RE: [Futurework] the "Cost Efficiency" of Deregulation

[Karen Watters Cole]

It’s good you posted this article, Chris.  I’ve seen that DOE quotes the number at half that, $50 B, so like the headlines that ran during the blackout saying 50 million people were affected, the journalistic error was that the blackout affected a region of 50 million people, not that all of them were indeed blacked out.  But who’s counting when it’s that high? This is the trouble with major catastrophe’s driving large policy or institutional change, some of the numbers and solutions will be over hyped to get the best deal possible for those who will profit, not for the public benefit. I’m all for modernizing the grid, but not at inflated cost estimates because Congress and the industry were caught napping on a vital resource problem that includes expanding the amount of land the gov’t would claim under eminent domain to build the expanded grid.  There are companies producing new composite product, for example, that would increase capacity on the same lines without having to do massive new construction.  The suggestions of mini-plants makes a great deal of sense to those of us living on hydropower, where mini-plants have been built to supplement the main source, as do wind farms.  As with the “potato famine” theory of computer security systems, if we have broader diversity of source, we may reduce the impact when there is failure of service.  Can’t we do something this important in a thoughtful, incremental way rather than rushing in another jumbo package that we later learn has a lot of hidden kickbacks?  - KWC   From Wharton’s newsletter @ http://knowledge.wharton.upenn.edu/whatshot.cfm: Lights Out: lessons from the blackout “Paul R. Kleindorfer, co-director of Wharton’s Risk Management and Decision Processes Center, who has studied deregulation in the U.S. and overseas, says the U.S. should consider the “Transco” model of the National Grid Transco in Britain. National Grid’s earnings depend both on a regulated rate of return on the capital it has invested in the transmission system and on its performance operating it. The company is penalized if it fails to maintain voltage and frequency within contracted bandwidths. It also has incentives to reduce congestion and maximize “merit-order” dispatch – that is, ensuring that increases in load are served by the least-costly generation available. In the U.S., Kleindorfer says, “the investment decisions don’t have a clear line of sight to an ownership and governance structure with clear economic incentives.” Leonard S. Hyman, a financial analyst and economist with consultant R.J. Rudden Associates, says FERC’s “stingy” rates of return on transmission spending also have hampered investment. But while Hyman believes utilities are spending less than they should on their transmission and distribution systems, he admits, “I have no idea whether a more modern grid would have prevented the problem.”   “We could reduce the probability of outages; we can’t eliminate them,” adds Hanger. “We could design the system to fail only one day in 20 or 100 years. But if we’re going to do that, we’re going to have to be prepared to pay more for electricity.”   While there is wide support among policymakers for targeted transmission investments to relieve congestion, Hanger and others say the country does not need 30,000 miles of new transmission lines, as some contend.   In parts of the Midwest, Northern California and New England, high-voltage cables are overloaded as much as 80% of the time, according to the Energy Department. But in most of the U.S. the system operates at 50-60% of total generation and transmission capacity on a typical day. There are 100 hours per year when it is stressed close to its limits.  “Do we want to double the size of the system or build in more redundancy so that 100 hours falls to perhaps 25 hours?” Hanger asks.   Cost of fixing the dilapidated U$ power grid:  $100 Billion. Cost of NOT fixing the dilapidated U$ power grid:  $100 Billion PER YEAR. So why hasn't it been fixed/upgraded long ago?  Deregulation... http://story.news.yahoo.com/news?tmpl=story&u=/nm/20030825/us_nm/power_blackout_transmission_dc_5 Power Grid Upgrade to Cost Customers $100 Billion    Mon Aug 25, 3:20 PM ET    By Chris Baltimore WASHINGTON (Reuters) - U.S. consumers would have to foot a $100 billion bill to upgrade the nation's rickety electric transmission grid but could reap five-fold savings from cheaper power costs, according to an industry report released on Monday. The Electric Power Research Institute, a utility-funded group based in Palo Alto, California, said sizable investment is needed to prevent a repeat of the massive Aug. 14 blackout which left more than 50 million people without power and exposed the dilapidated state of the nation's power grid. The root of the problem is longtime institutional neglect of the nation's transmission grid, which could only be reversed by hefty spending, the group said. The $100 billion price tag to fix the problem is "the best estimate that we can do at present," said Stephen Gehl, director of strategic technology for the group. "It's an approximate number -- we would be the first to say that." "The pressures of cost containment have essentially stifled and deferred needed infrastructure investment in the electricity sector for at least two decades," the report said. It said the investment deficit is now running at about $20 billion a year. The Edison Electric Institute, the biggest U.S. utility lobbying group, has pegged the cost of needed long-distance transmission projects at $56 billion over the next nine years, not including local distribution projects. Long-haul transmission lines transport high-voltage electricity from generation plants to central hubs, where it is funneled through local utilities' distribution networks to homes and businesses at a lower voltage. Transmission projects have suffered at the same time as companies have invested in new power generating plants. While the cost of upgrading transmission lines would be large, the potential payoff would be huge, the industry group said. Power grid bottlenecks and system glitches cost the U.S. economy an estimated $100 billion a year -- 1 percent of total U.S. gross domestic product, it said. The average U.S. consumer would see annual power bills rise by less than $100 to pay for new transmission projects but would save $500 a year from lower power costs, the group said. Activist groups said consumers shouldn't be stuck paying the bill. Mark Cooper, an economist at the Consumer Federation of America, said the upgrades would be a raw deal for ratepayers, saying billions of dollars in hidden costs were needed to finance new grid projects. "The billion dollar benefits don't materialize tomorrow," Cooper said. "If you match the stream of costs to the stream of benefits, this is a terrible deal for the American consumer." The Federal Energy Regulatory Commission (news - web sites) (FERC), which has proposed rules to boost incentives for utilities that build new transmission capacity, said consumers would clearly benefit. Transmission accounts for only 10 percent of a consumer's power bill, but new grid projects could return rewards far greater than their cost, FERC spokesman Bryan Lee said. "We're confident these improvements will eliminate bottlenecks, improve grid access and help reduce the commodity cost of the delivered bill," Lee said. _______________________________________________ Futurework mailing list [EMAIL PROTECTED] http://scribe.uwaterloo.ca/mailman/listinfo/futurework