Many months have passed since the historic blackout of August 14. With the release in November of the Canada-U.S. Power System Outage Task Force Interim Report, a number of next steps are clear. We need to move on the question of establishing mandatory reliability standards, and we need to put in place policies that will ensure the future investments required to safeguard longterm reliability are made.
The report places the outage in its appropriate historical perspective. For example, the outage that resulted in the establishment of the North American Electric Reliability Council (NERC), the infamous 1965 Northeast Blackout, resulted in the loss of 20,000 MW of load and affected 30 million people. The 1977 New York City Blackout resulted in the loss of 6,000 MW and affected 9 million people. The West Coast Blackout of 1996 saw the loss of more than 28,000 MW, impacting 7.5 million people. In this context, the outage last summer was indeed historic, with a loss of more than 61,000 MW affecting 50 million people.
CEA welcomes the release of the Interim Report of the Canada-U.S. Power System Outage Task Force. We believe it provides further arguments in favor of mandatory reliability standards. As the report demonstrates, the integrated grid was not the cause of the outage; rather, it was the failure to adhere fully to existing protocols and standards. The need for mandatory reliability standards, as identified in the report, is an issue CEA has supported for a number of years. We have actively promoted the creation of an international self-regulating electricity reliability organization able to implement mandatory reliability standards.
This is a view widely shared on both sides of the border. Reliability language in the draft Energy Bill which failed to pass before the U.S. Congress at the end of 2003 included the creation of an Electric Reliability Organization (ERO) that would have prepared and enforced reliability standards. Whether this legislation is re-introduced in the New Year or another method is found to move towards enforceability of standards, we need mandatory reliability standards that are international in design and operation, with regulatory backstop in Canada and the U.S. The present system of voluntary reliability standards must change, particularly as electricity markets continue to evolve. However, because the transmission grid is international in scope, the focus must be on solutions that are international as well. In order to ensure reliability of the international grid, any approach must be respectful of the jurisdictional sovereignty of both Canadian and U.S. regulators.
We must also be mindful of the importance of the trading relationship between Canada and the U.S. Any approach to reliability on the bulkpower system must be developed through close cooperation and agreement between both countries. Anything less could impede future cross-border trade and, more significantly, undermine the reliability of the continental bulk-power grid.
Establishing mandatory reliability standards for the North American electricity system addresses the day-to-day operations of the grid. To ensure long-term reliability and meet growing demand will require vast amounts of new capital investment. There is an emerging consensus that the transmission system needs substantial investment, as indeed do our distribution and generation assets.
The modernization of the electricity system will not be a cheap or easy process. Recently, the International Energy Agency produced a report on energy investment requirements over the next three decades. Globally, power generation, transmission and distribution will require investments in the order of $10 trillion. Transmission and distribution will account for more than half of global electricity-sector investment. From a North American standpoint, the IEA estimates that over the next 30 years, required investments in electricity will reach $1.6 trillion.
Creating a more favorable investment and tax climate for electricity, and boosting investor confidence in the sector will be vital. Investors have become wary of investing in an industry affected by the Enron debacle, the telecom market deflation, and the continued fallout from September 11. As a result, analysts and investors scrutinize energy companies with extra care. Some companies have seen their ratings downgraded, and many have restructured their finances. All this has contributed to a rise in capital costs. This lack of investor confidence places an additional hurdle in the path of raising the necessary capital for the construction of needed generation and transmission projects and could affect meeting the future needs of customers.
Legislators and regulators should be mindful of these realities. I hope that August 14 will indeed spur the kind of action required to address both the question of mandatory reliability standards and the need for investment to build the North American electricity system of the future.
The report places the outage in its appropriate historical perspective. For example, the outage that resulted in the establishment of the North American Electric Reliability Council (NERC), the infamous 1965 Northeast Blackout, resulted in the loss of 20,000 MW of load and affected 30 million people. The 1977 New York City Blackout resulted in the loss of 6,000 MW and affected 9 million people. The West Coast Blackout of 1996 saw the loss of more than 28,000 MW, impacting 7.5 million people. In this context, the outage last summer was indeed historic, with a loss of more than 61,000 MW affecting 50 million people.
CEA welcomes the release of the Interim Report of the Canada-U.S. Power System Outage Task Force. We believe it provides further arguments in favor of mandatory reliability standards. As the report demonstrates, the integrated grid was not the cause of the outage; rather, it was the failure to adhere fully to existing protocols and standards. The need for mandatory reliability standards, as identified in the report, is an issue CEA has supported for a number of years. We have actively promoted the creation of an international self-regulating electricity reliability organization able to implement mandatory reliability standards.
This is a view widely shared on both sides of the border. Reliability language in the draft Energy Bill which failed to pass before the U.S. Congress at the end of 2003 included the creation of an Electric Reliability Organization (ERO) that would have prepared and enforced reliability standards. Whether this legislation is re-introduced in the New Year or another method is found to move towards enforceability of standards, we need mandatory reliability standards that are international in design and operation, with regulatory backstop in Canada and the U.S. The present system of voluntary reliability standards must change, particularly as electricity markets continue to evolve. However, because the transmission grid is international in scope, the focus must be on solutions that are international as well. In order to ensure reliability of the international grid, any approach must be respectful of the jurisdictional sovereignty of both Canadian and U.S. regulators.
We must also be mindful of the importance of the trading relationship between Canada and the U.S. Any approach to reliability on the bulkpower system must be developed through close cooperation and agreement between both countries. Anything less could impede future cross-border trade and, more significantly, undermine the reliability of the continental bulk-power grid.
Establishing mandatory reliability standards for the North American electricity system addresses the day-to-day operations of the grid. To ensure long-term reliability and meet growing demand will require vast amounts of new capital investment. There is an emerging consensus that the transmission system needs substantial investment, as indeed do our distribution and generation assets.
The modernization of the electricity system will not be a cheap or easy process. Recently, the International Energy Agency produced a report on energy investment requirements over the next three decades. Globally, power generation, transmission and distribution will require investments in the order of $10 trillion. Transmission and distribution will account for more than half of global electricity-sector investment. From a North American standpoint, the IEA estimates that over the next 30 years, required investments in electricity will reach $1.6 trillion.
Creating a more favorable investment and tax climate for electricity, and boosting investor confidence in the sector will be vital. Investors have become wary of investing in an industry affected by the Enron debacle, the telecom market deflation, and the continued fallout from September 11. As a result, analysts and investors scrutinize energy companies with extra care. Some companies have seen their ratings downgraded, and many have restructured their finances. All this has contributed to a rise in capital costs. This lack of investor confidence places an additional hurdle in the path of raising the necessary capital for the construction of needed generation and transmission projects and could affect meeting the future needs of customers.
Legislators and regulators should be mindful of these realities. I hope that August 14 will indeed spur the kind of action required to address both the question of mandatory reliability standards and the need for investment to build the North American electricity system of the future.
