Mani Vadari, Ph.D & Todd Bessemer, Accenture
The conclusion of a two-part series. Part I ran in April.
Suggestions by some that grid-reliability problems would be solved by reducing the level of transmission interconnection are ludicrous. Interconnection between regions generally serves to improve system reliability. For example, generation lost in one region can be replaced by electricity from other regions, with reserves shared. This level of reliability would be prohibitively expensive if each utility system were its own island, which is the reason many utilities interconnected their systems in the first place. The trade-off to this benefit is that larger interconnected systems are more complicated to manage.
RTOs are the logical entities to provide this coordination
Instead of the current patchwork quilt of responsibilities, there is a need for mandatory regional coordination of both planning and operations. Experience, both overseas and in successful North American markets, has shown that this coordination role is best played by strong central system operators–whether they be known as ISOs, RTOs, ITPs or some other acronym.
The fewer of these organizations, and hence the larger their geographic footprint, the better. Initially, though, the constraints of realpolitik are likely to result in a greater number than optimal. This can be seen in the recent failure of some mergers, which can be attributed more to issues of politics and parochialism than of engineering or economics.
In addition to broad coordination within a region, there remains a need for inter-regional coordination. This can probably be best achieved through the enforcement of mandatory national (or potentially international) reliability standards–a logical extension of existing NERC responsibilities.
Regions are defined by physics, not politics
Regional boundaries are dictated by the flow of electricity, which, in turn, is determined by network topology and the laws of physics. However, in a legal sense, electricity transmission is governed by an overlay of federal and state regulation (and legislation), with each having its own rules and agenda. It is not unknown for these regulations to expect electricity to flow differently because it has crossed a state border–the electricity industry equivalent of trying to legislate the value of pi. (At least one state has also tried this. See “House Bill No. 246, Indiana State Legislature, 1897.”)
Some of these fictions are also entrenched in existing technical solutions. For example, the OASIS system for “physical” transmission reservation, mandated by FERC Order 888, is based upon a deemed “contract path.” However, this is a crude approximation to physical reality, which fails to recognize parallel and loop flows–an inherent result of Kirchoff’s laws–and therefore becomes increasingly invalid as the system becomes more meshed. This fiction can be increasingly dispensed with as the number of separate system operators shrinks and the size of the systems they operate grows. For example, as PJM expands, participants in the new service territory no longer need to make OASIS reservations to move electricity within PJM, but instead participate directly in PJM’s internal scheduling.
Action needs to be taken to establish a clear set of ground rules to govern electricity transmission–respecting the realities of transmission physics. As wholesale electricity tends to cross a number of state borders, and it is not realistic to expect a 50-state consensus, this action must be taken at a federal level. To the extent that FERC’s authority is ambiguous in these matters, Congress should act to establish certainty. It is worth noting that every successful electricity market established outside the U.S. has had a clear legislative mandate for market restructuring, accompanied by a concerted effort to establish robust market infrastructure.
But what about transmission investment?
The current lack of transmission investment in the U.S. has been suggested by some pundits as a key cause of the blackout. Transmission under-investment is a critically important issue, which must be addressed to meet the steady-state needs of transferring power between major load and supply centers. It is not clear, however, that it had any major influence in causing the blackout. August 14th was not an unusually high demand day anywhere on the system, and there is no indication that the transmission system was under any particular transmission strain prior to the cycle of events commencing.
The main evidence of a lack of transmission capacity in a given area is real-time congestion. However, the first lines to trip were not operating at full capacity, and tripped due to a set of non-congestion related causes. This then caused the re-routing of power, which led to overloading and additional power lines being tripped. It is arguable that if systems had worked as expected, and people had noticed the rerouting of power, then steps could have been taken to handle the overloading problem resulting from the initial trips.
It is equally important to note that the day-to-day management of system reliability is based upon the system the operators have, not the system they would like to have. In the event that insufficient transmission is available to get supply to load, this should result in orderly shut-down of some facilities, rather than instantaneous blackouts.
Isn’t this all just the fault of markets?
The 2003 blackout has been used to promote a number of agendas which have little or nothing to do with the actual event. One of the most absurd of these is the claim that the blackout came about because of markets and deregulation. The obvious implication seems to be that if the industry was run by regulated monopolies then this couldn’t happen. Only, it did happen: in 1965 and 1977.
Many of the arguments which have been advanced fly in the face of fact. These include:
“- The blackout occurred in only those regions with markets: Just plain wrong. The Midwest ISO does not even operate an electricity market. On the other hand, the region where the blackout was stopped, PJM, has the most mature electricity market in the U.S. and is the poster-child for FERC’s Standard Market Design (SMD).
“- Markets have led to changes in inter-control-area flows, which are severely straining the system: Generation and load are fairly much where they have always been. Additionally, electricity works by displacement. (Imagine throwing a bucket of water in a pool at the same time someone at the other end removes a bucket. As long as the water is all the same, it doesn’t matter that they don’t get the exact bucket you threw in. Electricity works in a similar way: It’s not necessarily your physical power that is delivered; it just replaces the power that your customer does use.) So, while financial flows between regions may have increased, the pattern of physical electricity flows is not impacted on the same scale. More importantly, system operators continue to ensure the system is operated within pre-established reliability constraints.
“- Markets have caused inadequate investment in transmission: Transmission remains a fully regulated business, not subject to market competition. The lack of transmission investment is generally driven by issues such as siting and permitting, allowed rate-of-return, etc.
“- Electricity markets don’t work: This wantonly ignores hard evidence to the contrary–both within the U.S. (e.g. PJM) and outside of it (e.g. Nord Pool, the Nordic Power Exchange in Sweden, Finland, Norway and Denmark).
“- Electricity is too important to trust to markets: This is a political/philosophical argument, not a practical one. The same arguments were advanced during the deregulation of oil, natural gas, telecommunications, etc.
Dr. Vadari (firstname.lastname@example.org) is an associate partner in the competitive energy markets practice of Accenture. He has over 15 years of experience assisting utilities and energy companies become more competitive in the marketplace. His main areas of expertise are in system operations, wholesale/retail energy markets, generation operations and energy trading/risk management.
Bessemer (todd.bessemer@marketreform. com) is a principal & director of market reform. He is a global expert in the field of energy market reform, deregulation and exchanges, having led projects and advised clients across four continents.