The Grid and Its Woes

Broadly speaking, the modern electricity grid spans the continental United States and parts of Canada and is comprised of three synchronized AC transmission networks—the Eastern, Western, and Texas Interconnections.[1] These networks are subdivided into eight regional reliability councils, under the national coordination of the North American Electric Reliability Corporation (NERC), a non-profit entity tasked with developing and implementing grid reliability standards.[2]

From a physical standpoint, the grid consists of nearly 6 million miles of distribution lines, and about 170,000 miles of high-voltage (200 kilovolts or more) transmission lines.[3] All totaled, the grid serves over 140 million residential, commercial, and industrial customers.[4] However, although the grid is national in scope, its millions of miles of transmission and distribution lines are owned by a hundreds of different entities, the vast majority of which, nearly 66%, are investor-owned utilities (IOUs).[5] Neither NERC nor the regional reliability councils have transmission planning or grid management authority. Rather, the transmission-owning entities themselves manage the grid operation, or, in the areas that have restructured, by Independent System Operators (ISOs) or Regional Transmission Organizations (RTOs).[6]

Unlike other forms of energy, it is difficult to store electricity for transportation or later consumption.[7] As such, the transmission system must constantly balance supply with demand,[8] while also being “flexible enough, every second of every day, to accommodate the nation’s growing demand for reliable and affordable electricity.”[9] This rising demand and its accompanying generation increase have not been met with additional investment in new transmission facilities.[10] This effectively forces more power onto the system, creating transmission constraints or “bottlenecks.”[11] In addition, the commodification and subsequent trading of electricity has allowed for massive amounts of power to be directed along already congested lines, thus heightening the risk of widespread system failure.[12] This problem of transmission congestion has been steadily increasing, leading to higher rates for consumers and elevated risks of rolling blackouts, the likes of which California and in the Northeast experienced in the early 2000s.[13] As the Department of Energy (DOE) stated in its 2002 National Grid Study, “[t]here is growing evidence that the U.S. transmission system is in urgent need of modernization.”[14]

Data from the past twenty years reveal a sharp decline in transmission investment. Between 1993 and 2000, R&D spending in the transmission system dropped by 74 percent.[15] From 1995 to 2000, this spending accounted for only about 0.3 percent of total electric utility revenues, in contrast to similar investments in the computer industry (12.8%), pharmaceutical industry (10.4%), and petroleum industry (0.8%). Between 2000 to 2006 R&D investment in the power sector reduced even further to 0.17%. These reductions are likely the result of widespread utility reluctance to incur R&D expenditures, which may be difficult to recover in today’s competitive markets.[16] As discussed below, federal and regional regulators have attempted to craft cost allocation policies that will break this stalemate and prompt utilities to increase their transmission investments.

Statutory and Regulatory Development

Restructuring: The Effects of FERC Orders 888, 889, and 2000

The Energy Policy Act of 2005 and FERC Order 890

FERC Order 1000 (forthcoming)

 

 


[1] MIT, The Future of the Electric Grid, 3 (2011) (“These three grids, shown in Figure 1.1, account for 73%, 19%, and 8%, respectively, of U.S. electricity sales.”).

[2] For descriptions and maps of the interconnections and regional entities involved in managing the U.S. transmission system see North American Electric Reliability Corporation, Key Players: Regional Entities. Among the eight regional entities are the Western Electricity Coordinating Council (managing the transmission system for the entire Western Interconnection), and the Texas Reliability Entity (managing the Texas Interconnection). In addition, transmission service in the Eastern Interconnection is collectively managed by five Independent System Operators (ISOs) and Regional Transmission Organizations (RTOs): Florida Reliability Coordinating Council (FRCC), Midwest Reliability Organization (MRO), Northeast Power Coordinating Council (NPCC), Reliability First Corporation (RFC), SERC Reliability Corporation (SERC), and the Southwest Power Pool, (SPP). Id.; Paul L. Joskow, Center for Energy and Environmental Policy Research, Transmission Policy in the United States, 6–7 (2004).

[3] MIT, supra note 1, at 4.

[4] Id. at 1.

[5] Federal entities own about 14% of the U.S. transmission system. The remaining 20 percent is owned by a combination of publicly owned entities, cooperatives, and independent transmission companies. Id. at
4–5.

[6] For further discussion of the development of ISOs and RTOs, see the page titled Restructuring: The Effects of FERC Orders 888, 889, and 2000.

[7] See Michael Dworkin, et al., Energy Transmission and Storage, in Law of Clean Energy 531 (Michael B. Gerrard, ed. 2011); see also Steven Ferrey, Deregulation of Power, in Law of Independent Power §10:1 (2013)(“The electricity industry is characterized by . . . insufficient storage capacity, [and] the necessity to meet demand instantaneously without storage technologies….”).

[8] See Dworkin, et al., supra note 7. Transmission lines can only operate within narrow frequency ranges—too much or too little power being transmitted can trip circuit breakers and cause systematic failure. Eric J. Lerner, What’s Wrong with the Electric Grid? Industrial Physicist (October/November 2003) 10. 

[10] Id.

[11] Id.

[12] Energy experts and planners attribute deregulation and electricity commodification as factors contributing to the instability of the grid. See Lerner, supra note 8 at 10 (discussing how the combination has facilitated the interconnection of additional generating units, thus “overloading transmission lines,” while simultaneously allowing generators to unexpectedly shift their load destinations according to power trades); Ferrey, supra note 7, at § 8:2 (“The interstate transmission grid was never designed to accommodate widespread trading of power in a deregulated era.”).

[13] Id. For further discussion of the California energy crisis and citations to additional resources see Joseph P. Tomain, The Past and Future of Electricity Regulation, 32 Envtl. L. 435, 449 (2002). For additional information about the Northeastern blackout, see generally Lerner, supra note 8.

[14] 2002 DOE Grid Study, supra note 9.

[15] S. Massoud Amin, U.S. Electrical Grid Gets Less Reliable, IEEE Spectrum, January 2011.

[16] See MIT, supra note 1, at 10.

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