FERC's efforts to enlist participation by all transmission owners into a regional grid that recognizes the economies of centralized management. I do not know how many billions of dollars it might take to upgrade the grid, but I do fervently believe that whatever dollars are expended are done so most economically when the needs of the grid as a whole are evaluated as objectively as possible. Given the myopia associated with the fragmented systems of today, dollars may be thrown at "fixes" that often do nothing but add an asset to the utility rate base; not only are the needs of the region ignored, but the utility that has determined to fence itself in does very little at the margin to benefit its own customers. Regional approaches must be adopted to appreciate the needs and recognize the benefits. An independently administered regional transmission system, on the other hand, could prioritize its investments based upon marginal benefits. Dollars would flow to the points on the grid that would yield the most benefits, for example, the amount of regional congestion that is relieved, regardless of whose "backyard" it resides. Why would a single state permit the construction of a high tension wire within its boundaries if there were not a single "drop" along the way? The answer would be that it probably would if it understood that the congestion relieved by the line significantly increased the level of unobstructed power flows within the state. The problem is in the "understanding". The manager of an independent, integrated, profit maximizing transmission organization understands the resource optimization process because it has the bigger picture. In addition to rational planning, the aggregated grid system is also more likely to attract capital. Investment dollars move to the places where the potential yields are the greatest given the risks. We might conjecture that the greater the number of electrons that flow, the greater the dollars that flow to the construction of wires that carry those electrons. A unified super-regional grid maximizes power flow through the grid and should be politically indifferent as to the points of need located within. In contrast, sub-optimal investments in electric facilities are made when a single entity, without regard for the region around it, is more interested in closing itself off from the greater good. Those who provide the dollars are more likely to follow the path of investment with the greatest potential for risk/return optimization, which from my point of view resides with the regional grid. I have been talking to this point about the physical conditions that bind the grid for better or worse. However, the economics of all of this must not go unmentioned. Different transmission systems, as fragmented as they might be, often employ pricing strategies that are inconsistent with one another. When the price of moving electricity a number of miles across different operating areas varies according to whose area is being crossed, the outcome can be quite confusing for those paying the freight. Without belaboring the point, another strong argument that favors super-regional management of the grid is pricing consistency and the concomitant higher level of economic certainty conferred upon users of the grid. This aggregation of transmission systems or control areas is the cornerstone of the FERC's endeavor. To be thoroughly effective, however, it must also draw lifeblood from Congress as Congress deliberates its Energy Bill. It is antithetical to our interests to delay FERC's attempt to implement its design for a rational transmission market. If Congress must do any one thing immediately, it must address the issue of system reliability. While the states have the authority from their legislatures to set and enforce rules for distribution systems, the federal government must confer power upon someone to do the same for the transmission system. Whether it be the North American Electric Reliability Council (NERC) as currently proposed in the Energy Bill, or whether it be the FERC, the rules of the road must be mandatory. Once in place, the enforcement of the rules can follow the course taken by other federal agencies. A unique and efficient means of enforcement of some federal rules has evolved over the years. Ohio, as well as other states, undertakes a number of such tasks on behalf of federal agencies. For example, the US Department of Transportation has very specific rules that speak to natural gas pipeline safety. Ohio's Public Utilities Commission receives funds from USDOT to inspect and enforce those rules within the state's borders. Ohio also participates in the inspection protocols for the transportation of hazardous materials. The same process has evolved with the Federal Railroad Administration which has prescribed rules for rail crossings. The Ohio Commission has personnel evaluating and prioritizing grade crossings for the purpose of supporting communities with safety devices. Given the fact that Ohio and other states already support federal agencies in rule enforcement, does it not make sense to consider the same for the transmission of electricity? The events of the past couple of weeks speak clearly to the need for Congress to do two things. First, Congress must focus on endowing some agency or organization, e.g., the FERC or NERC, with rule-making authority that locks-in our quest for a reliable grid. Second, it must enable the FERC to move forward in its initiatives to bring about a physically and economically rational structure and governance to the transmission system. I appreciate the opportunity to have appeared here before you today and look forward to clarifying anything that I have said.
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