The August 14 blackout in Ontario and eight Eastern U.S. states was a historic event, a disaster that hasn’t happened on this scale for decades. While there was much discussion on the root cause, it is clear we experienced a major systemic breakdown in our response. Transmission lines are knocked out of service on a fairly regular basis in North America – a reality of the electricity business. But what could have been the cause of the cascading blackout that affected some 50 million people? This is the question being addressed by the bi-national task force announced by U.S. Energy Secretary Abraham and Canadian Natural Resources Minister Dhaliwal.
The good news with respect to the process embarked upon is that the expertise of the North American Electric Reliability Council (NERC) is being integrated into the fact-finding mission. NERC is poring through the records of over 10,000 discrete system events to determine what really happened. And no useful conclusions can be drawn before the facts are established and more importantly, understood.
Once we have a clear picture of what happened and why, we can set about fixing the problem. Action on many fronts is likely to be required, including both short-term and longerterm initiatives. In the short term, making sure this sort of event doesn’t happen again soon is job one. Making sure it is unlikely to occur again for a long time to come – or ever – is job two and more fundamental in nature.
It is clear, however, that the system was successful in protecting equipment and making possible a rapid restart of the system. This was the first major widespread failure in the Eastern Interconnection in 38 years – not an altogether bad record. However, there is a growing consensus that the transmission system needs substantial investment, as indeed do our distribution and generation assets.
Modernization of the electricity system will not be a cheap or easy process – the total cost being open to debate. EPRI estimates it would cost $10 billion a year for 10 years to update the U.S. portion of the transmission system alone. Another consulting firm, R.J. Rudden, predicts the cost would be between $30 and $50 billion. By their analysis, this manageable cost would add between $50 to $125 to the average residential customer’s bill over five years, or less than one percent a year. Given that some estimates of the annual cost of outages in the U.S. total $100 billion, this looks like a worthwhile investment.
The challenge is how to ensure those investments are indeed made. CEA has been advising decision-makers in Ottawa and Washington on what steps could be taken to facilitate these needed investments. There is a growing concern that the absence of a coherent and shared energy policy perspective has led to a sense of complacency about the electricity sector's ability to continue to deliver on its historic mission: providing North American customers with a vital service and key economic advantage. Recent events have underscored the message that we must re-examine the current state of the electricity system and put the conditions in place for the 21st century version of our past success.
From a Canadian perspective, looking at electricity supply and demand over the next 20 years, already tight supply/demand balances in several regions are likely to be exacerbated. Unless there is significant new investment in generation, transmission, and distribution, more comfortable margins elsewhere will also disappear. Moving forward will require a common agenda by government and industry that builds on our diverse and flexible supply mix, with no conventional or emerging technology excluded, our robust transmission and distribution systems, and demand-side management and related energy efficiency strategies.
Once the worst was over following the August blackout, CEA began engaging various players concerning the long-term needs of the industry to ensure reliability, and sharpened our messages into a five-point plan. Moving forward, governments and industry need to cooperate to develop and implement a common agenda that focuses on creating a reliable and secure supply of electricity.
1. Establishing an Investment Climate to Ensure Future Electricity Supply
There is an urgent need to ensure improved tax depreciation rates through higher and more realistic Capital Cost Allowances (CCA) rates for generation, transmission and distribution assets. As well, there needs to be adequate rates of return on capital investments for regulated assets. Both of these issues impact the ability of the industry to access capital needed for investment.
2. Moving Government and Industry towards Smart and Effective Regulation
CEA believes that moving to smart, effective and timely regulation for generation, transmission and distribution projects will help bring new projects on-line by shortening project timelines and making approval processes more transparent and predictable. How can we hope to meet the needs of electricity customers when, in some cases, project review and approval processes can take a decade or longer? It is not suggested that these reviews be eliminated. On the contrary, these processes are a vital step in understanding the potential impacts of projects, and ensuring the appropriate remedial actions are taken. The issue is with how these reviews are conducted and the timelines involved. Greater transparency, predictability and a more cooperative approach is required.
3. Working to Ensure a Sustainable Future for the Next Generation
Environmental and climate change actions must be undertaken in conjunction with an overarching energy policy framework to ensure industry obligations are realistic, balanced and equitable. Long-term climate change policies must recognize the North American nature of the electricity sector and factor current and future technological options available during the current Kyoto commitment period (2008-2012) and beyond.
4. Fostering Innovation and Accelerating Skills Development
We need to work aggressively to encourage the adoption of energy efficiency, automated distribution technologies and alternative energy generation, and key climate change initiatives, that provide the opportunity for technological leadership. CEA has been studying all of these approaches, and while each involves challenges, we see great potential and will continue to pursue policies that will lead to greater use of energy efficiency programs, result in greater penetration of automated distribution technologies, and allow for alternative generation to make a significant contribution to our future energy needs. We also need to gain a deeper understanding of the future human resource needs of the electricity industry – at a time when the extremely specialized workforce in the industry is aging, and the skill sets are changing. And we must continue and accelerate government/industry collaboration on the development of clean coal technologies.
5. Strengthening our North American Institutional Arrangements
North America has changed a great deal in the past two decades. The NAFTA agreement recognized that we share not simply geography, but an economic space as well. In this post-NAFTA era, we have seen the benefits of this shared geographic and economic space. The same dichotomy applies to electricity.
Canadian companies are active in emerging North American regional transmission organizations (RTO) as well in the NERC. CEA has been and continues to be unequivocal in its support of the reliability language in the draft Energy Bills before the U.S. Congress. We support the creation of mandatory reliability standards by providing regulatory backstop to NERC. And in this post 9-11 world, security is of primary importance to CEA and its members. We have a coordinated approach to critical infrastructure protection and we work closely with Canadian and North American critical infrastructure agencies, and in particular with NERC
A number of observers have remarked that “when the lights went out in Ontario and New York, the light went on in Ottawa and Washington.” Given the urgent need to address future electricity needs, CEA sincerely hopes that the attention currently given to long-term reliability results in the sorts of policy and regulatory changes we have been advocating.
The good news with respect to the process embarked upon is that the expertise of the North American Electric Reliability Council (NERC) is being integrated into the fact-finding mission. NERC is poring through the records of over 10,000 discrete system events to determine what really happened. And no useful conclusions can be drawn before the facts are established and more importantly, understood.
Once we have a clear picture of what happened and why, we can set about fixing the problem. Action on many fronts is likely to be required, including both short-term and longerterm initiatives. In the short term, making sure this sort of event doesn’t happen again soon is job one. Making sure it is unlikely to occur again for a long time to come – or ever – is job two and more fundamental in nature.
It is clear, however, that the system was successful in protecting equipment and making possible a rapid restart of the system. This was the first major widespread failure in the Eastern Interconnection in 38 years – not an altogether bad record. However, there is a growing consensus that the transmission system needs substantial investment, as indeed do our distribution and generation assets.
Modernization of the electricity system will not be a cheap or easy process – the total cost being open to debate. EPRI estimates it would cost $10 billion a year for 10 years to update the U.S. portion of the transmission system alone. Another consulting firm, R.J. Rudden, predicts the cost would be between $30 and $50 billion. By their analysis, this manageable cost would add between $50 to $125 to the average residential customer’s bill over five years, or less than one percent a year. Given that some estimates of the annual cost of outages in the U.S. total $100 billion, this looks like a worthwhile investment.
The challenge is how to ensure those investments are indeed made. CEA has been advising decision-makers in Ottawa and Washington on what steps could be taken to facilitate these needed investments. There is a growing concern that the absence of a coherent and shared energy policy perspective has led to a sense of complacency about the electricity sector's ability to continue to deliver on its historic mission: providing North American customers with a vital service and key economic advantage. Recent events have underscored the message that we must re-examine the current state of the electricity system and put the conditions in place for the 21st century version of our past success.
From a Canadian perspective, looking at electricity supply and demand over the next 20 years, already tight supply/demand balances in several regions are likely to be exacerbated. Unless there is significant new investment in generation, transmission, and distribution, more comfortable margins elsewhere will also disappear. Moving forward will require a common agenda by government and industry that builds on our diverse and flexible supply mix, with no conventional or emerging technology excluded, our robust transmission and distribution systems, and demand-side management and related energy efficiency strategies.
Once the worst was over following the August blackout, CEA began engaging various players concerning the long-term needs of the industry to ensure reliability, and sharpened our messages into a five-point plan. Moving forward, governments and industry need to cooperate to develop and implement a common agenda that focuses on creating a reliable and secure supply of electricity.
1. Establishing an Investment Climate to Ensure Future Electricity Supply
There is an urgent need to ensure improved tax depreciation rates through higher and more realistic Capital Cost Allowances (CCA) rates for generation, transmission and distribution assets. As well, there needs to be adequate rates of return on capital investments for regulated assets. Both of these issues impact the ability of the industry to access capital needed for investment.
2. Moving Government and Industry towards Smart and Effective Regulation
CEA believes that moving to smart, effective and timely regulation for generation, transmission and distribution projects will help bring new projects on-line by shortening project timelines and making approval processes more transparent and predictable. How can we hope to meet the needs of electricity customers when, in some cases, project review and approval processes can take a decade or longer? It is not suggested that these reviews be eliminated. On the contrary, these processes are a vital step in understanding the potential impacts of projects, and ensuring the appropriate remedial actions are taken. The issue is with how these reviews are conducted and the timelines involved. Greater transparency, predictability and a more cooperative approach is required.
3. Working to Ensure a Sustainable Future for the Next Generation
Environmental and climate change actions must be undertaken in conjunction with an overarching energy policy framework to ensure industry obligations are realistic, balanced and equitable. Long-term climate change policies must recognize the North American nature of the electricity sector and factor current and future technological options available during the current Kyoto commitment period (2008-2012) and beyond.
4. Fostering Innovation and Accelerating Skills Development
We need to work aggressively to encourage the adoption of energy efficiency, automated distribution technologies and alternative energy generation, and key climate change initiatives, that provide the opportunity for technological leadership. CEA has been studying all of these approaches, and while each involves challenges, we see great potential and will continue to pursue policies that will lead to greater use of energy efficiency programs, result in greater penetration of automated distribution technologies, and allow for alternative generation to make a significant contribution to our future energy needs. We also need to gain a deeper understanding of the future human resource needs of the electricity industry – at a time when the extremely specialized workforce in the industry is aging, and the skill sets are changing. And we must continue and accelerate government/industry collaboration on the development of clean coal technologies.
5. Strengthening our North American Institutional Arrangements
North America has changed a great deal in the past two decades. The NAFTA agreement recognized that we share not simply geography, but an economic space as well. In this post-NAFTA era, we have seen the benefits of this shared geographic and economic space. The same dichotomy applies to electricity.
Canadian companies are active in emerging North American regional transmission organizations (RTO) as well in the NERC. CEA has been and continues to be unequivocal in its support of the reliability language in the draft Energy Bills before the U.S. Congress. We support the creation of mandatory reliability standards by providing regulatory backstop to NERC. And in this post 9-11 world, security is of primary importance to CEA and its members. We have a coordinated approach to critical infrastructure protection and we work closely with Canadian and North American critical infrastructure agencies, and in particular with NERC
A number of observers have remarked that “when the lights went out in Ontario and New York, the light went on in Ottawa and Washington.” Given the urgent need to address future electricity needs, CEA sincerely hopes that the attention currently given to long-term reliability results in the sorts of policy and regulatory changes we have been advocating.
