Blackouts and Oversupply or Regulatory Planning and Cooperation

Article excerpt

I.   INTRODUCTION II.  JURISDICTION OVERVIEW      A. The US Electric Production and Distribution System      B. Development of Electricity Regulation         1. Regulated Versus Unregulated Utilities         2. Division of Regulatory Authority Between FERC and State         Commissions      C. Major Modern Developments in the Regulation of Transmission         1. Congressional Actions         2. FERC Orders            a. FERC Order No. 888, Non-Discrimination in Transmission            b. FERC Order No. 2003, Interconnection Jurisdiction            c. FERC Order No. 1000, Requirements for Regional               Transmission Planning      D. Summary of Regulation III. UNEXPECTED CONSEQUENCES FROM PIECEMEAL REFORMS      A. Poor Regulatory Planning Led to Too Little Power in California         1. Restructuring of the California Electricity Market.         2. Meltdown of the Restructured Market         3. Picking Up the Pieces            a. Bonneville Power Administration v. F.E.R.C., an Effort to               Prevent FERC Regulation of Nonjurisdictional Power               Producers            b. Post Bonneville, FERC Refund Calculations            c. Attempting to Prevent Contract Remedies Based on FERC               Refund Calculations         4. Remedies Require Rate Increases Across the Region      B. Poor Regulatory Planning Led to Too Much Power in the Northwest         1. Regional Wind Development.         2. Electricity Oversupply      C. Lessons Learned from These Case Studies IV.  A SMART GRID WITHOUT SMART PLANNING V.   COMPATIBLE REGULATORY SOLUTIONS 

I. INTRODUCTION

Blackout and oversupply events in the West have proven that market after-the-fact regulation of electricity fails consumers. Lack of planning on state and federal levels has resulted in increased costs for consumers and short-term failure in the distribution of electricity. Without up-front regulatory planning, physical upgrades to the nation's transmission system will likely fall short of state and federal policy goals, and cost increases are likely to result.

Poor regulatory planning resulted in blackouts following the restructuring of the California electricity market. The State of California restructured its electricity market in the late 1990s in an attempt to reduce electric costs that were higher than the regional average. (1) The deregulated system relied on electricity markets to determine the fair market price at any given time. (2) Under this system, regulators believed that the invisible hand of the market would control prices and adequately incentivize production. (3) Instead, the market proved ripe for manipulation. (4) Power plants were deliberately taken off line to reduce supply, prices skyrocketed, and rolling blackouts spread across the state. (5) Utilities are still litigating settlements from the failure of the market thirteen years later.

Poor regulatory planning also resulted in periods of excess power in the Northwest. The majority of states in the Northwest have adopted renewable portfolio standards that aim to increase the percentage of power produced from renewable sources. (6) While regulators adopted a series of Orders to ensure fair access to transmission lines, (7) they failed to adequately address the comprehensive effect that additional renewable power would have on the electric grid. Periods when production of renewable power exceeded total regional consumption resulted, and regulators disconnected generating sources to ensure grid safety. (8) These actions, which violated transmission contracts, are currently in litigation, and the cost of violating transmission contracts will be passed on to consumers. (9)

The complexity of the existing piecemeal U.S. system of jurisdiction over electricity production and transmission makes it difficult to perform comprehensive regulatory planning. While the United States is currently implementing technological upgrades to the electric grid that can mitigate blackout and oversupply events, our current regulatory system prevents hill utilization of these upgrades. …