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Deregulation makes electric grid complex web Original Source Link: (May no longer be active)
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http://abcnews.go.com/wire/Business/ap20030818_240.html
Posted on Sun, Aug. 17, 2003
Deregulation makes electric grid a complex web of business relationships
PETER SVENSSON
Associated Press
NEW YORK - The electric business used to be easy to understand - you paid the local utility for generating power and carrying it to your home.
But with deregulation, companies in the power business are dividing tasks that once were handled by the local utilities - whenever you turn on that living room lamp, scores of companies may be involved in supplying the juice.
In fact, the electric grid is reminiscent of other complex and interconnected businesses whose inner workings we rarely think about until they fail: telecommunications and the Internet.
The power business is made even more complicated by its mixture of nonprofits, public companies and government-controlled entities, and the fact that energy companies are choosing different paths through deregulation. A "electrical utility" can mean a number of different things today.
Analysts say the increasingly complex web means blackouts can extend thousands of miles if something goes wrong in just one small area. A wave of deregulation in the 1990s - aimed at getting utilities out of energy generation and into the power delivery business - has discouraged new investments in the infrastructure, leading to a more antiquated system.
"It's a heterogeneous situation out there," says Chika Nwankpa, director of Drexel University's Center for Electric Power Engineering.
Here are some of the main actors in the blackout that hit the Northeast on Thursday:
_ Electricity starts in power plants, many of which are still owned by the large utilities that distribute power. Because energy is lost if electricity is transferred over long distances, it still makes sense to generate close to where the power is used. But with deregulation, many utilities are focusing on distributing the energy rather than producing it. For instance, New York's Consolidated Edison has sold most of its power plants to Atlanta-based Mirant, which filed for bankruptcy in July.
Niagara Mohawk Power and Central Hudson Gas & Electric, two large utilities in upstate New York, have also sold their power plants.
Other utilities are going the other way, buying or building power plants outside their home territories to sell the electricity wholesale. Such plants are not subject to the same regulations that govern the old-fashioned utility business, letting the owners charge higher margins.
For example, the Indian Point nuclear plant outside New York is owned by Entergy, a Louisiana-based utility.
_ From the plants, the electricity flows onto high-voltage transmission lines, which can transport it hundreds of miles. It was the transmission system that broke down Thursday after lines in northern Ohio, at least two of them owned by Akron-based utility FirstEnergy, shut down. Adjacent lines became overloaded, triggering a blackout cascade.
Transmission lines are federally regulated, and part of the problem, Nwankpa says, is that their owners are obliged sell access to others at the same price they charge themselves.
That means it's hard to make a profit from them. With no profit, there is little incentive to invest in upgrades and new lines. Experts say adding lines would make the entire grid more reliable.
Most of the transmission lines are still owned by the large utilities that built them, but some financial companies have been buying lines, gambling that regulations will change to allow for more profit.
Detroit's DTE Energy sold its 3,000 miles of transmission lines earlier this year to buyout funds Kohlberg Kravis Roberts and Trimaran Capital Partners for $610 million.
Trans-Elect of Reston, Va., a startup funded in part by GE Capital, is planning to focus exclusively on building and buying transmission lines.
It has also bought Michigan transmission lines.
_ Substations draw power from the transmission lines and step it down to lower voltages, which transformers finally reduce to 110 to 220 volts for the home.
The companies that handle distribution are most familiar to consumers - they're the ones that send the bills.
It doesn't make sense to have competing power distributors in the same area, so the business is regulated on the state level and is likely to remain so.
The distribution can be handled by huge for-profit companies like FirstEnergy, no. 149 in the Fortune 500, or by local governments, like the village of Churchville in upstate New York.
In the deregulated energy business, distribution can even be handled by foreign companies. Syracuse-based Niagara Mohawk, which distributes electricity to 1.5 million customers, was bought last year by National Grid Transco, a British company that has a monopoly on transmission in England and Wales.
While consumers can't choose who distributes electricity in their area, several states are giving consumers the choice of who sells the energy to them.
In such cases, electricity bills itemize the cost of the distribution and the cost of the energy.
ON THE NET
Federal Energy Regulatory Commission: http://www.ferc.gov/
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