2003 August 16 Saturday
Misregulation Of Electric Power Industry Limits Transmission Capacity

The Washington Post has a pretty good article on the problems with the US electricity transmission grid. (my bold emphasis added)

The Federal Energy Regulatory Commission, the agency that oversees transmission, has been trying for years to prod power companies into forming new, multi-state regional grids with authority over planning and system reliability measures. But utilities in the Southeast and Northwest fear that a more wide-open system would allow their cheaper power to be siphoned away from their customers. They have made war on FERC's plans and some members of Congress are trying to block the commission's transmission initiative from going forward until 2005 or 2007.


As deregulation flourished, investment dwindled in transmission lines, whose profits are limited by regulation.

As California learned with its own energy crisis, if parts of a system are deregulated and there is still lack of a market mechanism in other parts the result can be disastrous. There is not enough economic incentive for building transmission lines. As a result there are not enough transmission lines. Worse yet, deregulation of other parts of the electrical energy industry has actually increased the incentive for sending electricity longer distances from suppliers to buyers and hence the demand for transmission lines has been further increased by deregulation in other parts of the electric power industry.

Update: The political gridlock about whether and how to change the regulation of transmission lines has made investors reluctant to invest in transmission grid upgrades.

Christine Tezak, an electricity-energy analyst with Charles Schwab & Co., said that a lack of a political consensus on how to upgrade the transmission system has dampened the willingness of investors to put up the tens of millions of dollars necessary to improve the system.

Update II: Selective deregulation combined with regulatory obstacles for building new power lines has created a shortage of transmission line capacity.

Under deregulation, the plants have been sold to other companies that often sell their power to utilities hundreds of miles away, increasing traffic on the grid. To meet rising demand for power, new plants have been built, in some cases further straining the transmission system. Meanwhile, obtaining environmental permits to build power lines has gotten harder.

The blame game on this fiasco will become pretty intense. Don't expect the politicians to be willing to blame themselves even though they are at least partially to blame for what happened.

Update III: Lynne Kiesling, who runs the Knowledge Problem blog, is an energy policy analyst and her entire archives for August 2003 has more than you ever wanted to know about electrical energy policy and how it contributed to the biggest power outage in US history. (and perhaps in world history for that matter?) She has many posts and many links to relevant articles and web sites with great information. If you want to follow electrical power as a political and economic issue then her blog is a must read.

Lynne Kiesling also has a nice summary article on Tech Central Station about how partial deregulation has caused a shortage of electricity transmission capacity.

The numbers offered this weekend suggest that electricity volume has increased 30 percent while transmission carrying capacity has increased only 15 percent. This fact illustrates the mismatch between the dynamic markets for wholesale power and the rigid, maladaptive set of state-level regulations and incentives that govern transmission investment decisions.

Markets adapt to changing conditions. The existing electricity regulations do not, and because of that, the transmission infrastructure has not adapted to the increased demand on it from the increasing vibrancy of wholesale electricity markets.

Lynne points out that NIMBY (Not In My BackYard) an obstacle to both new electrical generator construction near heavily populated areas and to construction of new electric transmission towers. She argues more dynamic changes in retail electricity prices in response to limits of transmission and generation capacity could allow large customers to cut back on electricity usage during peak periods. I'd be curious to know whether dynamic pricing of transmission capacity allocation could also be done.

Share |      By Randall Parker at 2003 August 16 04:32 PM  Economics Energy

Jake said at August 16, 2003 7:38 PM:

The main reason the utilities are not building new power plants or transmission lines is that the CEOs do not have the courage to stand up to the left. If a CEO proposes a new power plant, the left wing media will vilify him. They will go deep into his past to dig up dirt in order to destroy the CEO’ reputation. The Eco-freaks will harass him and his family until they fear for their lives.

The CEO would rather do nothing and hope he can retire before the system blows up in his face.

Bob said at August 16, 2003 9:14 PM:


I think "Regulation of Power Transmission Limits Capacity" would have been a clearer, more accurate title for your post.

Plenty of people will blame the blackout on "deregulation" just as they blamed the problems with the heavily (and insanely) regulated California market on "deregulation". The term "misregulation" seems to imply the government could rationally regulate. However, no politician will want to take responsibility for an increase in transmission costs, which means transmission will be perennially undercapitalized.

Don Marshall said at August 17, 2003 8:52 AM:

Personaly, I think one of the biggest problems is the Eco-Freaks, of whom, Al Gore is a charter member. Just don't vote for the Democrates!

Don Marshall said at August 17, 2003 8:52 AM:

Personaly, I think one of the biggest problems is the Eco-Freaks, of whom, Al Gore is a charter member. Just don't vote for the Democrates!

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