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Printed Hearing The Committee on Energy and Commerce W.J. "Billy" Tauzin, Chairman Blackout 2003: How Did It Happen and Why? <DOC>
[108th Congress House Hearings]
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[DOCID: f:89467.wais]
BLACKOUT 2003: HOW DID IT HAPPEN AND WHY?
=======================================================================
HEARINGS
before the
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
SEPTEMBER 3 and SEPTEMBER 4, 2003
__________
Serial No. 108-54
__________
Printed for the use of the Committee on Energy and Commerce
Available via the World Wide Web: http://www.access.gpo.gov/congress/
house
__________
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COMMITTEE ON ENERGY AND COMMERCE
W.J. ``BILLY'' TAUZIN, Louisiana, Chairman
MICHAEL BILIRAKIS, Florida JOHN D. DINGELL, Michigan
JOE BARTON, Texas Ranking Member
FRED UPTON, Michigan HENRY A. WAXMAN, California
CLIFF STEARNS, Florida EDWARD J. MARKEY, Massachusetts
PAUL E. GILLMOR, Ohio RALPH M. HALL, Texas
JAMES C. GREENWOOD, Pennsylvania RICK BOUCHER, Virginia
CHRISTOPHER COX, California EDOLPHUS TOWNS, New York
NATHAN DEAL, Georgia FRANK PALLONE, Jr., New Jersey
RICHARD BURR, North Carolina SHERROD BROWN, Ohio
Vice Chairman BART GORDON, Tennessee
ED WHITFIELD, Kentucky PETER DEUTSCH, Florida
CHARLIE NORWOOD, Georgia BOBBY L. RUSH, Illinois
BARBARA CUBIN, Wyoming ANNA G. ESHOO, California
JOHN SHIMKUS, Illinois BART STUPAK, Michigan
HEATHER WILSON, New Mexico ELIOT L. ENGEL, New York
JOHN B. SHADEGG, Arizona ALBERT R. WYNN, Maryland
CHARLES W. ``CHIP'' PICKERING, GENE GREEN, Texas
Mississippi KAREN McCARTHY, Missouri
VITO FOSSELLA, New York TED STRICKLAND, Ohio
ROY BLUNT, Missouri DIANA DeGETTE, Colorado
STEVE BUYER, Indiana LOIS CAPPS, California
GEORGE RADANOVICH, California MICHAEL F. DOYLE, Pennsylvania
CHARLES F. BASS, New Hampshire CHRISTOPHER JOHN, Louisiana
JOSEPH R. PITTS, Pennsylvania TOM ALLEN, Maine
MARY BONO, California JIM DAVIS, Florida
GREG WALDEN, Oregon JAN SCHAKOWSKY, Illinois
LEE TERRY, Nebraska HILDA L. SOLIS, California
ERNIE FLETCHER, Kentucky
MIKE FERGUSON, New Jersey
MIKE ROGERS, Michigan
DARRELL E. ISSA, California
C.L. ``BUTCH'' OTTER, Idaho
Dan R. Brouillette, Staff Director
James D. Barnette, General Counsel
Reid P.F. Stuntz, Minority Staff Director and Chief Counsel
(ii)
C O N T E N T S
__________
Page
Testimony of:
Abraham, Hon. Spencer, Secretary, U.S. Department of Energy;
accompanied by Hon. Kyle McSlarrow, Deputy Secretary of
Energy..................................................... 33
Burg, H. Peter, Chairman and CEO, FirstEnergy Corp........... 195
Draper, E. Linn, Jr., Chairman, President and CEO, American
Electric Power............................................. 220
Durkin, Charles J., Jr., Chairman, Northeast Power
Coordinating Council....................................... 148
Eldridge, Brant H., Executive Manager, East Central Area
Reliability Council........................................ 142
Fleishman, Steven I., First Vice President, Merrill Lynch.... 358
Flynn, Hon. William M., Chairman, New York State Public
Service Commission......................................... 133
Gent, Michehl R., President, North American Electric
Reliability Council........................................ 138
Glauthier, T.J., President and CEO, The Electricity
Innovation Institute....................................... 367
Goulding, David, CEO, The Independent Market Operator of
Ontario.................................................... 309
Granholm, Hon. Jennifer, Governor, State of Michigan......... 87
Harris, Phillip G., PJM Interconnection, Inc................. 322
Kessel, Richard, Chairman and CEO, Long Island Power
Authority.................................................. 211
Kilpatrick, Hon. Kwame M., Mayor, City of Detroit............ 94
Lark, Hon. J. Peter, Chairman, Michigan Public Service
Commission................................................. 129
Makovich, Lawrence J., Senior Director, Americas Research,
Cambridge Energy Research Associates....................... 354
McGrath, Eugene R., Chairman, President and CEO, Consolidated
Edison Company of New York, Inc............................ 202
Moler, Elizabeth A., Executive Vice President for Government,
Environmental Affairs and Public Policy, Exelon Corporation 239
Museler, William J., President and CEO, New York ISO......... 299
Owens, David K., Executive Vice President, Edison Electric
Institute.................................................. 372
Popowsky, Sonny, Consumer Advocate of Pennsylvania........... 363
Schriber, Hon. Alan R., Chairman, Ohio Public Utilities
Commission................................................. 125
Taft, Hon. Bob, Governor, State of Ohio...................... 84
Torgerson, James P., President and CEO, Midwest ISO.......... 304
van Welie, Gordon, CEO, ISO, New England..................... 315
Welch, Joseph L., CEO, International Transmission Company.... 224
Winser, Nicholas P., Group Director Transmission, National
Grid Transco PLC........................................... 206
Wood, Hon. Pat, III, Chairman, Federal Energy Regulatory
Commission................................................. 120
Material submitted for the record by:
Durkin, Charles J., Jr., Chairman, Northeast Power
Coordinating Council, letter dated October 7, 2003, to Hon.
W.J. Tauzin................................................ 179
Flynn, Hon. William M., Chairman, New York State Public
Service Commission, letter dated October 6, 2003, to Hon.
W.J. ``Billy'' Tauzin...................................... 188
Gent, Michehl R., President, North American Electric
Reliability Council, letter dated October 2, 2003, to Hon.
John D. Dingell............................................ 181
Goulding, David, CEO, The Independent Market Operator of
Ontario, letter dated September 22, 2003, to Hon. John D.
Dingell.................................................... 387
Kilpatrick, Hon. Kwame M., Mayor, City of Detroit, letter
dated September 15, 2003, to Hon. W.J. Tauzin.............. 187
Pataki, George E., Governor, State of New York, prepared
statement of............................................... 183
Winser, Nicholas P., Group Director Transmission, National
Grid Transco PLC, letter dated September 9, 2003, to Hon.
W.J. Tauzin................................................ 389
Wood, Hon. Pat, III, Chairman, Federal Energy Regulatory
Commission, letter dated October 17, 2003, to Hon. W.J.
Tauzin..................................................... 190
(iii)
BLACKOUT 2003: HOW DID IT HAPPEN AND WHY?
----------
WEDNESDAY, SEPTEMBER 3, 2003
House of Representatives,
Committee on Energy and Commerce,
Washington, DC.
The committee met, pursuant to notice, at 10:10 a.m., in
room 2123, Rayburn House Office Building, Hon. W.J. ``Billy''
Tauzin (chairman) presiding.
Members present: Representatives Tauzin, Barton, Upton,
Stearns, Gillmor, Greenwood, Cox, Burr, Whitfield, Norwood,
Shimkus, Blunt, Radanovich, Bass, Pitts, Walden, Terry,
Ferguson, Rogers, Issa, Otter, Dingell, Markey, Hall, Pallone,
Brown, Gordon, Deutsch, Rush, Eshoo, Stupak, Engel, Wynn,
Green, McCarthy, Strickland, DeGette, Capps, Doyle, Allen,
Davis, Schakowsky, and Solis.
Staff present: Jason Bentley, majority counsel; Sean
Cunningham, majority counsel; Mark Menezes, majority counsel;
Robert Meyers, majority counsel; Peter Kielty, legislative
clerk; Sue Sheridan, minority counsel; and Bruce Harris,
minority counsel.
Chairman Tauzin. I want to thank our guests for attending
today. I think we still have empty seats if folks want to get
comfortable.
Today we begin a series of 2 days of hearings. We have
three panels today, extensive panels tomorrow. So I would
invite everyone to get as comfortable as you can and ask
everyone to give each other the courtesy of your attention as
we go through a very hectic schedule for the next 2 days.
Let me welcome my colleagues back to the grist mill. I am
sorry we have to come together to examine such a tragic event
in our Nation's history as the huge Northeast blackout, but
obviously it is a critical time for us to review what happened
in that event so that we can make sure in the conference on
energy that we make all the right decisions to hopefully
prevent this in the future.
Let me again welcome our colleagues and guests and also
extend a special welcome to Secretary Abraham, our colleague
from his former Senate days, and Mr. McSlarrow, who is
accompanying him today in an effort to help us understand what
did occur in the Northeast blackout.
The Chair recognizes himself for an opening statement.
On August 14, we were painfully reminded of the importance
of electricity in our day-to-day lives. The scenes of the
blackout were everywhere: people milling around the streets,
sleeping on the steps of train stations, productivity shut
down. Routine activities like getting home from work, going to
the grocery store, picking up children from day care suddenly
became heroic tasks.
I think it was even worse than we thought. I talked to
people who were caught in the New York airport who told me that
it was bad enough sleeping in an airport at 130 degrees with no
electricity and no cooling, but what was even worse was the
commodes wouldn't flush because they are all electrically
flushed today. What was worse for folks in New York trying to
get home was when they found out they couldn't use the keys to
get in their apartments because now they are electronically
operated.
It became apparent to so many people caught in that awful
situation--my friend John Dingell in Michigan--how difficult
life is when this utility that we have come to expect to be
available to us whenever we need it, which is become more and
more important in our lives, is not available. A healthy,
secure, productive society simply can't afford to live in the
conditions like those of August 14. In some areas the--and in
the days that followed, it was an absolute mess on our hands.
The economy and our way of life demand affordable, reliable
electricity.
The purpose of our hearing today is to determine what
happened and why. I realize there have been a lot of attempts
to politically spin this event and create partisan arguments
about who may or may not be responsible for it here or there or
anywhere else. I hope we avoid that today. I am not terribly
interested in that. I hope you aren't either. I think the
American public wants us to examine what happened, why and what
we can do to make sure it doesn't happen again.
By all accounts, it was an otherwise average summer day.
Temperatures were not excessively high. Demand for electricity
was not unusually high. Power supplies in the Northeast that
day should have been adequate. But in a matter of minutes an
estimated 50 million people were suddenly left without power,
with 62,000 megawatts of consumer load in the dark.
So what went wrong? Why were we subjected to the single
largest blackout in the Nation's history? We are going to find
out from witnesses today a lot of different perspectives and
hopefully eventually find out what happened and why.
As we gain a better understanding, several things have
become evident to us. Congress obviously needs to enact as part
of a comprehensive energy bill legislation to modernize the
Nation's electric infrastructure.
To all opponents of electricity legislation, I hate to say
I told you so, but, well, I told you so. February 15, 2001,
more than 2\1/2\ years ago, at an electricity hearing on the
lessons learned from California, I sat on this dais and said
the following, ``If you are focusing today on California,
tomorrow we will be focusing on New York, we will be focusing
on Chicago, on Boston, on places we are told the energy grids
are too weak; and blackouts and brownouts are likely this
summer because of bottlenecks in those grids.'' And my
colleagues, who may not always agree on the need of electricity
legislation, may want to move it on a separate track.
Let me read the rest of that statement: ``We will be
focusing later on fuel supply problems the likes of which we
saw in Chicago and Milwaukee last year.'' That was in the year
2000, when fuel supplies were short, energy spikes, gasoline
prices hit consumers; and angry consumers wanted to know why,
what was going on, what was wrong with our supply situation in
America. In other words, modernizing our Nation's electric
transmission grid is pointless if we don't have the fuel to
power the electric power plants, if we don't modernize the
Nation's energy efficiency and conservation laws at the same
time.
Providing reliable electricity is only one component of the
Nation's future energy needs. So I hope today we can better
understand what happened on August 14, we can understand the
scope, the severity of the incident. Local blackouts from ice
storms and downed power lines will be a reality for years to
come, but we shouldn't have to worry about high voltage
interstate transmission lines blacking out large regions of the
country. That is unacceptable, and we need to make sure it
doesn't happen again.
Before I yield, let me ask unanimous consent the committee
proceed in accordance with the rule 4(e). Is there any
objection? Without objection, so ordered.
The Chair strongly encourages members to waive their
opening statements if they can so we can get to question the
witnesses as soon as we can, and without objection all members'
written opening statements will be made a part of the record.
It is now my pleasure to recognize one of the victims of
the blackout from Michigan, our dear friend, the ranking
Democrat of our committee, Mr. Dingell.
Mr. Dingell. Mr. Chairman, I thank you; and I commend you
for holding these hearings.
The blackout of 2003, as you have observed, did have
devastating consequences on many Americans; and the people in
my district had substantial suffering to report. It was bad up
there. It was not a mere inconvenience. Nearly every aspect of
the lives of the people of my district were disrupted.
Factories were closed, the economy suffered, and jobs were
lost. To those of us in Michigan, it was particularly
distressing. We had little control over a matter that appears
to have begun outside our State.
That said, the residents of Michigan have a lot to be proud
of. Citizens, public officials, local businesses, local power
companies, police, firefighters and public safety as well as
municipal and State government all pulled together to get us
through this crisis.
We must now begin the process of learning what went wrong
and how to prevent future widespread blackouts. That should be
our first priority.
My own view is that the Congress should take immediate
action to enact transmission reliability provisions that are
contained in both the House and Senate's comprehensive energy
bills. The staff on this side and the members have suggested
that this should be one of the things done in last year's
energy conference. A number of these very controversial issues
are contained in these bills, things which have unfortunately
made it difficult for early enactment of an overall energy
bill.
While I will note that you, Mr. Chairman, and Mr. Domenici
are committed to bringing to a conclusion the conference in a
prompt fashion, the making of energy policy tends to defy the
best intentions and timetables and we have had some 8 years in
which we have made massive efforts without success in these
matters.
The goal of pursuing the energy conference with full vigor
is not at odds with my suggestion that the Congress separate
and pass consensus reliability provisions now. The reliability
bill may not provide the full answer to all the challenges in
the energy area which we confront, but there is broad consensus
that it is a necessary part of the response and one which
requires, I think, early attention. By all rights, this should
be a bill for the suspension calendar.
As the investigations proceed, we may learn more about the
remedies than may be possible to include them in a
comprehensive energy bill in which we now work. To that end, I
will be introducing reliability provisions of the energy bill
as a separate piece of legislation; and I urge my colleagues on
this committee, including you, Mr. Chairman, to join me in
ensuring that the bill is moved to the suspension calendar so
it can be speedily considered.
I am pleased that the Department of Energy moved promptly
to initiate an investigation into the causes of the outages and
actions necessary to prevent future blackouts, but I do have
some reservations about this undertaking. It appears that the
U.S.-Canada task force will involve participation by the North
American Electric Reliability Council, NERC, and the Federal
Energy Regulatory Commission, FERC. Certainly these two
entities have expertise, data and personnel that will assist in
such inquiry, but I am concerned that their involvement in the
task force should not preclude them from conducting their own
independent investigations and reaching their own conclusions
under the authorities and responsibilities which they have.
Indeed, under the Federal Power Act, FERC has the clear
authority and arguably an obligation to conduct its own
investigation and it is essential that it function as the
independent regulatory agency that the Congress intended it to
be.
I thank you, Mr. Chairman, and my colleagues for your
attention. I look forward to hearing from our witnesses, and I
welcome Secretary Abraham to the committee.
Chairman Tauzin. I thank my friend; and the Chair is
pleased to recognize for an opening statement the majority whip
of the House of Representatives, Mr. Blunt, for an opening
statement.
Mr. Blunt. Thank you, Mr. Chairman; and thank you for
holding this hearing. I will file an opening statement,
although I want to make a couple of comments.
One, as I look at the agenda today I certainly don't know
how it happened. I may not know how it happened after I
carefully study all the testimony because of the complexity of
the issue here, but you put together a tremendous set of panels
today, starting with Secretary Abraham. I so appreciate his
great leadership as the Secretary of Energy; and I am hopeful
that later this year he is able to begin the implementation of
a new energy policy.
Because I do think I have some sense of why it happened,
and why it happened is the failure to have an energy policy for
a decade. President Bush has called on this Congress over the
last 2 years to move forward with an energy policy. I think we
can't expect to see the investment and commitment we need to
have in power generation and power transmission unless we
create some sense of certainty about what the system is going
to look like for the next 15 to 20 to 25 years. Once we create
that certainty, to a great extent this problem will take care
of itself, but 10 years of no energy policy has created
problems on both coasts now and throughout the middle of the
country.
Having a policy in my view is actually more important at
this point than what the policy says. I hope we can work for
the best policy, but we need to get this job done and done now.
I am extremely optimistic that the topic of this hearing
today is the event that will force this Congress to move toward
a consistent energy policy. I am extremely hopeful that we do
that in the very near future and look forward to the evidence
that you and our committee will uncover in the next couple of
days about this important issue.
Chairman Tauzin. I thank the majority whip, and the Chair
is now pleased to recognize our friend from the State of
Massachusetts, the ranking member of the Telecommunications
Subcommittee, Mr. Markey.
Mr. Markey. Thank you, Mr. Chairman.
While I understand it may take some time to determine all
of the changes in electric utility industry policies and
practices in Federal utility regulations that might be needed
to prevent a repetition of the events of August 14, it is not
unreasonable for the American people to expect our Nation's
energy regulators to explain what caused the blackout to occur
in the first place and how it spread so quickly.
Unfortunately, from what I can see in the prepared
testimony submitted to the committee by the Department of
Energy and the Federal Energy Regulatory Commission, the Bush
Administration remains in the dark about the causes of the
blackout. At the same time, the Bush Administration continues
to press for the immediate adoption of an energy bill that
contains language that would make sweeping deregulatory changes
in electricity law and launch a wide-range assault on our
environment in the name of increasing gas and oil production.
The administration is essentially saying that these radical
proposals are needed to prevent the recurrence of an event
whose causes they say remain unknown. But if we don't know what
caused the blackout in the first place, how can we know whether
the proposed cure is worse than the disease? That is like a
doctor telling he had no idea what caused you to black out but
would like to see you in the morning for brain surgery. When
you hear that, you know it is time to get a second opinion.
That is why I support Congressman Dingell's proposal to
move a narrowly focused bill enacting electricity reliability
standards now. But when we solve the problems that occurred 2
weeks ago, then we can add those additional resolutions to the
final package in a separate bill.
Oil is for cars and trucks, not for air conditioners,
refrigerators, ovens or light bulbs. Only about 3 percent of
the oil our Nation consumes is used for electricity. What
stopped working during the blackout? Our lights, our cooling,
our refrigerators and our ovens. Our cars and SUVs ran just
fine.
It is ridiculous to use the blackout as an argument for
drilling in the Arctic Refuge and other pristine public lands
and exposes those who make the argument as desperate for an
outcome driven by ideology, not facts. The only relationship
between the electricity blackout and gasoline is that several
refineries shut down temporarily, which the oil industry used
as an excuse to raise the price of gasoline to record-breaking
levels Nationwide over the labor day weekend. I don't think
that was justified, but at least the relationship is clear.
Electricity doesn't depend on reliable oil. Oil depends on
reliable electricity. That is why we should stop searching in
Alaska for solutions to the blackout. The problem is not in
Alaska. It is in Ohio. The solutions won't be found above the
Arctic circle but below Lake Erie.
I don't think we should be satisfied with the we-will-get-
back-to-you-later response that I see in the prepared statement
submitted by the administration to the committee yesterday.
This $7 to $10 billion hit to the economy could happen again
tomorrow.
The American people have a right to know what caused the
blackout and who should be held accountable for the resulting
inconvenience and economic disruption. We have a right to know
what first energy, AEP and other utility companies did or did
not do on August 14--whether their actions or omissions caused
the blackout to occur or to spread, what their neighboring
utilities did or failed to do in response and what new
safeguards there are and should be adopting to prevent a
recurrence.
I look forward to hearing the testimony.
Chairman Tauzin. I thank the gentleman for his statement,
and I remind all members that six refineries went down which
were operating at the time that were operating at 95 percent
capacity. There was a huge effect on refinery production during
the blackout.
The Chair is pleased to recognize the chairman of the
Telecommunications Subcommittee, the gentleman also from
Michigan who also was a victim in this blackout, Mr. Upton.
Mr. Upton. Thank you, Mr. Chairman. We were a victim, and I
am pleased that our colleagues in the Senate have finally acted
to pass an energy bill. Now, as Congress comes back after Labor
Day, our first order of business is to in fact pass a
comprehensive energy bill. Congress by many pundits'
expectations is to adjourn in a little bit more than a month.
Last month's blackout impacted 50 million Americans and had
ramifications that we are still feeling with high gas prices
and productivity losses, and those are still rippling through
our economy today. But I have to tell you it could have been
worse.
I represent southwest Michigan. We had one of our coal-
fired plants, the Campbell plant in Grand Haven, Michigan, go
off line. Just south, I have two nuclear plants in my
congressional district. One of them, in fact, did experience
irregularities. This particular plant provides 18 percent of
the power for consumers' energy. I am led to believe that they
were--had the full right to in fact shut that plant down
because of the irregularities that were in the system. The
finger was actually poised at the button to shut down that
nuclear plant, like the Fermi plant that was closed on the
other side of the State. And had that plant closed down it
would have likely had again a rippling effect right around Lake
Michigan, probably closing the Cook nuclear plant which had one
of its reactors out already for maintenance, but in fact it
easily could have included Chicago and the greater Midwest. We
came within minutes, maybe even seconds of having a more
dramatic impact because of this blackout.
We have a responsibility in this committee to iron out the
differences between the two energy bills that have passed in
the House and the Senate so we can avoid another rippling
domino effect that will certainly affect tens of millions of
Americans. That responsibility starts today, and I hope we can
work together to pass a comprehensive energy bill, and I yield
back the balance of my time.
Chairman Tauzin. I thank my friend.
The Chair is pleased to recognize the gentleman from New
Jersey, Mr. Pallone, for an opening statement.
Mr. Pallone. Thank you, Mr. Chairman.
While we have discussed electricity policies for years in
this committee, today we clearly have been forced into a
position where inaction is unacceptable. Comprehensive
electricity policy should not be held hostage for another month
in the voluminous energy bill that will shortly go to
conference, nor should a comprehensive solution be crafted
solely by conferees behind closed doors, which is too often the
case here. We need to act on implementing the necessary changes
in this area immediately and without connection to
controversial issues that--clearly partisan--are likely to
reign in the conference.
Comprehensive electricity legislation should involve
several key provisions. First, we need to call for mandatory
regional transmission organization participation. Currently the
voluntary nature of RTOs allows shifting participation in the
organization on a day-to-day basis. Yet RTOs operate most
efficiently and cost effectively when they can count on
particular membership. The blackout demonstrated the need for a
flexible transmission system that can adjust to the needs of
its consumers on a second-by-second basis, and RTOs can meet
this need.
RTOs also necessitate a regional transmission planning
process, a process that incorporates a broad range of
stakeholders toward a single goal of reliable energy supplies;
and this approach should lead to vast improvements in
reliability.
Mr. Chairman, this brings me to another crucial component
of electricity policy, the need for mandatory and uniform
reliability standards for electric grid performance. In 1997,
this committee held a hearing on reliability. At that time, I
noted that voluntary reliability in a deregulated market could
create the potential for passing the buck should a problem in
the system arise. While the DOE investigates the blackout to
determine the cause of the system failure, I encourage this
committee to finally address and implement mandatory
reliability standards. Clearly, market forces alone cannot
preserve reliability of the system. Furthermore, it is unfair
to customers who expect a reliable supply of electricity not to
require industry participants to meet Federal reliability
standards that will ensure the customer's needs.
Finally, I hope we can move forward toward the approval of
FERC's rule on standard market design. Although outstanding
questions regarding technical issues remain, I trust that these
issues will be addressed prior to the final rulemaking and we
will come to the other side of this with improved opportunities
for competition that benefits electricity consumers.
There are additional issues that remain an important part
of the electricity debate, including the use of smart grid
technologies that have the potential to bring us into the 21st
century as well as a serious commitment toward the development
of renewable energy sources, energy efficiency and distributed
energy sources. However there is an immediate need to address
the gaping holes that were left in electricity policy that we
have ignored since the Energy Policy Act of 1992; and these
gaps should be filled by specific determinations regarding RTO
participation, grid performance requirements and standard
wholesale power market design.
Thank you, Mr. Chairman.
Chairman Tauzin. Thank the gentleman.
The Chair recognizes the gentleman from Pennsylvania, the
Chair of our Oversight and Investigations Subcommittee, Mr.
Greenwood.
The gentleman passes.
The Chair will move on to Mr. Cox from California for an
opening statement.
Mr. Cox. I thank the chairman----
Chairman Tauzin. I should point out to the audience Mr. Cox
serves another important role as chairman of the Select
Committee on Homeland Security. And, Chairman Cox, I understand
you will be holding some hearings or investigations as to the
homeland security response aspects of the blackout, and I want
to thank you for that effort.
The Chair recognizes Mr. Cox.
Mr. Cox. Thank you, Mr. Chairman.
I want to thank you for convening these 2 days of hearings.
I hope they will work in tandem with tomorrow's hearings on the
Homeland Security Committee, where we will focus on the
vulnerability of our Nation's power supply and distribution
system to deliberate attack as well as the catastrophic
secondary effects.
We still don't know exactly how and why the blackout of
2003 occurred, although today we expect to learn a bit more. I
think that we will have to await the conclusion of ongoing
investigations before we have answers that will satisfy not
just politicians and regulators but also the electrical
engineers who are responsible for constructing a system that
will work. What we do know and what we have learned as a result
of the events of last month is that the denial of electrical
service for an extended period of time causes a dangerous
ripple effect of death and destruction across virtually all of
our Nation's civic and economic sectors.
In the 21st century, America is more dependent upon
electricity than ever before in our Nation's history. In the
computer era, information systems and electronic controls
dominate every aspect of our economic life and the public's
health and safety. Lack of power can lead to significant
fatalities and wreak tremendous havoc on our economy. This is
certainly a desirable outcome to--and hence a goal of--our
terrorist enemies as well as an accident that can occur, as we
saw last month.
The economic implications of a blackout are thus even
greater than they might seem at first glance. It didn't take
even 4 days before the vultures started circling--in this case
trial lawyers rather than terrorists. On August 18th the first
lawsuit was filed, a class action lawsuit in Ohio on behalf of
all persons and entities residing in the United States who lost
electrical power during the blackout. We are still
investigating the causes of these events, but profiteers are
lining up to make sure that they get theirs.
The threat to the Nation is more complex than might appear
on the surface. Together, the Energy and Commerce Committee and
the Homeland Security Committee must determine accurately how
vulnerable our power system is to attack and sustain denial and
what steps we can take to reduce that vulnerability and
mitigate the potential damage through contingency planning.
We have an extraordinary 2 days, Mr. Chairman, during which
we will learn a great deal; and I look forward to moving the
energy legislation in this Congress which I strongly believe is
connected fundamentally to these issues.
I would merely add to what the chairman mentioned a moment
ago. That is, that all of our electric power systems, save for
nuclear and hydro, operate on sources of energy that are not
included in the electricity title of the energy legislation;
and we have got to take a look at the entire picture. Simply
put, in the 21st century we are using so much power for
computers and new electric technology that the system that we
have built is going to break down unless we invest.
Thank you, Mr. Chairman.
Chairman Tauzin. I thank my friend.
I should also remind the members that as this investigation
goes forward, as our committee and Mr. Cox's committee goes
forward, we also have a task force at work looking at the
natural gas crisis that we also predicted is going to occur
very soon because of the shortage of natural gas to power
plants and to operate the chemical industry in our country. I
had meetings in my district over the break on that subject, and
there are some pretty serious problems there.
I also want to comment before we move on to Ms. Eshoo, I
hope you all had the same sense I had watching the citizens of
New York walking the streets and the eerie reminder of 9/11;
and I want to encourage Mr. Cox in examining how exactly the
Nation responded to this crisis because I think it teaches us a
lot of lessons about how we can better prepare ourselves for
hopefully something we don't have to see again but could happen
again, some other strike against our country.
The Chair is pleased to welcome and recognize the
gentlewoman from California, Ms. Eshoo, for an opening
statement.
Ms. Eshoo. Thank you, Mr. Chairman, for holding this
important public inquiry into the Northeast blackout of August
14.
The joint U.S.-Canadian inquiry that got off the ground on
August 19 is reportedly making progress, but the investigators
are still churning through data. Before the committee draws
conclusions and makes sweeping policy decisions, I think we
have the responsibility to know the results of that inquiry.
Unfortunately, in the absence of fact, theories and rumors
are ruling the day. A few energy companies have developed time
lines and theories to put themselves in the best light and put
the blame on others. Everyone is denying responsibility. The
House leadership has brought out the familiar theories that
were advanced during the California energy crisis: blaming
environmental rules, consumer protection laws, transmission
constraints and the law of supply and demand.
Back in 2001, these theories were the justification for
passing the highly flawed national energy policy which did
nothing to solve the price gouging and market manipulation that
I and other members of Western States asked for help in
stopping. When we began learning the facts about the California
crisis after the release in May, 2002, of internal Enron
numbers that detailed how the market was manipulated, the
silence was deafening on the part of the administration and the
House leadership. Our calls for hearings were completely
ignored. The facts were too inconvenient. Now this blackout,
the Northeast blackout, like the western energy crisis, is
serving as justification for passing a national energy policy
that has little to do with the underlying causes of the power
outage.
We have to know the facts. The Bush Administration, known
for its coziness with oil and energy interests, has to stretch
itself to move to the public interest. So I not only look
forward to hearing the testimony today, but also hope that this
committee, where the policy responsibility lies squarely with
the Energy and Commerce Committee, will come up with a policy
that directs itself toward the real issues and not to paper
over and to force through a national energy policy that really
does not fit with the facts.
Thank you, Mr. Chairman.
Chairman Tauzin. The Chair thanks the gentlelady; and the
Chair is pleased to recognize the gentleman, Mr. Whitfield, for
an opening statement.
Mr. Whitfield. Mr. Chairman, thank you very much; and I
want to thank those people attending from all three panels
today. Secretary Abraham, we are glad you are here, and we will
have local and State officials as well as those people from the
various commissions that regulate the utilities.
The blackout that swept across much of the Northeastern
United States and parts of Eastern Canada we know can happen
again almost at any time because the 150,000 miles of
transmission lines are simply not adequate. The load growth has
been more than 60 percent in the last 20 years, and yet the
high voltage transmission lines have increased by only 20
percent during that time.
Now some people seem to think that moving quickly on a
stand-alone reliability piece of legislation is the best way to
proceed. That may be true, but I think everyone understands
that isn't going to be easy either because of the complex
issues involved here.
We have a myriad of competing interests. We have low-cost
States that are very much concerned about having to pay to
upgrade transmission lines in other parts of the country. We
have concerns about some strong environmental States who don't
want coal plants built in their area, but they want to import
electricity produced by coal from other areas of the country.
We also know that power was available east of California
during the energy crisis in California in 2000 and 2001, but
there were simply not adequate transmission lines to get that
power out there. We know that the power traders could not have
manipulated the markets if there had been adequate transmission
lines into California.
So all of us want to address this issue and do everything
that we possibly can to solve it, but I think it is naive for
any of us to think that it is going to be very easy to do. And
while I certainly would be willing to work with those wanting
to move a stand-alone reliability legislation, I don't think
that is going to be easy either. It is going to be complex, and
I am delighted you are having this hearing today.
Chairman Tauzin. Would the gentleman yield for a second?
I want to point out to all my friends who are listening on
this side, as you know, the other Chamber was not even able to
pass a new bill and gave up trying to pass a new bill. They
ended up by unanimous consent adopting the bill of last
Congress so at least we could go to conference and try to work
this out.
The good news, of course, is that, in the conference,
reliability provisions are already in the mix. So whether we
have a separate stand-alone bill or not, it is before the House
and the Senate. And the gentleman is right. We at least have a
chance in the conference to complete that work. We ought not to
miss that chance.
I thank the gentleman for yielding.
The Chair recognizes the gentleman from Florida, Mr.
Deutsch, for an opening statement.
Mr. Deutsch. Thank you, Mr. Chairman.
I think all of us in our own life experience know that
things happen that we don't plan for but that create
opportunities. And how we respond to those changes and
challenges defines us as individuals, but I think this
challenge will define us in many ways as a country as well.
Others have spoken to this, but I think it is important to
focus that there is really this consensus point that exists in
terms of what we need to do with the electric grid in the
United States of America.
I think each of us understands that it is our job to fight
for what we believe in but also to represent our constituents
and the entire country, and we need to take politics out of
many of these decisionmaking processes, which is exactly what
the country needs for us to do. For that reason, I think the
focus really is and we will be judged on our ability to really
support and pass separate legislation to specifically deal with
the grid issue, which there is a consensus both from the
Democrats and the Republicans outside of the body of the entire
bill. I think America is focused, and America is watching, and
I believe we are up to that challenge.
I also want to mention another issue which is hopefully
this will be really an opportunity and view this as an
opportunity for us collectively as a Congress and the country
to really take the energy bill and--not in the bill itself but
maybe in other legislation in this Congress a step further. We
are still at a point where effectively the largest tax in the
history of the world continues to take place because of the
power of OPEC over ourselves and other oil-consuming nations,
and there needs to be a concerted effort.
If we acknowledge that the greatest challenge facing our
country is the threat of terrorists having weapons of mass
destruction, which I believe there is a consensus on, and the
greatest challenge of our country is our macroeconomy, which we
can't defend ourselves unless our macroeconomy is strong, then
our inability to address what is in fact the greatest threat to
both our economy and our security, which is the threat of
OPEC's power over us and the inability not just of this
administration but really of the prior administration as well
to challenge, that is really a question that I hope that this
Congress and this country uses this opportunity, uses this
crisis to change.
Mr. Secretary, as you probably are aware, your department
supported a conference on this, actually, this past week in
Israel, which I heard about. I have read some of the documents
presented there, and I hope it is something we can address in a
larger setting.
Chairman Tauzin. The Chair thanks the gentleman for his
statement and recognizes the gentleman from Illinois, Mr.
Shimkus, for an opening statement.
Mr. Shimkus. I apologize for taking the 5 minutes.
We have New Yorkers here, and I want to send word to them--
I know Mr. Engel and Mr. Towns--I think the Nation was really
impressed by the way the folks of New York City handled the
blackout in a calm demeanor. There were some great stories out
of that. I think the folks in the Midwest were really pleased
and honored by that response.
I do also want you to know that most people in my district
understand that I serve on this committee, and so right
afterwards I got a lot of questions where are you at, what have
you done and how soon can you get something moved. And I said,
well, we are at a great time because we passed a bill both in
the House and the Senate, and we are moving the conference.
These hearings are designed for us to get the final bits of
information that we can go and insert them into a national
energy plan.
So what do we have in there? Well, we have the repeal of
PUHCA, which could bring more capital to expand the
transmission grid. We have accelerated depreciation from 20 to
15 years for electric transmission assets. We need in the
bill--Congress--we need to be stepped up and ensure that the
expansion of the grid is not slowed down by State regulators.
So that is empowering the FERC on siting.
The reliability issues have been addressed, and that is
part of the bill.
I am a big proponent of standard market design. Whether
that gets part of the final part or not I am not sure, but I do
think that is important if you are going to have a national
transmission system, a national grid.
We have a critical moment in time to move this bill. The
public expects us to have success. We need to get our two final
FERC commissioners at least up for a vote on the Senate floor.
They have been delayed. How can you have the FERC fully vent
out a problem when you only have three of the five seats
filled?
So if you have some of the highest natural gas prices that
we have seen in a long time--and I am on the Natural Gas Task
Force and we had hearings. We had no industry producing--only
one industry in this country producing fertilizer, and that is
a farmer-owned co-op. And if you have some of the highest gas
prices that you seen in years and you have 50 million people
without power, if you can't move a national energy plan bill
now in this environment, my fear is we will never do it. The
time is ripe.
Thank you for coming.
Chairman Tauzin. Just yield, the CF industries in my
district laid off a bunch of workers again as they are shutting
down more production at the chemical plants, fertilizer plants
and basic building blocks of fertilizer because of the high
price of natural gas. This is more than just a electricity
problems.
I thank the gentleman.
The Chair now recognizes another gentleman from Michigan
who also experienced a blackout, Mr. Stupak, for an opening
statement.
Mr. Stupak. Mr. Chairman, I will pass, but we didn't
experience blackouts because I come from the best part of
Michigan.
Mr. Shimkus. You don't have power up there.
Chairman Tauzin. The Chair thanks the gentleman for passing
and understands his pride in his district.
The Chair recognizes the gentlelady from California, Mrs.
Capps, for an opening statement.
Mrs. Capps. Thank you, Mr. Chairman; and thank you to
Secretary Abraham for testifying today.
I have a great deal of sympathy for the 50 million citizens
who lost power last month. As many here remember, millions of
businesses and families in California faced rolling blackouts a
couple of years ago. These rolling blackouts inconvenienced
millions and cost businesses billions, and the impacts are
still being felt today. California was robbed of $9 billion by
energy companies that illegally drove up electricity and
natural gas prices. I am relieved that the long-term
implications in the blackouts in the Midwest, Northeast and
Canada will not be so dire.
I wish to make a couple of points this morning. First,
there is an eerie similarity in the reactions to the blackouts
and to California's situation. California's troubles were used
as an excuse to push through an energy bill that really had
very little to do with the problems in California, and the same
is happening today.
Two-and-a-half years ago charges were made that the energy
crisis was because California hadn't built enough power plants
to meet growing demand or the Endangered Species Act was
delaying new construction or the Clean Air Act was shutting
down existing plants. And of course it wasn't any of these
things. It was Enron, El Paso Natural Gas and other energy
companies exploiting a badly written law and ripping off
California. FERC's subsequent investigations have uncovered the
market manipulation in case after case after case.
The congressional response at the time, however, was to
push through a bill which had nothing to do with what caused
California's problems. The bill subsidized energy companies,
opened more public lands to drilling and a host of industry
goodies.
Today we are not exactly sure what happened last month, but
we are pretty sure it wasn't about the need to drill in the
wildlife refuge or with big ethanol mandates or with more
subsidies for nuclear power. And yet, like 2 years ago, the
call goes out again for passage of a controversial energy bill,
most of which has nothing to do with the issue at hand, the
reliability of the electricity grid.
So I agree with Mr. Dingell's call for quick passage of the
energy bill's bipartisan reliability standards. These
provisions have been agreed to by all parties for a number of
years now. We know we need to make these changes, and we are
pretty sure they factored into the blackouts. So I hope we
won't let them get bogged down in the bill's other more
controversial measures.
In addition, I would like to bring to the members'
attention an observation. The day after the blackout, political
leaders in the affected areas made public calls for everyone to
conserve energy to make sure the system wasn't overloaded when
the lights came back on. It was a very smart call. People will
pull together to conserve energy consumption if they are called
upon, and conservation does work. In California, consumers cut
consumption by 10 percent 2 years ago, and it helped to stop
our energy crisis. But we should be making every effort to
conserve energy every day, not just when there is a crisis; and
yet the energy bill takes only baby steps to make sure air
conditioners, buildings and cars are as efficient as possible.
This committee even voted down some sensible conservation
amendments.
As the bill moves through conference, we should revisit the
conservation measures and do more, much more. The blackout
showed us again the instinct in our fellow Americans to do the
right thing. We in Congress need to show some leadership on
this issue, and the country will respond.
Thank you. I yield back.
Chairman Tauzin. I thank the gentlelady.
The Chair is now pleased to recognize the gentleman from
Georgia, Mr. Norwood, for an opening statement.
Mr. Norwood. I will file an opening statement but just have
a couple of remarks.
Thank you, sir, for having this very important hearing; and
I thank Secretary Abraham for being here and for your
leadership in energy matters.
As bad as everything was for the Northeast during the
blackout, and I won't reiterate, everybody knows how terrible
it is to be without electricity in the 21st century, as bad as
you know all of that was, there was a real possibility here, a
real potential here that Congress might actually do what it
should do and pass a comprehensive energy bill. I think the
House has done a pretty good job and has fought it out real
well, and I hope the other body now will get serious about
producing a comprehensive energy bill, not simply about
electricity, although that is the subject today. The other
parts of energy required by this country need to be dealt with,
too; and let us hope that the Senate will finally wake up and
come to conference and let us get serious about it.
Mr. Secretary, I know the task force is working hard; and
it is very important in my opinion for us to have a clear
understanding of exactly what caused this blackout for two
reasons. When we understand that, we may be able to put things
in legislation that would prevent it in the future.
But, second, until we hear from your task force, for some
people it will be an excuse for us not to move forward on a
comprehensive energy bill; and I encourage you and the Canadian
members and U.S. Members of this task force to act with some
haste and get us that information as soon as you can so that at
the end of this first year of this Congress we won't be sitting
there saying, well, we can't bring a bill up because we don't
know what the cause of this issue was. So it clearly is pretty
important that you folks act as quickly as you can; and, Mr.
Chairman, I look forward to a conference so that we can come up
with a comprehensive energy bill, not just an electricity
title, although it is vital to our subject, too.
Chairman Tauzin. I thank my friend; and I want to, for
purposes of information, inform the audience that while we have
not had official appointment of conferees on the energy bill
with the Senate, staffs of House and Senate have been talking
and isolating areas of agreements and disagreements and we have
made a lot of progress during the month of August. We are going
to move as fast as we can as soon as the Speaker makes the
announcement of the conferees.
I thank the gentleman.
The Chair now recognizes the gentleman from Florida, Mr.
Davis, for an opening statement.
Mr. Davis. Thank you, Mr. Chairman. I will waive my time.
Chairman Tauzin. The gentleman waives; and the Chair
recognizes the gentlelady from California, Ms. Solis, for an
opening statement.
Ms. Solis. Thank you, Mr. Chairman.
I would like to thank the Secretary for being here.
As a Californian, I understand the importance of trying to
make sure that we address our energy issues. I am not going to
read through my statement but just point out that we need to
address this energy shortage and there are some elements that I
think we should consider.
In my opinion, something that we should have kept in both
the House and Senate energy bills was the protection of
consumers, specifically consumer protection under the PUHCA law
as it is stated to provide some kind of reliability and
accountability to consumers. California went through a
devastating crisis, and we are hopeful that this kind of
language will be kept in whatever bill comes before the
conference committee.
As someone who has looked at how we can better
systematically improve our conservation efforts in California,
we know what it means to roll up our sleeves and conserve. We
have done it. We were also victimized by unscrupulous
businesses like Enron and others that came in and gouged the
system.
We still need FERC to come in and do some work, some heavy
lifting for Californians, because many of our small businesses
and in particular, minority businesses went under because of
the increase in electricity bills that they were faced with and
we have yet to see any remedy. When we talk about reforming
this reliability plan for energy usage, we should look at
renewables and conservation and above all protection for
consumers, and I would leave it at that.
Chairman Tauzin. The Chair thanks the gentlelady; and the
Chair recognizes another member from the State of Michigan, Mr.
Rogers.
Mr. Rogers. Thank you, Mr. Chairman. I have a written
statement for the record.
Mr. Secretary, I just wanted to welcome you here today. As
I am sure you can see, the political funny season has begun,
and whatever action that you are to take or have taken is
exactly wrong. I want to thank you for taking a thoughtful
approach to what you have done and resisting the temptation to
ready, shoot, aim.
I am looking forward to your testimony. If we are going to
respond in a manner that is consistent with what consumers
want, need and should have, we have got to know the facts. The
investigation that you have undertaken in your testimony today
has shed a lot of light here, and thank you for the work did
you have done so far.
Chairman Tauzin. The Chair thanks the gentleman and
recognizes the gentlelady, Ms. McCarthy, for an opening
statement.
Ms. McCarthy. I thank you, Mr. Chairman, and Ranking Member
Dingell for holding this hearing to discuss the causes of the
massive power failure that affected parts of the U.S. Midwest,
eastern seaboard and Eastern Canada. During this hearing it is
imperative that we address reliability issues, energy
efficiency as well as problems related to the transmission
grid.
I look forward to hearing from you, Mr. Secretary, and from
our panel of expert witnesses today and tomorrow. The 2003
blackout shut down cities, airports, trains, subways,
businesses, disrupted hospitals and dramatically changed the
lives of millions of people who were unable to lead their daily
routines. It is apparent from these events that our electricity
grid needs to be modernized and upgraded in order to meet our
growing power demands.
We also need to reevaluate the reliability requirements on
utility companies and ensure that provisions in our PUHCA law
remain so that unfair pricing does not occur in the future. It
is highly critical that we also invest in a reliable,
affordable and cleaner energy system that increases
conservation and efficiency. Giving power companies more
authority to upgrade their facilities while allowing them to
override environmental regulations should not be the way we
lead our Nation.
I am pleased that the legislation under consideration
includes Federal penalties if companies fail to detect and
isolate problems or, if they do not know, notify neighboring
power systems of problems in order to avert future events such
as we experienced. We can aggressively reduce demand by
employing energy efficient technologies and encouraging sound
conservation measures as an essential component of our energy
policy. Utilizing more kinds of energy sources and using
smaller, more distributive installations for peaking power will
reduce the impact of system failures. Renewable energy sources,
including wind, biomass and solar, lend themselves to these
smaller energy generation installations.
We as a Nation need to invest in more energy efficiencies
since this is the fastest, cheapest and cleanest way to reduce
the strain on our electrical system so it will save consumers
money, reduce pollution and the need to ship power from region
to region.
Mr. Chairman, our strategy to address energy policy can
produce a reliable supply of diverse fuels that minimize
greenhouse gases and secure our leadership in energy technology
to benefit our consumers and to export around the world.
It is imperative that we invest in alternative fuels and
reduce carbon emissions when considering a national energy
proposal. We can do much more with the energy sources we
already have by pursuing energy efficiency in our buildings,
appliances, office equipment and industrial equipment and
processes.
Energy efficiency helps keep the money in our economy for
productive purposes. It lessens the strain on electricity
generation and transmission systems, while helping to reduce
the impact of system failures and future blackouts.
Thank you. And I look forward to working with my colleagues
to address these critical issues. I thank every one of the
panelists today for sharing their expertise in these matters. I
yield back.
Chairman Tauzin. The Chair thanks the gentlelady. I
recognize the gentleman from Oregon, Mr. Walden, for an opening
statement.
Mr. Walden. Thank you very much, Mr. Chairman. Well, here
we are again with another crisis that hopefully will prompt
Congress to act. But I am disturbed by some of the comments
from my colleagues on the other side of the aisle today, that
just because we had a blackout means we shouldn't deal with the
natural gas crisis that the Chairman of the Federal Reserve
told us is upon us, or that we shouldn't deal with the gasoline
problem that I will tell you, my constituents in Oregon are
objecting to $2.09 gas.
There are a lot of issues that need to be dealt with on a
comprehensive plan as put forth by this administration and this
Secretary and by this committee, that I think we ought to get
ahead of the problem rather than wait until the crisis forces
Congress to act.
And, Mr. Chairman, I commend you for your efforts,
especially as it relates to the Pacific Northwest. You see, 7
years and 4 days before the upper part of our country in the
Northeast suffered a blackout Bonneville Power Administration
suffered a blackout. You know what they found there? Overloaded
lines, sagging lines into brush, problems that eventually they
figured out how to resolve.
But from 1987 until this summer no new transmission lines
were constructed. Why? In large part because of a lack of
financial resources. Mr. Chairman, I want to thank you and I
want to thank the Bush Administration and Secretary Abraham for
working with us in the Northwest to secure $700 million in new
bonding authority for the Bonneville Power Administration.
As a result, this summer, new construction began in
multiple locations to address the problem of adequate
transmission and reliability standards for the future, and I
think it is important to point out that the head of the
Bonneville Power Administration, Steve Wright, said in an
opinion piece of August 15, he really summed it up, and I think
this says it all: We need to make the reliability standards for
market participants mandatory and we need to enhance our
electricity infrastructure. That is pretty much it. The rest is
trying to sort out what happened in a matter of minutes or
seconds, a matter of milliseconds in some cases with date
stamps that don't add up, depending upon which computer they
are on.
It is going to take a lot of work. And Bonneville is
putting forth a rule guru in the industry, Bill Middlestead, to
help in this bi-country investigation.
So, Mr. Secretary, I commend you for undertaking this
effort to try and figure out what went wrong, and further for
continuing to push forward on a comprehensive energy reform
plan that includes conservation and includes our ability to get
electricity where we need it, that includes trying to develop
additional national gas resources, gasoline and oil resources,
and clean coal technology.
So, Mr. Chairman, I thank you for your help with bonding
authority. I hope that we can move forward with the additional
authority Bonneville says it needs to stay ahead of the curve
as we move forward. Thank you.
Chairman Tauzin. I thank the gentleman for his kind words.
And the Chair yields to the gentleman from Tennessee, Mr.
Gordon, for an opening statement.
Mr. Gordon. Thank you, Mr. Chairman. Honoring your earlier
request, I will make my formal remarks part of the record, and
just quickly say that as important as this issue is a bad bill
is worse than no bill. We have got a unique opportunity we need
to get right.
Chairman Tauzin. Thank the gentleman. And the Chair
recognizes the gentleman from North Carolina, the vice chairman
of our committee, Mr. Burr, for an opening statement.
Mr. Burr. I thank the Chair. I welcome all Members back,
and I especially welcome the Secretary back, who is a dear
friend of this committee.
Mr. Chairman, it is not difficult if we are looking for an
answer to the question of what happened. Many Members of
Congress got on the talk shows days and weeks after the
blackout, and they suggested that they knew what happened. They
were very specific in a wide range of reasons as to why a
blackout happened in the Northeast.
The unfortunate thing is that as we are challenged to write
good policy that leads us into the next decade with an honest
energy blueprint we have got to understand what really
happened. We have got to understand where we really want to go.
We have got to understand what our real needs are. And to do
that, I think it is important that we stop and take a deep
breath and that we spend more time listening over the next 2
days than we do talking as members of this committee.
I want to take this opportunity to applaud Mr. Wynn and
others who have consistently, as we have talked about the need
for energy policy and electricity legislation, never let us
forget that the transmission grid deserves and requires a
tremendous upgrade for us to go into the future.
At the end of the day, regardless of what we find the
reasons to be for the blackout, this has been a preview of
potentially what could happen if we don't make the investments
for our future and for the future needs of the infrastructure
in this country.
Mr. Chairman, I want to urge you and whoever are in fact
the conferees at the time to fight in conference for the
language that we need to make sure that the transmission grid
is upgraded, that it is not forgotten, and I want to encourage
you to remember that to accomplish this we have to have the
confidence of the financial markets that there is a return that
is predictable for them to finance what could be an asset
outlay as large as what the current value of our transmission
grid is.
Mr. Chairman, I thank you for this hearing. Mr. Secretary,
again, we thank you for your insight. I yield back.
Chairman Tauzin. Thank the gentleman for those comments.
They are absolutely valid. And the Chair recognizes the
gentleman he just referred to, our friend from Maryland, Mr.
Wynn, for an opening statement.
Mr. Wynn. Thank you very much, Mr. Chairman. Let me begin
by thanking you for moving expeditiously and aggressively in
addressing this issue. Mr. Secretary, welcome, we look forward
to your testimony.
I would like to note that this hearing is not taking place
in isolation; we have a product on the table--an energy bill.
And I think that this committee should be a driving force to
make sure that the conferees meet quickly to address the
issues. If the desire is for a comprehensive bill, lets move
forward and conclude this business before we go home.
If we reach a conclusion that we cannot in fact do that, we
ought to move forward on those areas of consensus. I think
reliability is such an area as indicated by our ranking member,
Mr. Dingell.
I have had the pleasure of working with Mr. Burr on the
issue of reliability over several years, and we think we have a
product in the form of H.R. 1370 that would have addressed some
of the concerns that we are talking about here today. The
bottom line is that our electricity grid, transmission grid is
not up to snuff. It is outdated, overburdened, and should be
addressed with mandatory reliability standards. Our legislation
does that. It provides for the establishment of an electric
reliability organization with the Federal Energy Regulatory
Commission providing oversight.
This would facilitate the development and enforcement of
mandatory reliability rules and standards that are binding on
all electric companies and market participants. These standards
would include technical standards relating to the maintenance
and operation of electrical systems, performance standards for
electrical systems and preparedness standards. Critically, we
need preparedness standards related to the ability of those
managing the electrical system to respond to anomalies or
unexpected events in the grid.
What we need is a system in place today that would provide
the Federal Government with the authority and tools to sanction
companies that don't comply with reliability standards. Another
area of concern as Mr. Burr mentioned, is a lack of investment
in the transmission system. Our bill would require the FERC to
adopt transmission rules to promote capital investment. That is
what we need in the system to improve the operation and allow
for returns to investors reflecting the financial, operational
and other risks inherent in transmission investment.
And, finally, our legislation would address the issue of
siting. We need to expedite siting. H.R. 1370 would give the
FERC the ability to site transmission if State or local
governments aren't able to do so. This is a serious problem. We
are all talking about it now, but the problem has existed for
some time. We need to take the responsibility to act, either
comprehensively and address all of our issues in energy needs
or to address those issues that we can agree on and make sure
we do something before we go home. I hope we will be able to do
that.
Thank you very much, Mr. Chairman.
Chairman Tauzin. I thank my friend. The Chair is now
pleased to welcome the gentleman, the former lieutenant
Governor of the great State of Idaho, Mr. Otter.
Mr. Otter. Thank you, Mr. Chairman. It is well known that
the United States must maintain an abundant and reliable supply
of energy to keep our economic recovery on track.
We saw earlier this month in the Northeast what can happen
when energy supplies are disrupted. The potential cost is
enormous, both in economic and in human terms. I am pleased
that the chairman is holding this hearing today to look into
exactly what happened in the Northeast and why it happened.
Were we truly the architects of our own disaster?
We also need to determine what can be done to prevent this
type of disruption from happening in the future. However; as we
move forward, we need to be careful not to rush to a one
national, one size fits all approach in response to what
happened in the Northeast. While there is obviously need to
improve transmission across the country, any proposal to do so
must take into account regional differences.
I believe we need to work to remove unnecessary
bureaucratic impediments to site transmission, as well as
electrical generation. We need to streamline State and Federal
siting processes and look into the NIMBY, not in my back yard,
problem. I also believe we need more investment in the
electrical industry, and should make sure that Congress is
giving the right signals to encourage such investment.
With that, Mr. Chairman, I yield back my time.
Chairman Tauzin. I thank the gentleman. The Chair
recognizes the gentleman from New York, Mr. Engel. And I too
want to again, Eliot, on behalf of the entire Nation express
our admiration to the folks in New York for the way that they
handled yet another enormous crisis.
I recognize my friend, Mr. Engel, for an opening statement.
Mr. Engel. I thank the chairman for his kind words, and I
thank Mr. Shimkus as well. We may see, as a result of what
happened with the blackout that comes this May the census in
New York may increase a great deal and that perhaps we can get
back some of the Congressional districts we have been losing to
reapportionment as a result.
Chairman Tauzin. Wasn't that the effect of the last
blackout? Wasn't there a huge baby boom in New York?
Mr. Engel. Well, it did. In 1965 and 1977 we saw that
happening. So, but seriously, Mr. Chairman, thank you.
I am obviously, as every one else, but particularly as a
New Yorker, outraged by the blackout. We were told that this
couldn't happen. When we suffered in New York through the
blackouts of 1965 and then 1977, we were told that after that
happened steps were taken to ensure that it could never happen
again. And yet it did. I am glad we are holding hearings,
because I want to know what happened. We all want to know what
happened. There are many issues to be discussed.
Did deregulation play a role? What are other reasons that
this blackout happened? What disturbs me though, and I hope
this doesn't happen, is that I don't want, and I have heard
some rumblings of it today, I don't want this blackout to be
used to have a bill or to push a bill that has already been put
forward.
And, for instance, we have a bill that we passed in this
Congress, which many of us have great difficulties with it.
There is drilling in the Alaska wilderness. There is an energy
bill that I believe is so tilted toward the industry and
against renewable energy sources and conservation and sound
energy policies that sometimes you have to wonder if no bill
might be better than that bill. What troubles me with the
administration is that the administration seems to believe, and
I think the energy bill reflects it, that the solution to our
energy problems is production, more oil, more gas, more power,
drill in the Alaska wilderness. That will take care of all of
our problems. But that won't.
That is not the problem that caused the blackout, which
cost the people and businesses of New York about $1 billion. By
all accounts, it looks like this is a problem about
transmission, the infrastructure of a national grid that was
designed with 1950's technology and is being used in the 21st
industry. We need to upgrade that grid.
But I want to also use this to highlight a lot of
differences that I and many others on this side of the aisle
have with the Bush Administration about energy and about their
energy policies, and my fear is that the administration will
rush to use this blackout as a way to rubber stamp what I think
are misguided energy policies. I want to talk about some of
them.
The unilateral withdrawal from the Kyoto protocol, the
development of energy policies in secret, and refusal to
provide documentation of these meetings contrary to Congress's
request, the weakening of Clean Air Act regulations that will
allow power plants in the Midwest to foul and pollute the air
of New York.
Also, most egregious, in light of September 11, the recent
revelation by EPA's Inspector General that states that the
White House and National Security Council forced EPA to lie
about the air quality in New York City just after September 11
to cook the books to make it look better.
Of course, my favorite, the decision by FEMA and the NRC to
approve the evacuation plan for Indian Point Nuclear Power
Plant without certification from the State of New York or the
local Counties of Westchester, Rockland, Orange and Putnam. So
much for State and local control.
Again, I hope that what happened is not used by the
administration and others that support the administration's
policies as a way of trying to ram through what I think are
wrong policies.
I want to ensure that the public gets the true facts, not
facts that may be scrubbed to ensure its compatibility with
administration doctrine. You know, when I was growing up, Mr.
Chairman, we all watched the show Dragnet. And Detective Joe
Friday used to say: The facts, ma'am, just the facts.
Well, I want to know the facts. I want to know what
happened with this blackout. Frankly, I want to know what is
happening with energy policies throughout the country. Gas
prices are jumping in leaps and bounds. Every week you turn
around and the price of gasoline has gone up 10 or 15 cents a
gallon. I want to know if there is some kind of collusion
because I cannot believe that there is any other reason for gas
prices to increase so quickly.
So I want to say that we need investigations so we know
what truly happened, so we find out what truly happened. I want
to make sure that when it comes to investigating energy
policies in this country that the administration doesn't take
the view of these three monkeys, hear no evil, see no evil, and
speak no evil.
I look forward to the testimony today.
Chairman Tauzin. I thank the gentleman. The Chair would
want to point out in light of his comments, however, that while
there were many Democrats who voted against the energy policy
bill that was adopted by the House that has gone to conference,
there were well over 40 Democrats who voted for it. It had very
much of a bipartisan element in that regard. And there was no
attempt to ram it through. I just want to caution my friend
that we are trying our best to get consensus where we can and
will continue to do so.
The Chair is now pleased to recognize Mr. Total Recall, the
gentleman from California, Mr. Issa, for an opening statement.
Darrell, before you give your opening statement, I want to
point out that the gentleman sitting in the front out there, in
the first row on the right, third seat, remarkably reminds us
of Gray Davis. I was a little concerned that Gray Davis had
shown up today to face off with you.
But the Chair is now pleased to--thank you for letting me
do this, but the Chair welcomes the gentleman from California,
Mr. Issa, for an opening statement.
Mr. Issa. Thank you, Mr. Chairman. I am sure that Governor
Davis is busy doing the work of the people in California today.
But oddly enough focusing on California may be appropriate
for my 3 minutes of time with the indulgence of the Secretary.
It is interesting that when you look at this issue for 24 hours
a day, 7 days a week, year after year after year, that we don't
have more blackouts. Though I don't want to reduce the
importance of this committee investigating and understanding
what the cause of this massive blackout was, which may have
cost the American people billions of dollars of lost revenue, I
think it is also important that we not use this event as a
platform from which to move or not move every agenda,
particularly from my colleagues on the other side of the aisle
from California, a State in which NIMBYism has been taken to
the highest possible level, a State that, with all due respect
to those who said we have taken care of our energy crisis, what
we did is we exported our jobs. We have higher unemployment
than we had when the energy crisis first happened in the West,
and I think it is the result of logical and pragmatic thinking
on behalf of the businesses of California. They have left
California and taken with them their high paying jobs and their
energy consumption.
California, for the first time in decades, or in over a
decade, is a net exporter of people. We are losing jobs. We
have higher than national average unemployment. And all of that
is legitimately the result of a lack of affordable and reliable
energy in addition to some other well publicized problems.
So as we review what happened when the lights went out on
the East Coast I don't think we should haphazardly try to
confuse the two. California's problems have to do with an
unwillingness to produce new sources of reliable energy. We are
a net importing region and one that has a problem that if and/
or when our jobs ever return the problems of energy shortage
will return.
So, Mr. Secretary, I look forward to this committee
understanding better what did happen when the lights went out
in the East, and hopefully there will be no more references to
somehow linking California's inability to fix California's
problems to a national issue. With that I yield back, Mr.
Chairman.
Chairman Tauzin. The gentleman yields back. I think we have
four or five other Members who are going to give opening
statements, Mr. Secretary. Then we will take a 5-minute break
for you and for anyone else who may need a little break before
we take your testimony.
Next the Chair is pleased to recognize the gentleman from
Pennsylvania, Mr. Doyle, for an opening statement.
Mr. Doyle. I want to thank you, Mr. Chairman, for calling
this hearing today. Clearly the blackout earlier this summer
has rightfully attracted a great deal of attention and concern,
and the issues involved here are complex. And while I suspect
that we are unlikely to reach any definite answers through this
set of hearings, largely because it is simply too soon to know
all of the answers and those conducting the ongoing
investigations need time to continue their work, these hearings
I hope will still be productive, if for no other reason than
they raise the level of awareness of the issues and help to
find the questions we need to answer.
Thankfully my district in Pittsburgh and in fact most of
Pennsylvania was spared from the direct repercussions of the
blackout. But just because our lights stayed on this time, that
does not mean that will always be the case. I think it is
behooves us all to work together to address the problems that
arose on a national basis. I have said many times in the past
that it is imperative that we strive to create effective
cooperative regional approaches to the transmission of
electricity.
The RTO that we operate under in Pennsylvania has largely
been a success story in this regard, and I believe it provides
an effective model for the rest of the country. One danger as I
see it is that the lesson we take from this blackout becomes
that deregulation is too dangerous and that we should rely on
the status quo in many regions as the safest course.
In my view, nothing can be further from the truth. We need
to continue to modernize and update our systems, adopt uniform
reliability standards, and continue to create large RTOs as
this will be the most effective way to oversee the transmission
of power and comes closest to recognizing that these are not
issues that stop at State boundaries.
Protecting local interests or States rights in this case
will not lead to effectively modernizing the whole system. If
this blackout causes us to regress from a more standard
national approach, that will be a true step backwards and the
lingering effects of the blackout will prove even more damaging
than they have already been.
I want to also mention another issue that I have been
involved in for quite some time, and that is promoting the
utilization of distributed generation. When we look at the
long-term approaches to addressing the problems that ironically
enough this blackout brought to light, it is imperative that
aggressive utilization and implementation of distributed
generation technology and continued support for R&D work on
this important--be an important part of our mix.
Distributed generation technologies like fuel cells, micro
turbines and the like are providing reliable and secure power
throughout the Nation, and we need to promote their use, so
that at least our critical facilities like hospitals, police
stations, our military installations are guaranteed safe
reliable power, even in the case of blackouts like the one we
recently endured.
The current issue of the Economist made a case for DG quite
clear when they wrote: A system with more distributed
generation would be more robust than today's grid. They
continued that by speculating that the safest place in New York
during the blackout may have been the middle of Central Park.
Why? Because the police station in the park uses fuel cells.
While the rest of the city was in darkness, super clean micro
power plants carried on unaffected. New York's finest had all
of the power and light they needed. To me, that is a clear
example of the importance of distributed generation, and why I
think we must focus on its widespread utilization as an
integral part of our long-term efforts to address issues raised
by this devastating blackout.
Mr. Chairman, I thank you and yield back my time.
Chairman Tauzin. I thank the gentleman for his statement.
And the Chair recognizes the gentleman from Florida, Mr.
Stearns, for an opening statement.
Mr. Stearns. Good morning. And, Mr. Chairman, let me
commend you for your leadership and your expeditious manner in
having this hearing, and of course our witnesses for their
patience through these opening statements.
I think the American people should realize, of course, that
we have this hearing to find out what happened. We also have
the joint U.S.-Canadian task force, the North America
Electrical Rural Council, and the affected utilities themselves
are all trying to analyze what is a tremendous amount of data
to try and understand exactly what happened.
The good news, even though we had these many States that
lost electricity, there was no huge amount of damage, so that
in short order the States came back. We all know we avoided a
catastrophe, because if it had gone on for 2 or 3 days,
possibly there would have been severe damage in our
infrastructure as well as what would happen to the food and to
the water.
I think many of my Members have mentioned we should pass
our comprehensive energy bill, H.R. 6. We have a companion on
the Senate side. We are hoping that this is a way for the
public to focus on the need for a comprehensive energy plan
which our bill H.R. 6 encompasses. We encourage investment. We
provide incentives. It is not all about one thing, but it is a
lot about many things, including trying to preserve energy and
be more efficient with it.
I would offer a word of caution, Mr. Chairman, that we need
to look at this event in its totality. There were no shut-outs
in the southern part of the country. We note that the regional
differences that exist in this country have to be taken into
account when looking to increase the number of independent
organizations, such as the RTOs and the ISOs, whatever the next
three-letter acronym may be as a result of our discussion.
Throughout the Southeast, and I am from Florida, there has
been lots of talk about our energy systems. But we were
successful, and our States continue to work effectively in
planning, I believe in coordinating and maintaining effective
reliability measures. So I want to put that in the record.
So I welcome the witnesses, and again I commend you, Mr.
Chairman, for this hearing, and I yield back.
Chairman Tauzin. The Chairman thanks the gentleman, and
yields now to the gentleman from Maine, Mr. Allen, for an
opening statement.
Mr. Allen. Thank you, Mr. Chairman. I will waive an opening
and submit my statement for the record.
Chairman Tauzin. I thank the gentleman, and the Chair
recognizes Ms. Schakowsky for an opening statement.
Ms. Schakowsky. Thank you, Mr. Chairman. And welcome, Mr.
Secretary. I am really pleased that the committee is taking the
time to investigate the August 14 power outage that left
millions of Americans and Canadians without electricity.
I was in Israel watching on CNN late at night as the news
broke and city after city was announced, and I think like so
many people my first thought was to wonder if terrorism was the
cause. And the relief, on finding that in this instance it was
not terrorism, was tempered by knowing that in a country as
technologically advanced as the United States we have an
electric grid that is outdated and vulnerable to such drastic
disruptions, whatever the cause, and so that was a returning
sense of vulnerability and alarm.
And while it is essential that we find out exactly what
happened in a deliberative way, and that is what your task
force is doing, it is also true that many, like Mr. Wynn, have
been advocating for years that necessary fixes for the grid
have to be made, but those fixes have been derailed.
The blackout demonstrated to all of us that we can't delay
any longer fixing the deficiencies in the U.S. Power grid. We
can't allow for such roadblocks to prevent progress in the
future. And in my view, we absolutely can't hold an agreement
on the power grid hostage on behalf of an unsound and
unwarranted desire by some to open up the Alaska wilderness for
drilling, an anti-environmental move that would do nothing to
prevent future blackouts.
I support Mr. Dingell's wise suggestion that we move
quickly to enforce reliability standards. Reliance on voluntary
standards, the market and industry self-regulation will simply
not suffice. Particularly given the poor state of the current
U.S. Economy, we can't afford a repeat of the disruption to
commerce and personal lives that came along with the blackout.
We must work in a constructive bipartisan way to find
solutions to the problems that caused the blackout. We need to
move quickly and can't allow for extraneous issues or an
irrational reliance on the market. Our constituents deserve
better, and they deserve a guarantee that their government is
acting to prevent future problems.
My constituents have a few major questions: What are we
doing to protect them? When will they see the results? So since
we know the market alone won't work, what mechanisms are we
going to employ to ensure our constituents that their State
isn't next?
And if it turns out that blackout was due to the behavior
of industry actors, what are we prepared to do in response?
These are questions that I hope over time we will get answers
to and I hope we will continue these hearings. And I hope that
at some point consumer experts will also be invited to present
testimony. Thank you.
Chairman Tauzin. Thank the gentlelady from Illinois. The
Chair is pleased to recognize the gentleman from New Jersey,
Mr. Ferguson, for an opening statement.
Mr. Ferguson. Thank you, Mr. Chairman. And I appreciate the
ranking member and Secretary and others for making today
possible. We are going to obviously talk today about the events
of August 14, which resulted in 50 million people being
inconvenienced, businesses being hurt, and our Nation's
security being put at risk, to name a few items. But it is also
important to identify not only what went wrong, but what went
right that day.
I say that to highlight the good work Mr. Doyle was talking
about before by PJM. By shutting down the power and by
protecting the grid, PJM helped to contain the blackout and
kept the lights on in most of my home State of New Jersey and
in many other areas which otherwise would have been affected.
While today nobody has identified the exact cause of the
blackout, we do know that a disturbance within the system
resulted in a cascade that crippled the energy grid. Cascades
happen very quickly. They don't recognize State boundaries or
international boundaries, as we found out. They also don't
identify ownership of transmission lines.
When a cascade occurs, communication over a wide network is
vital. As a result of having a cohesive regional system in
place, our State of New Jersey and PJM were able to help
contain the blackout and assist our neighbors in New York
during their time of need.
I point this out because during the energy bill debate we
had a healthy conversation about the need for RTOs, and their
importance was highlighted again during the blackout last
month. The blackout also taught us about the need for a
comprehensive national energy policy, which as my friend from
New York was talking about, all of the different energy
questions he has, I would only suggest that if we had a
rational national energy policy for the past decade, a lot of
those questions would probably be a lot to answer these days.
H.R. 6, which we have passed earlier this area, would take
steps to correct a lot of these problems. It would require FERC
to take a hard look at its policies regarding transmission
rates and to set them high enough to get lines built. Our bill
would also reform the siting of new transmission lines by
giving States a year to act on an application for a new
transmission line to be built. If the States failed to act, the
DOE could step in and work with States to site lines that are
deemed critical.
All of these reforms are vital to modernize our grid, to
credit investment incentives in our electricity industry and to
reform transmission siting rules to reform the not in my
backyard attitudes that are currently stopping lines from being
built.
I also believe we need to go one step further to recognize
the important role that RTOs can play in a deregulated system.
RTOs can help avoid another massive blackout by providing the
oversight needed to guarantee reliability while also providing
consumers with the lowest possible rate due to the purchasing
power of a regional entity.
Mr. Chairman, I look forward to the rest of this hearing
and I yield back.
Chairman Tauzin. I thank the gentleman, and thank you for
reminding everyone that it was back in April when all of those
reforms were passed by the House, much prior to this blackout,
and all of them are going to be relevant as we go to
conference. I thank the gentleman and I recognize the gentleman
also from Illinois, my friend Mr. Rush, for an opening
statement.
Mr. Rush. Thank you, Mr. Chairman. Mr. Chairman, I want to
commend you for holding these hearings, and I want to welcome
the Secretary, Secretary Abrahams to this hearing. Mr.
Chairman, I will try to be as brief as possible. I know that we
have a busy time ahead of us.
I caution this committee to not allow this hearing to
deteriorate into a finger-pointing game with a lot of political
posturing before we can know exactly what happened with the
blackout and why it happened. Unfortunately, Mr. Chairman, I
believe today's hearings will only highlight the fact that
members of this committee, my esteemed colleagues on this
committee, significantly disagree on major issues concerning
energy regulation, electricity regulation.
No doubt, after learning why transmission lines failed in
the Midwest, and subsequently causing cascading failures to the
North and in the East, we will continue to fervently disagree
over how to appropriately legislate on this matter.
However, there is also much we do agree on in this
committee and in this Congress. In this regard, I want to voice
my support for Ranking Member Dingell's belief that we should
immediately pass a separate reliability bill that would at
least partially address the blackout issues before us today.
Mr. Chairman, there is no guarantee that this Congress will
present to the President a comprehensive energy bill in the
near future. Not only is there significant disagreement over
the bill's electricity title, but there is significant
disagreement over energy matters unrelated to the blackout.
If we in Congress are serious about protecting Americans
from future blackouts as quickly as possible, we should
immediately pass a noncontroversial reliability bill with
provisions that already enjoy broad-based support.
We can address the other more contentious matters in the
energy bill as time permits. Mr. Chairman, I believe that it is
indeed important for us that we do provide for some type of a
regulatory certainty so that we can send the right kind of
signals to those investors who would have to invest their hard
earned dollars into trying to upgrade our systems.
Mr. Chairman, I am concerned because I don't know--no one
has addressed, and no one has touched on the matter of how much
we are going to upgrade the grids, upgrade our distribution
system, and how much are the American people going to be asked
to put up for this? Is it the $50 billion that the President is
talking about? If that is the case, then who is going to pay
for it? Will the rate payers pay for it? Will the taxpayers pay
for it, or will the companies themselves pay for this upgrade?
Mr. Chairman, you know, not too long ago in my city we had
a large blackout, over a hundred thousand Chicagoans were
without electricity during one of our hottest moments in the
summer, during the July heat wave, and I am absolutely
committed to doing all that I can, to make sure, as I know you
are, to make sure that my constituents and your constituents
don't have to experience this again. No one in this country
should have to go through this type of experience, this type of
traumatic occurrences and this type of financial sacrifices
that they have been forced to make.
And we should support Mr. Dingell's initiative in this
regard, and this is the responsible thing for us to do as a
Congress. And, Mr. Chairman, I look forward to the testimony. I
look forward to the questions. And I look forward to give and
take and to the deliberative discussions that we are going to
engage in today.
And, Mr. Chairman, I am absolutely focused on the issue of
if--if we decide that there is going to have to be, which I
believe there is going to have to be an upgrade in our grid,
upgrade in our system, then I want to know who is going to pay
for it.
Chairman Tauzin. The Chair thanks the gentleman. The Chair
reminds the gentleman that 2\1/2\ years ago when I predicted
that we would be looking at New York very soon, I also included
Chicago. Chicago has many of the similar problems as we
examined them in the grids. I thank the gentleman for his
intense interest because his great city obviously and his State
is at risk here, too. I thank him for most of all his opening
comment, that we ought not be politically spinning this thing,
we ought to find out what happened and then we can debate how
to solve it.
The Chair is pleased now to welcome and recognize Mr. Pitts
from Pennsylvania for an opening statement.
Mr. Pitts. Thank you, Mr. Chairman. Welcome, Mr. Secretary.
I will submit my entire statement for the record. Just let me
say that I am hopeful that the hearing will examine why the
blackout occurred and how future blackouts can be prevented.
Unfortunately, some politicians have chosen not to discuss
solutions to our energy problems, but instead blame all of our
problems on deregulation and on the President's energy plan. I
know from my own experience in serving in the Pennsylvania
legislature back in the 1990's, when we passed the deregulation
legislation there, that if done in the proper way deregulation
can be successful, as it has been in Pennsylvania. And I look
forward to hearing the testimony today. Thank you, Mr.
Chairman.
Chairman Tauzin. And the Chair is pleased, I think, to
recognize the last member of our committee for an opening
statement, the gentleman from Ohio, a State dramatically
affected, and by some who indicate where the problem may have
started, Mr. Strickland.
Mr. Strickland. Now, we promised that we weren't going to
point fingers today. Thank you, Mr. Chairman. I appreciate your
work to put together these hearings regarding the August 14
blackout.
I recognize that we do not have all or even many of the
answers to questions about what exactly caused the lights to go
out on that Thursday afternoon. But it is imperative that we
begin to sort through the information that we do have.
I do look forward today, and I would particularly like to
welcome Ohio's Governor Robert ``Bob'' Taft, who will be
testifying later today, and someone that I admire greatly, Alan
Schriber, who is the Chairman of Ohio's Public Utility
Commission.
On August 14, major cities were affected, including
communities in northern Ohio. In fact not only did the lights
go out in Cleveland, Ohio, but the city's water system
experienced failures, and tens of thousands in the area were
without safe drinking water. There is also no question but that
the loss of electricity resulted in very harmful economic
consequences.
As Governor Taft's testimony will point out, quote, one
major Ohio company lost steel-making capacity for more than a
week. Rather than place blame before we have the full
information, or use the August blackout as a reason to advance
a larger energy agenda that is not without controversy. We
should react to what we do know and move forward where there is
much consensus. I am hopeful that we can pass legislation
swiftly to address necessary changes in the regulation of our
transmission grid.
We need to make it abundantly clear who has responsibility
for regulating our transmission grid, and assign that
regulatory body the necessary authority to enforce strong and
appropriate reliability standards.
I think we can find common ground on the electricity
reliability language that has been debated in this committee
many times over the past several years. I urge the chairman to
lead us, and I know he will, in the work necessary to pass
legislation to improve reliability of our transmission system
and to prevent future blackouts.
In closing, I would just say that now is not the time to
hold electricity reliability legislation hostage to a larger
energy bill that has numerous controversial provisions in it.
Instead, I would underscore the need to focus immediately on
legislation that will help to keep the lights on, protect
public health and safety, and avoid economic setbacks.
And, Mr. Chairman, I yield back the remainder of my time.
Chairman Tauzin. I thank the gentleman. I thank him for his
words of confidence both in the Chair and the committee.
For the record, let me, before we take a break, and I know
you are anxious for one, Mr. Secretary, let me mention two
individuals who are not here today who deserve an awful lot of
credit for advancing so many of these hearings and so much of
the information that we have used in order to pass the energy
legislation that is now in conference, which includes so much
of these electricity provisions: Chairman Barton of the Energy
Subcommittee, who is attending an energy conference as we speak
in Colorado, and his ranking member, Mr. Boucher, who have
worked as a great team. I think they have held over 12 hearings
leading up to the passage of the energy bill on the electricity
title alone.
So I want everyone to know that this committee, and its
subcommittee, has been diligent in trying to find that
consensus on this issue long before this crisis struck the
Northeast. I want to thank the gentleman for his statement of
confidence in the ongoing work we will have to do.
Mr. Secretary, we will now take a 5-minute break. We will
come back and hear your testimony, and go through a round of
questions, and then later on this afternoon we will have the
Governors coming in. So the Chair declares a 5-minute recess.
[Additional statements submitted for the record follows:]
Prepared Statement of Hon. Paul Gillmor, a Representative in Congress
from the State of Ohio
I thank the Chairman for the opportunity to learn more about last
month's electricity blackout, the largest in U.S. history. This hearing
is timely, both because of the events of August 14 and because of the
major energy legislation we now have pending in a conference committee.
August 14 was an event waiting to happen. If it had not happened
then, it likely would have occurred soon thereafter in another place
because of developments in the electricity marketplace in recent years.
Electricity use and generation has been growing much faster than
transmission capacity. We are putting more and more power into a system
which is less and less able to carry it reliably.
I would like to extend a special welcome to the Honorable Bob Taft,
Governor of my home state of Ohio, and fellow Buckeye Alan Schriber,
Chairman of the Public Utilities Commission of Ohio. I look forward to
hearing their testimony later this afternoon regarding the blackout's
affects on Ohio and the nation's human and economic health.
While the exact cause of the blackout remains unclear, again, we do
know that over the last several years, power companies have rushed to
build new, de-regulated generation without the necessary expansion of
the country's more-regulated transmission grid, where the Federal
Energy Regulatory Commission (FERC) requires that those owning the
lines sell access at a wholesale price. Yet, even if there were
sufficient transmission capacity, it is difficult to predict whether
such investment in new lines would have prevented the blackout as
preliminary investigations point to the possibility of a series of
human and mechanical errors.
With future blackouts projected as the demand for power increases
and transmission capacity remains stagnant, we in Congress must now
focus on setting electricity reliability standards, while at the same
time encouraging the expansion and modernization of the nation's power
grid.
As we further delve into what happened on August 14, we must also
soon consider reconciling the differences between the House and Senate
versions of the energy bill. Both measures contain provisions designed
to speed approval of building lines on federal lands, and in the case
of H.R. 6, includes additional language giving transmission companies
more incentives for new investment. We must have a relentless
commitment to producing a meaningful, comprehensive energy package
aimed at conservation, alleviating the burden of energy prices on
consumers, decreasing our country's dependency on foreign oil, and
increasing electricity grid reliability. Furthermore, it is my hope
that 50 million Americans without power, and no more, will be enough
momentum to help put our energy bill into practice.
I look forward to hearing from the well-balanced panels of
witnesses over the next two days and yield back the remainder of my
time.
______
Prepared Statement of Hon. Vito J. Fossella, a Representative in
Congress from the State of New York
An old Billy Joel song starts out, ``I've seen the lights go out on
Broadway.'' While many felt such a scenario was a thing of the past, it
again became a reality on August 14th. Before New Yorkers could say
Piano Man, they abruptly experienced the largest blackout in U.S.
history. Many were forced to crawl out of the subway and sleep on
streets as this country's biggest city worked to get public
transportation and traffic communications back up and running. Although
many steps have been taken to enhance reliability since the blackouts
of 65 and 77, August 14th proved one thing definitively: our nation
still has a long way to go in improving its system of delivering
affordable, reliable electricity to Americans.
Congress took great strides towards expanding markets and the
availability of low cost power with the Energy Policy Act of 1992. By
allowing wholesale generators greater access to the grid, this bill
opened the door for consumer choice and the benefits of lower prices
through embracing the free market. However, there is still work to be
done. While the market for power generation is ripening, businesses
continue to face obstacles in developing the transmission capacity
necessary to bring this power to consumers. This year, our Committee
has tried to eliminate regulatory red tape for consumers. The House
passed energy bill once again paves the way for improving our energy
markets by repealing ancient, burdensome regulations, such as the
Public Utility Holding Company Act, and providing incentives for
investment in transmission. The bill also recognizes electricity
markets are interstate in nature. It provides the federal government
with increased authority over the siting of interstate transmission
lines and creates mandatory national reliability standards. These
policies maintain states rights, while simultaneously recognizing
electrons don't stop at political or state boundaries.
In debating energy legislation, we must also examine ongoing
efforts of federal agencies. One such initiative is the Federal Energy
Regulatory Commission's Wholesale Market Platform. This proposed
rulemaking promotes reliable energy markets by encouraging the
formation of Regional Transmission Organizations, or RTOs. Such
independent grid operators provide greater price transparency and more
efficient flow of power to consumers. As FERC Chairman Pat Wood
recently noted, ``the cascading nature of this blackout offers an
object lesson of how the electricity grid requires regional
coordination and planning.'' This is exactly the approach Congress
should look to support by allowing FERC to continue developing its
proposed rule. Independent oversight of the transmission grid is the
most effective way to bring about the necessary policy coordination and
needed investment to ensure future reliability. We must work vigorously
to advance such policies as we move into the energy conference.
______
Prepared Statement of Hon. George Radanovich, a Representative in
Congress from the State of California
Thank you Mr. Chairman for holding this hearing, and I applaud your
efforts to identify the cause of the worst blackout in the nation's
history and the steps needed to prevent similar events in the future.
Our nation's health, safety, and economic well-being are tied to
the reliable, affordable supply and delivery of electric power.
Appropriate action must be taken to ensure that the system is reliable,
efficient, and receives the kind of investment that is needed to
maintain its service without compromising long-term failure.
This blackout illustrates the fact that electricity is a regional
commodity that doesn't respect state boundaries. Until we start
thinking and planning regionally, and using new technology to build a
more modernized grid, our nation will continue to be vulnerable to
massive blackouts.
The days are numbered for those who used the blackouts in
California as a reason to stall market reforms and attack deregulation.
As energy demand increased, we properly opened up the wholesale
electricity market to greater competition. The right balance is not
easy to achieve, but it is not impossible to craft energy regulation
that will cut prices, improve choices and ensure a secure supply.
Utilities and their customers have been painfully reminded by the
meltdown in electricity markets that electricity is not just another
commodity, but is instead an essential service for all consumers. Our
nation has recognized the importance of a reliable transmission grid to
investors, customers and the citizens of the U.S. Our country needs
legislation that will promote reliability in our wholesale power
markets. This will be achieved by working closely with FERC and the
states to accommodate regional needs, state authority and other
relevant concerns.
Deregulation must not mean no regulation. Nor can it mean an inept
regulator who arbitrarily intervenes in private decisions like Gray
Davis. He not only helped freeze retail prices while making utilities
pay volatile wholesale prices, but he also discouraged them from
hedging the resultant risk through futures contracts.
In the end, I hope we can work together to forge bipartisan
legislation on a fair and effective national energy policy--one that
protects consumers from the horrific consequences of a massive
blackout.
Thank you, Mr. Chairman, for holding this hearing today. I look
forward to the witnesses' testimony.
______
Prepared Statement of Hon. Diana DeGette, a Representative in Congress
from the State of Colorado
Mr. Chairman, I thank you for holding these timely hearings. The
testimony we will hear over the course of the next two days presents
us, as Members of the Energy and Commerce Committee, with an excellent
opportunity to gather the information we need to fulfill our duty to
craft our nation's energy policy. I hope we all avail ourselves of the
opportunity to listen to the experts, learn what they currently know
about the outage and identify areas where our knowledge is lacking.
I would like to begin by echoing the call of our esteemed
Democratic leader, Ranking Member Dingell. I believe that we should
empower the North American Electric Reliability Council (NERC) to
mandate and enforce federal reliability standards. This measure is
sensible, enjoys bipartisan support, and is relatively non-
controversial.
But I urge caution in adopting more sweeping changes that are far
more controversial. This includes a push for more deregulation and
greater federal control over power-line siting. Public catastrophes do
not warrant action that ultimately leads to public debacle. Many of the
early responses to this crisis are guilty of overreach. I voted against
H.R. 6 when our committee considered it earlier this year for what I
believe are solid and serious policy considerations.
The editorial pages of Denver's newspapers have raised similar
concerns. I read from a Rocky Mountain News editorial dated August
20th. ``We need an energy bill that spurs economic growth and helps
ensure affordable and reliable energy supplies for Americans. What we
don't need is a special-interest banquet that picks the pockets of
taxpayers.''
I agree with their call for an energy bill that increases
affordability and reliability. In my view, we must also reduce
consumption and use energy more wisely. Conservation must be a part of
this policy. New technology, identified by the Energy Star label, could
reduce wasted energy by up to 75 percent. These changes, while small on
an individual basis, can have enormous impacts in overall energy
consumption.
During our earlier consideration of H.R. 6, I offered an amendment
that would have made Congress follow the same energy efficiency
requirements we have already required the other branches of government
to meet. It's time for Congress to encourage widespread adoption of new
technologies to reduce energy consumption that we hope will be widely
adopted in commercial and residential properties. We need to continue
our efforts on behalf of renewable energy programs and energy efficient
programs. Maybe my amendment, which recognizes that what's good for the
goose is good for the gander, will be adopted during the energy bill
conference proceedings.
Of course, this is a small part of the solution. But I do not
believe that conservation should play a small part in our national
energy debate. And I believe that H.R. 6 was not sufficient in
recognizing the very real gains that conservation can achieve.
In conclusion, the 2003 blackout was a staggering event. Thirty-
four thousand miles of transmission lines were adversely affected in
approximately nine seconds, eventually leaving tens of millions of
Americans across the Midwest and Northeast without power. Colorado was
not walloped, but I do not fool myself that Coloradoans are immune to
future blackout threats. Let's work together--across the aisle and
across the nation--to improve reliability standards. Let's undertake
more conservation efforts. And let's listen to the experts as we figure
out the best way to avoid a repeat of the 2003 blackout.
[Brief recess.]
Chairman Tauzin. The committee will please come back to
order. And we are pleased to now welcome the very patient
Secretary of Energy of the President's Cabinet, and our dear
friend, former Senator of the U.S. Senate, the Honorable
Spencer Abraham, who is accompanied today by the Deputy
Secretary of the Department of Energy, the Honorable Kyle
McSlarrow, who is here to assist the Secretary in his
testimony.
Mr. Secretary, again, we are anxious to hear from you as to
what your Department's understanding of this event is and any
suggestions you might have about how we ought to proceed from
here and what you believe will follow. Particularly, I know we
are all interested in the joint task force that has been
assigned to you and the officials in Canada to make sure that
we have not only a multi-state but international cooperation in
solving this problem.
So again we thank you. We appreciate your service to the
country, and your willingness always to come to our committee
and share with us information as we desperately need it today.
Secretary Abraham.
STATEMENT OF HON. SPENCER ABRAHAM, SECRETARY, U.S. DEPARTMENT
OF ENERGY; ACCOMPANIED BY HON. KYLE McSLARROW, DEPUTY SECRETARY
OF ENERGY
Secretary Abraham. Mr. Chairman, thank you very much. I
thank you and the ranking member for inviting us here today.
And as you indicated, I an joined by our Deputy Secretary, Kyle
McSlarrow, who along with myself has been very active in
overseeing the work of our task force. We appreciate the chance
to give an initial briefing to this committee.
As you know, President Bush and Prime Minister Chretien of
Canada formed this joint task force just a few hours after the
lights went out across large portions of the United States and
Canada on August 14. I am the cochairman of the task force,
along with my Canadian counterpart, Canada's Minister of
Natural Resources Herb Dahliwal.
I can assure this committee that both Minister Dahliwal and
I take the responsibilities which we have been given extremely
seriously. We have been in frequent contact since August 14,
and since the task force was created, and will certainly apply
our own personal commitments as well as the resources of our
respective department and ministry to the task force efforts.
As a personal matter obviously for me, this is significant
not just because it happened here in America, but because one
of the affected States is my own home State, Michigan. Like a
number of the Members of Congress who are present here today, I
have family members who were directly affected by this, and I
can assure the Members of Congress that even as you implore us
to answer the question of what happened and why, even more on
my doorstep are my own relatives who want to know the answers
to the question, those questions as well. And we intend to
provide them.
Our job is to find out why such a widespread power outage
occurred and to recommend measures to help keep something like
it from ever happening again. To ensure complete and
cooperative investigation, the task force is working closely
with the Governors of the States involved, some of whom I know
will be testifying later today, as well as the affected
Canadian Province of Ontario. We are also working with the
major entities involved, with the operation of our electric
transmission infrastructure, including the independent systems
operators that manage the flow of power over transmission
systems, the utility companies whose customers were affected by
the blackout.
Today, less than 3 weeks after the blackout, I think we are
making good progress in putting together the extraordinarily
complex sequence of events which surrounded the incident. And
while we are encouraged by the progress, there is still a lot
more to be done before we can determine exactly what caused the
blackout and why it spread.
As we all have heard, there are a number of theories
already circulating as to what may have happened and who might
be responsible. All of that, no matter what the source, is only
speculation at this point. Determining the exact causes of this
blackout is far too complex a task for anyone to know all of
the answers at this stage. We are gathering information on
about 10,000 individual events that happened across thousands
of square miles in the space of about 9 seconds.
All of that information has to be collected, compiled,
sequenced, and analyzed before any credible conclusions can be
drawn.
To try to put the complexity of this inquiry into
perspective, I think it is important to understand the nature
of the electric transmission grid. Our grid system consists of
thousands of power plants, tens of thousands of substations,
switching facilities and other specialized equipment, hundreds
of control centers and about 260,000 miles of power line
stretching all across the country.
The American portion of the area affected by the blackout
included 34,000 miles of transmission lines and about 290 power
generating units, which is a substantial segment of the
national total. As members of this committee who have worked on
these issues know, this intricate network delivers electric
power to virtually every home and business in America.
Electricity, because it can't be stored, might be produced
almost the very instant it is used. It must be moved
efficiently from where it is produced to where it is being
consumed, traveling over this highly technical grid system at
the speed of light. Keeping this complicated web of
interconnected wires and power plants and control facilities
operating is I think a miracle of modern engineering, and it is
a miracle that happens 24 hours a day all year round.
It is without a doubt the most complex and elaborate piece
of infrastructure that this country has. And it is, in my
judgment, the most important, because without electric power
there is no U.S. Economy. When the lights go out, as members of
this committee have already suggested today, modern life as we
know it grinds to a sudden halt, transportation is interrupted,
communications fail, water systems shut down, factory work is
disrupted, food spoils, businesses lose money, and people are
inconvenienced and even endangered.
And that is why it is so important that our task force
conduct a complete and totally thorough investigation of what
happened on August the 14. It is why we have so many experts
from so many sectors of government and industry working in our
search for answers.
The United States members of our task force are Secretary
Tom Ridge of the Department of Homeland Security, Pat Wood, who
is the Chairman of the Federal Energy Regulatory Commission,
and Nils Diaz, who is the Chairman of the Nuclear Regulatory
Commission.
The Canadian members of the task force are Deputy Prime
Minister John Manley, Kenneth Vollman, who is the Chairman of
Canadian National Energy Board, and Linda Keen, who is
President and CEO of the Canadian Nuclear Safety Commission.
The task force is organized into three working groups that
are focusing on critical areas of the investigation. Our
Electric Systems Working Group, led by experts at our
Department and FERC, along with Natural Resources Canada, is
focusing on the transmission infrastructure, its workings and
management. The Nuclear Power Working Group, which is managed
between the Nuclear Regulatory Commission and the Canadian
Nuclear Safety Commission, is looking at how nuclear plants in
the affected areas performed during the outage. Our Security
Working Group, managed with the Department of Homeland Security
and the Canadian government's Privy Counsel Office, is looking
at all of those security aspects of the incident, including
cyber security.
Technical support for the Electric Systems Working Group is
being provided by our department's Consortium for Electrical
Reliability Solutions, the CERTS group, a group of experts from
our national laboratories, and a number of universities, people
with broad experience in transmission and power delivery
issues.
That team, which has investigated a number of major power
outages, including the 1999 blackouts, includes some of the
world's foremost experts in transmission reliability issues,
grid configuration, transmission engineering, wholesale power
markets, outage recovery and power system dynamics.
In addition, we have recruited transmission experts from
the Bonneville Power Administration to help in the
investigation as well. These are the experts who led the team
that examined the 1996 blackouts in the West.
Each working group will consist of technical management and
engineering experts appointed by the Governors of each U.S.
State affected by the blackout and the Province of Ontario in
addition to the governmental agencies involved in the
investigation. That will allow the States who are affected to
be directly involved in helping us to both collect the
information and try to analyze it effectively.
Once we are able to determine what happened, why and how,
we will then enter a second phase of the task force's
assignments, which is formulating recommendations to address
the problems which we uncover. Any recommendations that the
joint U.S.-Canada task force makes will likely focus on
technical standards for operation and maintenance of the grid,
and on the management of the grid, in order to more quickly
correct the problems which we identify.
Mr. Chairman, we believe we have put together a superlative
investigative team. We are pleased at the level of cooperation
we are receiving from State and Provincial governments,
regulatory agencies, utility companies and industry groups, and
we work together in this binational effort.
We are determined to complete this inquiry in a timely
manner. We hope to have conclusions and recommendations in a
matter of weeks, not months, but we will not compromise quality
for speed. We want answers quickly, but we want to make sure
they are the right answers. The American and the Canadian
people want and deserve answers about what happened to our
power system on August 14, and we on the task force are aware
of the importance and the urgency of our assignment, and we
know the vital role that our findings will play in maintaining
the energy security of both of our countries. That is why we
are dedicating so many resources to the investigation. That is
why we will not engage in any sort of preliminary theorizing or
speculation about what might have happened. We will focus only
on the facts, we will follow the facts where they lead us, and
we will not draw any conclusions until the facts are in.
Mr. Chairman, I want to thank you, thank the ranking member
of the committee for inviting me here today to appear before
you on this important matter, and I will be glad to try to
answer questions at this time.
[The prepsred statement of Hon. Spencer Abraham follows:]
Prepared Statement of Hon. Spencer Abraham, Secretary of Energy
Good morning, Mr. Chairman and members of the Committee. I am
pleased to be here today to discuss the August 14th blackout and the
work of the joint U.S.-Canada Task Force that is investigating the
cause or causes of the blackout and the reasons it cascaded to
encompass such a wide area.
Given that the U.S.-Canada Task Force has not yet completed its
investigation, I will not speculate today as to why the August 14th
blackout occurred or why it was not better contained. Such speculation
would be premature. The Task Force will follow the facts wherever they
lead us. We won't jump to conclusions. Our investigation will be
thorough and objective.
At the appropriate time and in consultation with the other U.S. and
Canadian members of the Task Force, I will report to you on the Task
Force's findings and recommendations. In the meantime, I want to
describe for the Committee how the Task Force was formed and how it is
conducting its work.
On August 15, 2003, only hours after the blackout had occurred,
President Bush announced that he and Canadian Prime Minister Chretien
had agreed to form a Task Force to investigate the causes of the
blackout and to make recommendations on how to minimize the risk of
future outages. The President and Prime Minister determined that, given
the international scope of the August 14 event, a bilateral
investigation would be more efficient and would end the
counterproductive international finger-pointing that began immediately
after the blackout.
President Bush appointed me to serve as co-chair of the Task Force
along with Canadian Minister of Natural Resources Herb Dhaliwal,
appointed by Prime Minister Chretien. On August 20th, I met in Detroit
with Minister Dhaliwal. That day, we agreed on a joint communique
expressing our determination to work cooperatively and quickly in
carrying out the Task Force's work. Based on our discussions with each
other and with relevant government agencies in each country, we also
agreed on the membership of the Task Force and to an outline that lays
out the working structure for the inquiry and the initial questions
that the Task Force will address.
The U.S. members of the Task Force are Tom Ridge, Secretary of
Homeland Security, Pat Wood, Chairman of the Federal Energy Regulatory
Commission (FERC), and Nils J. Diaz, Chairman of the Nuclear Regulatory
Commission. The Canadian members are Deputy Prime Minister John Manley,
Kenneth Vollman, Chairman of the National Energy Board, and Linda J.
Keen, President and CEO of the Canadian Nuclear Safety Commission.
Minister Dhaliwal and I agreed to a narrowly focused investigation
to determine precisely what happened--in phase one, to identify why the
blackout was not contained, and in phase two, to recommend what should
be done to prevent the same thing from happening again. Our
recommendations will focus on technical standards for operation and
maintenance of the grid, and on the management of the grid, in order to
more quickly correct the problems we identify.
Because of the complexity of the work before us, the Task Force
established three working groups to support the fact-finding phase of
its work--an electrical system working group, a security working group,
and a nuclear issues working group. These groups are chaired by the
U.S. and Canadian agencies best able to carry out the work. In
addition, as was stated in the August 20 statement issued by the U.S.-
Canada Task Force, the North American Electric Reliability Council
(NERC) ``and the affected Independent System Operators and utilities
have agreed that their investigations will supplement and contribute to
the work of the Task Force.''
Even before my meeting with Minister Dhaliwal, and shortly after
the blackout occurred, I used my authority as Energy Secretary to
assemble and dispatch a number of individuals to begin investigating
the blackout. I also asked industry officials with involvement in the
blackout and the recovery process to preserve all data of potential
relevance to our investigation. The Task Force team has grown larger
since those first days and is working hard to collect and review the
massive amounts of data involved, as well as to interview officials
from NERC, the relevant utilities, and the independent system
operators.
As I have repeatedly stated since being named Task Force co-
chairman, we are not setting a deadline for completing our work. We are
focusing on doing the job right--not on meeting an arbitrary deadline.
The complexity of the challenge demands no less than our full attention
and enough time to do a complete and thorough job of assessing what
happened and putting forth our recommendations and solutions.
Finally, Mr. Chairman, I want to thank you for your complimentary
remarks concerning my efforts with respect to the investigation. I look
forward to answering any questions you may have.
Chairman Tauzin. I thank you, Mr. Secretary, and the Chair
recognizes himself briefly for a round of questions.
Let me first, I guess, try to put this in layman's terms so
we understand what we are looking at. In a house, in a home in
which we live, power surges occurs. There is a short on a wire.
Our homes are protected with circuit breakers, and the surge
occurs, and the circuit breaker switches off, and our house
doesn't burn down, but we are out of juice on that circuit.
Lights go out, appliances stop until we flip the circuit switch
back on and we got power again, and if that short isn't
corrected, it clips it again.
In a big grid, multistate, international, I assume that is
part of the problem, too, that we have a series of events, some
involving perhaps a tree falling on a line, we are told,
perhaps a power plant going down, and, in the context of the
surges or the shortages, whatever happens in that system,
circuit breakers started going off. We know that parts of the
system were protected from shut-down. Parts of the Northeast
continue to have their lights, continue to have electricity.
Others failed to work. So the two questions I think that we
will anxiously await, all the technical gurus and the task
force are working on, number 1: How did it start? That is
important, what started it, although that is not the most
critical one. Storms knock down power lines; ice storms,
hurricanes, tornadoes, earthquakes knock down power lines, put
stations out of work.
The most critical one is we have these massive grids. Why
did it spread? Why did these power surges develop, and why
didn't the protections in the grid work? Was it a failure of
the Reliability Council having enforcement authority to make
sure standards were enforced throughout the grid that would
have prevented the spread, or was it something else? Can you
give us any kind of idea yet as to what you are learning or
what you think we may want to focus on to reexamine with
Governors and power company officials and others coming to our
committee in the next 2 days?
Secretary Abraham. Mr. Chairman, I should state at the
outset and repeat what I said in my opening statement: Until we
have what I think are and what our task force has a comfort
level with and the analysts have given us a comfort level, I am
not going to try to prejudge what might have happened or why it
cascaded, although you have identified the first two parts of
our responsibility, and why it cascaded, is that, in many ways,
as you say, is even more important. There are a lot of things
that might create surges or instability in terms of the grid.
We do know some things, though, just as a fundamental
matter. One is that these things happen very fast, and yet
humans are in various rolls that are critical to the process,
and people can't move as fast as these events can develop.
Chairman Tauzin. Were there communications problems?
Secretary Abraham. We are looking at that. We are also
obviously looking at the interesting question of why certain
areas were able to isolate themselves and others weren't.
One of the broader issues, you know, that we have been
talking about for some time is the need to move to a smarter
grid, one that relies--or allows for much more instantaneous
communication if issues happen, and all of those are part of
the sort of the role or the possibilities that we will be
taking into account. But it is early in the process, now, too
early to specifically say why things failed in certain areas.
Chairman Tauzin. Mr. Secretary, it is clear that States,
communities in those States, are becoming more reliant on
electricity generated and functioning over interstate
boundaries. We now see in the Northeast blackout a situation
where those boundaries even extended to another country, and I
realize the President has called upon the task force
representing both countries to look at this.
As we wrestle with the problems of multistate
jurisdictions, the jurisdiction of the FERC and your
Department, and the complexities working out siting problems
between sites, does the fact that these lines cross
international boundaries add a level of complexity that we need
to focus on?
Secretary Abraham. It certainly adds more to the challenge,
but I don't believe it is the case, at least in terms of the
U.S. and Canada, that there is a lack of relationship or lack
of communication or working relationship between us. We have
initiated a number of strong binational energy dialog and
working group activities to deal with these issues, but the
point you make, helps to underscore how big this grid is, how
complicated it is, how far we are now hauling electricity and
it is not just a local or a single-State issue any longer, and
the fact that it is international in scope underscores, I
think, the challenges we have.
Chairman Tauzin. And the final question, we have debated
transmission in this committee for a long time. We have been
told the transmission is the lowest profit, if you will, sector
of the utility industry, that incentives for new transmission
lines are desperately needed, that authorities to make sure
those lines are built to at least the technical standards are
desperately needed, that coordination between States and siting
is desperately needed, all of which we tried to include in the
energy package we sent to the floor. Do you concur that all
three items are necessary basic reform, as we move to a
solution?
Secretary Abraham. Well, again, I want to separate what
took place on August 14 from a broad discussion of public
policy decisions. We don't know yet what happened on August 14.
We do know, as I think was underscored in the national grid
study which our Department completed last year, that the
combination of growth and demand for electricity, the age and
condition of the grid, and its congestion levels and so on
require us to address all of the issues you identified, and
obviously the recommendations of that are still well-known to
this committee.
Irrespective of what we might determine as to the causation
of the events of August 14, those issues will remain before
this country and a challenge for us to address as we move
ahead.
Chairman Tauzin. Thank you, Mr. Secretary.
The Chair welcomes and recognizes the ranking Democrat,
former chairman of our committee Mr. Dingell, for opening
statements--for a round of questions, rather.
Mr. Dingell. Mr. Chairman, thank you.
Welcome, Mr. Secretary.
Secretary Abraham. Thank you.
Mr. Dingell. Mr. Secretary, I was impressed by your
comments about the way you are inquiring into this matter, and
I commend you for that. You and I have had some correspondence
on this, and I would like to ask at this time, Mr. Chairman,
that that correspondence----
Chairman Tauzin. Without objection, the Secretary's
response will be made part of the record.
[The information referred to follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Dingell. There is one letter with questions I would
appreciate an answer to, Mr. Secretary, and I hope you will
give that.
Secretary Abraham. Actually, we were working on that, and I
will try to answer any part of that today as I can.
Mr. Dingell. Now, Mr. Secretary, we have, really, an
ongoing query to find out what was the cause. We also have no
assurances that this blackout could not occur again; isn't that
right----
Secretary Abraham. Well----
Mr. Dingell. [continuing] under current--under current
practices, and so forth.
Secretary Abraham. Until we know the exact reasons for this
blackout, I think it is difficult to answer whether this
particular type of incident would occur again, but I would just
reiterate what I said in response to the last question: The
condition of the grid, its age, the demands being put upon it
causes a lot of concern, as we have expressed in our grid study
and other comments the Department has made.
Mr. Dingell. Now, Mr. Secretary, are you familiar with the
reliability sections of the Senate and the House bills?
Secretary Abraham. Yes.
Mr. Dingell. Does it--does the administration support them?
Secretary Abraham. Yes, we do.
Mr. Dingell. Do you have any additional suggestions for
legislative actions which would perhaps prevent either the
event of August 14 or something similar thereto from occurring
again?
Secretary Abraham. We do. I believe, Congressman, that
probably next week a broader statement of administrative
position conferees will be forthcoming, but I think we have
expressed, and I think my answers to Congressman Tauzin's
question before indicate, our support for the need for
providing incentives for investment in transmission, for the
reliability standards that you have just referenced for
addressing the broad set of issues that threaten the long-term
health of the transmission grid.
Mr. Dingell. Now----
Secretary Abraham. Number of provisions, in other words,
that are in----
Mr. Dingell. I am concerned. General statements tend to be
somewhat troublesome. They are hard to reduce to legislative
language.
Will you be submitting to us legislative language, or will
you be submitting to us statement of principles?
Secretary Abraham. I think that we will be submitting a
fairly specific statement of administration position to
conferees on the various issues that will be going to
conference on the energy bill. I believe next week may even be
the timetable.
Mr. Dingell. I find that--I find us, Mr. Secretary, in a
position where neither you nor I or anybody on the committee or
regulatory agency can assure us that this kind of blackout, or
at least these kinds of events, couldn't occur again, and I am
very troubled by the need to get reliability authority in at
the earliest time.
I remember one time I was much praised for getting the
clean air bill through the House in 13 hours. I observed it
took me 13 years to get it through in 13 hours.
We are now in our eighth or ninth year of hassling around
with a general energy bill, and a big broad energy bill carries
with it huge amounts of controversy that preclude early and
speedy enactment, so I am concerned that--that, if we have a
serious problem with regard to reliability, we address the
reliability questions to reduce possibilities of confronting
another event like we found on August 14 and the days that
followed.
Can you tell us that--that waiting around for a big energy
bill will give us assurances that we can protect people in the
Northeast and Midwest from the kind of events that we saw on
August 14, or we would be better off if we are interested in
reliability to bring forward a provision which will--which can
be speedily passed on which there is agreement in the House and
Senate already with regard to reliability? Which is the better
course?
Secretary Abraham. I think there are a lot of provisions in
the energy bill that enjoy the kind of consensus support that
the reliability provisions enjoy, and I think there are a few
areas of contention that need to be worked on.
I guess I would say this, that every few weeks or months,
at least during the time that I have held this job, there has
been a sector of the energy world that has had something either
described as a crisis or certainly a serious problem, whether
it is natural gas storage a few weeks ago or this blackout, or
it is high gasoline prices. I think to ignore those other
challenges would be----
Mr. Dingell. I am not talking about ignoring them, Mr.
Secretary.
My time is running out.
I just want to observe that some of these other areas are
much more controversial. We can get to the areas where we have
agreement, do so quickly, and then proceed to address the other
more contentious questions which could delay us addressing the
reliability question.
I am curious which was the course that you would take.
Secretary Abraham. I would reiterate what I have said to my
friends on both the Republican and Democratic side for 2 years,
which is let us get an energy bill done quickly, and I think
now the conferees have plenty of reason and plenty of momentum
to move quickly.
We have conferenced much of this legislation, almost to
completion a year ago. I don't think that that much has
changed, so I believe it can happen quickly, and I would
encourage the conferees and certainly the Chairman.
Mr. Dingell. I would note in sheer desperation the Senate
passed a bill which--which they had never even considered. It
was last year's bill. They seemed to be trying to punt, and
they have punted it, I think, either over here or into
conference.
What I am trying to do is figure out how to kill the
closest snake first. It appears to me we are going to be busy
killing snakes and maybe not the one that is most near us or
that constitutes the most serious danger.
Secretary Abraham. Well, I commend the Senate for finishing
an energy bill this year, doing it in less time than it took
them last year. I hope the same pragmatism will produce a bill
through conference as soon as possible.
Chairman Tauzin. Thank you, Mr. Dingell.
Mr. Dingell. Thank you, Mr. Secretary.
Chairman Tauzin. The Chair recognizes the chairman of the
Telecommunications Subcommittee, Mr. Upton from Michigan, for a
round of questions.
Mr. Upton. Thank you, Mr. Chairman, and thank you, Mr.
Secretary, for your statement this afternoon.
I would like you to comment briefly about the need to
upgrade our transmission facilities, and in light of that, two
statements that I see. One is a recent energy report that
indicated, and I quote, some utilities are concerned that
transmission investments may be of greater benefit to their
competitors than to themselves, and, as a result, many
promising technologies are left stranded.
The second statement that I think you made at one point,
indicating the need to increase rates of return from investment
in transmission facilities, and in that--those remarks, I think
it was understood that FERC had not acted sufficiently to
address transmission investment.
We have a provision in H.R. 6, the energy bill that passed
the House, that requires that for transmission rulemaking to
provide better rates, but there are a number of us that are
concerned that they may not propose anything better than what
they have already offered, and I would like to ask you whether
you would support provisions to the Federal Power Act that
would require for it to provide better transmission rates if,
in fact, it is needed to encourage transmission expansion.
Secretary Abraham. The administration, I think, has
previously endorsed those provisions that are in the House
bill.
I think that the need for investment in terms of upgrading
the transmission grid is obvious, and several Members who have
worked on it spoke earlier very authoritatively about the need
to do that.
One of our concerns is not only that we upgrade the grid,
but that we move to a smart grid, to a smarter grid, and also
one that works more efficiently, which is also one reason we
have invested very substantially in things like
superconductivity research, to try to make the grid more
efficient in its operation.
One other point I would make is our grid study revealed--
and I think most experts concur on--is that the congestion in
the grid is driving up the cost of energy for the ratepayers of
this country today, and that, in fact, if we improve the
transmission grid and relieve that congestion, it will actually
have a positive impact on the other side of the bill, the part
that relates to the cost of generation.
Mr. Upton. As you begun to investigate the events of August
14, is one of the things you are going to be looking at is the
wholesale transactions that were scheduled to take place that
day, particularly in the Midwest?
Secretary Abraham. Well, we intend to look at all the
events, to determine in both sequence and how they related to
what took place, so those events would be included in the scope
of the work we do.
Mr. Upton. Now, for the most part, my district escaped
direct impact because of the energy blackout, but one of the--
one of the events, and I mentioned this in my opening
statement, that really did trigger an impact, that hit us, was,
in fact, the almost immediate spike in gasoline prices about 2
weeks later when they went up about 20 cents, in fact,
overnight.
Are those refineries back on-line that were taken out?
Secretary Abraham. It is my understanding they all are back
on-line.
There was one, I think, in the Detroit area which was down
a little longer than others because of problems that I think
ensued in the wake of the blackout, but it too, is operational.
So my understanding is that they all are up and functioning.
Mr. Upton. Thank you.
I yield back my time.
Chairman Tauzin. Gentleman yields back, and the Chair is
pleased to recognize the gentleman from Massachusetts, Mr.
Markey for a round of questions.
Mr. Markey. Thank you, Mr. Chairman.
Mr. Secretary, I read in the paper that the Bush
Administration has agreed to a proposal by Senator Shelby to
prevent FERC Chairman Wood's proposed standardized market
design plan from being implemented until the year 2007.
What if it should turn out that one of the reasons why the
existing system failed to contain the blackout was a lack of
standardized market structure, including strong regional
transmission organizations that communicate well with each
other? Haven't you traded away already what is potentially one
of the solutions to the problem?
Secretary Abraham. Well, Congressman as you probably know,
last year in the energy conference that was conducted with a
Senate Majority of one party and the House majority on the
other, the decision to delay implementation of those proposals
had already been largely agreed to. We did not----
Mr. Markey. Mr. Secretary----
Secretary Abraham. Yes?
Mr. Markey. There was no conference report which was ever
completed between the House and Senate.
Secretary Abraham. Yes. I am describing what I know to be
and I think was reported at the time to be the situation.
Our goal in this Congress is to see an energy bill passed.
We thought that it remained the view that to have gotten a bill
through the Senate required us to support that provision.
Our top priority is to get an energy bill passed, and that
remains our goal.
Mr. Markey. Would you be willing to change your mind if it
turned out that this is part of the solution? Are you open to
that, changing your mind on the commitment that you have made
to Senator Shelby?
Secretary Abraham. This administration is on record as
supporting the idea of regional transmission organizations. The
question whether they should be mandated or not is not one we
have endorsed, and so that is our position at this time.
Obviously I am not going to speculate about what might or
might not evolve from our investigation until I----
Mr. Markey. Mr. Secretary, I think it is going to be
difficult for you to get a comprehensive solution to this
electricity problem if you have already made up your mind with
regard to which provisions you are going to mandate and which
you are going to negotiate away.
I have also read in the papers that you have said that
there aren't sufficient incentives for new investment in
transmission, and that this may have contributed to the
blackout.
Why isn't rate recovery for transmission investment and a
regulated 11 to 12 percent profit for those companies, which is
what the Federal Power Act already allows the utilities to get,
sufficient to incentivize them to invest in transmission?
Secretary Abraham. I can't answer what investment decisions
individual companies make. What I know and what I think a
number of people on both sides today have commented on is that
there are a number of impediments, including financial
considerations, to the expansion of the grid. How long it takes
to site transmission lines is a big impediment.
In some instances, the extent of the return on investment
is less predictable because sometimes the transmission line,
the Chairman maybe mentioned this a little bit earlier, that
the people who invest in building the line are not necessarily
the people who benefit from its use.
Mr. Markey. I know that, but there is a guaranteed 11 to 12
percent return on investment, guaranteed. What business in
America, in the world, gives you a guaranteed 12 percent return
on investment? Why would a company need more than a just and
reasonable return on their investment to build a transmission
system? What is the flaw? How much more money do consumers have
to give these companies to build transmissions lines, more than
a 12 percent profit?
Secretary Abraham. The ratepayers that you have heard, the
consumers, two-thirds of whom are the businesses of America,
private industry and business, obviously are shouldering a
substantial burden with their energy costs. The one thing that
we do know is that if we improve the transmission grid and
alleviate some of the congestion, a very substantial amount of
the energy prices people are paying will, in fact, be affected
in a positive way, because right now, of the full energy bill
the typical ratepayer pays, 80 percent is paid for generation;
10 percent of that bill is----
Mr. Markey. All I am saying is that a 12 percent guaranteed
return seems to me----
Secretary Abraham. Well----
Mr. Markey. Mr. Secretary, let me ask one final question:
In an August 27, 2003, article in The New York Times, Mr.
Donald Benjamin, vice president of the North American Electric
Reliability Council, said, we think we have a time line fairly
well nailed down. It is down to the second in terms of what
happens, which transmission is open when areas became isolated.
It provides a good understanding of how the power flows.
The article goes on to say that while NERC was unwilling to
point to a particular cause, Federal investigators had already
determined that, ``all the data pointed to mistakes by people
in the event's earlier stages relating to the hour-long
sequence of line failures and plant shutdowns in the Midwest.''
This article suggests that you already have a chronology of
the key events that led to the blackout and those which caused
it to spread, and that based on that and other information, you
already have a pretty good idea of what happened. If that is
the case, why aren't you sharing that information and analysis
with this subcommittee today?
Chairman Tauzin. The gentleman's time has expired, but the
Secretary may answer.
Secretary Abraham. Yes.
Congressman, we will share our conclusions when we reach
that point, and the article in The New York Times was
premature. It did not accurately state the actual status of the
work that was being done.
We are putting as much emphasis on this as we can to get a
timely conclusion to this sequencing issue, but the analysts
set another meeting yesterday, looking at the data they had,
and concluded that they still did not have it to a stage where
they felt they could recommend its release as being accurate.
Believe me, I would have very much enjoyed coming here
today and making news by announcing it before this committee,
but we are not going to announce or release anything we claim
is the authoritative sequence of events or any of the other
things that we are addressing here until we really can tell
this committee it is right and it is unimpeachable.
Chairman Tauzin. I thank the gentleman.
The Chair now recognizes gentleman from Pennsylvania,
chairman of the Oversite and Investigations Subcommittee, Mr.
Greenwood for a round of questions.
Mr. Greenwood. Thank you, Mr. Chairman.
Welcome, Mr. Secretary. Thank you for your patience.
I would like to touch on an issue or ask you a couple of
questions about an issue that is rather tangential to this
hearing, but that is connected, and Mr. Upton mentioned it
earlier, and that is the impact of the blackout on gasoline
prices. Between August 18 and August 25, the average retail
price for regular gasoline in the United States rose by 12
cents a gallon, which I think is the largest weekly increase
ever both in terms of the actual price increase and the
percentage, which was 7 point----
Mr. Upton. If the gentleman will yield, it went up 20 cents
in my district.
Mr. Greenwood. Well, you have a high-priced district.
Mr. Upton. Yeah.
Mr. Greenwood. It was 7.4 percent where smart shoppers buy
gasoline, and it is 100--it is $.175 a gallon now, which I
believe is the highest average retail price ever.
We have heard that the fact that refineries were shut down
because of the blackout contributed to a supply crunch, and, of
course, this is all going into a high driving period of time
for vacations and the Labor Day weekend and so forth.
The question is: What has the Department done to--to look
at--it seems it is a fairly straightforward mathematical
calculation to estimate how much gasoline was not produced as a
result of a blackout, what percentage of the supply that is,
and how using that fairly simple economic model, how that
should impact the price of gasoline, and also some estimate as
to how long it should last.
I think--I have no reason to believe there is anything at
work here other than the basic laws of supply and demand, but I
can tell you that most of my constituents are not quite sure
that that is all there is to it.
Secretary Abraham. Right Mr. Greenwood. It seems to them we
had a hiccup here which produced a lasting and very significant
increase in the price of gasoline. So the question is: What can
you tell us about that; to what extent was it, in fact, related
to the blackout, and what kind of studies and investigations is
the Department undertaking?
Secretary Abraham. There is almost nothing that goes on in
the energy world that has my attention more quickly riveted
than rising gasoline prices, because whenever the price goes up
above about $1.50, I read articles that say it is my fault, and
when it goes back down, somehow the market is working, so it
gets me focused.
There obviously were several incidents that occurred. There
was, in addition to the blackout, and I think a certain amount
of exaggerated speculation that always seems to happen when a
crisis happens, people predicting dire and longer-term
consequences than sometimes happen.
We all know the events in Arizona which had an impact in
that region that were very substantial, the pipeline breakdown,
but the nature of this price--and then there was Labor Day
driving and these other issues, and we had forecast some
increase in the Department's Energy Information Administration,
but the--the nature of this fluctuation struck me as being
unusually large as well and in need of greater explanation.
We have actually in this instance launched an internal
inquiry on it, and just started doing that, but I think we will
hopefully get some additional insight into whether or not this
was really a market reaction only or if other factors were
involved. I don't know.
Maybe the Deputy might want to comment on some of the
things we are doing specifically on that.
Mr. McSlarrow. As Secretary Abraham said, he has directed
us to look at the events, particularly over the last week. We
did predict there would be, as most everyone knows, the
inevitable price increase in the run up to the Labor Day
weekend. We have very low gas inventories, we have no margin
for error, so once the pipeline in Arizona went down, you had
three refineries--because of the blackout, you had some
problems out in California with refineries. It all added up to
a predictable increase.
The question is and what we will look into and work with
our colleagues at the FTC about is whether or not anybody took
advantage of a situation in terms of market manipulation.
Mr. Greenwood. And assuming that there did, and I don't
know, I am not an expert on these issues, but I know a little
bit about human nature, if you can ride the wave a little bit
longer than it actually exists, you will do it, but there is
nothing illegal about that; am I right? In other words, profit
taking, gouging, if that is what is going on, there is nothing
illegal about that. And I don't--I am not going to put you on
the spot about this right now, but I think when you do complete
your analysis, including whether there was--whether there is
ongoing profiteering that is resulting, I would appreciate it
if you would let us know if you have any recommendations about
that, because this is--it seems to happen with some frequency.
It seems to happen in the home heating fuel sector as well.
There always seems to be some sort of a perfect storm that
causes these spikes, but then they seem to go on longer than it
would intuitively seem should be the response. And, with that,
Mr. Chairman, I will yield back the balance of my time.
Chairman Tauzin. Would the gentleman yield quickly?
I want to point out to the committee that we examined the
effect of tight supplies on demand in the Chicago/Milwaukee
spike situation that occurred a few years ago, and one of the
things we learned was that when there are those tight supplies,
and then something happens, a pipeline breaks or a refinery
goes out--in this case six of them did--but when that happens,
the first people who get the gas are the name-brand stations.
They get it from the refineries of the name brand.
The independent stations then have to compete for what
supply remains, and they start bidding it up, so even a small
ripple effect becomes a cascading effect in the marketplace,
and that may have occurred in the marketplace. We obviously
have to know that.
And second, I commend the Secretary in his statement that
they are going to look to see whether anybody abused the
marketplace, the market manipulation. There are laws against
predatory pricing, a pricing too low on a sustained basis to
drive somebody out of business, and there are laws against
market manipulation for an extended period of time in which
someone uses anticompetitive power to gouge consumers. So we do
have some relief here, and I am pleased the Secretary wants to
look at it. He may want to comment on it.
Secretary Abraham. Only that one of the things which we
instituted a couple of years ago was a hotline so that
consumers could, in fact, communicate directly with our
Department if they believed gouging was taking place.
We had--I think it was in the wake of 9/11 that we first
launched this, and I would say that we had to monitor the
frequency of calls on that to gauge whether there seems to be--
and one of the reasons why we decided to look even further into
this situation is that we were getting what seemed like a
broader and more disproportionate response on that, on that
hotline in the last few weeks.
Chairman Tauzin. I thank the gentleman.
The gentleman yields back his time.
Explain to the members of the audience.
The gentleman had additional time because he waived his
opening statement. Under our rules he got additional time, and
he is yielding it back now, and the Chair is pleased to
recognize Ms. Eshoo for a round of questioning.
Ms. Eshoo. Thank you, Mr. Chairman, and welcome, Mr.
Secretary.
Whenever I am involved in either hearings and other
legislative debates here at the committee relative to energy, I
think many of my colleagues kind of tense up and think, here
she goes again, because I am a Californian, and we are raw from
our experience of market manipulation, indeed market
manipulation, because the energy companies actually signed
confession slips and had very well-known names for the tactics
that they employed, but we didn't get anywhere.
Certainly, California legislated, I think, shortage in
their deeply flawed deregulation plan, but I think at the
national level that there were huge failures and shortcomings
as well. And so I led with that, with some of those comments,
in my opening statement, and I think it is important to raise
this today. Even though there may not be a nexus between the
blackout that occurred in August in the--in the Northeast and
in the Midwest, that it is very important for the
administration, certainly for you in your leadership and
trustee position as Secretary of Energy, that you take into
consideration everything, everything.
Market manipulation was not taken into consideration
before, and while I agree with you in the statement, part of
your statement, in your opening statement to the committee,
that while the facts will lead you wherever they may go, that
you will not jump to conclusions, and that the investigation
will be thorough and objective. I commend you for saying that.
I urge you to stick to that.
Your assistant just mentioned a few moments ago that market
manipulation should be examined, at least I think that is what
you said, relative to the prices at the gas pump, and I might
add that in California and in the Bay area, they jumped 35
cents a gallon in 2 weeks. I filled my car up the other day. It
was $2.35 for regular, for unleaded, so we know what market
manipulation can do.
What I want to ask you, Mr. Secretary, is will you commit
to the examination of even that in your investigation; that the
energy in whatever role they may have played--and they may not
have played any role in this--but that you will be open to and
will indeed look at this area as well, because the
administration, most frankly, didn't before, when manipulation
happened in California.
Secretary Abraham. Well, first of all, we will follow the
facts where they lead, as I said.
Second, I don't want to leave unresponded to the
implication the administration did nothing in California.
Ms. Eshoo. What did you do?
Secretary Abraham. Well, first of all, we inherited a
problem that no one had done anything about.
Ms. Eshoo. But what did you do?
Secretary Abraham. Well, on the very first week in office,
we promulgated emergency orders to allow electricity to be
bought by California. The President issued----
Ms. Eshoo. But I might interrupt because it is my time, Mr.
Secretary, and I will let you finish that, but I think it is
important--wait a minute. Wait a minute. It is my time.
Secretary Abraham. For the record----
Ms. Eshoo. It is very important to note that the FERC,
which is--has a key role in this, would not allow and did not
allow the refunds for a whole variety of reasons, but
California has been screwed, in plain English.
So you want to finish what you were saying about what you
did do? I am curious.
Secretary Abraham. Well, I would be happy--it is a fairly
lengthy list. I would be happy to enter it into the record in
order to preserve time.
Ms. Eshoo. It did nothing about manipulation.
Secretary Abraham. Well----
Ms. Eshoo. That is my--that is my point.
Secretary Abraham. I would only note that, prior to the
appointment of Mr. Wood and Nora Brownell to the Commission,
nothing had been done about--no investigations had occurred and
no refunds had been ordered, and after the appointment by
President Bush, all of those things happened.
Ms. Eshoo. Nothing. I still don't--that is why I am asking
about manipulation. If, in fact, the administration chose to do
nothing, which is the public record--I mean, I don't know what
you can point to that the administration ever did relative to
market manipulation. We never even had a hearing here.
Now we are here as a result of the August 14 blackouts, and
I think it is very important that the administration, you, the
Secretary, give us the encouragement that wherever the facts
lead, and you have said that in your opening statement, that
market manipulation be included in this, and I just want a yes
or no answer.
Secretary Abraham. I think I already gave you a yes answer.
Ms. Eshoo. Good.
Secretary Abraham. Again, Mr. Chairman, there was an
administration that didn't do anything, but it was not ours.
Chairman Tauzin. All right. The gentlelady's time has
expired.
Ms. Eshoo. I think that is a suspension of reality.
Chairman Tauzin. Would the gentlelady or the Secretary
request that that information be included as part of the
record?
Secretary Abraham. I would be happy to provide.
Chairman Tauzin. Is there objection?
Hearing none, you will enter that into the record.
[The information referred to follows:]
List of Administration actions on California blackouts:
california
The Administration offered a great deal of assistance to the State
of California during the power crisis. It is important to remember this
crisis began months before the Administration took office. Prices began
to rise in May 2000, and the blackouts started a week before the
President was inaugurated. In the wake of these blackouts, one of the
first actions Energy Secretary Spence Abraham took was to call Governor
Davis and offer the assistance of the department.
On the third day of the Bush Administration, Secretary Abraham
issued emergency orders directing electricity generators to sell power
to California. This action kept the lights on while the State passed
emergency legislation authorizing the State to buy electricity on
behalf of its citizens. President Bush issued emergency orders
directing Federal agencies to conserve energy use and expedite permits
for new power plants.
Governor Davis asked Secretary Abraham to intervene with FERC and
urge them to issue an emergency order waiving certain fuel requirements
to qualifying facilities. Secretary Abraham intervened and FERC issued
the desired order.
Governor Davis asked Secretary Abraham to support his proposed
purchase of the utilities' transmission grid. Secretary Abraham
supported his proposal, although it was later rejected by the
California State legislature.
During the early months of 2001, FERC ordered substantial refunds.
The Department of Energy consistently supported refunds of unjust and
unreasonable charges.
Secretary Abraham directed the Western Area Power Administration to
take the necessary steps to build a transmission line to remove the
Path 15 bottleneck that caused higher prices and lower reliability.
The Bush Administration appointees to FERC developed a price
mitigation approach that helped lower prices without causing more
blackouts.
In the past, Governor Davis credited the Administration for helping
solve the California crisis: ``[President Bush] appointed Brownell and
Pat Wood. They helped save our behinds . . . I think the world of
President Clinton but the Clinton Administration didn't give us any
help.'' San Diego Union Tribune, March 10, 2002.
Chairman Tauzin. I would also remind the gentlelady that
there were hearings in this committee on the California
question, and we will be happy to go back in the record and
clarify those.
The Chair at this time would recognize----
Ms. Eshoo. Not since the Enron memos came out, Mr.
Chairman.
Mr. Cox. A point of order, Mr. Chairman?
Mr. Burr [presiding]. The Chair would recognize the
gentleman from California Mr. Cox.
Mr. Cox. Thank you, Mr. Chairman, and as a California
Member, I certainly remember vividly participating in those
hearings, answering questions, asking questions of the
administration, and getting a very healthy response that I
think was very constructive in helping California get back on
its feet. And I want to commend you, Mr. Secretary, for the
role that you played in those actions by the Bush
Administration.
I want to ask a question that anticipates some of the
testimony we are going to get later today. Some of what we are
going to hear is going to advise us that all of this August
blackout could have been averted if only somebody at
FirstEnergy had picked up the phone and alerted other
transmission operators when it first detected problems.
We will have other testimony not exactly to that effect,
but to a similar point, which is that there were thousands of
megawatts of capacity, of power plant capacity, that was shut
down by American Electric Power, by Detroit Edison, by
FirstEnergy, and if there had been better communication, this
could have been avoided.
And what I want to ask you is, without necessarily opining
who shot John, because I know you are very clear that the U.S.-
Canadian task force is still studying this, and you don't know
all these answers yet, if there is, in fact, an element of this
that is apparent or appearing already that in here is
inadequate communication among the different players, shouldn't
we go beyond technology that looks like picking up the
telephone, but relies on human beings watching things in real
time when so much of this can happen in seconds and less than a
second? And isn't technology part of the solution here; by
investing in our systems, can we not build redundancy and
backup into a security plan that doesn't currently exist?
And, then, finally--and I will let you take all the time
for answering, I will not ask a follow-up--finally, because I
spend so much time worrying with another hat on in another
committee about homeland security, isn't this an example of an
area in which homeland security investment that protects us
from the downside of things going bad can also make our economy
healthier; by investing in what will protect us from security
downside, we might also build the capacity of our country to
produce more goods and services and make the lives of Americans
better?
Secretary Abraham. Well, I couldn't agree more with the
last comment you made.
First of all, we recognized when we launched the task force
the important issues that relate to homeland security, which is
why we have as one of the three working groups a security
working group. That isn't because we have any evidence that
there were homeland security or national security factors
involved in the actual blackout, but because we want to learn
from this experience and focus on anything that might be second
either to this blackout or future ones where we might be able
to enhance the security of the infrastructure.
Second, there is no doubt that the technology either exists
or can be developed to enhance the intelligence of the
transmission grid and to assist the people who want it in terms
of their ability to respond even quicker to developments that
occur.
I mentioned earlier in response to Chairman Tauzin's
question the concern that we are talking about 10,000 events or
so in 9 seconds. No human being has the ability to be that
responsive, to take every action maybe in terms of
communication, notification in that sort of timeframe. And so
we are looking at or will look at the ones that collected
information.
We are going to be looking at the issues and analyzing
whether communication problems were a factor, but, whether or
not they were, I have already advocated here some of the new
technology that we are looking at, whether it is in terms of
superconductivity or smart grid technologies, to try to enhance
the capacity of the system, and I think this committee on both
sides has appreciated that point even in the abstract. Now
maybe because of the blackout it is more widely appreciated
nationwide.
Mr. Burr . The gentleman's time has expired.
The Chair would recognize the gentleman from Michigan Mr.
Stupak for questions.
Mr. Stupak. Thank you.
I believe I get 8 minutes?
Mr. Burr. The gentleman is correct.
Mr. Stupak. Thank you.
Mr. Secretary, thanks for being here.
I mentioned that we weren't affected in northern Michigan
from the blackouts, but I am sure a lot of my people were, as
you have mentioned people from the United States, Canada, all
over, were affected. There is a great deal of concern on what
has happened here.
When your task force meets, will these meetings be open to
the public, where people can see what is going on?
Secretary Abraham. Well, we are trying to address the
question of how to properly keep people informed. Right now the
work that is going on is taking place, a lot of it is taking
place, at the NERC offices in Princeton, New Jersey. It is a
setting in which literally a huge table of analysts is sitting
in front of a computer terminal trying to sequence events and
to analyze, so that is what----
Mr. Stupak. These working groups are going to have to
report back to your task force, right?
Secretary Abraham. Right.
Mr. Stupak. And will those meetings be open to the public?
Secretary Abraham. Well, there are two phases which we are
in. In the first phase, which is just collecting information, I
don't really see that as lending itself to a public role.
However, we are interested in and I have asked legal counsel to
explore how, during that first phase, information can be
formally received from people who are not part of these working
groups. We recognize there may be individuals out there who are
either not contacted by us or who may have information which
would be helpful to us, so we are looking for a way to address
that.
Once that sort of data collection and analysis is done and
we move to the sort of second phase that I described earlier,
phase 2, which is kind of a time in which we would hope to make
recommendations, then I think we are going to try to look at
how we can determine what the public role is in terms of being
careful what the legal issues are, both Canadian as well as
American legal issues that surround participation and
recommendation or policy formulation.
Mr. Stupak. Well, there is some concern that we don't want
this task force to be like the energy policy task force at the
White House where nothing that happens there is public. In your
testimony you go on to say that you are going to look to North
America Electric Reliability Council, and I am quoting now, and
the affected independent system operators and the utilities
have agreed that their investigations will supplement and
contribute to work of the task force.
As I read that, these other people are going to be
reporting to this task force, and your recommendations, I take
it, will be after the report. So, while they are reporting to
you, especially like the North America Electric Reliability
Council, why wouldn't that be an open meeting so that we can
see what is being recommended by the North American Reliability
Council, which has some expertise----
Secretary Abraham. Let me be very specific about what they
are providing. They are not providing recommendations at this
point. In phase 1, what all of those entities are providing are
data----
Mr. Stupak. Sure.
Secretary Abraham. [continuing] and information.
Mr. Stupak. This would be phase 2, right?
Secretary Abraham. To the extent that we can, I envision
that information also being made public. We haven't yet figured
out as to how the formulation of recommendations will be done.
We are working on that to address both the legal side of that--
--
Mr. Stupak. Sure.
Secretary Abraham. [continuing] as well as the public
interest side.
Mr. Stupak. Well, I am sure that if you mention that the
task force is going to have a meeting, whether or not it is a
working group, and that they are going to be looking at the
report from the North American Electric Reliability, if you are
concerned about whether people would be interested, why don't
we just make it an open meeting, invite the media with C-SPAN
on it so we can watch it, you know, and, if there is no viewer
interest, I am sure they won't show up. But if there is
interest, and I am sure there is great interest, why don't we
just do it that way so there is an open dialog?
Secretary Abraham. You are putting, I think, conclusion in
place before we have gotten to that stage yet. I am not
prepared today to tell you that, when we get to the
recommendation stage, we are going to have outside groups,
whether it is the North American Electric Reliability Council
or anyone else, engaged as part of the effort. It may or may
not be the case.
Until we determine that, then I think at that point we
would determine what the proper way was to make sure that the
process was appropriately inclusive.
Mr. Stupak. Well, in order to make the changes that may be
needed in the energy grid, I have heard about new technology
today. People are asking what is it going to be? Usually, when
there are changes, the cost comes from the taxpayers, in this
case the ratepayers. So I would think as recommendations are
being made, whether recommendations will be asking the Congress
to give tax breaks or whether you are going to push it off to
the taxpayers, that they would want to know about that so that
they could have some input before the recommendations are made.
And that is the reason I am pushing so hard to make these
hearings that you are going to be holding public in the
recommendation stages, because I think we all have a stake in
this, whether ratepaying or through just turning on the
electricity in our homes, even in the Upper Peninsula.
Secretary Abraham. I am cognizant of that, and I appreciate
the recommendation.
I would just say this: As I indicated in my opening
statement, at this stage, and this is an early stage in this
process, I think it is my belief, and I think Minister Dhaliwal
shares this, that the types of recommendations that this task
force will be putting forth are going to be far more in terms
of operations, engineering and mechanics as opposed to broader
public policy recommendations of the sort you outlined. I think
the results of our effort will probably be used by Members of
Congress, the Canadian Government, our administration and
others to formulate those kinds of recommendations, and that is
my sense of it.
Mr. Stupak. The technical working part that you think you
will be doing that we won't be interested in, I think we would
be very interested. Also we are up here as policy makers.
According to the North American Electric Reliability Council,
in the year 2002, there were 97 planning standard violations
and 444 operating policy violations. I mean, if that is what is
going on, and if you are going to try to fix this so we don't
have these 444 operating policy violations, which obviously may
have led to some of this cascading effect of this blackout----
Secretary Abraham. Right.
Mr. Stupak. [continuing] I think we need to know that,
especially if we are going to have to write some rules. Whether
it is the energy bill that is in conference or Mr. Dingell's
reliability bill that he is introducing today, these are things
that we need to know, and you are assuring us that your report
will be done in the next few weeks, not months, you said, were
your quotes.
Secretary Abraham. Right.
Mr. Stupak. So I want to make sure that as you are doing
your work, that we are all on the same page, and we can
interact on what is going on, and people know what is going on
before you come back or the Energy Committee comes back and
says, we need this and that from the American taxpayer either
through higher rate increases or through tax breaks. We want to
make sure we are all on the same page so we don't have these
problems again.
Secretary Abraham. Right, and I appreciate the point.
I would commit to the Congressman that I would share these
concerns with our Canadian counterparts as we work to develop
the process for the formulation of recommendations and also
assure you that all of the information that we are obtaining
that is forming the basis for this analysis will, to the
fullest extent possible, legally be information we share.
Mr. Stupak. One more and I will just wrap with this. There
has been a lot of discussion about the gasoline prices. I
happened to have the opportunity to be up in Pennsylvania with
my colleague Mr. Doyle, and I couldn't help but notice that the
gas was 30 cents less in Pennsylvania. Now, the blackout
skirted around Pennsylvania, but I am sure some of the
refineries were down, had to get their gas from some of these
refineries that were down. Why would--you know, if this is a
problem from Arizona because of a broken pipeline and the
blackout, whatever else you want to call it, why wouldn't all
States see the increases, or is it just a manipulation of a
few?
You have heard from about everybody here. Ms. Eshoo said
hers was $2.35 to fill up. We are right around $2 up in the
Upper Peninsula. Then I fly into Pittsburgh and fill up Mr.
Doyle's car; I was happy to pay for his because it was 30 cents
cheaper a gallon.
So I hope you look at that in your investigation.
Secretary Abraham. Yeah. And one of the other issues here
is that transportation costs of the fuel itself can be a
factor.
We will try to analyze and separate that which is--I mean,
as the Deputy Secretary indicated, and as I indicated, you
know, we see a lot of fluctuations in prices. This one for a
variety of reasons caused us concern.
Mr. Stupak. Sure.
Secretary Abraham. [continuing] and we decided to pursue an
inquiry.
Chairman Tauzin . The gentleman's time has expired, and the
Chair yields to the gentleman from Illinois Mr. Shimkus for a
round of questions Mr. Shimkus. Thank you. Mr. Chairman, and,
Mr. Secretary, thank you for your long time being here.
Let me just briefly talk about a few--energy cannot be
discussed in isolation, so it is--I think it is appropriate
that we talk about gasoline prices. I think it is appropriate
that we talk about natural gas and generation of coal and other
things. And that is why it needs to move in a bill together.
Gasoline, because of the regional requirements for fuel being
specific for the area, because of EPA standards on the Clean
Air Act, that is why you can't move product from one area to
another, even if--if there is disruption, because we can't move
fuel. Hopefully in this energy bill, I think there may be some
ease of that because of doing away with the 2 percent oxygen
standard when we go to--with the 5 billion renewal fuel
standard. So these should not be taken in isolation. It is
very, very important.
My friends on the other side talk about the reliability
language which we support in the comprehensive bill, but the
transmission grid is not a reliable--reliability standard by
itself. There is need on investment, there is need on a return
of that investment, and there is a need to address the siting
issues, and we have had numerous hearings on the siting of
transmission lines.
Many times I have talked about the Illini Coal Basin. Nine-
tenths of the State of Illinois is the Illini Coal Basin, more
coal reserves than Saudi Arabia has oil. The Illini Coal Basin
also goes into Indiana. It goes into Kentucky.
How does this all relate? Well, if we don't have a
transmission grid, then what we have done is we site natural
gas peaker plants that are actually running for baseload
generation in different locations instead of using baseload
generating facilities like coal and nuclear to do the everyday
activity, and when we have to run a natural gas generating
plant, that creates a higher demand, which then calculates into
the price debate. So for those who will claim to take it, an
isolated aspect of energy, it is just like putting a Band-Aid
on a problem. That is why it is so critical to have a national
energy policy.
Let us make a statement. Let us set some consistency. Let
us give investors the idea of where this country wants to move
to be free of the swings that come when we just take a Band-Aid
approach.
So again, Mr. Secretary, I applaud the push, and this is
the time again, as I said in my opening statement, if we can't
move a national energy plan when natural gas has doubled in
price, when we have gasoline prices as high as they have ever
been at the pump, when we have 50 million people without power,
if we can't do it now, then we ought to give up.
I do have two questions, and I will ask them both and you
can address those. Your agency has been working on high
temperature superconductivity cables. We have had a tough time
trying to authorize funding for that. Can you talk about the
need and the importance of high temperature superconducting
cables? And the other issue is why is Canada part of our grid?
Secretary Abraham. Well----
Chairman Tauzin. You sound like the kid from South Park,
John.
Mr. Shimkus. I don't let my kids watch that show.
Secretary Abraham. I will answer the second one just by
saying this: we think it holds the possibility of
superconductivity really revolutionizing the electric system. I
have said that two or three times in my answers. Because
superconducting lines can carry much more electricity than
conventional cables, and yet can be buried underground, they
can serve multiple purposes potentially. So it is, in my
judgment, yet another important ingredient in the comprehensive
energy approach. And we have just awarded several substantial
grants for new research in this area, and we think it holds
tremendous promise and would urge Congress, in fact, would
compliment the committee and the work it has done in this area
and, more broadly, in trying to address the energy challenges
through the passage of your energy bills, both this year and in
the last Congress.
Mr. Shimkus. Mr. Secretary, wouldn't that also alleviate
some of the NIMBY aspects, if we can push more power over
conventional rights-of-way, that that would be an important
aspect?
Secretary Abraham. It would seem that that would be
important, because obviously, to the extent we can minimize the
amount of transmission needed, transmission lines needed, and
to the extent we might be able to put more underground instead
of building towers as some wanted, that would certainly be
better.
The issue on Canada, I mean we really have a very
interdependent economic relationship in North America. I do not
know the exact history of the U.S. and Canadian cross border
transmission construction, but it is consistent with much--a
lot of other things where there is an intertwining of
relationships. And I would note, it is always I think maybe an
interesting side-bar is just that we have this
interconnectivity with Canada throughout the country running
north and south, but we don't have an east-west capability of
transmission connectivity in this country, or I guess in
Canada. So that is just an interesting comment on how the
system evolved. It has evolved internationally, but it hasn't
evolved nationally. And it has obviously implications as well.
I am not advocating that we do anything specific about it; I
just mean it is an interesting reflection of how the system
develops.
Chairman Tauzin. The gentleman's time has expired.
The Chair recognizes Ms. McCarthy for a round of questions.
Ms. McCarthy. Thank you very much, Mr. Chairman. Thank you,
Mr. Secretary, for all of the time that you are spending with
us today. I want to commend you and the administration for your
work with Canada and to continue the line of thinking you have
just been sharing with my colleague across the aisle.
In your testimony you talk about recommendations that will
focus on technical standards for operation and maintenance of
the grid and on the management of the grid in order to more
quickly correct the problems we identify. It is the management
of the grid I would like to explore with you in the brief time
that we have, particularly again working with Canada and the
north-south grid. What will this mean for States' authority
which traditionally has been the management and regulatory
bodies for the 50 States? And second, does the administration
still support PUHCA repeal? In the literature and in the
information that I have received from both industry and other
sources, PUHCA has served a very good purpose in transmission
and regulation, and also in sort of shoring up the public's
confidence that rates are indeed fair and no foul play has been
going on. So I would love--I know you don't have the report and
the recommendations will follow, but as far as the
administration's view on PUHCA, do they still support repeal,
and also how do you envision the administration's position on
management of the grid and what that will mean to the States
who have traditionally held such authority?
Secretary Abraham. Well, in answer to the PUHCA position,
we have not changed our position; we still favor its repeal. We
believe that the benefits in terms of the potential for
sufficient investment in the energy sector, particularly in
transmission, would be very important.
In terms of the management issues, I don't wish to be
misunderstood. The comments that are in my testimony relate to
what I suspect would be the scope of recommendations that our
joint task force would make and that should be interpreted, at
least as it was intended by me, as a small M, not a big M,
management, and by that I mean the operational systems between
ISOs between the managers of the system itself, the operational
people. I am not trying to prejudge the outcome, but the scope
that we are looking at right now is the actual day-to-day
functioning, hour-to-hour and minute-to-minute functioning and
how that is managed, as opposed to the broader issue that I
think you are asking about in terms of the macro management of
the structure, the regulatory structures of electricity
systems.
Ms. McCarthy. So you do not foresee a Federal regulatory
role or even a Canadian-American role, but the power, or the
authority still resting within the States and provinces?
Secretary Abraham. Yes. Again, I don't want to be too far-
reaching and speculating about recommendations, but I do think
this is a task force, the conclusions of which will be ones
that both the U.S. and Canadian members will be either
approving or not, and I just suspect that we will be looking at
the operational side of the electricity grid. I don't foresee
either the Canadians or the American participants trying to
make recommendations about how the other country's overall
regulatory structure is established. But again, I will leave
myself a small amount of wiggle room. But that is what I
believe, so far to be the----
Ms. McCarthy. Well, I appreciate you can't anticipate the
outcome of the study you are doing, but I do want to know the
administration's view of that. And I want to revisit the PUHCA
issue with you just briefly and be sure that you are aware that
industries and groups such as Trans-Elect feel that it is the
wrong time to act to repeal PUHCA. I am reading from their
newsletter commentary: PUHCA has the effect of keeping certain
predatory players out of the transmission business, and Trans-
Elect is perfectly willing to be governed under PUHCA and so
should any other independent transmission player.
As Mr. Markey I think raised with you earlier in the
hearing, with a guaranteed return of 11 or 12 percent of
whatever it is investing, utilities investing in transmission
and PUHCA does nothing to restrict that investment; certainly
PUHCA has not been a problem. So I am just wondering again why
the administration feels that this is the time to eliminate
PUHCA.
Secretary Abraham. Well, again, I think our concern has
been that the absence of investment in the modernization of the
transmission system and other elements of the energy sector
have been affected by that legislation, which is, as you know,
a piece of legislation passed at a different time in terms of--
--
Ms. McCarthy. Mr. Secretary, if I might regain my time.
Chairman Tauzin. The gentlewoman's time has expired.
Ms. McCarthy. I just want to close with PUHCA does not
restrict their investments, Mr. Secretary, so I hope you will
rethink that, and I thank the Chair for his indulgence.
Chairman Tauzin. If you want, Karen, we can include a
provision in the bill that says any company that wants to be
covered by PUHCA can still be covered by them.
I thank the gentlewoman.
Mr. Norwood is recognized for a round of questioning.
Mr. Norwood. Thank you very much, Mr. Chairman. I am going
to try to get us a little bit back on the subject. I can't tell
if this hearing reminds me of the markup or the many, many
hearings we have had over the last year or what our subject
matter is here. But as I recall, it is about the blackout, what
caused it and what caused it to spread.
Mr. Secretary, you have answered this in a lot of different
ways this morning, but let me just ask you a couple of very
simple questions for the record.
You don't really know what caused the outage, do you?
Secretary Abraham. We are not at the stage of being able to
answer that question, no.
Mr. Norwood. Well, do you agree that our response to this
outage should be formed by a proper understanding of the
reasons that it occurred?
Secretary Abraham. Sure.
Mr. Norwood. Yes, I thought you probably would.
Can we make an intelligent legislative response to this
outage until we know how it got started and what caused it to
spread across the country?
Secretary Abraham. Well, I am not going to speculate as to
what might have caused this outage and, as a result, I am not
going to speculate as to whether there will be a specific
legislative silver bullet to prevent it from happening in the
future. What I will reiterate is what I have said many times. I
think the legislation this committee has worked on addresses
both in the electricity sector as well as in a variety of other
energy sectors serious challenges this country faces today and
will face in the future. I would hearken back to the chairman's
prediction of not too long ago that he has mentioned today, and
that moving comprehensive energy legislation is important to
try to avoid other kinds of problems afflicting either the
electricity sector or other parts of our energy world.
Mr. Norwood. Well, I totally agree with you and I
appreciate your adult response to this because, frankly, I
don't know how any of us think we can write legislation to
solve a problem that we don't know what the problem is. I wish
other members of the Federal Government would consider that as
responsible, too. Because we had a blackout is not the time to
use the blackout to try to ram down the throats of Congress
that has already done this through the House, through hearings
after hearings and produced legislation, one's personal agenda.
Now is not the time to do that. Now is the time to let your
task force work and us move forward. I appreciate some comments
you made one time about forcing ideas and ramming it down the
throat of individual communities and regions, and I think that
also should apply to Congress. I don't think anybody ought to
use this blackout simply as an excuse to push their agenda that
has already been set aside by this Congress and will, in the
end, cause great harm to a final energy comprehensive package.
Let me just take a minute and talk plainly here. The
problem--we keep referring to all of the United States, Mr.
Secretary, about the problem simply that we have not met
demands, there needs to be more generation, there is not enough
transmission lines. I agree that that is true, but it is not
true all over the United States. It is true in certain areas
that has been pointed out, I forgot what the Vice President
called his task force, that predicted this was going to happen
immediately after the President came into office and produced
his blue book. This has been fairly predictable. But it doesn't
mean we should use this opportunity to ruin the parts of the
country that has met demand, that does have good transmission
and does have good generation. It seems to me everywhere
blackout has ever occurred, it is in an area that insists on
importing electricity, whether that be from another country or
whether that be from two States over. There is where the
problems are concerned. And I hope, Mr. Secretary, at the end
of the day as you work with us in conference that we can all
come to a good energy bill that actually doesn't tear up part
of the country in order to fix another part of the country.
I see my time probably ought to end about now, Mr.
Chairman. I yield back.
Chairman Tauzin. The gentleman yields back. I thank the
gentleman. Hooray for Georgia.
Ms. Solis is next. The Chair is pleased to recognize Ms.
Solis for a round of questions.
Ms. Solis. Thank you, Mr. Chairman. Thank you again,
Secretary Abraham, for being here.
My question is a little different. I wanted to ask about
sitings of potential power lines that affect minority
communities and low-income communities. We have--someone
mentioned earlier I think on the other side of the aisle
regarding NIMBY, NIMBYism. But the reality is that many times
when we are looking at placing these kinds of power generating
facilities, they end up in areas where minorities or low-income
people or disadvantaged communities have to shoulder the
burden. I would like to know what opinion you would have on the
placement of future facilities like that and if there will be
some level playing field that would be applied, some standard.
Secretary Abraham. Well, the first and most important point
is just that the Federal Government obviously does not have the
power to site. These are decisions made at the State and local
level, and I would hope they would be made in a credible and
open process that allows everybody to have some input in terms
of where the siting will occur rather than discriminate against
any community. I think that one of the concerns we have has
been that because the Federal Government in this unique area
does not have any authority to do siting, no eminent domain
power, unlike interstate highways or pipelines that failure to
site sufficient transmission capability is obviously a problem
and creates occasionally the kind of bottlenecks that result in
higher prices for everybody, as well as creates stress on the
system. So that is one of the reasons why we have advocated at
least some sort of last resort authority for the Federal
Government. But at this point we don't have any. The local
communities and the States make those decisions. I would urge
them to be as inclusive in the process of decisionmaking as
possible.
Ms. Solis. Might that be something that would be included
in say a potential goals statement that might be included in
language that might introduce? I mean we have done that in the
past. Actually through President Clinton's Administration, we
had an Executive Order that asked for different agencies to
look at fair play standards in siting different projects
throughout the country.
Secretary Abraham. Well, I am happy to stand on the
statement I just made which people are welcome to use. I think
that it is something obviously the Congress needs to deal with.
I think in the absence of having a Federal authority though to
do any siting, it might be questionable whether the States
would feel much reason to be responsive until the Federal
Government itself is in the business. So it might be one
possible step in the right direction to have at least some last
resort authority for the Federal Government.
Ms. Solis. Okay. My next question goes to renewable energy.
It is my understanding that the Niagara project, which is a
hydroelectric plant, did not go off line during the blackout,
but plants powered by coal and natural gas and uranium all
tripped off line. Why was the Niagara project less fragile to
the blackout when other systems went off?
Secretary Abraham. I don't know yet. I mean one of the
things that I envision the task force and the working groups
especially looking at are the places where things worked, where
there wasn't a failure of the system. That would pertain to
generating facilities as well as to parts of the grid. You
mentioned renewables. There is no question that I think in the
area of the hydro systems we are more easily able to get back
on line or to be more stabilizing, and that is probably true of
other renewable energy sources as well.
Ms. Solis. What about solar power?
Secretary Abraham. I think it would be consistent for most
of the renewable energy generation approaches, wind, solar, or
hydro. Unfortunately, of course, the percentage of energy
generated from those sources is not as great at this time, but
I think that comparatively speaking, obviously have a little
different kind of activation approach, as I understand it, that
allows them to be back up and running more swiftly, obviously,
in comparison to other, bigger facilities.
Ms. Solis. Might that be something that we could explore,
given that as we heard earlier by some on our side that there
are definitely incentives for some of the power companies to
keep a profit to start putting that money back into other
renewable type of sources?
Secretary Abraham. Well, I don't know about that. I do know
that we endorsed and supported that part of the energy package,
the tax provisions that would help to subsidize more renewable
energy.
Ms. Solis. Incentives.
Secretary Abraham. It is one of the reasons why our
renewable energy budgets that we have submitted, our energy
efficiency and renewable budgets for the last 2 years have been
larger than any budget Congress has enacted in the last 20
years. One of the earlier comments about distributed generation
I think was a very important one, because the potential to have
fuel cells play a role in terms of a smart grid and help to
both be a backup, but also a provider of energy for the grid is
important and is one of the reasons why we have put a lot of
our resources in the Department research programs on fuel cells
and hydrogen.
Chairman Tauzin. The time of the gentlewoman has expired.
I might point out to the gentlewoman that 70 percent of the
energy bill passed out of this committee was in renewables and
conservation, so a lot of good stuff in there.
The Chair will yield to Mr. Walden for a round of
questions.
Mr. Walden. Thank you very much, Mr. Chairman.
I wanted to follow up on the discussion about distributive
energy generation. During the August break I met with a
constituent out in La Grande, Oregon who is working on
localized wind energy development, and he was telling me they
think they can basically put a windmill on each farmer's farm
that will power a full wheel of irrigation. So basically the
farmer could recoup in a couple of years on energy savings the
cost of putting one of these smaller sized wind generation
facilities on their own farm and pay for their irrigation costs
from then on. So it is an exciting development as we move
forward on distributed energy.
Mr. Secretary, I am told that within 6 hours of the start
of the blackout, the NYPA's entire hydropower generation was
back on line which provided New York with 3,794 megawatts of
energy or close to 45 percent of the State's total electricity
load, and that the two largest facilities, Niagara and St.
Lawrence-FDR remained in service during the outage because
their size enabled them to withstand the shock that had pushed
thermal and other generating plants off line.
As you know, H.R. 6 included House Resolution 1013, the
legislation I introduced with my colleagues, Mr. Radanovich and
Mr. Towns, which adds some common sense to a currently onerous
relicensing process for non--for Federal hydro projects.
Ninety-nine percent of the hydropower generated in my district
in Oregon comes from facilities up for renewal over the next 3
years. Together these projects have the cumulative potential to
produce up to 1,602 megawatts of power or enough to serve the
power loads for everyone with a home in the Pacific Northwest
cities of Portland, Seattle, and Spokane.
Hence my question to you is the administration's view on
those hydro policy changes for relicensing first, and then I
have two other questions.
Secretary Abraham. Well, again, we are likely to be issuing
an official statement of administration position in the next
few days, but we have already acknowledged in both our energy
plan and in the previous discussions of last year's bill and so
on that we support the streamlining of relicensing for hydro
facilities. We think it should be quicker, and that certainly
we have to balance the environmental effect of dams with their
ability to produce both abundant power and clean power, to fuel
economies of the regions in which they are located, and we will
play an active role, I expect, on that issue to try to make
sure that a final bill would include provisions that help
streamline the system consistent with those environmental
challenges.
Mr. Walden. Earlier this year, as I mentioned in my opening
comments, the Congress provided $700 million in increased
borrowing authority with the support of the administration for
the Bonneville Power Administration to build new transmission
facilities and, as you know, they got under way this summer.
However, Bonneville had originally requested more than that in
bonding authority. In light of the renewed focus on reliability
and the need to modernize the grid, do you anticipate being
able to support additional funding of--bonding authority, I
should say, to reduce transmission congestion in the Northwest?
I think they were seeking up to $1.3 billion.
Secretary Abraham. Let me ask the Deputy Secretary to just
comment because he has been involved in this quite a bit.
Mr. Walden. Certainly.
Mr. McSlarrow. The short answer would be not at this time.
I was actually pleased to participate in one of the
groundbreakings for one of the 3,500 KV lines that we have
started construction on, but in my discussions with the
Bonneville Administrator my understanding is that in terms of
the pace and the resources required for the upgrading of the
transmission grid in the Northwest, which everybody agrees is
critically important, the $700 million is sufficient. If that
changes, then we will obviously review it again.
Mr. Walden. Mr. Secretary, I have a little less than a
minute left, so let me ask you this: again, could you just
summarize for us what additional investments--what the Bush
Administration believes Congress should do to promote greater
investment in the grid? What are the top two or three things
that we could do here to get the reliability we need, and
adequacy?
Secretary Abraham. In terms of transmission investments, we
had an earlier discussion about the repeal of PUHCA. I have a
different opinion than that which was expressed by the
Congresswoman, because we think that there are restrictions.
The restrictions PUHCA has on who can even participate places a
restriction on investment by and of itself, and we think its
repeal would help to bring needed investment into the sector.
Second, we would favor and have favored the provisions
which would bring about a FERC action to try to produce an
incentive system that would stimulate investment.
Third, I think we have acknowledged on a number of
occasions our support for the spinning off of transmission
assets to RTOs, and I think that really those would be some
examples of ways that this could happen.
I mean at the end of the day people decide where their
investment is best placed, and I can't speak for those
companies who might invest in transmission. I mean they make
those decisions based on their shareholders' concerns or
whatever it might be that is their decisionmaking process. But
presumably, they will invest what resources they have available
in those investments that have the best chance of return, where
they feel they have the best opportunities and the least risk.
And clearly, if this was an attractive investment at this
point, more of it would happen, I think. But maybe we also need
more people able to make those investments.
Mr. Walden. Thank you.
Chairman Tauzin. The gentleman's time has expired.
The Chair is now pleased to recognize the gentleman from
Florida, Mr. Davis, for 8 minutes because he waived on his
opening statement. By the way, Mr. Davis, our numbers indicate
that California uses about nine times as much energy, total
energy, as it produces within its State. Florida uses 22 times
as much, and yet Florida has not had nearly the problems that
other regions have had. That may be some compliment to your
State, although I would like to see you produce more from
California. The gentleman from Florida, Mr. Davis, is
recognized.
Mr. Davis. I didn't think you would let me off that easy,
Mr. Chairman. Thank you.
I want to congratulate the Secretary because he has
succeeded in bringing this committee together on energy issues,
and that is tough to do. There is a universal respect which I
share that we should not rush to judgment, Mr. Secretary. We
should wait upon the facts and have an open and honest
discussion as to how we interpret those facts and the
conclusions we draw. Certainly the public will be unforgiving
if we do not act on that information once we ultimately have
it.
There was a statement made earlier by Congressman Blunt, a
thoughtful member of this committee and the Republican whip,
and I think it is important enough that I need to ask you your
reaction. He said, I believe, that having a policy developed
was more important than what the policy said. I don't agree
with that, and I wanted to ask you your opinion. It ultimately
is important that we get the right policy and not that we just
rush into any policy, isn't it?
Secretary Abraham. Well I can't actually remember his
statement. But what I would say is that this committee, under
Chairman Tauzin's leadership, has spent an awful lot of time
trying to debate these issues, the broad issues, and I commend
you for that. Energy challenges are important ones that have to
be confronted and getting the best policy requires the kind of
deliberation that is going on. I don't think this committee has
underperformed when it comes to the deliberation on policy
discussions in this area. It seems to me that the number of
hearings that the full committee and subcommittee have had have
been very thorough, and I think they have yielded legislative
action here which resulted in a bill passing. So I commend you
for it.
Mr. Davis. Mr. Secretary, as I understand your testimony,
the administration does support the incentive rates to
encourage upgrades to the transmission grid?
Secretary Abraham. Yes.
Mr. Davis. Now, the FERC has already taken that position,
and my question to you is, why is it so essential that Congress
put that in statute as well?
Secretary Abraham. It is my understanding that there is
some dispute as to their authority to take action, and again,
maybe in the later panel when Chairman Wood is here he might be
able to shed more light on that issue. But my understanding is
that the clarification of it by a congressional statutory
action would be helpful to dispose of questions that might
exist.
Mr. Davis. In 1998 an advisory board to DOE issued a report
that said, without fundamental reforms, substantial parts of
North America will be exposed to unacceptable risk.
My question to you is how urgent is it that the Congress
act on the issues you have generally identified this morning to
help tackle the blackout problem once it is fully defined?
Secretary Abraham. Well, I think that, as I have said
before, no one should confuse what we are doing to try to focus
on the specific problems of the specific blackout with the
obvious broad challenges that this committee has already
wrestled with in the passage of its energy bill in terms of the
electricity title. I mean regardless of what the sequence of
events was on August 14 there is no question that the demand
being put on the grid is growing and already pressing the grid
to its full limits. There is no question that we need more
transmission capability. There is no question that we need to
have enforceable reliability standards, because some other
event at some later point may be averted and likely will be if
we do these things.
So my view is that the legislation which has already moved
through the House is a giant step forward to dealing with those
challenges which not only that study, but the one which we
conducted in 2002 identified. And again, I commend this
committee and all of you for working on it and making it a
priority.
Mr. Davis. I guess my point, Mr. Secretary, is I understand
your point of view that investor confidence is important and
that steps need to be taken quickly to deal with this grid.
Once you have finished your report and we all have a chance to
look that over, there is an urgent need for us to act. To
convince the rest of the country that we are serious about
making sure this does not happen again, shouldn't we be
prepared to pass that legislation separately if the Congress
gets bogged down with the rest of the energy bill?
Secretary Abraham. Well, I think the opposite is true. I
think that the problem America faces is a broad set of energy
challenges. And this is where it is frustrating, I have to be
honest, in my job, because whenever there is one of these
crises there are usually hearings and there are people who are
calling for action to address that one crisis, and then there
are other people who say it is wrong to let a crisis force
legislation, and then soon the crisis abates, and then people
say, well, we don't have a crisis, why do we need a bill? And
this sort of circular, or the cycle, seems to keep happening.
The problem is that it is not just a problem with
electricity transmission, although that is the one that we are
here today about. I think the chairman's--I can't remember your
quote exactly, Mr. Chairman, but he predicted something like
this. We were very much caught up in the concerns about, and
continue to be, the natural gas storage levels as we go into
the winter, and there is that problem. I would hate to see us
ignore these other problems, because they are equally
important. They will affect our economy, they will affect the
safety and health of Americans in many respects as much as the
blackout.
Mr. Davis. Mr. Secretary, it is a fair point. I don't want
to debate with you, I just want to underscore that the country
is watching you, and us, and expects us to act. There are not
even conferees appointed to this energy bill and, to my
knowledge, there has been no meaningful staff conversation that
would push forward a conference.
Chairman Tauzin. Will the gentleman yield?
Mr. Davis. Yes, Mr. Chairman.
Chairman Tauzin. That is not true. Senator Domenici and I,
and I will give the gentleman additional time, we had a
conversation the day the Senate acted and we agreed to put our
staffs immediately to the task of side by side analysis, to
begin working out exactly what the conferees are going to need
to agree and disagree on, because there are areas of broad
agreement and there is of disagreement, to isolate them. The
staff has been working all through--they took 1 week off. They
worked all during the August recess, and if you were to call
Senator Domenici today you will find out that he believes, as I
do, that we are going to make speedy progress once we
officially begin the conference. We have a lot of work going
on. Add to that, Mr. Davis, the fact that we came awfully close
last Congress, and the Senate under Democratic leadership came
very close to agreeing with us last year, I feel very confident
that our staffs are going to give us the chance to finish this
work before we leave. So I hope you have a sense of the same
optimism I have before this is over with, and as I predicted
the problem, I hope my predictions about our answer is equally
accurate.
Mr. Davis. Thank you, Mr. Chairman. I hope the conferees
are appointed soon so the official conference can start, and
what the Senate has done speaks for itself.
Mr. Secretary, in my remaining time which the chairman has
generously offered to recalculate slightly, I would like to
talk about something that has heavily affected my State and
that is the price of gasoline at the pumps, and certainly the
blackout is the major issue we will be discussing over the next
couple of days.
As I understand it, the EIA in your department had said not
too long ago that they thought prices would be returning to the
more normal range after the Labor Day holiday. Is that correct?
Is that still your expectation?
Secretary Abraham. Yes. I think we have a number on
Monday--the Deputy Secretary points out that on Monday the
wholesale gasoline--or Tuesday the wholesale gasoline prices
dropped 20 cents, so that is kind of consistent with what we
had predicted.
Mr. Davis. I haven't seen that translate to a reduction at
the pump in my area. Are you seeing it in other parts of the
country?
Secretary Abraham. That is a wholesale number.
Mr. Davis. Okay. So my question was going to be what is
your expectation or projection as to that translating into a
reduction at the pump?
Secretary Abraham. I will give you my projection. The
analysts in the Energy Information Administration suggests
there is typically a 2-week lag time in terms of the decline in
price. And my observation has been that there is a much quicker
increase whenever events happen, but there isn't a similarity
in terms of the change in the price at the pump. The increases
happen instantaneously, and the tendency, at least in my
observation, it is nonempirical.
Mr. Davis. I assure you that is the perception of the
consumer at the pump as well.
Do you expect that the investigation you have mentioned and
presumably are undertaking is having a positive impact on
bringing the prices back down?
Secretary Abraham. Well, we just started, so I don't think
that would be true. But I have said repeatedly whenever there
has been one of the sort of major incidents over the last
couple of years, starting with 9/11, is that we have a hotline,
a gouger information hotline, and I will even read it into the
record, Mr. Chairman. It is 1-800-244-3301.
Chairman Tauzin. We will start calling it today.
Secretary Abraham. I will let you finish.
Mr. Davis. I don't need to call. I have delivered to you
my----
Secretary Abraham. Every time I have noticed that when we
do reference that it is a positive statement, I think.
Chairman Tauzin. The gentleman's time has expired, Mr.
Davis.
Mr. Davis. Mr. Chairman, thank you. I would just add, I
hope that you would consider dispatching Mr. Greenwood as
chairman of the Oversight and Investigation Subcommittee the
opportunity to conduct some hearings on this very issue as
well.
Chairman Tauzin. Mr. Davis, I can assure you if the
Secretary and Mr. McSlarrow indicate to us there is a need to
do that, we will do that, but we obviously want to give them a
chance to report to us.
The Chair recognizes the vice chairman of our committee,
Mr. Burr, for a round of questions.
Mr. Burr. I thank the Chair.
Again, welcome, Mr. Secretary. Some analyses of the
blackout period have already taken place, though cursory, and I
think it is safe to say that I think this committee would
rather wait until the official committee that is set up comes
out with their conclusions. But I think that there are some
things that we can sort of take for granted, that this is a
process that happened in very close to an hour or a little bit
longer, that we went from the startup problems to a total
blackout.
In that process, in that hour period, we had transmission
lines that tripped, we had generation that shut down; I might
say all by design. Had that not happened, had that design not
been in place, what would have happened to that grid and those
generation facilities?
Secretary Abraham. Well, obviously, there is a certain
fragility in the system that is designed to be that way so
that, for instance, a nuclear power reactor, if there is this
instability that goes to backup generations so that there can't
be any adverse affect on its cooling systems, things like that
worked and we have got a nuclear security working group that is
focused on that, to see if it worked the way it was anticipated
across the board. Parts of the grid obviously responded
effectively and quickly in terms of preventing the blackout
from spreading, and others didn't. So we are--one of the most
important parts of what we will be doing is to learn from the
ones--the things that did work well to see what the
dissimilarities would be between those systems and the ones
that shut down.
Mr. Burr. But it is true the transmission lines tripped so
that they didn't overload, bringing the lines down?
Secretary Abraham. Right.
Mr. Burr. Generation shut down so that turbines didn't blow
up. The net result is to not have it default, that they trip or
go off line means that the potential damage is much more
serious and longer, and that is why we do that?
Secretary Abraham. Right.
Mr. Burr. My question gets at the heart of whether we are
headed in the right direction to totally separate transmission
from generation. One might look at this and question whether in
this particular case we have increased our ability to respond
given that in the transmission or the generation end there is
an anomaly that happens, that without the ability for immediate
conversation between those responsible for generation and those
responsible for transmission, it could in fact delay a decision
and based upon not this scenario, but potentially others, the
net result might be much worse. Do you have concerns of that?
Secretary Abraham. As I have indicated, I think the issue
of communication is one that will certainly be explored as the
working groups try to assess what went right and what went
wrong. I don't want to speculate as to how the nonexistence or
existence of integration within the system addresses that; I
think it falls in the category of issues that would be
difficult and premature to look at today.
Mr. Burr. Well, I hope, since we do have part of the system
that was a member of an RTO, that the Commission will look at
whether in fact that delayed or decreased our reaction time on
particular decisions that may or may not have been made.
I don't want to cover old ground, but I think in the week
after the blackout you made some statements that I think were
very much on line that related to the transmission grid. You
said we need greater return on investment, we need quicker
return on investment, we need adjustments to the Tax Code or
adjustments to the Tax Code that favor voluntary sell off of
transmission assets to a transmission only entity, along with
NERC standards are among the types of remedies that you
referred to that weekend after.
I would only ask, is that still the belief of you and the
Department of Energy today?
Secretary Abraham. As I have said, again, I want to
separate the specific causes and issues that affected the world
on August 14 from what I think is a broader challenge, that
regardless of what we might determine on this blackout need to
be addressed, and certainly the adequacy of our transmission
grid is one of those, and I stand by those comments.
Mr. Burr. I would like to encourage you, in concluding,
that the efforts that the Department has already entered into,
the cooperation and the agreements which involve field testing
of new potential transmission line, 3M, numerous manufacturers
who are out there, I think it is an integral part of our
decision as to where we head with our energy policy as it
relates to the transmission upgrade. I think that it is really
the role of the Department of Energy to set that standard, and
I think you are making a correct investment today and I hope
that investment continues so that when the capital markets are
ready to finance this upgrade of the transmission grid that in
fact what we are stringing or what we are burying is in fact
the right thing for the future and not necessarily what is
right for today.
Chairman Tauzin. The gentleman's time has expired. I am
sort of the multi-breaker here. I have to trip you off and go
on. I recognize Mr. Engel from New York for a round of
questions.
Mr. Engel. Thank you, Mr. Chairman.
Mr. Secretary, welcome. I realize that many of us have
different ideas about what energy policy should be, and I just
wanted to ask you, we have heard a lot of talk here today about
Congress should pass a comprehensive energy bill, and I agree.
I don't like the bill that the Congress--the House passed. I
think that it relies too much on coziness with the energy
companies and with the industry, and I think that it talks too
much about production. And what has been troubling me is the
policy of the administration seems to be that the solution to
our energy problem is production: more oil, more gas, more
power, drilling in the Alaska wilderness, pass an energy bill
that I think is very much tilted toward the industry and
against conservation instead of energy policies.
What bothers me is it seems that many people are putting
the cart before the horse, saying that let's pass this bill
again, and that is going to be the solution to all of our
problems.
Now, we in New York, and it has been said by the chairman
and others, very generously, I am very proud of the way New
York has acted during the blackout. We showed again why New
York is a great city and showed again why New Yorkers are
great, as the aftermath of September 11 showed that certainly
we can cope with any kind of crisis. But we recently found out
the EPA's Inspector General stated that the White House and the
National Security Council essentially forced the EPA to lie
about the air quality in New York City just after September 11.
So what bothers me, and I guess I am saying to you say it
ain't so, and you have said it, but I want to hear it again,
that I want to first find out the facts. I want to find out
what happened, and then I think it makes sense to decide where
our policies go from there, and I am just worried that if we
try to wrap this all into a big comprehensive energy bill that
we are going to have lots of disagreements, and honest
disagreements, that what we really need to do in terms of
upgrading the grid and other things is going to fall by the
wayside. So I just would like to hear from you that that is not
the case, that we are not putting the cart before the horse,
and that the administration doesn't already have an idea of
what it wants to do before we find out what the facts really
are.
Secretary Abraham. Well, first of all, let me reassure you
again, our goal is to find the facts and to follow the facts
where they lead. And remember, a substantial amount of this
energy bill has nothing to do with the electricity grid and has
to do with a lot of other areas such as our hydrogen fuel
initiatives, such as the tax credits that will support
investments in the use of alternative fuel vehicles and
renewable energy sources, a lot of things that I think the
American public wants. And you have my assurance that our goal
is to--and remember, this is a binational task force. This is
not a task force of just the United States; it is one where the
Canadians are equal participants in and certainly will bring
the same commitment I believe that we bring.
Mr. Engel. Can I ask you, Mr. Secretary, if any of the
findings or backup documentation will be made classified, and
if it is made classified, the public would not have access to
it? Because, you know, there is an energy policy that was
developed by the administration. The Vice President held
meetings with Enron and other companies in the industry and
refused to provide Congress with documentations of these
meetings, contrary to Congress' requests. We don't know what
happened. I just want the windows to open and the fresh air to
come in, and I want to know will everything be made public or
will we have parts of it being classified and, therefore, once
again, we are not going to really know what the story is?
Secretary Abraham. My goal and our goal is to have a
transparent process. I have asked our legal counsel to
determine what, if any, legal issues exist, and by that I would
just point to the following: I have no idea what kind of
proprietary information is being obtained from the various
people who are part of this transmission system and what
options we have as to the release of proprietary information. I
don't know how that works, and we intend to determine that and
determine, you know, what--but our goal is a fully transparent
process.
Mr. Engel. Are you involving FERC at all?
Secretary Abraham. Yes, FERC's Chairman, who will be
testifying some time today, I guess----
Chairman Tauzin. We have the Governors scheduled for 2
o'clock.
Secretary Abraham. Mr. Chairman, Pat Wood is a member of
one--one of the four U.S. members of the task force and FERC
shares with our Department the lead responsibility on the U.S.
side for the electricity working group.
Mr. Engel. I think you can understand, and then I will give
back the balance of my time, which is already up, that I just
don't want to use this blackout as an excuse to cook the books,
to further the administration's energy policies. I want to find
out again what happened and I want to make sure that we act
according to that. You said that the energy bill has all kinds
of other things. I want to concentrate on why the power went
out and what we can do to make sure that it never happens
again.
Secretary Abraham. I do, too.
Chairman Tauzin. Well, the gentleman's time has expired.
I want to point out to the gentleman that power doesn't
come out of the air and it doesn't come out of the walls.
Somebody has to deliver it to the wall. We had an amazing
survey done, and I won't mention the State that recently had
problems. A surprising number of respondents, when asked where
electricity came from, said the wall. And a surprising number
of respondents when asked who put it there said the contractor.
Somebody has got to generate it and get it into that home, and
if you don't have natural gas to build all the plants we are
told we need and we don't have an energy bill that addresses
those problems, we are going to have other problems. It is a
complex maze that we have tried to literally work through in a
major comprehensive bill.
Mr. Engel. If the chairman would just yield for 10 seconds.
Chairman Tauzin. I will be happy to yield.
Mr. Engel. I think you would agree with me that energy can
be dealt with in many different ways, and one of them would be
to have more production, more oil, more gas, and more power,
and another way would be to kind of temper that with
conservation, renewables fuels, and things like that.
Chairman Tauzin. The bill does all of that.
Mr. Engel. Well, not to the extent that I think it should.
Chairman Tauzin. Not to the satisfaction of you and your
vote, but again, 40 Democrats found the bill satisfactory. It
passed 247 to 175. It was a bipartisan vote.
Mr. Engel. Okay, and 150 Democrats found it unsatisfactory.
Chairman Tauzin. Exactly. Because you didn't like ANWR or
something. But my point is that we have broad, comprehensive
legislation in conference that has been agreed to by a
bipartisan substantial majority of the House, and that is still
true, whether you like that or not. We have to move on, though.
The Chair recognizes Governor Otter for 5 minutes.
Mr. Otter. Thank you, Mr. Chairman. I want to point out
that being one of the low ranking members on the committee has
its advantages and one of those advantages is trying to ask a
question which hasn't been asked, which I think most all of
them have been asked. But the other advantage is to try to
clear up a few misgivings that certain members have offered
through the Secretary, or to the Secretary. One of those, in a
response to the other side of the aisle; in fact, I think it
was Ms. Eshoo, the Secretary was without an answer to her
question as to why didn't the Department of Energy do something
when California had its crises. And I want to offer to the
Secretary a copy of a letter that was dated March 20, 1997,
signed by the California delegation, including Ms. Eshoo, on
the very top. The letter is directed to the chairman of the
Energy and Commerce Committee and it says, This measure
provides for national first fully competitive electric utility
systems. The new law provides for customers' choice to begin
January 1, 1998, and to be fully implemented by the year 2002,
and it goes on to explain the virtues of that new law that was
passed by a unanimous vote in both Houses of the California
State Legislature and signed by the Governor, and it concludes
by saying, stay out of our business. We believe that the
decision made in California on utility restructuring and
competition are the right ones for our State, so stay out of
our business.
So I would also like to offer that, Mr. Chairman, as part
of the official record of this committee.
Chairman Tauzin. Without objection, it will be made a part
of the record.
[The information referred to follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Otter. Mr. Secretary, isn't it necessary to attract
investment that public policy relative to any kind of
information in the United States lasts beyond one Presidential
term? I don't know of any infrastructure that we have where we
asked the private sector or a private-public sector investment
that we want to attract, that they can amortize those kinds of
investments in 4 years, do you?
Secretary Abraham. Obviously, the predictability of policy
is critical.
Mr. Otter. So you have to have continuity. You know, I
haven't made a check, but I know that relative to one of the
other members from the other side of the aisle's questions
about why isn't 12 percent enough and why isn't that going to
generate a tremendous investment; however, I suspect if we
checked our portfolios for our 401(k)s for those members
sitting in this committee on this dais today, we probably
wouldn't find a lot of investment in that 12 percent by any
stretch of the imagination.
Let me move on. I want to commend you, Mr. Secretary, for
staying away from leapfrogging over the process which you and
the Canadians have already engaged in to try to come to some--
instead of playing the blame game to try to come to some sort
of conclusion on what has happened, because we do that in
Congress all the time. If there is a little problem we jump
right in and say this is the answer, and in the end we always
conclude that wet sidewalks cause rain, and the process of
doing that in this case could be way too damaging.
In another response, one of the questions was why aren't
these hearings made public? I was not satisfied with your
answer to that. But I would ask you this: have you and your
colleagues made any assessment of opening these meetings and
what it might suggest to the terrorists of the world of what
our vulnerability would be if these meetings were opened and we
came to some conclusions?
Secretary Abraham. Well, as I indicated, we haven't even
gotten yet to the stage of considering the deliberation
process. Obviously, the task force at this point is in an
information gathering stage, and the Congressman raises a very
interesting and important point as to----
Mr. Otter. So have you not made an assessment of that
information being made public?
Secretary Abraham. No, we have not reached the point of
assessing public hearings.
Mr. Otter. Immediately after 9/11 the Army Corps of
Engineers was requested to go out and make an assessment of
potential targets of our infrastructure like dams and like
power plants and things like that. And then that information
was made public, and of course it was a list of potential
targets for somebody. Don't you think it is important that we
not allow that kind of information in total to be made public?
Secretary Abraham. The Department of Homeland Security and
the Canadian counterpart are in the process of running that
working group and I am sure they will be very explicit in terms
of as they reach their information gathering and analysis as to
the classification level of issues that might relate to
terrorist threats.
Mr. Otter. My time is up.
Chairman Tauzin. The gentleman's time is up. Let me tell
you where we are now. Mr. Secretary, you need to leave. I have
four or five members who have still not asked questions. The
Governors are here and we are trying to take good care of the
Governors in our conference room and we need to get them up. So
what I am going to ask if maybe the members who still have
questions, if you could maybe make it one or two questions
quick and move on.
Mr. Doyle is next.
Mr. Doyle. Thanks, Mr. Chairman. I won't use my whole 5
minutes.
Mr. Secretary, I understand that Chairman Wood is part of
the task force. I also understand that FERC has the authority
themselves to conduct an investigation but they are not
presently doing so. It just seems to me that some autonomy
could lead to a useful process and it wouldn't be much harm
having an additional set of eyes, if you will, examining the
issue. Do you think it would be useful for FERC to conduct
their own independent investigation?
Secretary Abraham. I think that, first of all, I strongly
have urged that we have one investigation so that we could
benefit from the collective work of all of the people who can
bring some talent to this effort. No. 2, I don't know whether
FERC's authority extends to the full range of areas that I
believe the Department of Energy's authority extends in terms
of our capacity to conduct a comprehensive investigation. We
are in no position to prevent FERC from doing its own
investigation.
Mr. Doyle. So you wouldn't oppose it?
Secretary Abraham. Chairman Wood and the members of the
Commission and the two other members I guess will have to make
a decision. But I think we benefit from bringing all of the
expertise together in one investigation so that we can get
hopefully a timely as well as a comprehensive approach.
Mr. Doyle. But you wouldn't oppose it if they decided to do
it on their own?
Secretary Abraham. Chairman Wood's investigative authority
I think in this area or the FERC's is derivative of our
Department which we have assigned on a nonexclusive basis to
FERC and they are an independent commission to make decisions.
I think the country benefits from having all of the talent
working together, combined with that which Canada brings to
this effort.
Mr. Doyle. Fine. Thank you, Mr. Secretary.
Just one quick last question. I talked about distributed
generation in my remarks and I felt strongly that this could go
a long way toward solving some of our problems. Do you support
ramping up R&D funding for this? I know you keep mentioning
fuel cells, but the fuel cells that you mentioned, the hydrogen
fuel cells are 15, 20 years down the road. We have fuel cells
that have near term commercialization potential and that
funding has been cut. So how do we get more resources to that?
Secretary Abraham. Well, at the end of the day we have
expanded our overall commitment to fuel cell research. I think
the technologies that are being explored right now as to
hydrogen production, for instance, as fuel cell functioning has
the potential benefit in both the transportation as well as
stationary application. But we certainly see, as I mentioned in
response to another answer a little while ago, that we share
the view that this is part of a long-term solution.
Mr. Doyle. Thank you.
Chairman Tauzin. I thank the gentleman. Let me ask, does
anyone on this side have a question? Mr. Stearns, quickly.
Mr. Stearns. Thank you, Mr. Chairman.
Mr. Secretary, just an overview. It seems to me that if we
are going to avoid incidences like these blackouts, the first
thing we need to do is to establish a complete analysis of a
national threat and vulnerability assessment that identifies
these problems.
Has your office done this yet, a national assessment of
grid?
Secretary Abraham. Actually the Department of Homeland
Security has that charge now.
Mr. Stearns. So you don't do that at all?
Secretary Abraham. I mean, we play a role as technical
support. The DHS has the infrastructure security
responsibilities. They previously have been more in our
department.
Mr. Stearns. You know there were a lot of studies done in
the Clinton Administration. In 1999, a study of the
transmission grid was done. The DOE released its power outage
study in March 2000. You know, given these reports, are these
reports useful or useless? I mean, shouldn't these reports have
told us some of the vulnerabilities?
Secretary Abraham. Congressman, as I have commented several
times today, we feel that the grid study we did in 2002 is
explicit in identifying challenges which we confront. They were
also, if one reads our energy plan, expounded on there. And
Secretary Richardson was frequently seen and heard, in the wake
of the blackout, talking about the work he had done in terms of
these issues. We waited a long time to address them. They need
to be addressed.
Mr. Stearns. All right.
Mr. Chairman, thank you.
Chairman Tauzin. Anyone on this side the last question?
I think Mr. Allen first, and then I will get you next.
Mr. Allen. Thank you, Mr. Chairman.
And, Mr. Secretary, thank you for being here. Like many
other members, I am going to ask you a question about the
energy bill, because you know, we are, as you have said several
times, sort of ahead of the curve a little bit in trying to
devise legislative solutions to what happened on August 14. But
in the course of this hearing today, several members have
referred to a provision in the energy bill that they have
characterized as allowing the Federal Government to work with
States to get transmission lines sited. But when you look at
that provision, it is a provision that was reported by this
committee, but opposed by almost every Democrat and certainly
seems to be much more heavy-handed than working with a State.
The provision allows FERC here in Washington to swoop into
a State and preempt the State's ability to make siting
decisions in a variety of situations, some of them, I would
suggest, inappropriate. For example, if a State denies a permit
for transmission facilities for any reason whatsoever, then
FERC can overrule the State. So if a utility wants to build a
transmission line interstate--transmission of interstate
electricity in one spot rather than another--and the State
agency has a preference, then basically the utility cannot
agree, wait for a denial, wait for a delay and count on FERC to
preempt the State. Or if the State takes more than a year to
consider a transmission proposal, then FERC can also simply
take over.
This approach is great for utilities, but it may be
terrible for States who want to ensure that these facilities
are constructed in a way that meets their other public policy
objectives, environmental and otherwise. And I think that
Congresswoman Solis asked a question along these lines, and I
think you used the words ``last resort'' in describing the
State authority. But I would suggest to you that for an
administration that prizes State rights, this looks and feels
to some of us like a pretty heavy-handed power grab, to use the
phrase, because the weight of the FERC authority is there from
the beginning of the filing of the application, and basically
FERC is there to take over the transmission siting decision,
you know, if anything, changes.
So the question after all that, with respect to this
specific provision of the House energy bill, does the
administration support it? Do you have reservations?
Secretary Abraham. Let me tell you what I think, first of
all.
You know, nobody thinks twice if a pipeline is sited by the
Federal Government or the highways. We have done those. This
scenario, the Federal Government has no authority whatsoever.
The problem we have is that made sense when essentially the
transmission system was intrastate, when there wasn't a lot of
interstate development. Now there is. The question is, should
the Federal Government have any role.
What we have tried to argue in our grid study and what I
think was intended in the construction of the House bill was
that we ought to identify serious congestion areas, what we
called in the grid study ``national interest corridors,'' that
is, interstate transmission corridors which were so severely
congested as to cause the potential for the sorts of problems
we are here today talking about; that once we identify those,
we would wait, give the States an opportunity to act. But if
the States won't act, the question is, do we just do nothing,
or should there be some ultimate power at the Federal level;
when its an interstate matter that affects interstate commerce,
interstate health and safety issues, should there be an
opportunity for the Federal Government to site in the last
resort. That is the viewpoint we support.
Mr. Allen. But you would agree, this is a fairly
significant change from the rules that prevail today?
Secretary Abraham. The communication I received from the
Governors of this country on this issue certainly reflects that
view, and I in no way wish to diminish the significance of it.
But what is equally significant, I think--and again, I am not
going to speculate about what happened on August 14, but I
believe if we don't have adequate transmission on an interstate
basis, and it is what we call--not every single transmission
siting but ones that have caused severe congestion problems
with broader implications, I think the State should have the
first crack. They should have a sufficient time to act, but if
they won't act, then I believe there ought to be some ability
of last resort.
Chairman Tauzin. The gentleman's time has expired.
Let me point out, however, for the record that there is a
tradeoff in the bill. Feds get that authority, but the States
get additional siting authority on Federal lands as part of the
tradeoff. So States do gain additional rights under the
provisions of the House bill.
Ms. Schakowsky and then Mr. Brown.
Ms. Schakowsky. Before and after September 11 there was
this broad acknowledgment that the grid had to be upgraded, and
I am trying to understand under what conditions.
Mr. Markey talked about that guaranteed 11 to 12 percent
rate of return on the investment. And that doesn't seem to be
sufficient to have prodded people, nor did the warnings that
this could be a serious problem for the economy and for our
security as a Nation. The--so the answer seems to be, we talk
about incentive rates, representing the idea of consumers and
who pays. Isn't another idea that we just say this is so vital
to the United States' economy and to our security as a Nation
that we require that the transmission grid be upgraded, as
opposed to trying to find how much money do we have to require
consumers to pay in order for companies to be induced,
incentivized to do that?
And then the question is, who does pay? I mean, is it going
to be the captive consumers who are now paying so much at the
pump or paying so much for natural gas and then seeing their
electric utility bill rise? Is there some way to protect those
captive consumers from those high rates?
Secretary Abraham. Just two observations: First of all,
about 80 percent--I mentioned this earlier. About 80 percent of
the energy bill that people pay, whether it is the individual
or the business or industry consumer, about 80 percent goes to
the cost of generation, 10 percent goes for transmission, 10
percent for distribution.
It is our view--first of all, it is an important point that
came out of our grid study that because of the congestion in
the transmission system, we are artificially inflating the cost
of the generation.
Ms. Schakowsky. But you don't guarantee that prices will go
down. There is a guarantee of a rate of return, but.
Secretary Abraham. I am expressing just the results of our
study.
Ms. Schakowsky. I know, but consumers would feel, we give
you this tradeoff and give you higher rates, and then we say,
and then, therefore, we guarantee you that because congestion
will be alleviated, prices will go down. As you said, prices go
up pretty fast, but prices don't come down very fast; and there
is no guarantee of that.
Secretary Abraham. I think I was candid in my earlier
response in that.
I think the other point, though, I would bring to the
committee's attention is this: Two-thirds of the consumption of
energy in these rates that are paid is the consumption in the
business-manufacturing-industrial sector; one-third is
residential. And so what we have right now--I mean, in terms of
who does pay the bill and who should pay the bill, it seems
that as we look at this, I believe there will be an offset, but
I also believe that these heavy industrial consumers need to
pay their fair share, and if we are going to increase the
system to meet those demands, that the people who are putting
that demand into the system need to pay their fair share. And
that would be my----
Ms. Schakowsky. Did you ever lower--was there ever gouging
found throughout your hotline, this gasoline price gouging
hotline? Did anything result in lower prices?
Secretary Abraham. We brought and referred to the FTC, you
know, every.
Ms. Schakowsky. Did anything ever happen?
Secretary Abraham. I have no idea. I have to get back to
the committee.
Chairman Tauzin. The Chair reminds everyone, we have two
Governors and a mayor who have to catch a plane. Mr. Brown is
the last one.
Mr. Brown. Thank you, Mr. Chairman.
The response--to respond to the question of Ms. Schakowsky,
can you give us in writing the response to her and to me of
what actually came of those?
Secretary Abraham. Sure.
Mr. Brown. I have one question and a couple of remarks
before the question, and I appreciate the chance to speak to
you, Mr. Secretary.
May, 2003, the North American Electrical Reliability
Council issued its summer reliability assessment estimating
summer electricity demand in the Midwest ECAR region, or the
reliability region which includes my home State of Ohio, at
over 100,000 megawatts. But according to NERC, our region will
use demand-side efficiency measures in other words to meet less
than 3 percent of the demand this year.
The American Council for an Energy Efficient Economy
estimated that adopting a seasonal energy efficiency ratio of
13 for air conditioners would reduce demand nationwide by
57,000 megawatts during the next quarter century. One of the
White House directives in 2001 was to roll back the SEER, the
SEER 13 air conditioner standard, rolling back the required
efficiency. The Alliance to Save Energy says the
administration's decision will cause demand to be 13,000
megawatts higher than under the one point enacted, more
responsible SEER 13 standard.
During the next quarter century or so, the administration
decision will reduce energy efficient standards for air
conditioners and will cost consumers $18-plus billion in higher
electric bills. With the grid already badly strained with
demand-side measures meeting only a small fraction of total
demand, it seems puzzling to me that we can ignore the
reliability benefits of the SEER 13 standard.
Are you willing--are the Department and the President and
the administration willing--in light of this $18 billion cost
on top of perhaps 50 billion in transmission grade upgrades
brought on by what we are doing today, is it something you
would reconsider?
Secretary Abraham. Two points: First of all--and then I am
going to have the Deputy Secretary comment.
Point No. 1, these standards would go into effect in 2006.
And I don't think there should be confusion as to how they
might have in any way affected the blackout.
Second, we increased the standard from 10 to 12. We did not
roll anything back.
Third, I would just point out that one of the reasons we
did not support the 13 SEER standard was that--we concluded
that the analysis--we concluded that the cost to the consumers,
to low-income consumers, of the 13 SEER standards in position
would be prohibitive in terms of their ability to afford to
have residential air conditioning; and we did not think that
that was an appropriate way to save on energy on the backs of
those low-income consumers who would simply be priced out of
the market.
Mr. McSlarrow. I would only add that in addition to that
rule, which increased the energy efficiency of air conditioners
by 20 percent, this administration approved three other energy
efficiency rules. The total savings in terms of electricity
would equal over 5 years of all power that goes to every
American home. So we have already done a tremendous amount.
Now, it is true none of these start until 2006, but every
rule that we had in front of us we approved.
Mr. Brown. Just in closing, I would dispute a couple of
things that the Secretary and the Deputy Secretary said. One is
that while we did maybe increase from 10 to 12, the
administration before, in addition to regulation, increased it
to 13. So it is only in Washington do you call it an increase
to paraphrase my friends.
Second, this is the same administration, that is showing
such concern for low-income air conditioning users, that
doesn't seem to show that concern when it is time to put out a
budget on helping low-income energy assistance when it is
heating assistance in my part of the country.
Secretary Abraham. That is actually false, Congressman. And
if you look at the President's proposals on the weatherization
program in my department, where we have consistently submitted
to Congress budgets substantially greater than the
appropriators have given us to try to expand the weatherization
program. So that is not an accurate statement.
Chairman Tauzin. The Chair wishes to express my sincere
gratitude to the Secretary for the enormous patience he has
shown today, and I wish you Godspeed.
As you said, you plan to give us a report, you think, by
next week?
Secretary Abraham. We will give it.
Chairman Tauzin. Thank you, Mr. Secretary and Deputy
Secretary.
And we will now move on to the second panel, which has been
waiting patiently. And we will call the second panel and I will
wait for them to assemble before I introduce them, but I ask
all the members and guests to allow the Secretary to make his
departure and to invite Governor Taft and Governor Granholm and
Mayor Kilpatrick to enter the room.
[Brief recess.]
Chairman Tauzin. Let me ask the witnesses to take their
seats. The Governors are here and the Mayor is here, and we are
deeply honored to have the presence of two of our Nation's
Governors and the distinguished Mayor of the great city of
Detroit, who are here to share their perspectives on the crisis
that occurred in the Northeast on August 14.
So if our guests will take seats, please, we can begin the
rest of our hearing. So please take seats and get the doors
closed. Thank you very much.
Ladies and gentlemen, the committee and guests, we are
honored and pleased to have with us, as I mentioned, two of our
Nation's most distinguished Governors and the great,
distinguished Mayor of one of America's great cities that gives
the New Orleans Saints the dickens every now and then.
I want to welcome the Honorable Bob Taft, Governor of the
great State of Ohio, the Honorable Jennifer Granholm, the
Governor of the great State of Michigan, and the Honorable
Kwame Kilpatrick, who is the Mayor of the great city of
Detroit, Michigan. All of you had some real experience in what
occurred August 14, and obviously a perspective that maybe can
help us understand what happened and how we can best prevent it
again.
Let me extend to all of you, first of all, our sympathies
for what your folks had to go through; and second, the great
appreciation of the rest of our country in the way you handled
it. In New York, your great city and State were an example to
the rest of us of how to handle a crisis, and you managed it
awfully well; and I want to extend my thanks to all of you for
setting the right example for the rest of us in the country.
And we will begin with Governor Taft, if you will lead off
and give us your perspective, Governor.
STATEMENT OF HON. BOB TAFT, GOVERNOR, STATE OF OHIO
Governor Taft. Mr. Chairman and members of the committee,
thank you for this opportunity to testify on a matter of great
importance to Ohio and to the Nation. It is my hope that what
happened on August 14 will awaken us all to the urgency of
creating a modern, well-coordinated system for the transmission
of electricity.
The unprecedented blackout that occurred posed severe
threats to public health and safety and to the economy of Ohio,
other States and provinces and two nations. Although we will
not know for some time the exact sequence of events that gave
rise to the blackout, this incident revealed serious
shortcomings in the transmission of electricity that could well
create a real calamity in the future if not addressed.
The blackout underscores our deep dependence on our energy
infrastructure and the vulnerability of that system. The
consequences go far beyond the personal inconvenience of
lights, refrigerators or air conditioning. In Cleveland, the
downstream impacts led to a near catastrophic failure of the
city's water system leaving tens of thousands in the metro area
without safe drinking water and rendering beaches unsafe for
days due to sewage contamination.
The blackout cost Ohio businesses more than a billion
dollars in lost economic activity. One major Ohio company lost
steel-making capacity for more than a week because of the
damage of the blackout.
Above all, the blackout shook the confidence of our
system--of our citizens in the system that most take for
granted. We must now do whatever it takes to establish an
improved system that people can rely on to power their homes,
their offices and their communities.
In that immediate effort to assist with an answer to the
question of what happened, I have directed the Public Utilities
Commission of Ohio to undertake a second-by-second account of
events in Ohio that took place leading up to and during the
blackout. The chairman of the PUCO, Alan Schriber, has been in
contact with utilities and industry groups operating in Ohio to
gather time lines and other data critical to the investigation.
He will be a member of the joint U.S.-Canadian task force and,
in that capacity, will make his information available to
support the binational investigation; and he will be testifying
before you later today.
From the standpoint of preventing a future potentially more
serious blackout, we support several initiatives that are under
way or under consideration. First, we urge the Congress to
require mandatory reliability standards for the transmission of
electricity. Voluntary standards have been proven inadequate.
Responsibility for enforcement of rigorous national standards
for safe, reliable transmission of electricity could be given
either to a Federal agency or to State commissions operating to
enforce Federal standards.
With respect to rail lines, natural gas pipelines, there is
already a precedent for State enforcement of national safety
and reliability standards in Ohio and other States.
Second, I strongly support FERC's proposal for an
effective, empowered regional system that places direction and
control of transmission with independent, regional grid
operators. The current system is both fragmented and weak.
For example, in Ohio, oversight of transmission is divided
between two different organizations. We have companies that are
members of the Midwest ISO, others that belong to PJM and one
company whose efforts to join a regional group has been delayed
by legal and technical disputes. In addition, the Midwest ISO
and PJM still lack effective control over transmission lines in
Ohio that they are supposed to oversee and coordinate with
lines outside our State.
Congress should act promptly to support FERC's plan for
empowered, all-inclusive regional transmission entities. A 3-
year delay, as some are proposing, would impose an intolerable
risk on the Nation.
I have directed our PUCO to conduct a review of whether
Ohio's division among two separate regional transmission
organizations poses a serious risk to the reliability of the
delivery of power to customers in Ohio and, if warranted,
provide recommendations to bring our utilities within the State
under a single transmission organization. Without strong
Federal action, such a result may not be achievable.
In addition to mandatory reliability standards and strong
RTOs, we must not overlook the importance of investment in
technology and infrastructure to upgrade the grid and its
operating systems. It has been reported by many sources that
investment in transmission has declined even as the burden on
the lines has increased. After the blackout, a transmission
system in a neighboring State stated that his company should
have received a courtesy call from an Ohio utility in regards
to lines going out in Ohio. Quite frankly, in the 21st century,
a system that relies on courtesy calls is clearly outdated and
needs to be modernized. Therefore, I encourage the Congress and
the FERC to provide incentives and adequate returns on
investments to enable grid operators to upgrade transmission
systems, including deployment of advanced technology to detect
problems and provide rapid communication and coordination.
Some may disagree that change is needed. Others will use
the blackout as a platform for concerns that are not relevant
to the cause of the outage or actions necessary to prevent new
blackouts in the future. I believe we must support the joint
U.S.-Canadian task force as it works to identify the causes of
the blackout, adopt national mandatory reliability standards
and establish a strong regional transmission system capable of
upgrading technology, creating regional wholesale markets and
managing the power grid so our lights will stay on.
I urge the Congress to enact the required reforms at the
earliest possible date as part of a comprehensive energy bill
that addresses, also, the need to expand domestic energy
supplies, reduce our dependence on imported oil and eliminates
the ethanol penalty which unfairly discriminates against Ohio
and other States in the allocation of Federal gas tax dollars.
Chairman Tauzin. Thank you very much, Governor.
What is your relationship to the ex-President?
Governor Taft. Great grandfather.
Chairman Tauzin. I wanted to express the appreciation of
the people of Louisiana because it was he who appointed one of
our native sons and a great person in Louisiana history, Chief
Justice Edward Douglas White, to the Supreme Court and named
him Chief Justice. So we have a debt to your family.
Governor Taft. Thank you so much, Mr. Chairman.
[The prepared statement of Hon. Bob Taft follows:]
Prepared Statement of Hon. Bob Taft, Governor of Ohio
Mr. Chairman, members of the committee, thank you for this
opportunity to testify. It is my hope that what happened on August 14th
will awaken us all to the urgency of creating a modern, well
coordinated system for the transmission of electricity.
The unprecedented blackout that occurred posed severe threats to
public health and safety and to the economy of Ohio, other states and
provinces, and two nations. Although we will not know for some time the
exact sequence of events that gave rise to the blackout, this incident
revealed serious shortcomings in the transmission of electricity that
could well create a real calamity in the future if not addressed.
The blackout underscores our deep dependence on our energy
infrastructure and the vulnerability of that system. The consequences
go far beyond the personal inconvenience of lights, refrigerators or
air conditioning.
In Cleveland, the down-stream impacts lead to a near catastrophic
failure of the city's water system, leaving tens-of-thousands in the
metro area without safe drinking water and rendering beaches unsafe for
days due to sewage contamination.
The interruption of business activity resulted in the loss of
millions of dollars of economic activity that will not be fully
recouped through private insurance and state or federal programs. One
major Ohio company lost steel making capacity for more than a week
because of the damage from the blackout.
Above all, the blackout shook the confidence of our citizens in a
system that most take for granted. We must now do whatever it takes to
establish an improved system that people can rely on to power their
homes, their offices and their communities.
In an immediate effort to assist with an answer to the question of
``what happened?'', I have directed the Public Utilities Commission of
Ohio (PUCO) to begin a second by second account of events in Ohio that
took place leading up to and during the blackout. PUCO Chairman Alan
Schriber has been in contact with utilities and industry organizations
operating in Ohio, to gather timelines and other data critical to the
investigation. As a member of the joint U.S.-Canadian Task Force, he
will make that information available to support the bi-national
investigation.
From the standpoint of preventing a future potentially more serious
blackout, we support several initiatives that are underway or under
consideration. First, we urge the Congress to require mandatory
reliability standards for the transmission of electricity.
Voluntary standards have been proven inadequate. Responsibility for
enforcement of rigorous national standards for the safe and reliable
transmission of electricity should be given either to a federal agency
or state commissions operating to enforce federal standards. With
respect to rail lines and natural gas pipelines, there is already
precedent for state enforcement of national safety and reliability
standards in Ohio and other states.
Second, I strongly support FERC's proposal for an effective,
empowered regional system that places direction and control of
transmission with independent regional grid operators. The current
system is both fragmented and weak. For example, in Ohio oversight of
transmission is divided between two different organizations. We have
companies that are members of the Midwest ISO, others that belong to
PJM, and one company who's efforts to join a regional group has been
delayed by legal and technical disputes. In addition, the Midwest ISO
and PJM lack effective control over the transmission lines in Ohio they
are supposed to oversee and coordinate with lines outside Ohio.
Congress should act promptly to support FERC's plan for empowered,
all-inclusive regional transmission entities. A three-year delay, as
some are proposing, would impose an intolerable risk on the nation.
I have directed the Public Utilities Commission of Ohio to conduct
a review of whether Ohio's division among two separate regional
transmission organizations poses a serious risk to the reliability of
the delivery of power to customers in Ohio and, if warranted, provide
recommendations to bring utilities within the state under a single
transmission organization. Without strong federal action, such a result
may not be achievable.
In addition to mandatory reliability standards and strong, regional
transmission organizations, we must not overlook the importance of
investment in technology and infrastructure to upgrade the grid and its
operating systems. It has been reported by many sources that investment
in transmission has declined even as the burden on the lines has
increased.
After the blackout, a transmission system operator in Michigan
reported his company should have received a ``courtesy call'' from an
Ohio utility in regard to lines going out in Ohio. Quite frankly, in
the 21st Century, a system that relies on ``courtesy calls'' is clearly
outdated and must be modernized.
Therefore, I encourage the Congress and the FERC to provide
incentives and adequate return on investments to enable grid operators
to upgrade transmission systems including the deployment of advanced
technology to detect problems and provide rapid communication and
coordination.
Some may disagree that change is needed. Others will use the
blackout as a platform for concerns that are not relevant to the cause
of the outage or actions necessary to prevent new blackouts in the
future. I believe we must support the joint U.S.-Canadian Task Force as
it works to identify the causes of the blackout, adopt national
mandatory reliability standards and establish a strong regional
transmission system capable of upgrading technology, creating regional
wholesale markets and managing the power grid so our lights will stay
on.
I urge the Congress to enact the required reforms at the earliest
possible date as part of a comprehensive energy bill that addresses
also the need to expand domestic energy supplies, reduce our dependence
on imported oil and eliminates the ethanol penalty which unfairly
discriminates against Ohio and other states in the allocation of
federal gas tax dollars.
Chairman Tauzin. It is now our pleasure to welcome the
Honorable Jennifer Granholm the Governor of the great State of
Michigan for your testimony.
STATEMENT OF HON. JENNIFER GRANHOLM, GOVERNOR, STATE OF
MICHIGAN
Governor Granholm. Thank you, Mr. Chairman, and thank you
to all of the members of the committee, particularly the ones
from my home State, Representative Upton, Representative
Stupak, and of course our ranking member, Mr. Dingell.
I appreciate the chance to come and tell you what it was
like from the perspective of a Governor and from my
perspective, as well, what we might take a look at in terms of
remedying the problem.
In Michigan more than 6 million people were without power.
The entirety of the Detroit Edison system went down for the
first time in their history. And of course that left us without
recourse with respect to water. I am sitting next to the great
Mayor of the city of Detroit, Mayor Kilpatrick, whose water
system serves all of southeast Michigan, and without
electricity, people couldn't turn on the taps and see fresh
water coming out. And I know that the same was experienced in
Ohio. Clearly there are negative impacts on all of our States.
For us, the public dollars that we have requested
assistance on amount to $20 million that we have calculated so
far. Detroit Edison says that they suffered $35 million in
losses.
On the private side, at least 70 manufacturing plants went
down. The water system, as I mentioned, was also shut down. And
the total loss of earnings in Michigan, we believe will total
at least $1 billion once the numbers are aggregated.
So there were things that went right, however. There is a
silver lining to all of this. The real success, I think, is
that in Michigan we had no deaths. We had no severe injuries;
we had no spikes in crime. We had a spike in community, and
that was the good news that came out. This is a testament, I
think, to our first responders who sprang into action and to
the spirit of the great Michigan citizenry. It was the power of
the people that really held us together in those dark hours.
Our communities united instead of dividing. And as soon as
we knew--for example in southeast Michigan, as a Michiganian,
we come with a map attached to our persons--but in our
southeast Michigan region, which is this part here that all
went out, people from the west, when they learned that this
part of Michigan was without power, began to send bottled
water; and in fact over a million bottles of water were donated
from areas of the State that were completely unaffected. So it
was, I think, a good tribute to citizen patriotism.
The suspected cause of the blackout was one of the
questions that was asked when we were invited to testify. And
of course as you heard from Spencer Abraham and you will hear
from our public service commissioners, who will testify after
us, investigations are ongoing, and it is difficult to
speculate as to exactly the cause when it is still preliminary.
However, I think there may be and I think the investigation
might suggest three possible factors in this.
One, I do believe there may be an aspect of human error
involved, related to communications or lack thereof. And I
agree with Governor Taft that we shouldn't have to rely on
courtesy calls, absolutely. We should have a system that is
reliable enough that you don't have to rely on a courtesy call.
But in this case, of course, there was no courtesy call nor
was there a system in place. Neither Detroit Edison nor the
international transmission company which services the
transmission grid in Michigan received any indication prior to
the blackout, although it has been traced to about an hour and
5 minutes prior to the time that in Michigan the transmission
company found that there was a problem. So about an hour and 5
minutes before that, problems began to emerge on the grid and
yet nothing happened.
In the best of all possible worlds, we would have a command
and control system where it would be clearly--notification
would be given to States, to connected grids, to connected
entities that a problem was occurring; and if power needed to
be offloaded, that would be the time to make that decision.
None of that was able to occur because it was too late by the
time the ITC, the International Transmission Company, which is
our transmission grid, was notified--or found it wasn't
notified--and saw the problem emerging on the system.
If our utilities had the ability to identify that a problem
was occurring either through the regional transmission
organization, or some other entity during that previous hour,
then this problem of cascading might have been prevented. So
the first problem or the first factor that might weigh into
this is the potential human error.
Second, obviously we had a power line failure. There were
reports that failure to adequately maintain some power lines in
the region might have contributed to the blackout. I am sure
that question is going to be covered extensively by other
witnesses.
And the third thing that is a factor, that may not be the
cause of the problem but is certainly a factor for the
discussion today, are the changes in the utility market. While
restructuring of electricity, which has occurred in Michigan,
did not cause the blackout, I think we have to explore whether
an evolving utility market might not have impacted the ability
to get responsibility out there for the power outage. In other
words, nobody was taking responsibility because there is nobody
we can point the finger to who is responsible for maintaining
reliability and enforcing it.
So Michigan has not fully deregulated like a number of
other States, but several years ago, we did make significant
changes in the ownership of our utility system and how power
was transmitted. There are a lot of positive results that came
from that. Wholesale electricity began to become competitive
and people could purchase that. More power plants were built,
more investment in the transmission grid and in the
transmission lines.
However, partial deregulation also had some impacts that
may dilute responsibility, and that is a problem. Power
companies sold off their transmission systems to separate
operators. Movement of power on the grid is now controlled less
directly by the power companies in Michigan and is much more
widely influenced by the power supply and demand in the region.
And the bottom line, of course, is that this contributes to a
system where no one, myself included, knows who is ultimately
responsible for ensuring reliability. That is an unacceptable
situation.
So the lessons that we learned are: First, increased
training and planning after September 11 meant that we were
able to respond. And you will hear from Mayor Kilpatrick, who I
am sure will underscore the great efforts he made in
responding; and two, the necessity of ensuring a safe and
reliable and efficient electric transmission system should be
critically apparent to all of us, and that is why we are here.
The State of Michigan certainly stands ready to help, but
the necessity of a Federal solution is evident. The third
question you asked, How can similar incidents in the future be
prevented, we need to pass immediate reliability standards. I
think we also need to pass a bill included in that requires
accountability.
If we can look at price stability, that would be a
marvelous thing. Something that incentivizes investment in the
power grid would also be, I think, a worthwhile exploration for
this committee. Perhaps investment tax credits. Perhaps an
enhanced return on investment, some have suggested, although
frankly 12.88 percent, or 13.88 if you are a member of an RTO,
is a good return on investment and should be enough to provide
incentive to invest in the grid.
And, of course, I think the biggest incentive is to develop
a regulatory framework that requires predictability, mitigates
investment risk and ensures enforcement of reliable standards.
So, as Governor, you know, I don't pretend to be an expert
in this, but I do know this: that our citizens, when they flip
the switch, they want the light to come on; when they get in an
elevator, they want to be able to know they will be able to get
off; when they turn on the tap water, they want to make sure
safe water emerges.
I appreciate the chance to come and share my thoughts with
you, and I am confident that if sane heads prevail, we can see
a quick resolution to this question of making sure we have got
reliable, enforceable standards. Thank you.
[The prepared statement of Hon. Jennifer Granholm follows:]
Prepared Statement of Hon. Jennifer Granholm, Governor, State of
Michigan
Mr. Chairman and members of the Committee, my name is Jennifer
Granholm and I am the Governor of the State of Michigan. I appreciate
the opportunity to appear before the Committee on Energy and Commerce
today to discuss the blackout that ripped across the Eastern United
States and Canada on August 14th, eventually hitting and stopping in my
State.
As this Committee has recognized, all of us need to ensure that
appropriate steps are taken to identify, address and correct the causes
of the blackout.
In Michigan, over 6 million people lost power. The entire utility
system of the Detroit Edison Company (DTE) was knocked out, leaving the
City of Detroit, and much of the southeast region of Michigan without
electricity and other essential services such as water and sewer.
Detroit Edison's officials have stated that this is the first time in
the company's history that the utility lost power to all its customers
at one time.
I must express how enormously proud I am of Michigan's citizens,
emergency responders, utility workers, and governmental employees who
responded in extraordinary ways to lessen the severity of the crisis
and restore the utility services as quickly and efficiently as
possible. Our emergency preparedness was tested and I am pleased to
report that Michigan's citizenry and emergency management system came
through with flying colors.
Despite the best efforts of the people of Michigan, the effects of
the blackout on individual residents, small businesses, and major
industrial electric users were very substantial. Although we are still
in the process of assessing the damage, we have an initial estimate of
direct cost of the emergency to state and local government of over $20
million dollars. In addition, we know that DTE suffered about $35
million in losses. Over 70 manufacturing companies in Michigan were
forced to shut down. Anderson Economic Group in Lansing, MI has
estimated that the total lost earnings in Michigan will reach the $1
billion mark once all of the numbers are totaled. Moreover, facilities
such as hospitals and nursing homes were left scrambling to provide
care to those who needed it. Streets were clogged with cars and gas
stations were largely shut down, which made it more difficult for
emergency responders to get to people in need.
We feel fortunate that despite the inconvenience, financial loss,
and disruption of people's lives caused by the blackout, there was no
loss of life. If we were to have a similar incident in the future, we
might not be so lucky. In short, we cannot afford to have this kind of
failure to our electric system happen again.
what were the specific factors and events leading up to, and
contributing to, the blackouts of august 14?
Michigan's Public Service Commission has launched an investigation
into the outage, as has the U.S. Department of Energy in conjunction
with our Canadian counterparts. I would like to thank Secretary Spencer
Abraham for appointing Mr. J. Peter Lark, the Chair of the Michigan
Public Service Commission, to this body. I can assure this Committee
and Secretary Abraham that Mr. Lark brings with him a wealth of
expertise that will serve both Michigan and the country very well.
Until we receive the results of the investigations, I am reluctant
to make pronouncements of what may have been the precise cause of the
outage. While we believe we know the sequence of events that resulted
in the power outage--power plants tripping off-line and transmission
lines going down in a fashion we are not used to seeing--we do not know
why those events occurred, and I believe we need to wait for the
investigations to be completed before we jump to conclusions.
Based on information provided by our utilities, transmission
companies, and by our preliminary examination of the situation, we do
know that there is a strong likelihood that the outage can be traced to
at least three potential factors. One potential factor is human error.
The transmission system that serves Detroit Edison's utility system,
International Transmission Company (ITC), as well as Detroit Edison
officials, have reported that they received no communications prior to
the blackout from the northern Ohio utility that has been identified as
the likely system where the troubles originated. ITC has traced the
timeline on actions that contributed to the blackout back to 1 hour and
5 minutes before it occurred. While ITC was able to develop and provide
this information to us after the blackout occurred, ITC and DTE tell us
they were unaware of any problem or any unusual activity on the grid
until 2 minutes before the blackout, when the power flowing from
Michigan to Ohio jumped by 2000 megawatts in 10 seconds. By this time,
ITC told us that the situation was at the ``point of no return.'' If
they had been informed during the previous hour that the system was
having problems, they may have been able to craft a contingency plan
for the energy demand and delivery, and avoid the cascading failure.
The second potential cause for the blackout cited in various
accounts is powerline failure, possibly due to inadequate maintenance.
Again, the extensive investigations currently underway will probably
give us a precise factor or set of factors and events that caused the
blackout. I also anticipate that the testimony provided by public
service commission chairs and by the transmission companies today will
give you greater insight into the precise series of events and
technical failures that occurred.
A third potential cause that needs to be explored is whether an
evolving utility market might have impacted the power outage. In 2000,
Michigan passed PA 141, a law whose main goal was to provide cheap,
reliable power for Michigan's industrial, commercial and residential
customers. It was touted as a law that would provide ``[c]hoice for
those who want it, and protection for those who don't.'' Whether you
believe this act was a positive or negative step for electricity in
Michigan it does not change the fact that this law completely altered
the way electricity was transmitted, distributed and sold in Michigan.
This legislation changed Michigan from a state with a fully regulated
utility system, to one with a restructured market. Michigan did not
fully deregulate like some other states, but Michigan did make
significant changes in ownership of the utility system and how power
was transmitted.
There were some positive results that came out of PA 141. More
power plants were built in Michigan which has helped us meet peak
demand in the summer months, and 2000 MW of new transmission lines were
constructed to transfer power in and out of the lower part of the
state. Both of these changes should have helped enhance the reliability
of the power supply.
However, PA 141 also resulted in power companies selling off their
transmission systems to separate operators. Before restructuring,
Michigan's two big utilities, DTE and Consumers Energy, shared a power
pool and were able to monitor and control production and movement of
power between each other and their customers in a centralized fashion.
Under PA 141, movement of power on the grid is now controlled less
directly by the power companies in Michigan and is much more widely
influenced by power supply and demand in the region.
In addition, under the guidance of the Federal Energy Regulatory
Commission (FERC), Michigan utilities chose to join a Regional
Transmission Organization (RTO). The RTO that Michigan utilities and
transmission companies generally joined was the Midwest Independent
System Operator (MISO). MISO is supposed to help control the movement
of power across the grid, and ensure that situations like the one that
happened on August 14 do not occur. But, participation in an RTO is not
mandated by the federal government, and there are no mandatory
reliability requirements that RTOs must follow. In the case of MISO,
some of Michigan's most critical partners--utility and transmission
companies in Northern Ohio and Illinois--did not join. The bottom line
is that this contributes to a system where no one, myself included,
knows who is ultimately responsible for ensuring reliability. That is
an unacceptable situation.
The average citizen will not care who is responsible or how exactly
they are held responsible. They simply want to know that when they get
on an elevator, they are going to be able to get off; when they flip a
light switch that light will come on; or when they turn on the tap safe
drinking water will flow.
which systems operated as designed and which systems failed?
Again, I am reluctant at this time to suggest what worked, what
didn't work, and why, until we receive the results of the
investigations. While we do know the westward flow of the cascading
blackout stopped in Michigan, we do not yet know why. I hope that
investigations by the Michigan Public Service Commission and the United
States Department of Energy shed light on what worked, what didn't, and
why, so that we develop a system capable of stopping any future
cascading blackouts.
what lessons were learned from the blackouts?
Two points stand out. First, our increased planning, training, and
coordination since the events of September 11, 2001 paid off
tremendously, even in a non-terrorism related contingency. We must
continue to be prepared, to be vigilant, and to give our first
responders every resource they need to protect our citizens in the
event of another unseen emergency. The real success of this blackout is
that Michigan had no deaths, severe injuries, or spikes in crime during
the time when the power was out. This is a testament to our first
responders who sprung into action, and to the sprit of the Michigan
citizenry. It was the power of the people of Michigan held us together
during our darkest hours.
Our communities united instead of dividing. As soon as we knew that
drinking water was needed in southeast Michigan, businesses around the
state offered up their stocks of water bottles. In two days, through
the generosity of Michigan businesses, over 1 million bottles of water
were delivered to the victims of the blackout in southeast Michigan.
During the early hours of the blackout, while the emergency
management team and I were working hard to learn what had happened and
what we needed to do, right outside my window civilians had taken to
the street to help direct traffic and ensure people got home safely.
Second, the necessity of maintaining a safe, reliable and efficient
electric transmission system should be critically apparent to all as a
result of this blackout. It is vital that we take all steps necessary
to avoid a repeat of the August 14 disruption. The State of Michigan
stands ready to help, but the physical and legal nature of the Nation's
transmission system requires a strong, coordinated federal solution.
how can similar incidents in the future be prevented?
Congress must respond swiftly to institute measures to stabilize
and protect our electrical transmission systems. By this I mean there
must be in place a system of mandatory standards and rules for the
reliable operation of the electricity grid. Congress should immediately
pass a stand-alone bill that will provide enforceable reliability
standards for the nation's transmission system. This could mean giving
more regulatory teeth to the North American Electric Reliability
Council (NERC) or to the Federal Energy Regulatory Commission (FERC).
It could also mean putting a higher priority on making RTO's work
effectively.
The security and reliability of the interstate electric
transmission system is unmistakably under the purview of the federal
government. Yet, FERC's Chairman has stated that ``right now, there is
no federal regulatory authority over reliability.'' I urge you to fix
this deficiency by passing legislation that requires enforceable
standards for the safe and reliable operation of the nation's power
grid.
While I believe that mandatory reliability standards should be
immediately enacted in stand alone legislation, there are clearly other
important goals that should be included in any overarching energy
legislation considered by Congress:
1. Require Accountability--The electrical system in this country must
include a system of accountability. We need to know who is
responsible for what, and there must be ways to enforce
accountability in the system.
2. Ensure Price Predictability and Stability--The system must provide a
level of stability and predictability of energy prices.
Clearly, steps need to be taken to strengthen consumer
protections in electricity pricing. Currently, federal rules do
not prevent unfair price gouging in wholesale electric sales,
and they do nothing to protect families and businesses in
Michigan or any other state and the retail prices they pay. No
family--not just those living on fixed or low incomes, although
they are particularly vulnerable--can budget for wildly
changing or perhaps even doubling or tripling of their home
energy bills. And as vulnerable as each family's budget can be,
small businesses can be put out of business by dramatic
increases in their electric bills. Energy costs are a large
expense of doing business for the local grocery store,
restaurant, or dry cleaner. How do they survive without stable
and fair prices for their electricity? Even our largest
manufacturers could lose business--could lose job--if energy
costs climb and they lose they are unable to compete and win
against foreign competitors.
3. Encourage Investment in the Power Grid--Finally, comprehensive
energy legislation must do more to ensure the national power
grid is capable of handling the energy needs of our country.
Whether that is additional power lines, or the development of
new technologies that allow for more efficient distribution of
power, it is clear that we need a transmission system that
provides an appropriate level of investment in improvement and
maintenance. A poorly maintained power grid is not only an
inconvenience to every family in the country--it is a threat to
our jobs. Losing power shuts down commerce. Some of our largest
manufacturing plants were shut down for days as a result of
this outage. It threatens our health and safety when we can't
provide electricity to guide traffic, illuminate roads and
sidewalks, or power our water supply systems. And it has a
continuing impact. An unreliable electric supply is a direct
impediment to attracting investment, and something that we all
will suffer the consequences of in the future.
As Governor, I do not set the rules for supplying electric power,
but I am the one who has to protect the peace when the power goes off.
A massive blackout has an even larger impact on public safety, from law
enforcement to medical services, from ground transportation to even
shutting down our airports. People will tell you that fixing this
problem in our transmission system is going to be expensive, but the
bottom line is we cannot afford to ignore this problem.
In conclusion, whether we learn that the causes were systemic or
human error, mechanical or electronic, an obvious starting point to
address the problem will be the passage of legislation to enact
mandatory and enforceable standards and rules for the safe and reliable
operation of the nation's transmission grid. I urge Congress to act
quickly to address these issues and meet the need that was so clearly
demonstrated on August 14, 2003.
Thank you for this opportunity to share these comments with you.
Chairman Tauzin. Thank you for your excellent testimony.
And I want to add something you said about the citizens across
Michigan.
The citizens in Michigan and Ohio have always been there
when we got hit with hurricanes. Fresh water flows in from
across the country. It is a beautiful example of, as you said,
citizen patriotism. Kids in my State gave up Christmas money
for construction of two fire engines to the people in New
York--Christmas money.
Those are good stories arising out of a crisis like this,
and there are always reasons to celebrate.
Now we welcome the Mayor of the great city of Detroit. I
want to tell something about Kwame that you may not know. He is
a son of one our colleagues, Ms. Carolyn Cheeks Kilpatrick, is
his mother.
I know she is as proud of you, as you are of her, Mayor. We
are proud of you, too. And welcome.
STATEMENT OF HON. KWAME M. KILPATRICK, MAYOR, CITY OF DETROIT
Mr. Kilpatrick. Thank you, Mr. Chairman, and I feel right
at home in Washington because my mommy is here; and I do
appreciate you and Ranking Member Dingell from my home State.
To the rest of the committee members, thank you for the
opportunity. On behalf of the citizens of the city of Detroit,
we see this as a privilege and an honor to come before this
body and talk to you about what happened in the city of
Detroit.
I am coming from a little different perspective. I am a
Mayor, and mayors we don't have time to deliberate those macro
issues. We have to respond immediately. We have to send out
those first responders. We talk to the person that rides the
bus, the person that drives the bus, and also the person that
builds the bus and fixes the bus. So we have all of those
different things at our fingertips.
The city of Detroit we boast as being the first city to
deliver our homeland security plan to Secretary Ridge. We
delivered our 10-point plan in April 2002. It focused on
improving day-to-day service and preparedness to help us
detect, prevent, and respond to terrorist attacks and any other
critical issues, be it a tornado or the largest blackout in the
history of this country.
We appointed a homeland security director. We established a
homeland security council made up of key public safety, public
health and other entities. We upgraded our emergency operations
center and updated the department emergency response plans
which formed the foundation for operations during the blackout.
On August 14, a massive power outage hit the northeastern
United States and parts of Canada. The power outage hit the
city of Detroit area about 4:17 p.m. When Enrico Fermi nuclear
power plant lost power and shut down. The city of Detroit lost
all power at 4:21 p.m. The impact: Transportation was
paralyzed, communications disrupted, and many people,
particularly senior citizens, were placed in potentially life-
threatening situations without basic necessary services from
food to water to oxygen that they needed to survive.
2.1 million people in Detroit lost power. Children suffered
greatly. A lot of children who had asthmatic problems suffered
because they couldn't get to the hospital.
Half of the Detroit water system, which serves about 4
million people, half of those people lost water completely.
About 25 percent of the customers had low pressure, similar to
New York. Part of our system is gravity fed, so the power
stations didn't necessarily affect the same.
Transportation systems shut down. Traffic was critically
impacted especially at the border. Detroit-Windsor Tunnel was
shut down, stranding numerous workers. About 27,000 people use
the tunnel daily. Many of these people that use the tunnel work
in our hospital system, so there was a shortage of nurses
throughout the hospital system at the same time.
Detroit Metro Airport remained opened, but had limited
operations. About 216 flights were canceled by Northwest
Airlines which is our hub carrier.
The Marathon Ashland refinery, which is in southwest
Detroit, suffered an explosion due to the outage. Residents had
to be immediately evacuated from that area, and many of our
police officers and fire fighters had to be called to that
site.
Most Detroit hospitals remained opened, but as I said,
Children's Hospital had to immediately let people, who could be
released, go to make room for all the children with asthma who
had to come there immediately.
Our homeland security director could not use his cell
phone. This disrupted communications between the city and the
Federal Department of Homeland Security. Some cell phone
manufacturers told us that this could be used as a backup form
of communications. This did not work because their cell towers
was down. This is important to note, because to get in touch
with Secretary Ridge and Homeland Security and the White House,
we had to go through our consultant in Maryland to get to us to
talk.
Despite all of these things that were happening, it was
calm in the city of Detroit. Our response to the blackout was
quick and efficient due in large part to all of those planning
initiatives that I told you about. The city responded
efficiently with the rapid mobilization of first responders. We
proved yet again that local first responders are the first in
and the last out during critical incidents.
Our local homeland security office served as a hub for
sharing critical information between city and Federal, State
and other entities. During the blackout, the council convened
as a problem-solving team. The emergency operations center in
the city of Detroit was up within 45 minutes of the blackout.
The Detroit police officers were at every major intersection
within 20 minutes of the blackout. Our EMS operators handled
about 576 calls. It is the most in the city's history, and we
responded to those 576 calls, most of which were respiratory
problems.
The entire police force was immediately placed on
mobilization alert 2, which means all police officers, all
police officers' vacations and furloughs were canceled and all
of them were brought in. We were in all force, working 12-hour
shifts with no one being able to leave.
The Detroit fire department mobilized as well, establishing
backup water sources throughout the city of Detroit. We even
used some of our recreation pools for backup water because the
fire hydrants weren't working. We mobilized another team to
specifically go to the high-rise apartments where senior
citizens lived throughout the city, and we immediately took
them water. Every single door in senior citizen housing was
knocked on and they were delivered food and things they needed.
Over 230,000 bottles of water were delivered to senior citizens
within the 36 hours including 1,200 gallon jugs of water.
And thanks to the Governor of our State, 500 ``water
buffaloes'' from the National Guard came from northern
Michigan. They went to our hospital systems immediately and
then to secured locations in the city of Detroit. So residents
that needed water could bring containers to these sites and
fill up.
Our public lighting department moved in quickly to get
backup generators on line within a few hours. All of our
precincts, 13 precincts--the city of Detroit building was up
and all of our public housing system was up with backup
generation within a few hours.
We moved quickly to get timely and accurate information to
the public. We had periodic radio interviews and press
briefings to make sure the calm would be there. We worked
closely with State and Federal authorities. I personally
briefed the White House on what was happening in the city of
Detroit. And also I personally talked with Secretary Ridge on
what was happening in the city of Detroit.
What lessons did we learn? City personnel worked tirelessly
to respond to the needs of the community in the event of an
emergency. We also learned that our efforts to prepare for
catastrophic emergency strengthened our ability to respond to
the blackout of 2003. All of that preparation, all of those
meetings that my department heads did not feel like coming to
actually did pay off.
However, despite our level of preparedness, we still have a
long way to go. 911 and 311 communications and other
information systems must remain operational and be able to
handle a dramatic increase in use during a critical event.
Communication among local, regional, State and Federal
officials is vital during catastrophic events. A comprehensive
notification process must be developed quickly. Locals should
be contacted even in the midst of a crisis that is regional or
national in scope; and communication with the public is vital
especially during power outages.
Next was the section on suspected causes of the blackout.
As Mayor, I don't believe that it is our duty. I am Cochair of
the U.S. Conference of Mayors' Borders and Security Task Force,
and as mayors it is our job to stay out of that debate at this
particular time and let you ponder that here in Washington. And
I believe that it is fitting that our Governors are taking a
stand in also weighing in on this macro conversation.
The need in the future for local governments is that local
governments need to be prepared to respond to future incidents.
Thus, we expose the vulnerability in our security systems and,
of course, in our energy systems in this country. We need to
recognize the uniqueness of those systems. What may be needed
in Chicago or L.A. may not be the same thing that is needed in
Detroit.
So whatever broad-based policy is being proposed, we would
love the opportunity to talk about the unique needs of our
city. While there is concern that homeland security dollars
will be funneled off to fill budget gaps, or any dollars coming
out of this institution, it is bad policy to fund--to say that
funding cannot be used for salaries of first responders or to
buy key equipment like backup generators, fire trucks or
communication or information technology. Key systems like 911
and other communication systems must have redundancy and
capacity to be used during critical incidents like the
blackout, and we cannot afford to politicize this issue.
Cities need direct funding from the Federal Government,
because once it goes to State governments, it typically becomes
a Republican or a Democratic issue. I am glad our Governor--the
safety and security of the American people cannot be
politicized.
And how much did the blackout cost? And this is my
conclusion. It cost us over $10 million. Detroit is still
tallying the overtime numbers and the hit on the general fund,
and those numbers we want to present to the committee at a
later time.
Thank you, Mr. Chairman and Ranking Member Dingell and
members of this committee.
[The prepared statement of Hon. Kwame M. Kilpatrick
follows:]
Prepared Statement of Hon. Kwame M. Kilpatrick, Mayor, City of Detroit
introduction
Good afternoon Mr. Chairman, Ranking Member Dingell and other
members of the Committee. Good afternoon and thank you for this
opportunity to participate in this critical hearing about the Blackout
of 2003.
At approximately 4:00 p.m. on August 14, 2003, a disturbance within
the Eastern Interconnection power grid began a rapid chain of events
that resulted in a massive power outage affecting a significant portion
of the Northeastern United States. This outage disrupted service in
eight states (and parts of Canada), forcing 50 million people to lose
electrical power.
The outage hit the Detroit area at approximately 4:17 p.m. That is
when the nearby Enrico Fermi Nuclear power plant lost power and shut
down. The City of Detroit lost all power shortly after that at around
4:21 p.m. The blackout paralyzed transportation, disrupted
communications and left many people--particularly senior housing
residents--in a potentially life-threatening situation and without
basic, necessary services. Four million customers of the Detroit Water
and Sewage Department (DWSD) lacked drinking water, because the power
outage shut down the pumps that delivered that water to homes and
businesses throughout the region. Power was restored to the Detroit
area on Saturday, August 16. However, even with the power restored, the
region was forced to endure the threat of rolling blackouts, and
residents were advised to boil-water until the following Wednesday to
ensure that the drinking water was safe for consumption.
Despite these difficult circumstances, the people of Detroit
remained calm and showed a true sense of community. There was no panic
in the streets and neighborhoods remained calm. Much of the credit goes
to the hard-working men and women who are employed by the city. These
personnel worked tirelessly to confront the endless stream of issues
and problems that arose within the city during the outage. These
personnel (using updated emergency response plans and other protocols
developed as part of the city's homeland security planning efforts)
were able to respond to the needs of Detroit's communities.
I have learned a number of lessons from the events of those several
days. The most important of which is that this experience serves as an
indicator that our efforts to be better organized and prepared to deal
with catastrophic emergencies has paid off and that our homeland
security planning has pointed the city in the right direction. However,
at the same time, this experience tells me that as a nation, we still
have a long way to go particularly in addressing core vulnerabilities
of critical infrastructure and in giving local governments the
resources they need to be ready to respond to critical incidents.
What were the specific events leading to the blackout?
As all of you are aware, a comprehensive investigation has begun
into the causes of the blackout. But, based on information that has
already been publicly disclosed, I am greatly troubled. I am troubled
that we still do not know why the outage occurred and why the
safeguards built into the system to specifically prevent such a large-
scale power outage failed to work. Even more disturbing is that this
power outage is but one of a number of events that have occurred this
summer that call into question the stability of our nation's critical
infrastructure.
On July 30, there was a major pipeline ruptured spilling
approximately 10,000 gallons of gasoline and causing a massive
disruption in fuel supplies within the State of Arizona. As a
result gas prices shot up not just in Arizona, but also across
the country.
On August 20, a computer failure caused by two viruses shut down the
entire CSX Transportation system and halted train service for
hours in 23 states.
Published reports also indicate that computer viruses disrupted New
York City's 3-1-1 system, forced the closing of the Maryland
Motor Vehicle Administration offices, shut down the check-in
system at Air Canada and wreaked havoc on an unclassified Navy-
Marine Corps intranet.
And, the nation is still dealing with the ramifications of the latest
``Sobig'' and ``Master'' computer viruses, which spread to more
than a million computers in a matter of days and disrupted
critical public and private sector information systems.
When all these events are viewed together, there is only one
conclusion--the nation's critical infrastructures remain at risk and
highly vulnerable to attack or failure due to system weaknesses. And
despite two years of discussion and debate over how best to protect the
nation's critical infrastructures, we have yet to take steps to assess
the vulnerability of the infrastructures and mitigate the risks caused
by those vulnerabilities.
Which systems operated as designed, and which systems failed?
When the outage hit Detroit, approximately 2.1 million people lost
power. Additionally, a number of key systems failed to operate
effectively. For example:
Four million Detroit Water and Sewage Department customers lost
water.
While the city's 9-1-1 telephone system remained operational, the
computer aided dispatch system used by the police and fire
departments failed to operate at full capacity.
The phone system used by the city government failed to operate.
Cellular phones used by a number of key public safety personnel
failed to operate, because a number of cellular carriers
experienced partial network outages. This is particularly
important because one of these cellular telephone companies
advertises that its systems present a feasible back up to
public safety radio systems. In this case, one of the phones
that failed to operate was the one used by Detroit's homeland
security director. The failure of this particular cellular
phone actually disrupted communications between the city and
the Department of Homeland Security. DHS finally had to resort
to going through our homeland security consultants in Maryland
in order to get in contact with us.
The blackout shut down transportation systems and critically impacted
traffic, especially at the border. The Detroit-Windsor tunnel
had to close, stranding some workers. 27,000 people use the
tunnel daily to cross the U.S.-Canadian border. Many of the
commuters staff our city's hospitals.
Detroit Metropolitan Airport remained open, but with very limited
operations. Northwest Airlines, the main carrier out of
Detroit, cancelled 216 flights.
The Marathon Ashland refinery, which is about 10 miles south of
Detroit, suffered a small explosion because of the outage, and
police had to evacuate hundreds of residents who lived within a
mile of the complex.
Though most Detroit hospitals remained fully operational, they had to
utilize back-up generators and keep hospital employees from
using computers to conserve energy. Elective surgeries were
canceled. And at Children's Hospital of Michigan, everyone who
could be discharged was sent home in order to make room for
about 30 children who developed aggravated asthma problems due
to the lack of air conditioning in their homes.
Despite all of these issues, I am proud to say that city personnel
were able to respond to and manage the consequences of the blackout
quickly and efficiently. As I said earlier, much of the credit goes to
the hard-working men and women employed by the City of Detroit. Credit
also goes to members of the community who were able to come together
and weather this crisis. However, much of the city's success in
managing this crisis was due to the procedures and protocols developed
through Detroit's homeland security planning efforts. In April 2002,
the city released its comprehensive homeland security strategy that
focused on strengthening the day-to-day preparedness of the city. Since
the release of that strategy, Detroit has taken a number of steps that
improved the city's ability to detect, prevent and respond to terrorist
attacks and other critical incidents. These efforts directly enhanced
the city's ability to confront the myriad of problems that faced the
city during the blackout. For example, the city:
appointed a homeland security director who during the blackout served
as a hub for the sharing of critical information between the
city and various federal, state and other public and private
entities;
established a Homeland Security Council comprised of key public
safety, public health and other city officials to coordinate
strategic planning and operational coordination before and
during critical incidents. (During the blackout, this group
convened immediately and served as a problem solving team,
working together to address the various consequences of the
outage);
upgraded our Emergency Operations Center which was activated and
served as a command and control center during the entire
blackout; and
updated our departmental emergency response plans and utilized those
plans as the foundation for operational activity during the
blackout. For example, police, fire and emergency personnel
were either dispatched to the streets or put on alert to handle
any potential emergencies. Additionally, three public schools
were converted to ``cooling centers'' for the elderly and
others in need of relief from the heat.
What were the lessons learned from this event?
Despite our level of preparedness, what we learned from the
blackout is that we still have a long way to go. The lessons learned
include the following:
When a catastrophic event occurs--whether it is a terrorist attack or
a power outage--local agencies are the first to respond and the
last to leave. In Detroit's case it was the fire and emergency
departments that handled a number of calls for service. It was
Detroit's police that patrolled the streets and kept the city
safe. And, it was Detroit's housing workers, along with labor
and business leaders, who checked on and delivered food to more
than 1,200 public housing and senior housing residents. Local
first responders handled this crisis.
The same information networks, communication systems and personnel
that cities depend on to provide day-to-day emergency and non-
emergency service are critical to effectively dealing with the
catastrophic events. 9-1-1, 3-1-1 and other communications/
information systems must not only remain operational during any
crisis, but also have the ability to handle a dramatic increase
in use.
Communication among local, regional, state and federal officials is
vital when an incident like this occurs. We still need to make
improvements in this regard.
There needs to be thought given to how local jurisdictions will be
notified that they are in the midst of a crisis that is
regional or even national in scope. In this case, the city
first learned that the outage was not simply a local problem
from the news media. A comprehensive notification process must
be developed quickly.
Communication with the public is also critical. The city placed a
high priority on getting accurate and timely information to the
public. Within minutes of the blackout occurring, the city was
communicating with the public via radio. I held four press
briefings during the course of the blackout, updating the
efforts to restore power, directing residents to cooling
centers and just generally keeping them informed. But,
obviously, as this was a power outage situation, communications
were limited to those who had access to cable television (which
was functioning), car radios or battery powered televisions and
radios. The City of Detroit is exploring alternative means of
communicating with the public (such as reverse 9-1-1 systems).
How can we avoid incidents like the blackout?
Although there was no horrific loss of life, the power outage
``like the attacks of 9/11--illustrate that there are still a number of
steps the nation must take as we seek to improve our emergency
preparedness.
First and foremost, we need to take aggressive steps to assess and
address the vulnerabilities to our nation's critical infrastructure
(Agriculture and food, water, public health, emergency services,
telecommunications, energy, transportation, banking and finance, etc.).
As a first step, the nation needs to complete a national threat and
vulnerability assessment that identifies vulnerabilities to key
systems. Then, we must systematically proceed to address the risks
posed by those vulnerabilities. As we approach the two-year anniversary
of 9/11, I am concerned that this task has not been completed.
In the meantime, local governments need to be prepared to respond
should there be future incidents like the blackout (whether caused by
mistake, disrepair or attack). Accordingly, local governments need to
be given homeland security funding directly and have the flexibility to
use those funds in a way that best meets the needs of that individual
city. The needs of Detroit are different from the needs of Los Angeles,
and prohibitions against using these funds to enhance a city's service
delivery infrastructure are misguided and counterproductive.
I understand that there are those in Washington who believe that if
unchecked, homeland security dollars will get funneled off to fill
other budget gaps. But to say that these dollars cannot be spent for
salaries for first responders, key equipment such as fire trucks, or
for the communication and information technology that comprises a
city's service delivery infrastructure is just bad policy. Homeland
security funds must be available for use by local governments to do
things like improve and strengthen their 9-1-1, non-emergency and
information systems. These systems must have the redundancy and
capacity necessary to be of use during critical events such as the
blackout.
Projected Costs
Costs to the city based upon the blackout events, are projected to
exceed 10 million dollars. We are still compiling this information and
hope to have a final number before long.
Conclusion
We have been told that this outage was not the result of a
terrorist attack. But, even if terrorism has been ruled out, we should
hardly take comfort in that fact. We have certainly revealed to the
world some of our vulnerabilities, and it is now time to demonstrate
that we are taking the necessary steps to assess the critical issues
and address any weaknesses so that we will be prepared in the event of
any future crisis.
Thank you.
Chairman Tauzin. Let me thank you all.
First of all, Mayor, obviously you mentioned this, and I
know, Governor Granholm, you mentioned this, as did Governor
Taft, the failure of communication in the system.
First of all, communication is on the grid. I think you are
right; we are beginning to sense there were human errors caused
by communication failures. And second, Mayor, you pointed out
the communication problems of the responders, of yourself,
trying to talk to the White House and get messages back and
forth.
Our committee also has jurisdiction on telecommunications,
so we are extremely interested in the telecommunication aspects
of these emergencies, these disasters, and how we can have
smarter utility systems, smarter highways, smarter telecom
grids; and second, how we can make sure these systems stay up
when disasters hit.
If you recall, on 9/11 cell phones tended to be the manner
in which people communicated in New York. On the other hand,
cell phones failed in your case and we need to understand what
it is that worked or didn't work.
I want to invite all of your attention to the fact that one
of your members, Chairman Cox of California, is chairman of the
Select Committee of Homeland Security, and if you have any
thoughts or suggestions that you want to refer to both him and
this committee, we would deeply appreciate any thoughts you
might have about what we at the Federal level might be thinking
about in terms of not only improving the communication in these
grids, but inadequacies in the communications backup systems
when things do go down. So I would invite your comments on that
now or later, in writing.
I want to thank you, Mayor, for that excellent summary of
the effects of the blackout.
People don't realize how much we depend upon electricity.
When we started this meeting, I mentioned how in New York
people couldn't open the locks on their apartment doors because
they are electrically controlled now. And the toilets wouldn't
flush. Imagine being in the airport all night long and all
those people stuck in facilities that would not flush. I heard
from friends of mine that were there that said it was just
awful. So, I mean, we don't think about all these consequences.
I heard people on several of the news channels saying, why
did the water system fail; this was an electricity problem. You
need electricity to drive the pumps and keep filtration systems
going.
We are learning more as we go along, and I want to thank
you for sharing some of those extraordinary, sort of on-the-
ground experiences that you went through and again congratulate
you on the way you handled it.
I forgot to mention, I am not sure you know it, but right
after Chief Justice Edward Douglas White completed his term, I
believe it was your ancestor again who took over his position
as chief justice by appointment of President Harding. Again, I
thank you for that.
What I would like each of you maybe to indicate to us is in
terms of--Mayor, I know you can't get into some of the macro
debates of what went wrong and how we have to fix them and more
on-the-spot responding to the problem, and hope we can fix it.
I understand there was a declaration of emergency, right,
so there is going to be some assistance in terms of some of the
damage that was done. But tell me, if you can, Governors, how
you two deal with this issue, because we are facing it in our
debate as we go into conference on the energy bill. You
Governors of States, obviously the State would like to have, as
you pointed out, Governor Taft, some authority to make sure
these systems work; and there ought to be some body you can
point to and count on for reliability purposes. But we are
facing a situation where more and more of these electric grids
become interstate, that they reach out--I think Texas is the
only one that has a complete grid within their State. Most
other States depend on other regions for electricity, other
States, and electricity crosses State lines now.
Siting of those transmission lines becomes an interstate
issue. And I know States have jealously guarded their rights to
make siting decisions. I had a Governor and I am not going to
say who it was, call me last week and ask me if I would support
a provision that would allow the Governors of our country to
veto any electric project, generation project, in their State
for any reason they wanted to. I said, Governor, that sounds
like an interesting proposition; would you also agree if you
vetoed energy production in your State that you would also
disconnect yourself from any interstate grid? You are going to
rely upon your neighbors exclusively and just have the right to
shut down any project in your State for any reason you want?
You have to understand, we have some conflicts here that
need to be worked out on a State and Federal level. Any
thoughts you have right now? I know you are coming at it from a
State perspective, and we have to look at it from a Federal,
national perspective. Somewhere in between we have to set up
systems where we can arbitrate and resolve--as the Secretary
said, doing nothing is not a good answer anymore. We have to
have better grids. We have to have site improvements. We have
to site generation facilities where they are needed.
How do we solve this, Governor?
Governor Taft. Electricity does not stop at the State line
and in Ohio we are a great crossroads for the transfer of power
from west to east from south to north, serving other areas. So
we strongly support a strong regional approach under the
supervision of Federal standards.
Now, in terms of enforcing mandatory standards on the
reliability of transmission lines, that could be done by the
Federal Government, or if you wish to delegate that to the
States to enforce those Federal standards, there are precedents
for that type of a Federal-State partnership in the area of
rail and natural gas lines and other areas.
With regard to the issue of siting, we support and my
chairman of Public Utilities Commission supports the section in
the current energy bill, the electricity title that proposes a
compromise under which, if the States wish to consider regional
interests and base their siting decision on what is best for
the region, then that would be acceptable, but have FERC as a
backstop to settle disputes. So we think that kind of a
compromise is something we can accept in Ohio.
Chairman Tauzin. How about you, Governor Granholm?
Governor Granholm. I think if we are asking for some
Federal accountability, there obviously has to be Federal
involvement with respect to siting, but I think the States
should get the first crack. I think it can be a cooperative
arrangement.
Clearly, the States know where the sensitivities are in
their States, but clearly the States have an incentive, as
well, to ensure a reliable transmission system. So whatever
period of time is a reasonable period of time that can be given
to the States first to get the first crack at siting, I think
that is appropriate; and then perhaps it could go back to the
Feds if for some reason that is not able to be obtained.
For State sovereignty reasons and for the ability of States
to determine their own landscape, if you will, the States
should get the first crack at it.
Chairman Tauzin. Let me describe what we have in the House
bill that is in conference. It basically says that in areas of
national significance, national corridors where States are
first given the opportunity for a year to settle the siting of
a transmission improvement, if they don't settle it, the
Federal Government, can step in and decide it; but it gives the
States first opportunity and only in those areas where the
national corridors of high density, if you will, movement of
electricity and bottlenecks.
Second, as a trade in our bill, we gave the States new
authorities in siting on Federal lands, which you don't
currently have, so you would have a role in Federal lands. Is
that a fair trade?
Governor Granholm. I am open to that as long as the time
period is a reasonable one in which the States can resolve
those siting issues first.
Chairman Tauzin. Governor, do you have a comment?
Governor Taft. I would also support that particular
approach.
Chairman Tauzin. Let me recognize Mr. Dingell,
distinguished ranking member of our committee, for a round of
questions.
Mr. Dingell. Mr. Chairman, I thank you.
I would like to extend my personal welcome to you, Governor
Taft, and to Governor Granholm. And, Mr. Mayor, we are always
delighted to see you. We have three distinguished public
servants down there who have given us good counsel. We thank
you, Governors and Mayor.
And I have no further questions.
Chairman Tauzin. Mr. Upton?
Mr. Upton. Thank you, Mr. Chairman. I would join the
accolades for the panel. But I always hold my hand like this.
And I want to thank my two Michiganders here. We call it the
``Big House.''
And, Governor Taft, we welcome you.
I just want to say, and I said in my opening statement a
few hours ago that I know, Governor, we appreciated your visit
to the west side of the State this last week for an extended
period of time; and I know, as I was home during the August
break, one of the visits I did was up in South Haven. And in
talking to some of the local power officials there, of course,
we had lost the Campbell plant, the coal-fired plant up in
Grand Haven, and we were really very close to losing the
Palisades nuclear plant because of the surge as it pulled out.
And literally the finger was at the button for the shutoff. And
had that happened, it would have likely gone right around the
horn.
As you know, one of the two reactors at the Cook nuclear
plant down in Bridgman, Michigan, further down is already out
for maintenance. But clearly this would have taken it all the
way across to more of the heartland of the Midwest in terms of
Chicago and all of the western part of the States. So in
addition to the Detroit area, we would have had a massive
economic problem. We appreciate your emergency declaration.
And I guess, to follow up on the Chairman's question with
regard to the RTOs, in the energy bill we passed last March, we
had a Barton amendment or a Barton provision which was a sense
of Congress urging that the utilities, in fact, join an RTO.
Governor Taft, you talked about it in your testimony. Governor
Granholm, you referenced it as well. It is not a mandatory
challenge though, it is just the sense of Congress that they
ought to be part of one.
One of the problems we see if that language sticks, and
certainly I would like to see it stick if not strengthened,
though we have problems with the Senate, is because we have so
many different power companies in my district and we have not
only Consumers Energy, but we also have American Electric
Power, American Electric Power headquartered in that Buckeye
town of Columbus, with a small C, but they operate one of the
facilities and obviously provide--used to be the old Indiana
and Michigan, but obviously they operate in at least three
States. And the question would be, which RTO are they going to
be part of and how do we manage this?
And those are some of the things we are grappling with as
we try to pursue and enact legislation that will, in fact,
prevent what happened on August 14 from ever happening again.
But in the interest of time, I would be interested in your
comments about the Barton provision and whether or not you
believe it ought to be strengthened, knowing full well that
some of the Governors in the western States don't appreciate
that at all. In fact, they are looking for language to relax
what we passed in the House.
Governor Granholm. This electric experiment over the past
few years has been, I think, a real opportunity for us to step
back and see what works and what doesn't work.
Clearly, electricity does not stop at the border of a
State, and so a regional approach seems to make some sense. The
problem is, when we have regionalized the transmission grid, we
have not mandated the enforcement, so I think those provisions
must be strengthened.
Our State public service commission has no authority to
mandate liability on the grid, on the transmission grid. Nobody
has a requirement; the system is voluntary, as you suggest.
That leaves nobody with anything. So we need to strengthen it
if we are going to proceed down this path and hold, A, an
entity responsible. Is it FERC? Is it NERC? Do they devolve it
to the RTOs? This is acronym heaven, I recognize, but I think
we have to make a decision about who is responsible.
Perhaps FERC or NERC does some sort of regional--but at
some point some entity must make those--that accountability
enforcement decision. And if they contract or if they have an
agreement with RTOs to do it, that is fine. I don't care about
the RTOs so much as the enforcement of reliability on the
electric system.
Mr. Upton. Governor Taft.
Governor Taft. I agree with Governor Granholm, someone has
to be in charge of our transmission system in this country or
we risk another calamity or another disaster of even greater
proportions.
This is a map of the existing RTOs and ISOs, and you can't
really see it very well, but it looks in some respects like a
patchwork quilt. You notice a big section of Ohio is not really
fully integrated into any RTO yet. The reason for that is that
AEP wants to join the PJM transmission organization, but it is
being prohibited from doing that by regulation in two States
that don't want it to join. They are making it impossible,
either by law or by the regulatory power, for them to join a
system. It would be excellent if an AEP was in that system.
Then you have the problem of what about the seam, the
border between PJM and Midwest. I know that the FERC is working
on trying to close that area off, develop partnerships, develop
greater coordination, develop operating agreements. That would
go a long step forward.
That would go a long step forward if we had an integrated
system, Midwest over to the east coast there for regional
transmission.
Mr. Upton. Thank you.
I know my time has expired. I yield back.
Chairman Tauzin. For the record, I want to point out,
Governor, that in the House-passed bill that is in conference
now is the mandatory authority given to NERC under the
supervision of FERC, very analogous to the authorities that the
National Association of Securities Dealers has to make
regulations under the SEC's power to enforce those regulations.
So we patterned it very closely under that. I would ask to you
look at it and see if you have any comments on it as we go
forward.
The Chair recognizes Mr. Brown from Ohio.
Mr. Brown. I thank the chairman; and I welcome Mayor
Kilpatrick, nice to see you; and Governor Granholm, nice to see
you. I especially welcome my friend and Governor, Bob Taft, and
thank you for the responsiveness you have provided to members
of our delegation, both sides of the aisle, in your frequent
visits here and what you do with us.
Governor Taft. Thank you.
Mr. Brown. Just one question of Governor Taft. Your
comments offered insight into the need for Congress to promote
not only modernization of America's bulk power system but also
the modernization of the wholesale electric marketplace. You
identified the enactment of mandatory reliability standards for
the industry as the first priority that we should pursue in
this Congress. I think most people agree with that. I certainly
do. You also spoke of a broader piece of legislation, a broader
energy bill, including things I also agree with, ethanol, clean
coal provisions, both of which are important for a lot of
reasons to our State.
Some of us are concerned that holding reliability
provisions hostage to something more, especially if those
something more are environmental issues, or something where
there is provisions about which there is more disagreement, and
I think the issue boils down and Congressional action really
boils down to two choices, and I would like to hear your
comments.
We can move quickly and bipartisanly, and it is--on
legislation to ensure reliability for the electric power grid,
or we can try to pass a significantly more comprehensive bill
that includes some of the--both some of the President's pet
projects, drilling in ANWR. You know how controversial that is.
Even our own Senate Republican Senate delegation, one is for
it, one is against it. Tax breaks for oil companies, many of
the other wish lists the President has for the oil industry.
What should we do?
Governor Taft. First of all, I want to thank you,
Congressman Brown, for your attention to this issue, for
attending the hearing, as well as Congressman Gillmor,
subcommittee chairman, and Congressman Strickland from Ohio. We
appreciate very much your focus on this issue which is so
important to the State of Ohio.
Clearly, an improved transmission system is very important,
but we are also, of course, facing high energy costs in other
areas in the State of Ohio. Gasoline prices right now are
spiking. We are concerned about the cost of natural gas in the
winter for heating our homes. We know that the Congress has
been working on an energy bill for a long, long time. We know
the issues are tough. I don't pretend to tell you how to do
your business. We have got enough problems just getting
agreement in the State of Ohio on what we are trying to do in
the State.
But I would really encourage all of you to try to do what
you can to enact, at the earliest possible date, a
comprehensive energy bill that deals with all of these issues.
And perhaps there is a way that you can use the impetus of what
happened on August 14 to build bridges and to make compromises
and make agreements that will get this country a strong energy
policy that addresses, among other issues, the important
challenge of improving our electrical transmission system in
this country.
Thank you.
Mr. Brown. Ms. Granholm.
Governor Granholm. I respectfully disagree. I think if you
have something you agree on, that you can enact in a bipartisan
fashion, just from our perspectives, we need a quick response.
And if you can get the other quickly, more power to you.
But something tells me that it might take a little bit
longer than that. So if you can get agreement on this area that
is so critical to our Nation's citizens, I urge you to do so in
the most expeditious of fashions.
Mr. Kilpatrick. You know, I didn't weigh in on this
discussion because of some cognitive misunderstanding. It was
more common sense. I need to stay out of this.
But I will weigh in on this point. I agree with our
Governor for a different reason. And going back to the mayor's
perspective, we are closest to people; and the quality of life
of people and citizens can't wait 2 or 3 years while this is
deliberated. We need quick resolution because the vulnerability
that has been exposed can also lead to some future security
problems as well if we don't close this gap.
Chairman Tauzin. Thank you, Mr. Brown.
I take a chairman's prerogative here just to point out to
all of you, however you may feel about the issue, Governor
Granholm, you said ``if you could do it quickly.'' I would ask
you all to ever try to pass a bill through the House and Senate
of the United States quickly, with Senators having the right to
hold up a bill without even knowing who they are. Under their
rules, they have a right to stop passage of a bill and attach
amendments onto it. They have no germaneness requirements on
the Senate. They can put an amendment dealing with something
across the globe on an energy bill with no restrictions on the
Senate side, and all of a sudden it gets Christmas-treed and
you end up with a mess in your hands. The notion of passing
something quickly, even something we think we have general
agreement on--believe me, there is still controversy over what
an electric title would look like--is not that easily
accomplished.
I just want to point out to you, this is the second
Congress, the House and Senate have both passed comprehensive
energy bills. We are in conference now. We are one vote away in
the House and the Senate, assuming we can reach those
compromises, give those give and takes, of getting a
comprehensive energy policy bill.
As much as I know you want to see this done quickly, this
may be our best chance to get it done in a long, long time. I
would just urge you to, if you can, help us do that in any way
you can. I thank you.
I want to yield to our colleague from the great State of
Ohio first, Chairman Gillmor. Paul.
Mr. Gillmor. Thank you very much, Mr. Chairman.
I want to welcome our Governor here. I don't have any
questions for them. I had the opportunity to meet with them
earlier. But I do agree with his comments on the desirability
of moving the comprehensive bill.
The issues related to electricity reliability are also
greatly affected by the other provisions of the bill. For
example, dealing with conservation affects the grid, global
energy supply. So it is real difficult, if you are really
concerned about reliability, to just isolate this one piece.
They are all related.
And I do want to welcome Governor Granholm, our neighbor of
the great State to the north, with whom we get along very well,
except for 1 day a year. I do want to, however, follow up a
couple of the points that you made for you to elaborate a bit.
But before I do that, I want to commend you, Mayor, for the
actions you took in Detroit.
You mentioned three items that you felt were contributing
factors,and one of those was the lack of maintenance of the
transmission system. I wonder if you would elaborate on that a
little more as to why you think that happened. Is the reason a
financial one in terms of the incentives to invest in the
system? Is it a technical problem? If you could just elaborate
a little more on why you think that happened and what can be
done to prevent it.
Governor Granholm. Clearly, we have to wait until the
outcome of the investigations that are being jointly conducted.
But I think, you know, as we say in the law res ipsa loquitur,
the thing speaks for itself. Clearly, there was a problem with
the lines. And since electricity seeks the path of least
resistance and the wires were not big enough, if you will, in
very simplistic terms to hold the voltage that was seeking to
go through it, there needs to be an investment in the system so
that does not occur again.
Now, what can that be? It is possible, certainly, that
Congress can provide some incentives to invest in the grid. As
I was mentioning during my remarks, I think that there is an
incentive which exists right now for the return on equity which
currently is--if they belong to an RTO, is 13.88 percent, which
is a good return. It gives enough confidence in investors that
they will be able to maximize their investment. So there is an
ability right now to invest.
I do think the best way to provide an incentive for
investment in the grid is to have a reliable and enforceable
standard that is enforced by an entity that is not just
voluntary; and that will be the--in my view, the hammer, the
carrot, the stick, however you want to frame it, to get that
transmission investment, which I think needs to happen.
But, again, I think you are going to see more, and those
who follow me will probably talk about this issue of
maintenance of those power lines.
Mr. Gillmor. Let me just ask you a little bit on one of the
other factors which you mentioned, which is human error, which
is a comment that we have heard from a number of people on the
panel and elsewhere. And recognizing we don't know the causes
but that you have instigated an investigation, in your
investigation, have you made any contact with a company or
companies or people who supposedly have made human error as to
what actually transpired, or is--are we all just dealing with
kind of hearsay here?
Governor Granholm. I would defer that question to Peter
Lark who will be following me, who heads up our public service
commission and is responsible for the investigation. I don't
want to repeat hearsay. I know generally what the impression
is, but, again, I didn't speak directly with somebody myself.
Mr. Gillmor. And the third factor which you mentioned,
which I am not going to ask you about because I am running out
of time, was the factor possibly that the Michigan law had some
effect in your view.
Governor Granholm. It had an effect on the inability to
determine who is responsible.
Mr. Gillmor. Thank you.
Chairman Tauzin. Thank you, Chairman Gillmor.
The Chair recognizes Mr. Stupak for a round of questions.
Mr. Stupak. Thank you, Mr. Chairman. Thank you, Governor
Taft, Governor Granholm, Mayor Kilpatrick, for coming today.
Governor Taft, has your State started an investigation as
to what happened? I know Michigan has.
Governor Taft. Yes, we have. In fact, sitting right behind
me is Allen Schriber, the Chair of our public utilities
commission, who is going to testify later today. I asked him to
prepare, based on Ohio information, a second-by-second account
of what transpired; and he is still working on that and will be
providing that of course to the public and also to the
binational commission task force.
Mr. Stupak. Leads me to my next question. The binational
commission--I had asked Secretary Abraham earlier whether the
meetings with this binational commission are going to be open
so there can be public input. Are there going to be public
hearings so we can see what is going on. Have any of you, the
Governors or mayor, have you been invited to participate in
this binational or Canadian-U.S. Task force? Have you been
invited to submit your comments or concerns and/or do you have
any reps on those task forces?
Governor Taft. Let me state for Ohio, and I think other
States as well, that Secretary Abraham has offered us, and I
believe other States, the opportunity to have one person that
we would appoint on each of the three subcommittees of the
tasks force. We have submitted our names to the task force.
Mr. Stupak. Okay. Same?
Governor Granholm. Same here.
Mr. Stupak. How about you, Mayor?
Mr. Kilpatrick. Cities have not been invited.
Mr. Stupak. Governors have.
The deregulation question--and, Governor Granholm, if I
may, I am looking at your testimony on page 6. You said: Before
restructuring or deregulation, Michigan's two big utilities,
DTE and Consumer's Energy, shared a power pool and were able to
monitor and control production and movement of power between
each other and their customers in a centralized fashion. Under
PA-141, movement of power on the grid is now controlled less
directly by the power companies in Michigan and is much more
widely influenced by power supply and demand in the region.
You go on and say that the bottom line is that this
contributes to a system where no one, myself included, knows
who is ultimately responsible for ensuring reliability, and
that is unacceptable.
Governor, I think Michigan deregulated, if you will, in
2000, before you were Governor. Do you have any idea how much
they spent on maintenance of their lines prior to deregulation
and what they spend now after deregulation?
Governor Granholm. I don't have those figures, Congressman.
But perhaps Peter Lark, who will be testifying after me, would.
Mr. Stupak. Okay. Governor Taft, Ohio has deregulated. They
have been deregulated for a while?
Governor Taft. We are in the process of phasing in
deregulation right now.
Mr. Stupak. Do you have any idea what the utility companies
would have spent for maintaining their lines and services
before deregulation and after?
Governor Taft. I don't have that information. Again, Allen
Schriber, the chairman of our commission, would be better
prepared to testify on that particular issue. But he has
indicated to me, in response to my questions, that there is no
indication that they were spending any more on transmission
lines before deregulation than after deregulation.
Before deregulation, they had to come and get a rate case
to get a rate increase. Those were far and few between. Often
many years between those. So the same pressures existed from
that standpoint before deregulation as might exist now.
Governor Granholm. Congressman, for those who may be
watching, of course in Michigan we went to this experiment of
partially deregulating. And before the law changed, the
distribution system, which are the wires to people's homes, the
transmission grid, which are those big A-frame objects you see
out there, and the generation, which are the power plants, were
all owned by one company. So it was easy to point at who is
responsible for investing and who is not.
This issue of investing in the lines is really a
distribution question. But the issue of investing in the
transmission grid, which I think is what you are looking at, is
one that is so difficult to penetrate, because that is the part
that partial deregulation has spun off elsewhere, and nobody is
enforcing that investment.
Mr. Stupak. Which leads me to my next question, because you
mentioned the enforcement and who is responsible. I cited
earlier for Secretary Abraham that NERC as we call it, North
American Electric Reliability Council, indicated in the year
2002, 97 planning standard violations, and 444 operating policy
violations. Who enforces them? NERC has no enforcement power.
What happens to these violations? Were the Governors ever
notified that in your States there may have been a violation?
What power do you have under deregulation to say to a utility
that is providing a service in your State, we have these
violations, repeated violations, how are you--how do you get to
enforce it? How do you get a remedy? How do you make sure
things are done properly in your State with this deregulation
or loosening of responsibility?
Governor Granholm. These are the perfect questions that you
are asking. Because those are exactly the questions that our
public service commission is asking. I know that when he gets
up here to testify he would say, well, we would assume that we
have the responsibility for enforcing. But they would be taken
to court by one of the transmission operators saying, no, you
don't have the ability to do that. So the question is, who
really does? You all need to provide the mechanism for that
enforcement and reliability to occur. Perfect questions.
Mr. Stupak. I think the Dingell bill would do it. Thank
you.
Chairman Tauzin. The Chair recognizes Mr. Rogers from the
great State of Michigan.
Mr. Rogers. Thank you, Mr. Chairman.
Governors, thank you very much for taking the time to be
here from busy schedules. Governor Taft, I want to thank you
and your fellow Ohioans for that action in the 1830's, that you
guys got Toledo and we got the Upper Peninsula and Bart Stupak,
and believe me, we got the better part of that deal. All day
long.
Governor Taft. Come and visit us.
Mr. Rogers. Actually, Congressman Gillmor just informed me
that there was apparently a casualty in that exchange, and a
mule was shot, which I didn't know until today. But we
certainly.
Governor Taft. Let's not revive these old conflicts.
Governor Granholm. Let's move forward.
Mr. Rogers. Thank you for the trade. Thanks, Bart, for
being part of the Michigan delegation.
Mr. Mayor, I want to thank you very, very much. You know,
the Big Apple gets lots of the credit in that turmoil. But you
did some pretty extraordinary things, and thank you, Governor
Granholm, for assisting in that. The Motor City was running,
too, in that blackout. Your outreach program was particularly
impressive when you went to the senior centers, and the amounts
of water that you were distributing throughout the city was
very, very impressive. My hat is off to you. Congratulations,
thanks for doing such a great job for the State of Michigan and
Detroiters. You are making us proud down here in Washington,
DC.
Governor, I hope you can help me understand on the 141
question, PA-141. So your sole concern is the ability to have
at least some oversight? You are not necessarily concerned that
it has to be in the State of Michigan, but at least some point
in the system there has to be a catch in the system for
oversight?
Governor Granholm. Right. I think that having it at the
FERC or through NERC is fine. It has to be an entity that is
responsible, though.
Mr. Rogers. I was encouraged to hear you say that you would
support at least some measure that fixes this problem, no
matter where it falls, and if we can do it quickly under the
energy bill that is in conference, fine with you. If you can do
it on a free-standing bill, fine with you, as long as it gets
to the President's desk. Do I understand you correctly?
Governor Granholm. We need the reliability standards
passed. I am not so interested in the other stuff. But the
reliability standards are what need to be passed in my opinion.
Mr. Rogers. Thank you. Thank you for taking the time to be
here. We know you are busy. And thank all of you for what you
are doing. Appreciate it.
Chairman Tauzin. The Chair now is ready to recognize
another Ohioan. Congressman Strickland is recognized for a
round of questions.
Mr. Strickland. Thank you, Mr. Chairman.
I also want to welcome my Governor. I am not sure exactly
why it is, but it just feels good to look out there and see the
Governor of Ohio and the Governor of Michigan sitting side by
side.
Governor Taft. That is a good thing.
Mr. Strickland. Well, you both represent the heartland of
our Nation.
I was sitting here listening to your comments, and I was
reflecting upon all of our opening statements and sort of
contrasting and comparing. And what you said, the two of you--
the three of you--said to us was understandable, it was
practical, it was doable; and maybe that is the difference
between a Governor and a legislator, I don't know. But I think
we can learn from what you have said to us; and if we would
follow your advice, perhaps we could solve this problem.
My dear chairman, someone that I respect a lot, made a
comment about the Senate rules and the fact that the Senate can
sort of muck things up and a single Senator can have so much
power and anonymously stop things from moving forward. I agree
with him that probably in the Senate individuals have too much
power.
But, Mr. Chairman, I would just like to say to you that I
think here in the House that I think that maybe individuals,
especially in the minority, have too little power. So maybe we
can modify both the Senate and the House Rules.
I say that for this reason. It is my firm belief that the
differences which separate us in an approach to a comprehensive
energy bill are so deep and so great that it is highly unlikely
that we will be able to deal with that kind of bill in the
short term. But we can agree on what you have said and what I
think nearly all of us believe needs to happen. So what we
need, I think, is a free-standing bill, the Dingell bill, which
will speak to the questions raised by Mr. Stupak and will go a
long way toward solving the problem that we are all here
discussing today. Then there will be other days and weeks,
months and perhaps years that we can spend arguing about ANWR
or a whole host of other issues. But I think the Dingell bill
is the bill that can solve the problem we are dealing with
today, and that is why I would hope that we would move on it
and try to solve this problem.
I want to thank you, all three of you. I think you have
given us words of wisdom today. We ought to listen to them.
Thank you so much.
Chairman Tauzin. The Chair thanks the gentleman.
Are there further requests on this side for questions? The
gentleman from Pennsylvania, Chairman Greenwood.
Mr. Greenwood. Thank you, Mr. Chairman. I will be brief and
don't need to use all of my time, but I wanted to address a
couple of the questions to Governor Granholm.
When I first read your testimony, it seemed that you were
in some way implicating the deregulation legislation. Rereading
it, you really aren't, because you have--there are many who
seem to want to point fingers in that direction. But what you
are acknowledging is that in fact it probably--the deregulation
was responsible for putting more power plants and more
transmission capability into your system.
And in rereading your testimony, it seems to me that your
real complaint here is not so much that reregulation may have
created vulnerabilities, but it is a question of
accountability, that your problem with it is that you are not
sure who is responsible and you are not really quite sure if
anyone is ultimately responsible. Could you clarify that?
Governor Granholm. Yes. The way it has played out is that
because of this diffuse responsibility that there has not been
this command and control situation that is necessary, causing a
communications breakdown. So there is sort of two potential
factors involved in that. One is, because of the way it has
played out--I am not saying that deregulation caused this. But
the way it has played out because of the lack of accountability
there is a contributing factor to a lack of communication that
occurred in this particular instance and therefore also a
problem with respect to who is responsible.
So both of those are factors. They are not the cause of the
problem. But I do think it is an important time to step back
and say, what works with this deregulated environment? What
doesn't work? And it may be time to take a look at the whole
array and say, what can--what worked before? What works now? Is
there a way to blend? Is there a way to make sure that we are
doing what works?
Mr. Greenwood. We probably need to wait until we have the
final answers on exactly what happened here before we do that.
Governor Granholm. Yes.
Mr. Greenwood. Why, in your opinion, is the Midwest
Independent Systems Operator, MISO--it seems to me that entity
was designed and created to provide the command and control and
to be responsible for the communications. Is it your early
assessment that it didn't handle that function well?
Governor Granholm. Well, under the current rules that
exist, there is not a mandatory requirement that they engage in
that command and control environment. These are the facts as I
know them: Two minutes before the power went down in Michigan,
our operator got word--our transmission operator got word that
it was going down. An hour and 5 minutes before the power went
down, the provider in Ohio and the MISO had information that
there was trouble. So there was a lot of time in there that
somebody could have been communicating this information.
Mr. Greenwood. So when you say ``got word,'' somebody
telephoned somebody? It was not an automated system?
Governor Granholm. I want Peter Lark to testify to this,
but it is my understanding that they--2 minutes before the
blackout occurred, our independent--our transmission company
saw that there was problems on the grid. It was not a formal
communication it is my understanding at this point.
Mr. Greenwood. Okay. Thank you, Mr. Chairman. I will yield
back the balance of my time.
Chairman Tauzin. The gentleman yields back.
Further requests from this side?
Mr. Engel first. I will get you, Mr. Rush.
Mr. Engel. Thank you, Mr. Chairman.
A lot of the questions have been asked. I wanted to just
follow up with Mr. Greenwood's question. I was also going to
ask a question about deregulation.
I was on a panel on the BBC when this happened, and one of
the so-called experts on the panel said that the root of this
all stemmed from deregulation, and therefore if we didn't have
the deregulation this wouldn't have happened. And when he was
questioned about what do you do, do you go back to
reregulation, he said, you can't put the genie back in the
bottle, but one of the things that he would do is break the
country into smaller regions.
I am wondering if any of you have any opinions on that. The
country now, as you know, is broken down into four regions; and
he was saying perhaps 12 or more would make it easier to ensure
that a blackout of this magnitude wouldn't happen again.
Governor Taft. Well, we have an interconnected grid today
pretty much across the country, Congressman; and we had that
before deregulation as well. So there would have been the
potential for the cascading effect even before deregulation
would have occurred.
But I really believe that we have to move toward larger
regional wholesale markets for electricity and larger regional
oversight direction and control of the transmission grid if we
are going to make rederegulation work, if we are going to make
our system work. You have to have an efficient wholesale
market, you have to have good standards of reliability, and you
have to have the ability to coordinate what happens in systems
over a larger geographical area to prevent this cascading
national--almost a nationwide blackout that occurred.
So, you know, I would be in favor of somewhat larger
regional transmission organizations, No. 1, and, No. 2, a
Federal authority with the ability to require that, require
participation in that and also to require certain types of
coordination, integration or even partnership agreements among
regional transmission organizations so that you deal with the
issue of what happens across the seam, between one region and
another.
Mr. Engel. What about reregulating to some degree?
Obviously, you cannot go back to the way it was. But in looking
at the totality of what happened, would you move in that
direction? And, if so, where and how?
Governor Taft. Well, in a sense that is what Governor
Granholm and I are proposing here with regard to transmission.
As she was pointing out, at one time it was all under a State's
jurisdiction. Now we have transmission under nobody's
jurisdiction, and we are saying that needs--someone needs to be
in charge of transmission. And, you know, we think that needs
to be at the Federal level. If you are talking about the
enforcement of standards, you know, that could be delegated to
each State to enforce national standards with regard to
reliability. But someone needs to be in charge. Someone has to
be accountable for the development, the maintenance, you know,
the reliability of that national transmission grid on which we
are all so dependent today.
Mr. Engel. Governor Granholm, I assume that you essentially
agree with Governor Taft?
Governor Granholm. I agree that the transmission
reliability now is--the system is completely unacceptable. It
needs to be monitored and enforced in an entity responsible for
it. So, yes, with respect to the transmission grid, yes. With
respect to some stability over pricing, I think that is very
important for our residents.
I do think the wholesale market has been effective; and the
bigger players who want to be able to compete on the open
market to purchase large amounts, it has worked well. So that
is why I think we have got to get out of the sort of
ideological hats that everyone always tends to wear and just
figure out what works and what doesn't work.
The system is a natural monopoly. And when you have a
natural monopoly with respect to the transmission grid and the
distribution lines then it is difficult to have full
competition. So what is it that we create that protects our
citizens, that makes sure that there is reliable electricity?
That is what we have got to come and take a look at.
Mr. Engel. Thank you.
Mayor Kilpatrick, I want to talk to you about a novel
program that Detroit is dealing with to get more power into the
city. As you know, I represent parts of New York City and the
suburbs, and that is replacing copper transmission lines with
superconductors. I had an amendment which would do that here in
the Congress. I just wanted to ask you how is that going?
Because I know you have been a pioneer in that. I really
commend you for that. How much is it expected to cost and how
much will it save? Also, how have you dealt with the siting
issue?
Mr. Kilpatrick. First of all, let me say, Congressman, that
the program is going fairly well. When we came into office 2
years ago, we actually had to look at it all over again, and we
actually put an RFP out for a study to answer those questions.
Because when I walked in the office, no one could tell me
how much it would save or how much it was going to cost us when
it was completed. Now we know. We are moving forward with the
project and the program. It actually picks up on the
conversation before and deregulation, of which I was a member
of the Michigan legislature at the time when this happened.
Municipalities like the city of Detroit actually got a
chance to compete in the commercial part of power and also
generate our own power, which in this crisis our power in the
city of Detroit from our public lighting department came back
up before our commercial utility, and we were able to light up
a whole lot of things and actually get generation from there.
So it helped us.
But we believe that moving to this conductor will help us
push out more power but also enable us to compete in the market
for generating power and selling power to different entities
inside our city.
Mr. Engel. Thank you. I want to say that the fine job you
are doing is surpassed only by the fine job your Congressperson
is doing. I think you are related a little bit.
Mr. Kilpatrick. I can never be as good as she is.
Chairman Tauzin. Just remember that.
The gentleman's time has expired.
Let me point out for the record the only deregulation
occurred up here. States have done some deregulation. The only
thing we have done up here in 1992 with EPAC was to deregulate
the wholesale markets. And EIA has reported, since 1992 when
that occurred, wholesale electric rates have dropped 20 percent
to consumers, wholesale rates. In addition, they have reported
that is about a $13 billion savings to America's consumers. So
we have got to keep that in perspective as we move forward.
I might mention also, to keep the record honest, that was
also the period of time in which combined cycle natural gas
technology was developed, which also helped reduce those rates.
But the question is, did one inspire the other or not? All we
know is that rates have gone down since that act in 1992.
Mr. Shimkus.
Mr. Shimkus. Thank you, Mr. Chairman; and I appreciate you
all being here and for your patience, Governors and Mayor. I
really appreciate your testimony, especially initially on the
siting issue. I think maybe we perceive that as more of a
contentious issue that what you all have presented.
Governor Granholm. I don't know that we both speak for all
of the Governors on this either.
Mr. Shimkus. You are 2 of 50. That is what we need to hear.
Because that is we have--the perception is that we have tried
to address the siting issue somewhat.
I would also encourage you to talk to some of the
independently owned units and ask them why they are not
investing in the transmission grid. For the sake you say--there
is the Federal Power Act says 13.8 percent return. There has
got to be a reason.
Otherwise--so I would suggest that it might be siting
issues, legal cases, environmental lawsuits, Federal lands
issues, maybe crossing or not crossing. There is a reason why
they are not investing, if it was just an ROE of 13.8 percent,
and I think we should look at that. That is what we are trying
to address here.
In our bill, we have the FERC that would set a rate, in
essence doing what the State public utility commission did
years ago. Now we do it based on the whole regional aspect of
expanding a transmission grid.
So I think your testimony was very, very helpful and very,
very appreciative. Because, as much as reliability is
important, you can set all of the reliability standards that
you want, but if you have a bottleneck on the transmission
grid, you have got a problem. You have got a problem if the
system goes down, and you have a problem for market
manipulation. So the more pathways we have, the more that the
market can work, and we get the return on the wholesale power,
and we are in a much better position.
Mayor, I know you are about ready to return. I apologize.
But the question quickly for you is--and you said it in your
testimony--how much did the movement to homeland security and
the re-evaluation of your needs help in the power outage? Was
it helpful? Did it help you focus? Or did you have plans in
place? Can you just briefly talk through whether--because I
think if it was helpful it is a story that probably hasn't been
told yet.
Chairman Tauzin. If I can interrupt, the mayor is only
going to be here for about 5 or 6 minutes. I know Bobby wants
to get in. He has to catch a plane. I don't know about the
Governors. I want to try to honor your commitment to us. So if
you will respond, and we will try to get Bobby Rush in and
perhaps anyone else.
Mr. Kilpatrick. Thank you.
Congressman, it not only helped us focus, it prepared us.
Those every 2 week meetings in setting up that homeland
security council, it actually worked.
After the power went out, to dispatch and go to our
mobilization alert 2 for our police department automatically
going out to these intersections, major intersections in the
city of Detroit and directing traffic, we didn't have gridlock.
Getting our emergency operations center up in 45 minutes, with
all of the phones plugged in and able to communicate with
water, fire, police, human services, housing, it actually did
work.
So the setup, as we originally planned for--whether it was
a tornado or it was a weapon of mass destruction, we would
react and respond the same, to go to the emergency operations
center and really command the event. And we did that. We
reported to the citizens of the city who didn't have power, but
they had radios. So many of them were in cars or were listening
to battery-powered radios, and actually the angst went down
immediately, which also helped us in every other aspect of the
city of Detroit, from crime to everything else.
So, I mean, yes, the preparedness, the emergency
preparedness, homeland security, moving over, getting that one
person in place, that is the homeland security director,
Derrick Miller, who is our chief administration officer, all of
those people showed up at the EOC and really took control of
the situation.
Mr. Shimkus. Thank you.
Chairman Tauzin. Bobby Rush.
Mr. Rush. Thank you, Mr. Chairman.
Mr. Mayor, I want to welcome you; and I wanted to welcome
the other witnesses here, both of the Governors. But I am
particularly concerned about the effect on local government and
local governments' responsibility.
Because, as you have so articulately illustrated, you know,
really you--the mayors and the members of the city council, you
are all on the front line. We are all here in Washington, we
can have these hearings, but you have got to produce. You know,
when the lights go out, the electricity goes out, you have got
to produce; and I think that your role should be expanded.
Can you inform us, what role do you think the local
governments could play or should play in helping to develop
this whole overall national policy as it relates to the
upgrading of our grid systems and other ancillary issues? Can
you explain to us what role would you like to play in this
whole effort?
Mr. Kilpatrick. Well, thanks, Congressman, for the
question. And earlier Congressman Stupak asked the question
also, have we been invited to this binational task force on
this issue? I think that the macro issues involved with
transmission and RTOs should be discussed between Governors and
the Federal Government. Where I believe mayors should come in
is how that impacts cities to doing other things, because all
of the different discussions on energy don't surround the
blackout. They also surround the future economy of this
country, whether it is the hydrogen economy, which is the next
wave of the manufacturing industry.
In a city like Detroit what is unique about us is the
largest corporation in the world, General Motors, sits on our
border, which is tremendously dependent on this committee
making good decisions. DaimlerChrysler, Ford, they are all
housed in our city, and therefore they are all a big part of
our economy.
When the Windsor border shut down in Detroit after 9/11, we
had 2-mile backups at the border, which essentially stopped the
American economy. So mayors at some point, after we really
decide whether we are going to have reliability or whether we
are going to have an energy bill, or all the issues that need
to be worked out in this arena, we need to sit at the table and
talk about also how we move the economic issues involved in
energy forward, as well, for our citizens' sake.
Also dollars that flow from whatever bill that comes out of
this place, we really need to be involved in getting those
dollars first.
I love our Governor. She was there every step of the way
throughout this entire crisis. But there is no State fire
department, there are no State EMS workers. There aren't any
State police--we have State police officers, but they are on
the roads giving tickets; they are not really going into those
homes, really doing the things that our local police officers
have done.
We really need to be involved in conversations also when
this shuts down, how do mayors respond? What is our role? How
do the dollars follow the problem?
Mr. Rush. In my city, Chicago, our local utility company,
you have to, I think it is every 10 years or so, enter into a
franchise agreement in order to use the public ways for
transmission lines, things like that. And we in Chicago have
not used it as well as we should. But we are beginning to
really use that as an opportunity to make sure that there are
certain reliability issues that are addressed within that
franchise agreement.
Do you all have the same kind of situation in Detroit?
Mr. Kilpatrick. No. In Detroit--actually we do. We have our
Detroit Public Lighting Department. We do have an agreement
with our major utility on some transmission issues. I don't
know the exact--if it is similar to Chicago's agreement. But we
do, yes, use some of the transmission lines from our major
utility. We do have agreements, rights-of-way, all of those
types of things.
Mr. Rush. Is there any intercity or intracity collaboration
among mayors, as it relates to--especially concerning the
blackout, in terms of what can be done at the local level?
Mr. Kilpatrick. Not from the blackouts. But, what I can say
is that Mayor Daley has called together the Great Lakes mayors
and asked us to come together surrounding policy to create some
type of interstate working relationship. I went to the first
meeting we just had, and we are going to try to establish--now,
since the blackout we have a lot to talk about, but before it
was surrounding the water, you know, the sharing of information
on manufacturing and the manufacturing industry, how to further
diversify the economy with the service industry, a lot of our
key cities in the Midwest of the United States.
Mr. Rush. I want to take a moment. I know that a couple of
years ago we had a blackout in Chicago. And although there
weren't a lot of Federal or national concerns about it--or the
issue wasn't really discussed on a national level, rather--I
have to give credit to the mayor, because he used the bully
pulpit of the mayor's office to make sure that public utility
company in Chicago, that it invested money into the
transmission system there in the inner city of Chicago.
And he castigated them. He was very hard, hard-nosed on
them, and they basically responded somewhat. And so I know the
role that mayors can play in regards to making sure that we
avoid this kind of problem in the future.
Mr. Kilpatrick. For 30 or 40 years in the city of Detroit
the conversation has been whether we need to be in the electric
business at all, in the utility business at all.
The conversation after the blackout is, how do we continue
to work together to make sure all of the lights are on.
So I believe the beginning of that type of relationship
that you just spoke of may be able to happen now.
Mr. Rush. Thank you very much.
Chairman Tauzin. Thank you.
Any further questions for the Governors and Mayor? Before
we dismiss you, I wanted to mention something that I know that
you have all read of the star quality of Governor Granholm, we
have read a lot about it.
But the real star at this table is the Mayor of Detroit. A
recent report: Actor-Comedian Chris Rock directed and stars in
a movie entitled Head of State which opens this weekend. And he
did it with Detroit Mayor Kwame Kilpatrick in mind. The film is
about a struggling young black alderman from Washington, DC,
who goes from being an unknown to running a successful campaign
to be the next President of the United States.
Here is a quote from Chris Rock. ``I just saw Kwame 1 day
on C-SPAN with that big earring, not realizing that he was the
Mayor of Detroit,'' Rock, 37, says. ``I didn't know who he was.
I thought that he was a baseball player's agent or something.
Then I started listening to him. What he was saying was right
on.'' He used the mayor as his model for his character in the
new movie just starting out.
So you not only have been a good example of a mayor who
reacted in a crisis, you are star quality, man.
Mr. Green. Mr. Chairman, was that a compliment from Chris
Rock?
Mr. Kilpatrick. Well, he made about $100 million on that
movie, so I guess it was a compliment.
Chairman Tauzin. We appreciate all of you being here and
would deeply appreciate your continuing to stay in touch with
us as we finalize this work. Obviously your perspectives are
extraordinarily valuable to us. We thank you for the time you
have shared with us.
Any other members' final comments?
Mr. Green.
Mr. Green. Mr. Chairman, I don't have any questions of the
Mayor if me needs to leave. But I had a couple of questions for
the Governors. I will be real brief, because I think there are
questions to both of you.
One, I believe that the electricity crisis is broader than
just reliability. I think it is the reliability of humans and
our operating equipment. I think we have had a problem with
generating capacity. And we saw what happened in California
with transmission problems and pipeline problems; and it just
seems like our infrastructure is not what we expect it to be.
To build a natural gas-fired generating plant, you have to
have a new pipeline or a new transmission line from there to
the end; and the siting is an issue, I think.
Governor Taft, as demand for electricity continues to grow,
what are the plans in Ohio, particularly for encouraging new
power generation development and the associated infrastructure
that will support it?
Governor Taft. We have a very favorable climate for
construction, approval, siting of new power plants, new
generating facilities. We have had a great number sited in Ohio
in recent years, perhaps in part in response to deregulation.
Most of these are gas-fired, but our capacity has expanded
very, very significantly.
Of course, we are all struggling with this transmission
issue that we are talking about today. That is the fundamental
problem in the system today.
Mr. Green. So transmission you would identify. It is not
necessarily the generation of the power, but transmission of
the power?
Governor Taft. Generation of power is very adequate in Ohio
today.
Mr. Green. Okay.
Governor Granholm, I understand from your testimony you
inherited recently an electricity restructuring effort from a
previous Governor. And do you have any plans for considering
encouragement of new generation development and also the
associated infrastructure, for example, the problem with
transmissions?
Governor Granholm. I think that every Governor is taking a
look at their generation capacity and making sure that you have
got enough. But we, like other States, purchase on the open
market as well. So that--you know, we want to see enough
generation for us to be able to either buy or generate
ourselves.
We will be taking a look at that. And my chairman of the
Public Service Commission will be testifying immediately after
me. You can ask that question of him, too. We know there are
several proposals to be able to get new plants up in Michigan.
Mr. Green. Thank you, Mr. Chairman.
Chairman Tauzin. Thank you, Mr. Green.
I think that concludes this section of our hearing. I again
deeply appreciate your attendance. And, again, stay in touch
with us. We will try and keep in touch with you.
We have a distinguished panel yet to be heard from. The
panel includes the man that you have heard a great deal about,
as we are going to discuss the jurisdiction of the FERC. That
will be the Chairman of the FERC itself, Mr. Patrick Wood, and
representatives of State PUCs, as well as some utilities.
We invite all of our guests to take chairs again as we say
good-bye to Governor Taft and Governor Granholm with our
thanks.
The committee will please come back to order as we ask our
guests to take seats. We invite our next panel to come forward
and welcome them.
Let me introduce, first of all, the panel to you: The
Honorable Patrick Wood, Chairman of the Federal Energy
Regulatory Commission, who has been a frequent visitor to our
committee room. We thank you again, Pat, for your steadfastness
in working with us on these technical and very difficult
issues.
We also have with us the Honorable Dr. Alan Schriber,
Chairman of the Ohio Public Utilities Commission; the Honorable
Peter Lark, Chairman of the Michigan Public Service Commission;
and the Honorable William Flynn, Chairman of the New York State
Public Service Commission.
By the way, as a caveat, let me mention that we had invited
Governor Pataki and Mayor Bloomberg, who were scheduled to
come, and then commitments interrupted, and they could not be
with us today. But we certainly appreciate their efforts to be
with us today.
And, Mr. Flynn, thank you for coming.
Also Michael Gent, President of the North American Electric
Reliability Council, a man who we have heard and seen on
television recently--Michael; Mr. Brantley Eldridge, the
Executive Manager of the East Central Area Reliability Council;
and Charles Durkin, the Chairman of the Northeast Power
Coordinating Council of New York, New York.
We certainly want to welcome you all. And again under our
rules, you will have 5 minutes to tell us the most important
things you have to tell us. Your written testimony is a part of
our record, so please don't read it to us, but summarize your
statement to us and highlight the important parts of that
statement for us in 5 minutes.
Chairman Wood, we welcome you first. And, again, thank you
for your attendance again.
STATEMENTS OF HON. PAT WOOD III, CHAIRMAN, FEDERAL ENERGY
REGULATORY COMMISSION; HON. ALAN R. SCHRIBER, CHAIRMAN, OHIO
PUBLIC UTILITIES COMMISSION; HON. J. PETER LARK, CHAIRMAN,
MICHIGAN PUBLIC SERVICE COMMISSION; HON. WILLIAM M. FLYNN,
CHAIRMAN, NEW YORK STATE PUBLIC SERVICE COMMISSION; MICHEHL R.
GENT, PRESIDENT, NORTH AMERICAN ELECTRIC RELIABILITY COUNCIL;
BRANT H. ELDRIDGE, EXECUTIVE MANAGER, EAST CENTRAL AREA
RELIABILITY COUNCIL; AND CHARLES J. DURKIN, JR., CHAIRMAN,
NORTHEAST POWER COORDINATING COUNCIL
Mr. Wood. Thank you, Mr. Chairman. I will actually go from
my statement to respond to some of the questions that have been
raised.
Chairman Tauzin. Let me interrupt you, first. I want to
thank you for a couple of things.
I noticed you were here all day attending in the audience,
listening to our other presenters and gathering information
along with us. I don't know that other heads of Federal
agencies would do that. I deeply appreciate that. I hope the
American public understands how deeply and seriously you take
your job and how tough it is. We thank you, Pat.
Mr. Wood. Thank you. It is part of my job. I appreciate
being thanked for it, anyway.
As the Secretary testified early this morning, we are a
very active participant in the joint U.S.-Canadian task force
on reviewing the events of August 14 and 15.
I do think, just in answering an earlier question, that is
a very efficient and effective way for the Federal Government
to combine its resources and move forward. It was the same
method that was used in past recent blackouts since the
Department has been formed. I think it is a good template for
going forward.
If there are, however, issues that are within the FERC
jurisdiction that require further activity from our agency,
whether they be enforcement or other kinds of inquiries, we
will of course proceed as an independent agency should.
It is not clear what happened on 8/14, and I will not
prejudge this event until the engineers and all other technical
experts have looked at it and explain to me exactly what
happened, as an engineer. We have a lot of competent
professionals working together.
But, I should say that this is not the first region-wide
blackout that we have ever had in this country. In 1996, while
I was a Texas regulator, citizens in El Paso, Texas, were shut
off when a line went down in Oregon, and 13 Western States were
blacked out for the better part of a day. We have tended to
forget about that.
In 1999, I think, Mr. Chairman, you said about half a
million citizens in your home State and mine were both blacked
out during the summer for some rolling blackouts. Of course, we
know about the blackouts that happened in 2000 and 2001 in
California for other reasons. But, these are a series of events
from which I think we have learned, and I think give us a
legitimate base from which to start, that may or may not be
germane to what happened 3 weeks ago.
But, I think we would be derelict in our duty--I would be--
if I did not inform the committee the fact that we have been
here before, and that as an agency, and collectively as a
country, we have been working to address these problems in a
thoughtful way.
One key issue in these previous blackouts and perhaps in
this one is investment in infrastructure--specifically
regional, not local, infrastructure. What sort of actions have
we taken to learn from the past? In repeating my strong support
for regional transmission organizations in my testimony, I
stand on long-standing bipartisan policy of our commission,
which I should say predates the current administration, that
well-structured RTOs will help foster a more robust and
competitive power market and help contribute to a reliable grid
operation for each region. Both of these are in the best
interests of customers in every region of the country.
The power industry needs an air traffic controller. I know
all of you have flown in and out of airports recently, as I
have. In the past, when electricity was chiefly a local
commodity, the second-by-second balance of supply and demand
was done by the local utility in about 150 to 200 small
regions, small islands in the country.
The New York City blackout of 1965 spurred the
interconnectivity of local utilities into more regionally
connected reliability groups, and thus was born NERC, that Mr.
Gent heads today. Advances in technology and ultimately legal
changes by this body in 1992 broadened the interconnectivity of
the grid for greater commerce among utilities and increasingly
nonutility providers of power.
So, now with this greater regional scope and diversity of
suppliers, who should be the air traffic controller making sure
that supply and demand stays in balance, i.e., that the system
stays reliable?
Almost all agree that it should be someone independent of
commercial interests and competent to do the job. That power
traffic controller must be accountable and have the ability and
the money to address the problems that exist on the system.
And, as to how many there should be, so we don't have these
communications issues that have been raised, I think less is
better. When we had separate air traffic controllers for every
utility, we had 140 little islands in the country, which is
hard to personally coordinate certainly by phone, for a product
that moves at the speed of light.
So, when we consolidate or bring together these little
islands, we call them control areas, and we put them under a
regional traffic controller, who can ensure efficient dispatch
and a highly reliable system, provided that it has a modern
communications system and real-time controls to keep the supply
and demand in balance.
I don't care what we call these air traffic controllers,
EROs, RTOs, whatever. They are and will be regulated entities,
but we just need the Congress to tell us, or someone
appropriate, to make this happen and we will do it. We are and
will be accountable to you and to the public for this activity.
We await congressional guidance on these broader policy issues,
but I should say we are moving forward to fully understand the
events of August 14, and I am personally committed to going to
wherever the facts may lead.
Thank you, Mr. Chairman.
[The prepared statement of Hon. Pat Wood III follows:]
Prepared Statement of Hon. Pat Wood, III, Chairman, Federal Energy
Regulatory Commission
i. introduction and summary
The blackout experienced in the Midwest and Northeast on August 14,
2003 serves as a stark reminder of the importance of electricity to our
lives, our economy and our national security. All of us have a
responsibility to do what we can to prevent a repeat of such a
blackout.
The United States-Canada Joint Task Force, with assistance from the
Federal Energy Regulatory Commission (FERC or the Commission) and
others, is working to identify the cause of the blackout and the steps
needed to prevent similar events in the future. Analysis of the
blackout is ongoing, and it is too early to know what caused the
blackout or why the blackout cascaded through eight states and parts of
Canada.
ii. steps taken by ferc in response to the august 14 blackout
FERC staff based in Washington, D.C., and at the Midwest
Independent System Operator (MISO) in Carmel, Indiana, have monitored
blackout-related developments from the first minutes.
Directly after the blackout began, FERC staff members went to the
U.S. Department of Energy (DOE) to coordinate our monitoring with DOE's
emergency response team. At about the same time, FERC staff in the MISO
control room began monitoring and communicating the events around the
clock until most of the power was restored.
During this time, FERC staff was involved in nearly 20 North
American Electric Reliability Council (NERC) telephone conference calls
with the reliability coordinators, assessing the situation. These calls
also involved close coordination with our Canadian counterparts. Also,
the on-site staff monitored other calls between MISO, its control
areas, transmission-owning members, and other Independent System
Operators (ISOs) and Regional Transmission Organizations (RTOs) in
their joint efforts to manage the grid during restoration.
In Washington, D.C., FERC staff immediately mobilized to provide
relevant information to the Commissioners and to others, including DOE.
These communications included, for example, data on output by
generating facilities and markets adjacent to the blackout area. FERC
also gathered information from ISO and RTO market monitors for each of
the ISOs or RTOs in the affected regions. Our staff closely tracked the
markets to make sure that no one took advantage of the situation to
manipulate the energy markets. Working with the market monitor for the
New York Independent System Operator (NYISO), we tracked the New York
market especially closely during the period when that market was coming
back on line and during the first unusually hot days later in the week
of August 18.
Currently, members of the Commission's technical staff are
assisting the United States-Canada Joint Task Force on its
investigation of the blackout. The Commission will contribute resources
to this effort as needed to ensure a thorough and timely investigation.
iii. background
A. The Current State of the Electricity Transmission Grid
The Nation's transmission grid is an extremely complex machine. In
its entirety, it includes over 150,000 miles of lines, crossing the
boundaries of utilities and states, and connecting to Canada and
Mexico. The total national grid delivers power from more than 850,000
megawatts of generation facilities. The grid is operated at about 130
round-the-clock control centers, some large and others small. The large
number of these control centers derives from the historical development
of utility-franchised territories.
When a generating facility or transmission line fails, the effects
sometimes are not just local. Instead, a problem may have widespread
effects and must be addressed by multiple control centers. The utility
staff at these centers must quickly share information and coordinate
their efforts to isolate or end the problem. Given the speed at which a
problem can spread across the grid, coordinating an appropriate and
timely response can be extremely difficult without modern technology.
In recent years, the use of the grid has expanded significantly.
The growth of our economy, and its increasing reliance on electricity,
is the principal driver. Greater competition among power sources
(wholesale power competition) has also increased use of the grid. The
grid was built originally to interconnect neighboring utilities and to
allow them to share resources when necessary but is now used as a
``superhighway'' for broader, regional trading.
Transmission capital investments and maintenance expenditures have
steadily declined in recent years. In the decade spanning 1988 to 1997,
transmission investment declined by 0.8 percent annually and
maintenance expenditures decreased by 3.3 percent annually.
(Maintenance activities include such items as tree-trimming, substation
equipment repairs, and cable replacements, all of which affect
reliability). Power demand increased by 2.4 percent annually during
this same time period.
Finally, perhaps even more important than adding transmission
capacity, is improving the tools available to control center staff for
operating the grid. One example is installing state-of-the-art digital
switches, which would allow operators to monitor and control
electricity flows more precisely than the mechanical switches used in
some areas. Installing additional monitoring and metering equipment can
help operators better monitor the grid, detect problems and take
quicker remedial action. Improved communication equipment can help
control centers coordinate efforts more quickly. The level of
investment in these technologies has been varied.
B. Today's Regulatory Framework
Currently, there is no direct federal authority or responsibility
for the reliability of the transmission grid. The Federal Power Act
(FPA) contains only limited authorities on reliability.
For example, under FPA section 202(c), whenever DOE determines that
an ``emergency exists by reason of a sudden increase in the demand for
electric energy, or a shortage of electric energy or of facilities for
the generation or transmission of electric energy . . . or other
causes,'' it has authority to order ``temporary connections of
facilities and such generation, delivery, interchange or transmission
of electric energy as in its judgment will best meet the emergency and
serve the public interest.''
Under FPA sections 205 and 206, the Commission must ensure that all
rates, terms and conditions of jurisdictional service (including
``practices'' affecting such services) are just, reasonable and not
unduly discriminatory or preferential. These sections generally have
been construed as governing the commercial aspects of service, instead
of reliability aspects. However, there is no bright line between
``commercial practices'' and ``reliability practices.''
The explicit authorities Congress has granted the Commission in the
area of reliability are very limited. For example, under FPA section
207, if the Commission finds, upon complaint by a State commission,
that ``any interstate service of any public utility is inadequate or
insufficient, the Commission shall determine the proper, adequate or
sufficient service to be furnished,'' and fix the same by order, rule
or regulation. The Commission cannot exercise this authority except
upon complaint by a State commission.
The Public Utility Regulatory Policies Act of 1978 (PURPA) also
provides limited authority on reliability. Under PURPA section 209(b),
DOE, in consultation with the Commission, may ask the reliability
councils or other persons (including federal agencies) to examine and
report on reliability issues. Under PURPA section 209(c), DOE, in
consultation with the Commission, and after public comment may
recommend reliability standards to the electric utility industry,
including standards with respect to equipment, operating procedures and
training of personnel.
Since the electric industry began, reliability has been primarily
the responsibility of the customer's local utility. Depending on state
law, utilities may be accountable to state utility commissions or other
local regulators for reliable service. Typically, the local utility
keeps statistics on distribution system interruptions in various
neighborhoods, inspects the transmission system rights-of-way for
unsafe tree growth near power lines, and sets requirements for
``reserve'' generation capability to cover unexpected demand growth and
unplanned outages of power plants. Many state and local regulators
exercise the authority of eminent domain and have siting authority for
new generation, transmission, and distribution facilities.
In 1965, President Johnson directed FERC's predecessor, the Federal
Power Commission (FPC), to investigate and report on the Northeast
power failure. In its report, the FPC stated:
When the Federal Power Act was passed in 1935, no specific
provision was made for jurisdiction over reliability of service
for bulk power supply from interstate grids, the focus of the
Act being rather on accounting and rate regulation. Presumably
the reason was that service reliability was regarded as a
problem for the states. Insofar as service by distribution
systems is concerned this is still valid, but the enormous
development of interstate power networks in the last thirty
years requires a reevaluation of the governmental
responsibility for continuity of the service supplied by them,
since it is impossible for a single state effectively to
regulate the service from an interstate pool or grid.
Northeast Power Failure, A Report to the President by the Federal Power
Commission, p. 45 (Dec. 6, 1965).
In response to the 1965 power failure, the industry formed NERC.
NERC is a voluntary membership organization that sets rules primarily
for transmission security in the lower 48 states, almost all of
southern Canada, and the northern part of the Baja peninsula in Mexico.
More detailed rules are prescribed by ten regional reliability
councils, which are affiliated with NERC. However, neither NERC nor the
ten regional reliability councils have the ability to enforce these
rules. And these rules are administered on a day-to-day basis at over
130 utility control areas.
iv. next steps
Regardless of the actual cause of this blackout, the event, like
earlier blackouts, has demonstrated that our electrical system operates
regionally, without regard to political borders. Electrical problems
that start in one state (or country) can profoundly affect people
elsewhere. Preventing region-wide disruptions of electrical service
requires regional coordination and planning, as to both the system's
day-to-day operation and its longer-term infrastructure needs.
Currently, the Congress has before it, in conference, energy
legislation which could address a number of issues that have arisen in
the debate in the last few weeks over reliability in our wholesale
power markets.
First, both the House and Senate bills going to conference provide
for mandatory reliability rules established and enforced by a
reliability organization subject to Commission oversight. Many
observers, including NERC and most of the industry itself, have
concluded that a system of mandatory reliability rules is needed to
maintain the security of our Nation's transmission system. I agree.
That leads to the question of what entity will be in charge, on a
day-to-day basis, of administering the mandatory reliability rules that
are developed by the independent reliability authority. In Order No.
2000, the Commission identified the benefits of large, independent
regional entities, or RTOs, in operating the grid. Such entities would
improve reliability because they have a broader perspective on
electrical operations than individual utilities. Further, unlike
utilities that own both generation and transmission, RTOs are
independent of market participants and, therefore, lack a financial
incentive to use the transmission grid to benefit their own wholesale
sales.
In the six years since the Commission ordered open access
transmission in Order No. 888, the electricity industry has made some
progress toward the establishment of RTOs, entities that combine roles
relating to reliability, infrastructure planning, commercial open
access and maintenance of long-term supply/demand. H.R. 6 endorses this
effort in a ``Sense of the Congress'' provision. Congress can direct
this effort to be completed.
While coordinated regional planning and dispatch are sensible steps
to take, we still need to attract capital to transmission investment. I
understand that there is significant interest in investing in this
industry already; however, to the extent the Commission needs to adopt
rate incentives for transmission or other investment to alleviate
congestion on the grid, including new transmission technologies, we
should do so. While the Commission has recently taken steps in this
direction, action by Congress on this issue, and in repealing the
Public Utility Holding Company Act, can provide greater certainty to
investors and thus encourage quicker, appropriate investments in grid
improvements. The provisions in H.R. 6 would provide legal certainty to
the Commission's recent efforts.
In addition to ratemaking incentives from the Commission, Congress
can also provide economic incentives for transmission development.
Changing the accelerated depreciation from 20 years to 15 years for
electric transmission assets, as in H.R. 6, is an appropriate way to
provide such incentives. Similarly, Congress can provide tax neutrality
for utilities wishing to transfer transmission assets to RTOs.
To the extent that lack of assured cost recovery is the impediment
to grid improvements, regional tariffs administered by RTOs are an
appropriate and well-understood vehicle to recover these costs. The
Commission has accepted different regional approaches to pricing for
transmission upgrades, but the important step is to have a well-defined
pricing policy in place.
Getting infrastructure planned and paid for are two of the three
key steps for transmission expansion. The third step is permitting.
States have an exclusive role in granting eminent domain and right-of-
way to utilities on non-federal lands. Under current law, a
transmission expansion that crosses state lines generally must be
approved by each state through which it passes. Regardless of the rate
incentives for investment in new interstate transmission, I suspect
that little progress will be made until there is a rational and timely
method for builders of necessary transmission lines to receive siting
approvals. Providing FERC (or another appropriate entity) with backstop
transmission siting authority for certain backbone transmission lines,
in the event a state or local entity does not have authority to act or
does not act in a timely manner, may address this important concern.
H.R. 6 contains such a provision.
v. conclusion
I look forward to visiting further with the Committee as the US-
Canada Task Force continues to get to the bottom of what happened
before, during and after the Blackout on August 14, 2003. Thank you.
Chairman Tauzin. Thank you, Mr. Chairman. We deeply
appreciate it.
We will now turn to the honorable Dr. Alan Schriber, who is
Chairman of the Ohio Public Utilities Commission from Columbus,
Ohio; and we are deeply interested in your thoughts on this
crisis.
STATEMENT OF ALAN R. SCHRIBER
Mr. Schriber. Thank you, Mr. Chairman.
Also, I will note that I am chairman of the Ohio Power
Siting Board board, too, which will play into this also.
On August 14 at 4 o'clock I got back to my office after
having a workout to relieve the stress of the day. By 5
o'clock, I was ready to go back. But I think the stress that I
experienced was far less than that experienced by people in
other parts of the State and, of course, the eastern part of
the United States, as was so aptly articulated by the Governors
whom we have already heard from. What happened on that day is
something that I am looking forward to being a part of the team
to determine, as I have been appointed to the binational task
force.
I just want to make several points that are in my
testimony.
First of all, I am prepared to argue that the outage that
we experienced is not a result of deregulation, and I would be
glad to elaborate on that later.
Second, I don't believe that we have anything remotely
approaching a Third World grid, as has been articulated. This
is not unlike the interstate highway system where you have
great spots along the road and then sometimes it breaks down,
sometimes it gets old and needs replacement, sometimes we get
population shifts which cause demand for highway space, if you
will, to increase in other areas, which is similar to that
which we find on the electric transmission system.
I think reliability is an absolute necessity that has to be
addressed right away. I think among the very many press calls I
got immediately following the incident, a lot of questions
were, well, who is responsible for the transmission system? I
said, you know, at the State level, we are responsible, for we
regulate, we have terms and conditions, prices, all kinds of
issues related to and standards related to the distribution
system. But when it came to the transmission system, well, I
knew that the FERC regulates the rates, transmission rates,
prices and what have you along the system, but I had no idea,
it had not occurred to me, of who is it that regulates
transmission. As it turns out, it is generally accepted utility
practices that regulate, that takes care of the transmission
issues.
Now, does that mean a transmission line is 12 feet above a
tree or 14 feet above a tree? I don't know, and I don't know
which would be the most appropriate. As I said, we do the
distribution; we don't do the transmission. I am strongly in
support and would urge you to move forward with either NERC or
FERC promulgating rules that do and standards that do address
transmission, the physical properties of the transmission
systems.
As far as enforcement goes, I would propose that
consideration be given to States. Currently in Ohio and many
other States, we enforce Federal rules. For example, the
Department of Transportation, we enforce their rules with
respect to natural gas pipeline safety, with respect to
hazardous material transportation, rail, rail crossings. It
could seem a logical leap, therefore, to be able to have the
opportunity to enforce rules with respect to transmission
lines, rules that are promulgated again by a Federal authority.
Furthermore, I think that a comprehensive law is important
to the following extent: I really believe we need to unshackle
the Federal Energy Regulatory Commission. I think they need to
be able--I think they must be able to move forward in order to
establish their mission of a large regional footprint, if you
will, a large regional transmission system. I think it relates
to reliability.
I think that a large regional transmission system best
allocates resources, and as an economist I like to talk about
the allocation of resources. If you have multifragmented
transmission systems, each one would be throwing money, if you
will, at that part of the system, of its own system that needs
fixing, if you will, in contrast to a regional approach which
will allocate dollars most optimally toward where they need to
be.
Furthermore, I think that attracts capital more readily. I
think those investments that are made in the reliability of the
transmission system, the more capital will be attracted at more
favorable rates. So the more optimal the application of money,
the more capital will be attracted.
Also, I think there are a lot of pricing issues and pricing
strategies that can be dealt with better in a super-regional
transmission system.
I know there is a lot of push-back on the transmission
systems, the regional transmission systems. There is no
compelling reason that we have to address all regions
simultaneously. Pat and his group can clearly carve out a
region and say, we are going to do X region, the Eastern
region, the Midwest, the Mid-Atlantic, the Northeast first. If
at some point in time the West wants to buy in, we can do that
or the Southwest or whatever, we can do that. But I think it is
absolutely essential that in order to have a successful and
appropriate reliability system that we have been talking about
that we must have a governance that singularly has oversight
over a large regional organization in terms of its operation.
At this point, I will stop. I appreciate the opportunity to
testify and would look forward to some questions.
[The prepared statement of Alan R. Schriber follows:]
Prepared Statement of Alan R. Schriber, Chairman, Public Utilities
Commission of Ohio
Mr. Chairman, Members of the Committee, my name is Alan R.
Schriber. I am the Chairman of the Public Utilities Commission of Ohio
and the Ohio Power Siting Board and am here today to answer what
questions can be answered to date and express our views. I appreciate
the opportunity to appear before the House Energy and Commerce
Committee. I respectfully request that the written statement submitted
under my name on behalf of the Public Utilities Commission of Ohio be
included in today's hearing record as if fully read.
The Public Utilities Commission of Ohio is charged with the duty of
regulating the retail rates and services of electric, gas, water and
telephone utilities operating within our jurisdiction. Specifically,
with respect to electricity, we regulate the distribution of power but
not transmission. Additionally, since Ohio has restructured the
industry, we no longer regulate generation. We have the obligation
under State law to assure the establishment and maintenance of such
energy utility services as may be required by the public convenience
and necessity, and to ensure that such services are provided at rates
and conditions which are just, reasonable and nondiscriminatory for all
consumers.
You have asked what factors and events led up to the blackouts that
occurred on August 14. I am personally honored to be able to serve on
the U.S.-Canada Joint Task Force on the Power Outage, and I am certain
causes will be identified as expeditiously as possible. Following that,
recommendations as to remedial action will undoubtedly be forthcoming.
To this point, many of the events that took place in Ohio have been
documented via timelines. However, the entire picture of what happened
August 14th will take serious analysis well beyond the scope of Ohio
alone. Its effect upon the citizens and businesses of Ohio were
documented for you earlier by Governor Taft. In the aftermath, the
Governor charged my Commission with the challenge of scrutinizing
events as they occurred in Ohio and will complement those of the U.S.-
Canada Joint Task Force.
As we pursue our quest for causes and solutions to the outage, I
think that we will find that the electrical system in this nation is by
no means ``third world''. It is a very complex, interconnected system
that has in fact worked very effectively. The system operated as it was
designed to operate on that unusual day in August. Lines tripped,
plants tripped, and systems were isolated to prevent further blackouts,
just as they were designed to perform. If the systems had not operated
as above, not only would the loss of power been far more extensive, but
severe damage would have resulted to our infrastructure.
While it is reassuring that the situation was ``contained'' to some
degree, and that remarkable restorations were implemented, we cannot
ignore the fact that weaknesses exist that call for repair. Much like
the Interstate highway system, traffic patterns on the wires have
changed, congestion has increased, and wires need fixing. Above all, we
learned how vulnerable we are, and how dependent we are on our electric
system.
You will undoubtedly hear from opponents of deregulation that
states such as Ohio that have promoted retail competition collectively
contributed to the 2003 outage. I must take issue with this stance. The
type of competition that has been promulgated at the state level is one
of retail competition, wherein end users purchase their power from
marketers who, in turn, buy in the wholesale market. The grid as we
know it today has always been the vehicle over which wholesale
transactions take place. It was built to accommodate transactions
between utilities. This is nothing new.
Nothing has really changed that principle except for the number of
transactions that travel the wires, which is a measure of the overall
increase in the demand for electricity. The electrons know nothing
except that the quickest way to get somewhere is along the shortest
path. Therefore, if you live in Illinois and buy electricity from New
Jersey, you'll write a check to the generator in New Jersey. However,
the electrons that you end up with will come from close by, while the
New Jersey generator's electrons will stay closer to home. That is the
difference between the contract path and the physical path. All of this
is to say that deregulation, which has been adopted by less than half
the states with a modicum of success, should not be a relevant
consideration.
The real challenge that lies ahead, and one that Congress must
confront, is molding the electric grid into one that can accommodate
the economic realities of today. The reality is that demand has shifted
and so to have the suppliers. Parenthetically, one should note that, in
the aggregate, generation supply is sufficient to meet demand. The
problem is that the suppliers are not necessarily lining up through the
grid with the demanders. The reason for this misalignment is a
patchwork of overseers of the grid; regional transmission systems,
private transmission systems, and systems within the vertical
structures of utility companies are accountable to no single boss even
though they all interconnect at some point.
If we had many discreet, non-interconnected systems, I suspect we
would have more blackouts than fewer, although of less duration, since
there would be no interconnected neighbor to help out on a hot day. On
the other hand, a regionally coordinated transmission system with a
super-large geographical footprint would enhance the ability to work
through all kinds of contingencies, some of which are simply beyond the
scope of smaller control areas.
Everyone should want to see our transmission resources allocated in
an optimal manner. I am prepared to argue that its achievement is
predicated on the super-regional transmission system alluded to above.
To this end, FERC is the federal agency endowed with the authority to
make it happen. Congress should support FERC's efforts to enlist
participation by all transmission owners into a regional grid that
recognizes the economies of centralized management.
I do not know how many billions of dollars it might take to upgrade
the grid, but I do fervently believe that whatever dollars are expended
are done so most economically when the needs of the grid as a whole are
evaluated as objectively as possible. Given the myopia associated with
the fragmented systems of today, dollars may be thrown at ``fixes''
that often do nothing but add an asset to the utility rate base; not
only are the needs of the region ignored, but the utility that has
determined to fence itself in does very little at the margin to benefit
its own customers. Regional approaches must be adopted to appreciate
the needs and recognize the benefits.
An independently administered regional transmission system, on the
other hand, could prioritize its investments based upon marginal
benefits. Dollars would flow to the points on the grid that would yield
the most benefits, for example, the amount of regional congestion that
is relieved, regardless of whose ``backyard'' it resides. Why would a
single state permit the construction of a high tension wire within its
boundaries if there were not a single ``drop'' along the way? The
answer would be that it probably would if it understood that the
congestion relieved by the line significantly increased the level of
unobstructed power flows within the state. The problem is in the
``understanding''. The manager of an independent, integrated, profit
maximizing transmission organization understands the resource
optimization process because it has the bigger picture.
In addition to rational planning, the aggregated grid system is
also more likely to attract capital. Investment dollars move to the
places where the potential yields are the greatest given the risks. We
might conjecture that the greater the number of electrons that flow,
the greater the dollars that flow to the construction of wires that
carry those electrons. A unified super-regional grid maximizes power
flow through the grid and should be politically indifferent as to the
points of need located within. In contrast, sub-optimal investments in
electric facilities are made when a single entity, without regard for
the region around it, is more interested in closing itself off from the
greater good. Those who provide the dollars are more likely to follow
the path of investment with the greatest potential for risk/return
optimization, which from my point of view resides with the regional
grid.
I have been talking to this point about the physical conditions
that bind the grid for better or worse. However, the economics of all
of this must not go unmentioned. Different transmission systems, as
fragmented as they might be, often employ pricing strategies that are
inconsistent with one another. When the price of moving electricity a
number of miles across different operating areas varies according to
whose area is being crossed, the outcome can be quite confusing for
those paying the freight. Without belaboring the point, another strong
argument that favors super-regional management of the grid is pricing
consistency and the concomitant higher level of economic certainty
conferred upon users of the grid.
This aggregation of transmission systems or control areas is the
cornerstone of the FERC's endeavor. To be thoroughly effective,
however, it must also draw lifeblood from Congress as Congress
deliberates its Energy Bill. It is antithetical to our interests to
delay FERC's attempt to implement its design for a rational
transmission market.
If Congress must do any one thing immediately, it must address the
issue of system reliability. While the states have the authority from
their legislatures to set and enforce rules for distribution systems,
the federal government must confer power upon someone to do the same
for the transmission system. Whether it be the North American Electric
Reliability Council (NERC) as currently proposed in the Energy Bill, or
whether it be the FERC, the rules of the road must be mandatory. Once
in place, the enforcement of the rules can follow the course taken by
other federal agencies.
A unique and efficient means of enforcement of some federal rules
has evolved over the years. Ohio, as well as other states, undertakes a
number of such tasks on behalf of federal agencies. For example, the US
Department of Transportation has very specific rules that speak to
natural gas pipeline safety. Ohio's Public Utilities Commission
receives funds from USDOT to inspect and enforce those rules within the
state's borders. Ohio also participates in the inspection protocols for
the transportation of hazardous materials. The same process has evolved
with the Federal Railroad Administration which has prescribed rules for
rail crossings. The Ohio Commission has personnel evaluating and
prioritizing grade crossings for the purpose of supporting communities
with safety devices. Given the fact that Ohio and other states already
support federal agencies in rule enforcement, does it not make sense to
consider the same for the transmission of electricity?
The events of the past couple of weeks speak clearly to the need
for Congress to do two things. First, Congress must focus on endowing
some agency or organization, e.g., the FERC or NERC, with rule-making
authority that locks-in our quest for a reliable grid.
Second, it must enable the FERC to move forward in its initiatives
to bring about a physically and economically rational structure and
governance to the transmission system.
I appreciate the opportunity to have appeared here before you today
and look forward to clarifying anything that I have said.
Chairman Tauzin. Thank you, Dr. Schriber.
I will turn to the Honorable Peter Lark, the chairman of
the Michigan Public Service Commission in Lancing, Michigan.
Peter.
STATEMENT OF J. PETER LARK
Mr. Lark. Thank you.
Good afternoon, Mr. Chairman and members of the committee
and, in particular, members of the Michigan delegation,
Congressmen Stupak, Upton, Dingell, and my own Congressman
Rogers. I appreciate the opportunity and the honor to address
this committee today to discuss the blackout that ripped
through our country and Canada on August 14.
The question on everybody's mind is what caused the
blackout? Well, in Michigan, we have opened an investigation
into the cause of the blackout, as have, as you know, many
others. While I can't pinpoint the exact cause, I will leave
that to the various inquiries presently under way. I think I
may be able to help with the answer to the next question, and
that is, what can be done to reduce the likelihood of another
similar event recurring?
In a word, the answer is: create a system with
accountability. I think it would surprise a great number of
Americans to know that there is presently no governmental
oversight of the reliability of this country's electric
transmission system. This shortcoming, in my view, must be
eliminated. The buck must stop somewhere. Our citizens need to
know who to turn to and the government needs to know who to
hold accountable for ensuring a reliable system.
In Michigan, Detroit Edison and the transmission system
that serves it, ITC, have reported they received no
communications prior to the blackout from the northern Ohio
utility that has been reported as the likely system on which
trouble began. As the Governor before me said, ITC has traced
the time line on actions that contributed to the blackout back
1 hour and 5 minutes before it occurred. While ITC was able to
provide this information after the blackout occurred, it is
vital to understand that neither entity had any idea what was
happening at the time. What we have here is a failure to
communicate.
You have to ask yourself, did a single utility make
imprudent decisions that jeopardized the integrity of many
utility systems? Again, the buck must stop somewhere. Congress
must pass mandatory and enforceable reliability rules
applicable to all users, owners, and operators of the
transmission network. Reliability rules must be mandatory
throughout the industry within the footprint of the North
American Electric Reliability Council.
While the authority to establish reliability rules should
repose in the Federal Energy Regulatory Commission, NERC may
well be the best candidate for developing the rules. Where
regional transmission organizations or RTOs are deemed
essential, such as in the upper Midwest, these RTOs must have
the authority to order its members where necessary to shed load
or add generation. Whether or not RTOs are mandated throughout
the country is less important than having in place a set of
reliability standards that will govern the entire grid.
There are sections of the grid where membership in an RTO
makes a good deal of sense, such as the upper Midwest, and
areas of the country where it may make less sense. The
enactment of mandatory reliability standards that are
enforceable by an entity with the power to sanction violators
must not be postponed by regional squabbling. One thing is
clear, the situation we presently find ourselves in where
reliability rules are voluntary and there is no oversight or
regulation of the grid is a prescription for disaster.
Michigan's transmission companies are presently members of
the Midwest Independent System Operator, or MISO. Unlike some
other RTOs, MISO does not enjoy security coordination control
over its 23 utility members. At most, as I understand its
operation, MISO can make only suggestions to its members. This
arrangement lacks the teeth necessary to reliably run a
transmission system. Moreover, at present MISO is not the sole
RTO in the upper Midwest. If power is to move reliably across
this area of the country, there can be but one RTO and FERC
must have the authority to order membership in that RTO.
Anything less invites gamesmanship on the system.
In conclusion, it is my view that Congress must pass
legislation that does three things: First, that directs the
development of a set of reliability rules applicable to all who
use the grid; second, that gives oversight authority on the
rules to the FERC; and, third, that requires the creation of
RTOs where necessary that are geographically correct, that have
security coordination control and have the authority to
sanction scofflaws. If Congress gives FERC the authority to
ensure a reliable transmission system, we can say with
confidence, ``the buck stops here.''
I appreciate the chance to share my thoughts with you, Mr.
Chairman, and members of the committee. Thank you.
[The prepared statement of J. Peter Lark follows:]
Prepared Statement of Hon. J. Peter Lark, Chair, Michigan Public
Service Commission
Mr. Chairman and Members of the Committee: My name is J. Peter Lark
and I serve as Chairman of the Michigan Public Service Commission. I am
very pleased to have this opportunity to address this Committee today,
although I wish it were under different circumstances.
The topic of today's hearing, ``Blackout 2003: How Did It Happen
and Why?'' allows exploration of some of the complex issues involved
with keeping the nation's lights on. But it's much more than that. A
safe, reliable electric utility industry is the heart that pumps
America's blood. It was recently stated that the electricity business
accounts for only two percent of the Nation's economy. But the other
ninety-eight percent relies one hundred percent on the reliable and
economic operation of that two percent. We are occasionally reminded,
as we were on August 14th, just how significant the loss of electricity
can be to our economy and to our daily lives.
As you well know, Michigan was one of the State's that was hit hard
by the blackout on August 14th. More than 2 million utility customers
lost electricity on that day, the majority of them on the Detroit
Edison utility system, which lost power to all of its customers for the
first time in the company's long history. Detroit Edison estimates that
about 6.1 million people lost power. The City of Detroit, and much of
the southeast region of Michigan, was without electricity and other
essential services such as water and sewer. The effect of the blackout
on Michigan's residential, business, and major industrial electric
users was devastating. For small and medium-sized business operations,
the loss of revenue for even a single day can have dire implications.
And the effect on the general citizenry cannot be downplayed. Although
we are still in the process of assessing the damage, we have an initial
estimate of the direct cost of the emergency to state and local
government of approximately $20 million. In addition, we know that
Detroit Edison claims $35 to $40 million in losses. Over 70
manufacturing companies in Michigan were forced to shut down.
Facilities such as hospitals and nursing homes were left scrambling to
provide care to those in need. In short, we cannot afford to have this
kind of failure on our electric system happen again. For every story we
heard of how some people found creative ways to make the best of a bad
situation, there were countless others for whom the loss of electricity
meant the loss of essential services.
It is incumbent that we take the steps necessary to ensure that
future blackouts do not occur.
what were the specific factors and events leading up and contributing
to the blackouts of august 14?
The Michigan PSC has initiated an investigation into this matter
(Case No. U-13859), as has the U.S. Department of Energy in conjunction
with our Canadian counterparts, so I would like to reserve a final
determination on the cause of the blackout pending the outcome of the
investigations. While we believe we know the sequence of events that
resulted in the power outage--power plants and transmission lines
tripping off--we do not know why those events occurred, and I believe
we need to await the outcome of the pending investigations before
jumping to conclusions.
What we do know is that, based on information provided by our
utilities, our transmission companies, and through other accounts,
there is a strong likelihood that the outage can be traced to at least
a couple of factors. None of these probable causes necessarily
represents the smoking gun; but rather, one needs to look at the entire
set of events, and the existing systems that allowed them to get to a
point of criticality, before reaching a conclusion on the causes of the
blackout.
One apparent contributing factor appears to be a communication
failure. Michigan's utilities and owners of the state's transmission
system have stated that they had no warnings that there were problems
on the system. To the extent other utilities were experiencing
difficulties, those utilities failed to offer even a ``heads up'' to
their neighboring utility systems. With even a little warning,
safeguards could have been put in place that may have minimized, or
even prevented, the outage.
The International Transmission Company has traced the timeline on
actions that contributed to the blackout back to 1 hour and 5 minutes
before it occurred. While ITC was able to develop and provide this
information to us after the outage, it is important to understand that
ITC was unaware of what was happening during that period. Both ITC and
Detroit Edison tell us they had no idea there were problems on the grid
until 2 minutes before power went out in Michigan when power flowing
from Michigan to Ohio jumped by 2,000 MW in 10 seconds. ITC describes
this as the point of no return. One-and-one-half minute later, power
flowing into Michigan from Ontario jumped by 2,600 MW. Thirty-seconds
later, Detroit Edison's system was dead.
Also cited in various accounts is power line failure, which may be
attributed to, among other things, inadequate maintenance. Certain
power line failures on August 14th, however, appear to have been due to
overloading. How and why line maintenance was allowed to lapse to a
breaking point, or why power was redirected to lines incapable of
handling the added capacity are questions that I cannot answer at this
moment, although I suspect the extensive investigations currently
underway will give us a precise set of factors and events that caused
the blackout.
Last week Michehl Gent, who serves as the President of the North
American Electric Reliability Council, was quoted in an article that
ran in an August 26, 2003 issue of the Toronto Sun, that he believes
rules ``were willfully broken'' on August 14th and that ``happens more
or less routinely.'' That rules are broken routinely with no ability of
any agency to enforce the rules on the transmission grid is a recipe
for disaster. Plainly, a lack of enforceable standards for the reliable
operation of the transmission system was a significant contributor to
the blackout.
Moreover, Michigan's transmission utilities chose to join a FERC-
approved Regional Transmission Organization known as the Midwest
Independent System Operator. MISO's obligation is to help control
movement of power across the grid, and ensure that the situation that
occurred on August 14 does not happen. However, the federal government
does not mandate participation in an RTO, and MISO possesses no command
and control requirements to ensure reliability. Even more important,
because membership in an RTO is not mandated, some of Michigan's most
critical partners--utilities in Ohio and Illinois--are missing from the
MISO's membership.
which systems operated as designed and which systems failed?
It is my expectation that the answer to this question will be
clearly explained in the reports that will come out of the
investigations presently underway. While I am reluctant to speculate as
to those systems that worked and those that did not, it is clear that
the cascading outage stopped its westward travel after coursing through
Michigan. Thankfully, millions of Michigan's utility customers were
protected from the blackout, as well as those customers in states to
the west of us.
what lessons were learned as a result of the blackouts?
While I believe there are a number of valuable lessons that will
become apparent the further we get into our investigation, a couple of
thoughts clearly stand out. First, an electric utility industry where
reliability rules are voluntary with no enforceable oversight is not
acceptable. The necessity of maintaining a safe, reliable and efficient
electric transmission system should be critically apparent to all as a
result of this blackout. Second, a balkanized regional wholesale market
for electricity, where some utilities are in and some are out; where
more than one RTO is operating in a single discrete area; and where
rules are unclear and unenforceable, does not work. There must be
certainty in the operation of the transmission grid, and that cannot be
achieved where reliability rules are optional, and RTO membership is
voluntary. Far too much is at stake to have a transmission system that
allows a single utility to jeopardize the safe, reliable and economic
electric utility operations of entire regions of the country.
how can similar incidents in the future be prevented?
First, Congress must pass legislation that will create a system of
mandatory and enforceable reliability rules applicable to all users,
owners and operators of the transmission network.
Reliability rules should be mandatory throughout the industry
within the footprint of the North American Electric Reliability
Council, which includes Canada. Reliability rules must be enforceable
and must include the ability to impose sanctions on market participants
that violate the rules.
The security and reliability of the interstate electric
transmission system is unmistakably under the purview of the federal
government. Yet, the Chairman of the FERC has stated that ``right now,
there is no federal regulatory authority over reliability.'' This
deficiency must be eradicated by passing legislation that requires
enforceable standards for the safe and reliable operation of the
nation's power grid.
The NERC is the best candidate for developing reliability rules.
The NERC currently has such responsibility and is best positioned to do
the job effectively. However, oversight of the development of the
reliability rules should be given to the FERC.
Reliability coordination and enforcement functions should be
outside of the NERC, due to the potential conflicts between the
financial interests of the utilities who constitute NERC's membership
and reliability decisions. Coordination of the grid should be
administered through an independent and strong RTO, while enforcement
authority and the ability to impose sanctions should be vested in the
FERC.
Second, Congress must support the FERCs initiative to require
transmission owners to join RTOs, at least in those regions where RTOs
are recognized and either fully operational, or moving toward full
operation.
While I recognize that some parts of the country are opposed to
mandating RTOs, in the Midwest and throughout the Northeast, strong
RTOs are necessary. The transmission grid in these regions is highly
interconnected and regionally responsive. Coordination of the grid is
at the heart of preventing problems and RTOs must have this reliability
coordination function. In these regions RTOs are well along in the
developmental process. Backing off now would be a major setback to both
economic efficiency gains and regional reliability improvements.
In conclusion, whether we learn that the causes were systemic or
human error, mechanical or electronic, an obvious starting point to
address the problem is the passage of legislation that requires
enactment of mandatory and enforceable standards and rules for the safe
and reliable operation of the Nation's transmission grid. I urge
Congress to act quickly to address these problems and meet the need
that was so clearly demonstrated on August 14, 2003.
Thank you for the opportunity to share these comments with you.
Chairman Tauzin. The Chair thanks you, Mr. Chairman.
We are now pleased to welcome the chairman of the New York
State Public Service Commission, the Honorable William Flynn.
Mr. Chairman.
STATEMENT OF WILLIAM M. FLYNN
Mr. Flynn. Good afternoon, Chairman Tauzin, Ranking Member
Dingell and other distinguished members of the committee. I
would like to thank you for the opportunity to testify before
this committee on the matter of the August 14 blackout.
What we know for certain is that on 4 p.m. on August 14,
immediately preceding the outage, New York State generation
facilities and transmission and distribution systems operated
normally to serve customers with reserves well in excess of
minimum requirements. The State was serving a load of about
28,000 megawatts, with available generating capacity of as much
as 33,000 megawatts, more than enough to ensure reliable
electric service in the State. There is no information of any
unusual transmission system occurrences or events in New York
preceding the outage. It appears that more than adequate
generation capacity was available to serve the State's needs
and that no difficulties on the in-State transmission
distribution system impeded its delivery.
There are a total of approximately 7.5 million customers in
the State, representing the State's population of 19.2 million
residents as well as thousands of commercial, industrial, and
municipal facilities. About 6.7 million of those customers, or
nearly 90 percent, were without power for some period of time,
including virtually all of the customers in New York City who,
unfortunately, went without power for the longest period of
time.
While we are concerned about outages in any part of the
State, you can imagine how that concern is heightened when
outages strike New York City. New York City not only serves as
the financial capital of the world but is heavily reliant on
electricity to power a subway system that carries more than 7
million passengers each day, as well as for air-conditioning
and lighting to the high-rise commercial and residential
buildings that characterize the cityscape. For these reasons
and others, New York State strives to maintain the highest
reliability standards in the Nation.
In terms of responding to the blackout, the State commenced
emergency public communications programs by contacting radio
stations to urge customers to curtail usage if they still had
power or turn off electrical equipment and appliances while
their electric service was being restored. In addition,
Governor Pataki declared a State of emergency within an hour of
the event and called for emergency demand reduction measures to
be implemented across the State to conserve power and aid
restoration efforts. In the end, the call for emergency demand
reduction played a critical role in restoring power throughout
the State in a timely and effective manner.
The electric utilities and generators responded to the
event by stabilizing the energized portions of the transmission
systems, ascertaining any damage and following plans for
service restoration. By necessity, system restoration was a
deliberate and carefully measured process. Customer service
could not be restored until generation was available and,
because of the extent and nature of the outage, careful
balancing of the loads and supply was required.
Under the circumstances, the quick response of the
utilities and generators and the restoration of electric
service in New York State represent a significant
accomplishment. Power was restored to about 95 percent of the
upstate area by 4 a.m. on Friday. Con Edison, the utility
responsible for delivering power to customers in New York City
and Westchester County, managed to restore service to its
essentially entire service area by 9 p.m. on Friday. Most
noteably from a national perspective, Con Edison restored power
to Wall Street roughly 3 hours before trading opened on Friday
morning. In less than 30 hours, service was effectively
restored to the entire State. This achievement is a testimony
to the commitment and hard work of the men and women engaged in
the power restoration, given the virtually unprecedented nature
of this event, the complexity of the systems involved, and the
magnitude of the effort required.
In addition to the international effort, at the request of
Governor Pataki I have directed my staff to lead a formal
inquiry into the effects of this outage on New York State,
including the circumstances of the outage, the effect of the
events occurring outside of New York on electric service
operations within the State, recommendations for actions or
procedures to prevent, to the maximum extent possible, a
similar outage from reoccurring, and any other relevant issues
that arise during this formal inquiry. I hope to have
information pertaining to New York State's inquiry available
before the end of the year, but suffice it to say this is the
agency's top priority.
Yet, while New York reliability criteria are mandatory for
New York electric corporations and the New York system operator
is authorized to control the system pursuant to all rules
established by the North America Reliability Council, the New
York State Reliability Council and the Northeast Power
Coordinating Council, this is not necessarily true for other
parts of the country. While, based on what we know, the outage
does not appear to have been caused by any flaw in New York
State's transmission or generation system, the independence of
regional power grids does leave us susceptible to disruptions
and problems emanating from events outside of our jurisdiction.
To minimize this susceptibility, the public service commission
has supported mandatory national reliability standards,
provided that New York State can retain the right to implement
higher standards than might be required by the Federal
Government. These national standards should serve as a floor
and not a ceiling.
To that end, I am aware of language Congressman Fossella
has included in a bill before Congress concerning national
electric reliability standards, H.R. 6, that suggests New York
should retain the right to set higher standards than might be
imposed at the national level, provided that such standards do
not have any negative consequences for reliability outside of
New York State. I would urge the conferees to support that
language.
As I mentioned earlier, New York's response to this crisis
was exemplary, but we must seek ways to minimize the risk of
repeated occurrences. The economic and social costs are simply
too high. We would certainly support broader language to extend
the ability to implement higher reliability standards to other
States as well.
Much has been written since the outage about the lack of
appropriate regulatory financial incentives for upgrading the
transmission infrastructure. It is FERC that creates these
incentives for transmission investments by establishing
appropriate rate recovery levels for utilities. The Federal
regulatory framework for transservice must allow for cost
recovery certainty and fully recognize and capture the multiple
benefits to the market and reliability that are created by
transmission system improvements. We look forward to continuing
an open dialog with FERC and other stakeholders on the issues
surrounding transmission infrastructure.
In summary, the outage is of immense importance to all New
Yorkers and the public service commission has taken the lead to
inquire into the effects of the outage in New York. Right now
we have many more questions than answers. Please be assured
that we will commit every effort and resource necessary to
conduct an exhaustive and comprehensive inquiry and to provide
recommendations that hopefully avoid any repeat of the blackout
and its effect on New York State. Once the report is complete,
we would welcome the opportunity to come back in front of this
committee and report its findings.
Thank you, Mr. Chairman, for this opportunity; and I, like
others, would be more than happy to answer any questions.
[The prepared statement of William M. Flynn follows:]
Prepared Statement of William M. Flynn, Chairman, New York State Public
Service Commission
Good afternoon Chairman Tauzin and distinguished members of the
Committee on Energy and Commerce. I would like to thank you for the
opportunity to testify before this Committee on the matter of the
August 14th blackout, which appears to have affected more than 50
million people in the United States and Canada, including nearly 90
percent of New York State's customers. I commend this Committee's
efforts to better understand the causes behind the blackout and
possible solutions to prevent an event like this from happening again.
What we know for certain is that as of 4:00 p.m. on August 14,
immediately preceding the outage, New York State generation facilities
and transmission and distribution systems operated normally to serve
customers, with reserves well in excess of minimum requirements. The
State was serving a load of about 28,000 megawatts, with available
generating capacity of as much as 33,000 megawatts, more than enough to
ensure reliable electric service in the state. There is no information
of any unusual transmission system occurrences or events in New York
preceding the outage. It appears that more than adequate generation
capacity was available to serve the State's needs and that no
difficulties on the in-state transmission and distribution systems
impeded its delivery.
The early reports we have received indicate that a rapid series of
events occurring outside of New York State in the period before the
outage likely set the stage for occurrences resulting in power losses
within New York State and elsewhere. The outage appears to have started
on a transmission system outside of New York State and spread across
the affected states in a matter of minutes. The reasons for the
failures on these systems have not been identified with any certainty
at this time, but according to preliminary New York Independent System
Operator (NYISO) reports, approximately 3,000 megawatts of power surged
into New York State over lines that connect us to the interstate grid,
causing transmission lines and generators to trip and resulting in
power outages. Significant power surges and frequency fluctuations
occurred in New York State during 30 critical seconds, culminating in
the blackout. To put this power surge into perspective, it is estimated
that 3,000 megawatts is roughly enough power to supply 3 million
typical households in New York State. I am not aware of any
transmission system in the world that is designed to handle a surge of
that magnitude.
There are a total of approximately 7.5 million customers in the
state, representing the state's population of 19.2 million residents as
well as thousands of commercial, industrial, and municipal facilities.
About 6.7 million of those customers, or nearly 90 percent, were
without power for some period of time, including virtually all of the
customers in New York City who unfortunately went without power for the
longest period of time. While we are concerned about outages in any
part of our state, you can imagine how that concern is heightened when
outages strike New York City. New York City not only serves as the
financial capital of the world, but it is heavily reliant on
electricity to power a subway system that carries more than 7 million
passengers each day, as well as for air conditioning and lighting to
the high-rise commercial and residential buildings that characterize
the cityscape. For these reasons and others, New York State strives to
maintain the highest reliability standards in the nation.
In terms of responding to the blackout, the state commenced
emergency public communications programs by contacting radio stations
to urge customers to curtail usage if they still had power, or turn off
electrical equipment and appliances while their electric service was
being restored. In addition, Governor Pataki declared a state of
emergency within an hour of the event and called for emergency demand
reduction measures to be implemented across the state to conserve power
and aid restoration efforts. In the end, the call for emergency demand
reduction played a critical role in restoring power throughout the
state in a timely and effective manner.
The electric utilities and generators responded to the event by
stabilizing the energized portions of the transmission systems,
ascertaining any damage, and following plans for service restoration.
By necessity, system restoration was a deliberate and carefully
measured process. Customer service could not be restored until
generation was available; and, because of the extensive nature of the
outage, careful balancing of the loads and supply was required.
Under the circumstances, the quick response of the utilities and
generators, and the restoration of electric service in New York State
represent a significant accomplishment. Power was restored to about 95
percent of the upstate area by 4:00 a.m. on Friday. Con Edison, the
utility responsible for delivering power to customers in New York City
and Westchester County, managed to restore service to essentially its
entire service area by 9:00 p.m. on Friday. Most notably from a
national perspective, Con Edison restored power to Wall Street roughly
three hours before trading opened on Friday morning. In less than 30
hours, service was effectively restored to the entire state. This
achievement is a testimony to the commitment and hard work of the men
and women engaged in the power restoration given the virtually
unprecedented nature of this event, the complexity of the systems
involved, and the magnitude of the effort required.
Given the impact that this outage had on the lives of all New
Yorkers, particularly the residents and commuters in New York City, I
would like to take this opportunity to commend New Yorkers for their
response to this crisis. Once again, crisis has brought out the best in
New Yorkers and I am proud of the way in which we responded, as well as
the public's cooperation in helping to restore service. Our focus now,
however, must be on understanding the events that took place on August
14th as well as on how to avoid a reoccurrence of this type of event in
the future.
I have every confidence that the U.S./Canadian Task Force led by
U.S. Energy Secretary Abraham and Canadian Minister of Natural
Resources Dhaliwal will identify the events occurring outside of New
York State that led to the outage. I pledge the full cooperation of my
staff to support that effort in any way possible and am pleased to see
that my staff will be represented on the task force. In addition to
this international effort, at the request of Governor Pataki I have
directed my staff to lead a formal inquiry into the effects of this
outage on New York State, including the circumstances of the outage;
the effect of the events occurring outside of New York State on
electric service operations within the State; recommendations for
actions or procedures to prevent, to the maximum extent possible, a
similar outage from reoccurring; and any other relevant issues that
arise during this formal inquiry. I hope to have information pertaining
to New York State's inquiry available before the end of the year.
Suffice it to say, this inquiry is the agency's top priority.
While I have attempted to lay out the facts leading up to the
outage as we know them today, I must make it clear that we do not fully
know the exact sequence of all the critical events, and their cause and
effect relationships at this time. I cannot emphasize enough that it is
very important for the success of our inquiry on the New York State
system, the federal and international inquiries on the outage, and for
development of any recommendations for changes, that speculation and
conjecture is avoided. There have been countless reports in the media
drawing conclusions as to the reasons behind the blackout based on
limited, and at times erroneous, information. This speculation has
placed blame for the blackout on factors ranging from lightening
strikes to deregulation of the electric industry. Only after a
complete, rigorous, and professional study and analysis is performed,
will we be able to provide specific answers to the many questions about
the outage and recommendations for future action.
Based on historical precedence, it is very likely that this
blackout will lead to regulatory, legislative, or policy changes, at
either the federal or state level, in an effort to try to prevent an
event of this magnitude from happening again. The blackouts of 1965 and
1977 both resulted in significant changes at the national level as well
as within New York State. The 1965 blackout provided the impetus for
interconnecting individual state systems into more of a national grid
structure, as well as the formation of the North American Electric
Reliability Council (NERC) to establish reliability standards, albeit
voluntary standards. The 1977 blackout provided the impetus for
increased reliability standards in New York State that are now the most
stringent in the country, and in fact are mandatory. As a result, we
have since maintained what I believe is the most reliable system in the
country. Yet, while New York reliability criteria are mandatory for New
York electric corporations, and the New York Independent System
Operator is authorized to control the system pursuant to all applicable
rules established by the North American Electric Reliability Council,
the New York State Reliability Council, and the Northeast Power
Coordinating Council, this is not necessarily true for other parts of
the country.
While, based on what we know, the outage does not appear to have
been caused by any flaw in New York State's transmission or generation
system, the interdependence of regional power grids does leave us
susceptible to disruptions and problems emanating from events outside
of our jurisdiction. To minimize this susceptibility, the Public
Service Commission has supported mandatory national reliability
standards, provided that New York State can retain the right to
implement higher standards than might be required by the federal
government. These national standards should serve as a floor, and not a
ceiling.
To that end, I am aware of language Congressman Fosella has
included in a bill before Congress concerning national electric
reliability standards, HR 6, that suggests New York should retain the
right to set higher standards than might be imposed at the national
level, provided that such standards do not have any negative
consequences for reliability outside of New York State. I would urge
this Committee and Congress to support that language. As I mentioned
earlier, New Yorkers' response to this crisis was exemplary, but we
must seek ways to minimize the risk of repeated occurrences. The
economic and social costs are simply too high. We would certainly
support broader language to extend the ability to implement higher
reliability standards to other states as well.
The systems on the interconnected grid support and supplement each
other through periods of stress. In some instances this interconnection
has allowed New York State to support other states' systems in
difficult times, while other states' systems have likewise provided
assistance to New York State. On August 14th however, it appears that
the regional interconnection may have enabled a problem in one state to
cascade across borders into neighboring states as well as Canada. While
I remain convinced that interconnections among states and regions
represent a strength of the system rather than a weakness, mandatory
reliability standards at the national level should help to reduce the
likelihood of regional blackouts by requiring the bulk power systems to
meet a minimum threshold for reliability. Admittedly, I cannot say with
certainty that such mandatory standards would have prevented the
blackout of August 14th, but with our economy more dependent than ever
on reliable, uninterrupted access to electric power, we can no longer
afford to simply leave consumers vulnerable to the voluntary compliance
of national standards. The current reliability environment may or may
not have contributed to the August 14th blackout, but given the
interconnectedness of the nation's power grids and a future of growing
demand for electricity, the current standards must be recognized as
mandatory and minimum to prevent, to the greatest extent possible,
systems in one region negatively affecting systems in other regions.
Much has been written, since the outage, about a lack of
appropriate regulatory financial incentives for upgrading the
transmission infrastructure. It is FERC that creates those incentives
for transmission investments by establishing appropriate rate recovery
levels for utilities. The federal regulatory framework for transmission
service must allow for cost-recovery certainty, and fully recognize and
capture the multiple benefits to the market and reliability that are
created by transmission system improvements. We look forward to
continuing an open dialogue with FERC and other stakeholders on the
issues surrounding transmission infrastructure.
In summary, the outage is of immense importance to all New Yorkers,
and the Public Service Commission is taking the lead to inquire into
the effects of the outage in New York. Our formal inquiry will include
a report on the circumstances of the outage; effects that occurred
outside the State on electric service operations in the State;
recommendations for actions or procedures to prevent, to the maximum
extent possible, a similar outage; and other relevant issues. Right
now, we have many more questions than answers. Please be assured that
we will commit every effort and resource necessary to conduct an
exhaustive and comprehensive inquiry, and to provide recommendations
that hopefully avoid any repeat of the blackout and its effects on New
York State. Once the report is complete, we would welcome the
opportunity to come back in front of this committee and report its
findings.
Thank you again Chairman Tauzin for this opportunity to discuss the
circumstances surrounding the August 14th blackout. I would be happy to
answer any questions you may have regarding this event.
Chairman Tauzin. Thank you, Mr. Chairman.
We are now pleased to welcome the President of the North
American Electric Reliability Council from Princeton, New
Jersey, President Michehl Gent. Michehl, we have seen you on
television discussing this a lot, and you can maybe give us the
latest news.
STATEMENT OF MICHEHL R. GENT
Mr. Gent. Mr. Chairman, I am retiring my celebrity status
and I hope not to appear again on TV, but I thank you and Mr.
Dingell and other members of the committee for having me here
today.
Let me start with the obvious. This outage simply should
not have happened. NERC's standards for reliable operation and
planning of electric systems have at their core prevention of
widespread, uncontrolled, cascading outages such as the one
that occurred on August 14. NERC is working with the United
States Department of Energy in support of a joint U.S.-Canada
task force to determine precisely the sequence of events during
the blackout, the causes of the outage, why it spread as far as
it did, and what needs to be done to prevent any reoccurrence.
In the end, we will know if our NERC reliability standards were
not adequate to prevent the cascading outages or if the
responsible parties did not comply with our standards or
possibly some combination of the two.
Regarding our ongoing investigation, the industry answered
our call for experts to help us very quickly. We had between 15
and 30 people in our Princeton offices examining the data. We
have had them there every day since the blackout, all working
to determine what happened.
In addition to our staff, we have systems operations people
from each of the affected regional councils, the ISOs and RTOs
and most of the affected companies. We also have dedicated help
from several utilities that were not even in the affected area.
The Department of Energy has up to five people onsite at all
times. The FERC has a dedicated person and occasionally more
than that, and we expect to have somebody from Canada onsite
very soon. We must keep in mind that Canadian utilities and
customers are also part of the blackout. We also have a
steering group for the investigation that is comprised of the
best experts the industry has to offer, and I have some of
their bios in my prepared testimony.
Every party that has been asked for data has responded
quickly and thoroughly. Our initial call for data brought us
tens of thousands of records. Fortunately, most of this was
electronic, but not all of it. The handwritten logs are now
beginning to arrive. We have built huge electronic data bases
to house much of this data to go along with dozens of maps and
diagrams that are plastered all over our walls. We will need to
be able to use all of these to be able to understand the
sequence of events.
National security is a concern that I did not address in my
written testimony. Even though we are certain this was not an
act of terrorism, we do not want to be creating a blueprint for
would-be terrorists and have therefore implemented standards
for security processes and procedures in our offices and
elsewhere.
Our partnership with the Department of Energy has been
outstanding. We jointly hosted a meeting in Newark on August 22
to get the views of the affected parties, and we have continued
to use that channel to develop a time line of events. The
Department has the hammer and we have the expertise.
We intend on holding other meetings as we proceed to the
``why'' phase of the investigation. Obviously, we are too early
in the investigation to draw any conclusions. To that end, we
have agreed with the Department that all public information
regarding the investigation will be released through the
Department of Energy, thus freeing NERC to concentrate on the
investigation. NERC's efforts will be a key component of the
work of the joint U.S.-Canada task force that has been
mentioned so many times here today.
One important step Congress can take now is to enact the
reliability legislation that has been proposed one way or
another for the last 5 years by me and others and to make those
reliability rules mandatory and enforceable. The comprehensive
energy bills that have passed both the House and Senate have
versions of that reliability language.
I will close by repeating, NERC is fully committed to
finding out what happened and to see that steps are taken to
prevent a reoccurrence. I thank you again for this opportunity,
and I look forward to your questions.
[The prepared statement of Michehl R. Gent follows:]
Prepared Statement of Michehl R. Gent, President and Chief Executive
Officer, North American Electric Reliability Council
Good afternoon Mr. Chairman and members of the Committee. My name
is Michehl Gent and I am President and Chief Executive Officer of the
North American Electric Reliability Council (NERC).
NERC is a not-for-profit organization formed after the Northeast
blackout in 1965 to promote the reliability of the bulk electric
systems that serve North America. NERC works with all segments of the
electric industry as well as electricity consumers and regulators to
set and encourage compliance with rules for the planning and operation
of reliable electric systems. NERC comprises ten Regional Reliability
Councils that account for virtually all the electricity supplied in the
United States, Canada, and a portion of Baja California Norte, Mexico.
NERC is uniquely qualified to set standards for the reliable
operation of North America's high voltage, interconnected grid system,
and we hope soon to be able to enforce those standards. We are also
uniquely qualified to assist the U.S. Department of Energy (``DOE'')
and the U.S.-Canada Joint Task Force on the Power Outage in
investigating the August 14, 2003 blackout that encompassed parts of
the upper Midwest and Northeast United States and eastern Canada.
NERC is governed by a board of ten independent trustees and brings
together the best electrical system technical expertise available in
the world. We are an international organization, integrating
reliability across North America's electricity grids. In short, our
mission is bulk power system reliability--it's what we do.
As a standing procedure, NERC reviews and reports on disturbances
that occur on the bulk electric systems in North America. As the entity
responsible for reliability standards for the bulk electric system,
NERC must understand and communicate to its members what happened on
August 14 and why it happened. NERC must also determine whether any of
its standards were violated and whether its standards and procedures
require modifications to take into account the ways in which the bulk
electric system is being used. Finally, NERC must assure that measures
necessary to avoid a recurrence of the August 14 outage are taken.
Immediately after the onset of the blackout on August 14, 2003,
NERC began assembling a team of the best technical experts in North
America to investigate exactly what happened and why. Every human and
data resource we have requested of the industry has been provided, and
experts covering every aspect of the problem have been volunteered from
across the United States and Canada. Shortly after the investigation
began, representatives of DOE and the Federal Energy Regulatory
Commission (``FERC'') joined the investigative effort. The
investigative team has numbered between 15 and 30 individuals from day
to day, and all members of the team, regardless of their affiliation,
have worked side by side to help correlate and understand the massive
amounts of data that are being received.
To lead the NERC effort, we established a strong steering group of
the industry's best, executive-level experts from systems not directly
involved in the cascading grid failure. The steering group scope and
members are described in Attachment A.
NERC and DOE representatives, including people from the Consortium
for Electric Reliability Technology Solutions (``CERTS''), have been
jointly conducting the fact-finding investigation of the events leading
up to the August 14th blackout. We expect to have representatives of
provincial and federal agencies from Canada join the investigative team
shortly. The investigation is ongoing, and no causal conclusions can
yet be drawn. DOE is a part of the United States-Canada Joint Task
Force on the Power Outage. NERC has provided its information to DOE in
support of the Joint Task Force effort. DOE has requested, and NERC has
agreed, that DOE, as a member of that Joint Task Force, coordinate
release of that information.
NERC and DOE collaborated on the data request that NERC issued on
August 22, 2003, to those organizations who were directly involved in
the August 14 outage, as well as surrounding systems. DOE and NERC are
jointly developing a data warehouse to manage the thousands of data
records being submitted in response to that request and all subsequent
data requests. DOE and NERC also co-hosted a meeting of the major
entities involved in the outage to help focus the investigation and
begin to develop an understanding of the events that led to the outage;
we expect to co-host additional fact-finding meetings in the future.
Understanding exactly what happened and why is an enormously
complex task requiring a methodical investigation by experts from many
disciplines. Analyzing what happened and why it happened has both a
technical side and a people side.
The technical side begins with a reconstruction of what happened on
the electrical system, within fractions of a second. The investigative
team has already received many thousands of data records from control
center event logs, disturbance recorders, and other system data that
must be pieced together one at a time to understand how the power
system broke apart and cascaded into a blackout. Unlike an airplane
that has a single ``black box,'' the power grid has thousands of event
and disturbance recorders that measure events at critical points on the
system. Each event, which might be a relay or circuit breaker
operation, or an electrical fault, is ``time stamped'' as it occurs.
However, we discovered that many of these time stamps were not accurate
because the computers that recorded the information became backlogged,
or the clocks from which the time stamps were derived had not been
calibrated to the national time standard. As our data analysis
progressed, we have been able to confirm those events that were
accurately time-stamped, and from those events, we are in the process
of aligning the event data for each system event from multiple sources
until we are confident we have the precise time for each event.
I assure you this painstaking effort to synchronize event data down
to fractions of a second is not an academic exercise. Most of the
electrical operations in the system failure on August 14 occurred
automatically over a very short period of minutes and seconds. Without
such a deliberate, methodical reconstruction of events, it would be
impossible to determine the exact sequence, and therefore the cause of
the cascading failure and how it propagated to result in the ultimate
blackout condition.
To ensure that the investigation is complete, NERC and DOE have
requested data from the affected organizations starting at 8:00 AM EDT
on August 14. This data will enable the investigators to form a clear
picture of how that day started and what events through the course of
the day may have contributed to or set the stage for events later in
the day. Because that data is still being accumulated and has not been
evaluated, it is too soon to determine whether events earlier in the
day may have contributed to the outage.
To complete the technical investigation of ``what'' happened, we
must also construct electrical models to simulate the exact conditions
of August 14 and then subject those models to the events that occurred
during the time preceding the outage to understand better its causes.
These simulations will examine the electrical stability of the grid--
that is, how strongly the generators were synchronized to one another--
and whether there was a voltage collapse of the transmission system. We
will also focus on why operating procedures that should have detected
problems that developed on the grid and kept them from spreading did
not prevent the cascading outage across such a wide area.
Preparing these simulations is a complex task requiring the
reconciliation of power system data snapshots from multiple data
recorders on August 14. I am confident that the investigation, when
completed, will allow us to describe exactly what happened to the power
system and why it failed.
The investigation also includes a ``people'' aspect. Working
jointly with DOE as part of the U.S.-Canada Joint Task Force, we will
be seeking to discover such things as: What were system operators and
reliability coordinators doing leading up to the blackout? What
indications of problems did they see or not see? What were their
qualifications and training to recognize and respond to system
emergencies? Did they follow established NERC and regional reliability
standards and procedures? Were those standards and procedures
effective? Were responsibilities clearly assigned and did operating
personnel have the necessary authority to act in a timely manner to
avoid the blackout? How effective were the control center computers and
displays in providing information to the operators? What communications
took place among system operators and reliability coordinators in
different parts of the grid prior to and during the outage?
After determining what happened on August 14th, the investigation
will analyze the root causes of the cascading failure--looking once
again at both technical and human factors. From the root cause
analysis, we expect to develop a clear set of recommendations to ensure
that our system operators, equipment, and reliability standards will
successfully handle the kinds of events that led to the blackout.
It is too soon to identify specific equipment, measures, and
procedures that worked as intended on August 14, but large parts of the
Eastern Interconnection did not suffer the blackout. (Attachment B to
my testimony is a map showing the Eastern, Western, and ERCOT
Interconnections.) Protective relays within the distressed area
operated to remove transmission lines, transformers, and generating
units from service before they suffered physical damage. The system is
designed to do that. It was the action of those individual relays,
operating to protect individual pieces of equipment, that eventually
isolated the portion of the grid that collapsed from the remainder of
the Eastern Interconnection. The fact that the transmission lines,
transformers, and generating units did not suffer physical damage is
what made it possible to restore the system and service to customers as
quickly as happened.
Another factor in the successful restoration was the restoration
plans themselves. Restoring a system from a blackout requires a very
careful choreography of re-energizing transmission lines from
generators that were still on line inside the blacked-out area as well
as from systems from outside the blacked-out area, restoring station
power to the off-line generating units so that they can be restarted,
synchronizing those generators to the Interconnection, and then
constantly balancing generation and demand as additional generating
units and additional customer demands are restored to service.
We will learn many additional lessons from this event that will
enable us to improve the overall reliability of the grid. We can also
build on some of the positives from this event, such as the
extraordinary efforts to quickly put the system back on line and
restore electric service to consumers.
I will close with one final point--the need to establish mandatory,
enforceable reliability standards. NERC has developed a world-class set
of planning and operating standards, and I expect we will find areas of
those standards that need improvement based on the events of August 14.
However, as long as compliance with these standards remains voluntary,
we will fall short of providing the greatest possible assurance of
reliability that could be achieved through mandatory verification of
compliance and the ability to impose penalties and sanctions for non-
compliance.
Apart from the particulars of the August 14th outage and without
knowing whether or not violations of our reliability standards
occurred, one important step Congress can and should take to strengthen
the reliability of the bulk power system in general would be to pass
legislation to make the reliability rules mandatory and enforceable.
NERC and a broad coalition of industry, government, and customer groups
have been supporting legislation that would authorize creation of an
industry-led self-regulatory organization, subject to oversight by FERC
within the United States, to set and enforce reliability rules for the
bulk power system. The comprehensive energy bills that have passed both
the House and the Senate have versions of that reliability legislation.
NERC looks forward to working with the conference committee to achieve
passage of that legislation this year.
NERC is fully committed to finding out what happened on August 14,
why it happened, and to see that steps are taken to prevent a
reoccurrence. We are committed to supporting the U.S.-Canada Task Force
in fully disclosing all the facts, the reasons for the cascading
failure, and recommendations that will make the electricity grids in
North America more reliable.
Thank you.
[Attachments are retained in subcommittee files.)
Chairman Tauzin. Thank you, Mr. Gent.
Now we hear from the two area councils. I understand they
operate under the umbrella of NERC. We will hear first from the
Executive Manager of the East Central Area Reliability Council,
Mr. Brant Eldridge.
STATEMENT OF BRANT H. ELDRIDGE
Mr. Eldridge. Thank you, Mr. Chairman and members of the
committee. We appreciate the opportunity to assist your review
here. For brevity, I will simply summarize my written
testimony.
ECAR is one of the 10 regional reliability councils of
NERC. We were formed in 1967, and our membership is voluntary
and open to any entity impacting the reliability of bulk power
systems in the ECAR region. Our membership includes entities
that own and operate electric systems in all or portions of the
States of Michigan, Ohio, Indiana, Kentucky, Virginia, West
Virginia, Pennsylvania, Maryland and Tennessee.
It is important to note that ECAR itself is not a system
planning or operating entity. Rather, ECAR is the forum through
which the regional entities that are responsible for real-time
assistance operations and planning coordinate reliability
matters. The responsibility for planning and operating the ECAR
region's bulk power systems rests with ECAR control area
members.
The August 14 blackout impacted electric systems in Ohio
and Michigan, among several other States and provinces. In the
ECAR region the most severely impacted systems were those of
First Energy, Detroit Edison, and International Transmission
Company. To a much lesser degree, Consumers Energy, Michigan
Electric Transmission Company, and American Electric Power were
also affected.
Every effort is being made to properly coordinate the
parallel investigations currently being conducted by the
affected regional reliability councils and NERC. ECAR has an
investigation under way, and ECAR members have provided
information and other assistance to NERC's inquiry. As others
have noted, the results of NERC's investigation, which we will
be inputting to, will be an important input to the U.S.-
Canadian effort.
As stated by others, the various investigations are not
complete and will certainly take several more weeks at a
minimum to finish. A massive amount of technical data is still
being accumulated, which will be analyzed and evaluated to
determine the cause or causes of the blackout.
Over the years, NERC and its regional councils, including
ECAR, have developed operating and planning standards and other
reliability criteria that are aimed at keeping the
interconnected bulk power systems reliable. A large, complex,
interconnected power system cannot be made 100 percent fail-
safe. The goal of NERC and its regional councils, including
ECAR, is to prevent the inevitable local problems from
cascading out of control to other areas. Adherence to both NERC
and ECAR reliability criteria is a fundamental obligation of
ECAR membership.
The August 14 blackout did not spread throughout the
eastern interconnection. A basic reason is that the automated
controls for systems that did not shut down detected abnormal
operating conditions and disconnected their lines from the
affected systems. Such automated system control operations
prevent possible damage to major equipment, limit the extent of
service disruption to customers, and enable the restoration
process to proceed much more quickly than would otherwise be
possible.
Apart from any specific actions the blackout investigations
may identify, there are several parallel issues that should be
addressed. There have been relatively few new transmission
lines built in the U.S. in the last 15 years, even as the
demand for electricity has continued to grow and new generation
has been installed to meet these demands. In addition, the
existing transmission infrastructure is now being used in ways
for which it was not designed. It was initially designed
primarily to enable neighboring utilities to exchange power in
the event of a loss of generation. But, today, many
transmission lines are often heavily loaded as large amounts of
power are transferred across multi-State regions. Therefore, a
significant priority is to move forward with necessary
modernization upgrades and expansion of the Nation's
interconnected high-voltage transmission systems. Appropriate
economic incentives are urgently needed.
Federal and State governmental agencies should also enable
utilities and merchant generators to site new generation
facilities in locations that would relieve constraints and thus
help reduce the need for major new transmission lines. However,
where new transmission is required, we must have the political
will to proceed.
Also, resolution is needed to the ongoing national debate
regarding FERC initiatives for the establishment of regional
transmission organizations and standard market design. Finally,
Congress is urged to adopt Federal reliability legislation that
would make compliance with bulk power system reliability
standards mandatory and enforceable.
Mr. Chairman, ECAR is committed to doing its part to
determine the cause or causes of the August 14 blackout and to
help ensure that the bulk power system reliability is
maintained in the future. I thank you for your leadership of
this effort and will be pleased to respond to the committee's
questions.
[The prepared statement of Brant H. Eldridge follows:]
Prepared Statement of Brant H. Eldridge, Executive Manager, East
Central Area Reliability Council
Chairman Tauzin, Ranking Member Dingell, and Members of the
Committee, thank you for the opportunity to assist the Committee's
review of the August 14 blackout events through participation in this
important hearing.
ECAR is one of the ten regional reliability councils of the North
American Electric Reliability Council (``NERC''). ECAR serves as the
forum for addressing matters related to the reliability of the bulk
power systems in the east central region of the U.S.
Parts of the ECAR Region were among the widespread areas affected
by the blackout events. Among the major questions to be answered are:
what caused the blackout and why did it spread so far?
ecar overview
Formed in 1967 in the aftermath of the 1965 Northeast Blackout,
ECAR is a non-profit, member funded, unincorporated association.
Membership in ECAR is voluntary and is open to any entity having an
effect on or interest in the reliability of the ECAR bulk power systems
(generation and high voltage transmission).
The membership of ECAR includes entities that own and operate
electric utility systems in a geographic area covering all or portions
of the states of Michigan, Ohio, Indiana, Kentucky, West Virginia,
Virginia, Pennsylvania, Maryland, and Tennessee. Since ECAR's
formation, all key entities in the ECAR Region that are involved in the
planning and operation of bulk power systems in ECAR have been and are
members.
ECAR Structure
The core ECAR governing document is the ``East Central Area
Reliability Coordination Agreement'' (``ECAR Agreement''). The stated
purpose of the ECAR Agreement is ``to augment reliability of the
parties' bulk power supply through coordination of the parties'
planning and operation of their generation and transmission
facilities.''
Under the ECAR Agreement, the governing body of ECAR is the
Executive Board. Each member of ECAR is represented on the Executive
Board. Reporting to the Executive Board is the Coordination Review
Committee (``CRC'') which, like the Executive Board, is composed of
representatives of ECAR members. The CRC directs and oversees all
technical activities of ECAR. To carry out its responsibilities, the
CRC is supported by nine member-populated technical panels.
ECAR also has a Market Interface Committee that serves as the ECAR
forum for addressing issues related to the interface between the NERC
and ECAR reliability criteria and the wholesale electric market. A
small full-time staff located in Canton, Ohio provides support
necessary to perform the ECAR's various functions.
Currently, there are twenty one (21) ECAR ``Members'' and seventeen
(17) ECAR ``Associate Members.'' Members have voting rights and provide
most of the technical and financial support for ECAR activities.
``Associate Members'' do not have voting rights and provide relatively
little of the technical and financial support of ECAR, but are
represented on the ECAR Executive Board and in other ECAR groups, and
participate in deliberations regarding the reliability of the ECAR bulk
power systems.
ECAR members commit to (i) adhere to the reliability policies,
principles, procedures, criteria, and practices adopted by the
Executive Board pursuant to the ECAR Agreement; (ii) furnish all system
data, studies, and other technical support necessary to coordinate
planning and operation of ECAR's bulk power supply; and (iii) provide
necessary financial support.
Reliability Criteria and ECAR Role
The ECAR Members have developed a set of reliability criteria
called the ``ECAR Documents.'' There are currently fifteen (15) ECAR
Documents that have been approved and adopted by the ECAR Executive
Board. The ECAR Documents are written to be in concert with the NERC
Operating Policies and Planning Standards (collectively, the
``reliability rules of the road''). The ECAR Documents also address
certain ECAR-specific reliability criteria. Compliance with the ECAR
Documents and the NERC Operating Policies and Planning Standards is
considered a fundamental obligation of all ECAR members.
It is important to note that ECAR is not a system planning or
operating entity. Rather, ECAR is the forum through which those
entities in the ECAR Region that are responsible for system planning
and real-time system operations address and coordinate matters related
to the reliability of the bulk power systems in ECAR. The
responsibility for the planning and operation of the ECAR bulk power
systems rests with ECAR Members. Each ECAR Member has the obligation to
plan and operate its generation and/or transmission system in
accordance with the NERC Operating Policies and Planning Standards and
the ECAR Documents.
blackout investigation
As the Committee is aware, the August 14th blackout impacted
electric systems in Ohio and Michigan, among several other states and
parts of Canada. Affected systems in Ohio and Michigan are part of the
ECAR Region. The most severely impacted systems in the ECAR Region were
those of FirstEnergy, Detroit Edison, and International Transmission
Company. To a much lesser degree, Consumers Energy and Michigan
Electric Transmission Company in Michigan and American Electric Power
in Ohio were also affected.
Following the blackout came the major task of restoring service to
all affected customers. The ECAR Region systems that were impacted by
the blackout immediately focused their resources on the restoration
effort. Neighboring ECAR systems and others that were not blacked out
were able to facilitate the restoration process by assisting in the
reenergization of transmission facilities and supplying power. Many
impacted customers had their service restored within several hours of
the blackout, although for some customers it took one to two days.
ECAR Participation in Joint Investigation
The United States and Canada are jointly conducting an
investigation of the August 14th blackout events, with Energy Secretary
Spencer Abraham leading the U.S. involvement in this effort. NERC and
its regional reliability councils are fully supporting the U.S.Canada
investigation through parallel investigations being conducted by NERC,
ECAR, Northeast Power Coordinating Council (``NPCC''), Mid-Atlantic
Area Council (``MAAC''), and others. ECAR members have provided
information to NERC's inquiry.
Every effort is being made to properly coordinate the regional
reliability council and NERC investigations. The results of the ECAR,
NPCC, and MAAC investigations will be inputs to the NERC investigation.
In turn, the results of the NERC investigation will be an important
input to the U.S.-Canada investigation.
It is ECAR's understanding that the U.S. Department of Energy will
coordinate release of information related to the investigation of the
blackout events. The various investigations are not complete. While it
is not known at this time how long it will take to conclude this
detailed work, it will certainly require several more weeks, if not
months, to finish the investigations. A massive amount of technical
data still being accumulated will be analyzed and evaluated to
determine the cause(s) of the blackout.
The end result will be the release of a report from the joint U.S.-
Canada investigation effort. While it is premature to speculate on the
final conclusions, once the root cause(s) of the blackout are
identified and understood, ECAR (along with NERC and other regional
reliability councils) will utilize the lessons learned from the
investigations to: (i) implement all needed actions to lessen the
probability of future widespread, cascading blackouts, (ii) reduce the
impact of such an occurrence should it happen again, and (iii) enable
more rapid system restoration.
ECAR Inquiry Elements
Among other questions to be addressed, the investigations by ECAR
and others are considering such issues as:
1) What were the conditions in the interconnected power systems in the
several hours prior to the blackout, and what was the precise
sequence of events that led up to the initiation of the
cascading blackout?
2) What caused these events to result in the initiation of the
cascading blackout?
3) Once the blackout began, why did it spread so far and so fast?
4) Did system protection devices and other equipment vital to the
reliable operation of the bulk power systems operate as
intended?
5) Are there any problems or deficiencies with the existing reliability
rules and procedures?
6) Were there violations of the existing reliability rules for the
real-time operation of the interconnected power systems?
7) Were communication and system operation oversight mechanisms and
protocols a factor in the blackout occurring?
8) What can be done, both short term and long term, to prevent such
blackouts in the future?
building on lessons learned
These questions are central to developing a more comprehensive
understanding of August 14th. Even as we are conducting this ongoing
investigation, it is important for the Committee to be aware of the
lessons learned and implemented in the almost forty years since the
major 1965 Northeast Blackout.
As a result of the 1965 blackout investigations, NERC, ECAR, and
the other regional reliability councils were formed in the 1967-68
timeframe. In the intervening years, NERC and its regional councils
have developed operating and planning standards and other protocols
aimed at keeping the interconnected bulk power systems of North America
reliable.
By ``reliable'', it is meant that the bulk power systems will be
planned so as to meet the aggregate demand for electric energy
(industrial, commercial and residential customer load), and that the
interconnected power systems will be operated in real-time so as to
prevent localized problems within the bulk power system from becoming
widespread, uncontrolled, cascading blackouts.
Ongoing ECAR Reliability Actions
With the rare exceptions of the 1977 Northeast blackout (which was
not as widespread as the one in 1965) and the 1996 events in the
Western Interconnection, the industry's collective efforts to maintain
the reliability of the interconnected bulk power systems have been
successful until the August 14th blackout.
A large, complex interconnected power system cannot be made 100%
fail-safe. The goal of NERC and its regional councils is to prevent the
inevitable local problems from cascading out of control to other areas.
Clearly, something went wrong on August 14th, and the investigation now
underway will, in time, result in a full understanding of what were the
cause(s) of the 2003 blackout.
As part of its scope of responsibility, ECAR periodically assesses
the reliability of the ECAR Region and revises its Documents as needed.
Some of the steps that ECAR does and has done since the earlier
blackout events to improve the reliability of the bulk power systems
include:
1. ECAR performs assessments of the adequacy of the ECAR transmission
systems to satisfy the load requirements of our region. This is
normally done twice a year (for the summer and winter seasons).
Periodically, an assessment is done for a future year. The
purpose of these assessments is to identify potential
transmission constraints and to provide a relative indication
of the expected performance of the ECAR transmission systems
and surrounding Regions' systems as compared to the previous
year under a variety of possible operating scenarios.
2. ECAR participates on three interregional groups that assess the
adequacy of the transmission systems for the upcoming summer
and winter seasons in the involved regions. For the various
interregional studies, ECAR works with NPCC, MAAC, Mid-America
Interconnected Network (``MAIN''), and the Virginia-Carolina
(``VACAR'') and Tennessee Valley Authority (``TVA'') subregions
of Southeastern Electric Reliability Council (``SERC'').
The interregional studies and the ECAR-specific assessments are
verycomprehensive and cover many possible scenarios. However,
the interconnected bulk power system is very complex and it is
not practical to study every possible scenario of system
operating conditions.
3. ECAR has implemented an Automatic Reserve Sharing System (``ARS'').
The purpose of this system is to enable a company to recover
from a sudden loss of generation as quickly as possible. In
essence, whenever an ECAR generator trips, all the Control
Areas in ECAR may be called upon to participate in replacing
the power from the generator that tripped instead of just the
Control Area where the tripped generator resides. Use of the
ARS results in one or more ECAR systems increasing generation
to replace the power lost when a unit is tripped, and speeds
the recovery from the lost generation. The ARS system is most
useful when the system demand is high and generation reserves
are tight.
4. ECAR has implemented a FERC-approved Inadvertent Settlement Tariff.
The purpose of this tariff is to discourage companies, through
financial penalties, from taking power from the Interconnection
during periods when power is costly and the interconnection is
operating below normal frequency.
5. ECAR performs assessments of the adequacy of generation resources to
satisfy the load requirements of our region. Three assessments
are done every year. One is done for the upcoming summer
period, one is done for the upcoming winter period, and one is
done for the next ten years (with primary emphasis on the next
five years).
For each of the items, it is premature to determine their
effectiveness or ineffectiveness concerning the August 14th blackout.
We need to understand the cause(s) of the blackout events before we can
fully evaluate this question. Any deficiencies that are identified from
the investigations will be corrected.
preventing a reoccurrence
What we clearly do know at this juncture is that the blackout
affected a significant portion of the east central and northeastern
parts of the country. Fortunately, the cascading did not spread through
the Eastern Interconnection. The basic reason it did not spread further
is that the automated control systems for those transmission systems
that did not shut down detected abnormal operating conditions and
disconnected their transmission lines from those of affected systems.
The purpose of such automated system control operations is to prevent
possible damage to major equipment and injury to utility personnel and
the public. Avoiding damage to major equipment enables the system
restoration process to proceed much more quickly than it otherwise
would.
Systems Modernization and Expansion Priority
Certainly, one issue that must be addressed, apart from any
specific lessons learned from the blackout, is how to move forward with
necessary modernization, upgrades, and expansion of the U.S.'s
interconnected high voltage transmission systems.
By and large, these systems have served the Nation well. However,
there have been relatively few new transmission lines built in the U.S.
in the last 15 years, even as the demand for electricity has continued
to grow and new generation has been installed to meet the growing
demand.
The reasons for this situation have been well documented by many
parties and key factors include: (i) lack of economic incentives to
invest in new transmission infrastructure; (ii) inability and
uncertainty regarding rate recovery for transmission investments; and
(iii) public and governmental opposition to construction of new
transmission lines which makes it very difficult to obtain the
necessary permits to construct needed new lines.
Realigning System Constraint
Another important issue is that the existing transmission
infrastructure is now being used in ways for which it was not designed.
This is primarily a result of the deregulation of the generation
segment of the electric power industry. The Energy Policy Act of 1992
paved the way for competition in the generation segment and the
subsequent FERC Order 888 provided for open access to the
interconnected transmission systems to enable the establishment of
large regional markets for electric energy.
The existing transmission infrastructure was initially designed
primarily to enable neighboring utilities to exchange power in the
event of a loss of generation or for economic reasons. With the
deregulation of the generation segment, many transmission lines are now
often heavily loaded as large amounts of power are transferred across
multi-state regions. This has resulted in a situation where some
transmission lines are now being operated closer to their design limits
more of the time than before deregulation opened use of the
transmission systems to foster wholesale competition. This is not to
say that the transmission systems are being operated beyond their
allowable limits, but only to point out that some transmission systems
are operating with less margin than before for contingencies.
In those areas where the transmission system is frequently
constrained (heavily loaded and unable to take any more power flow),
and where it is also politically or otherwise not feasible to build
needed new transmission, the installation of local generation
facilities (as opposed to remotely located facilities) would help to
ease the burden now placed on such constrained transmission lines.
Federal and state governmental agencies can play a key role by taking
actions to improve the ability of utilities and merchant generators to
site new generation facilities in locations that would help ease
transmission constraints. The benefits to the country of such actions
would be a more secure transmission system that would operate more
reliably while achieving the aspirations of deregulation.
Legislative and Regulatory Action
Finally, apart from any specific actions the blackout
investigations may identify as necessary to enhance the real-time
operational security of the interconnected bulk power systems,
government policymakers are urged to address:
1) The need for passage and implementation of federal reliability
legislation that would make compliance with bulk power system
reliability standards mandatory and enforceable.
2) The need to provide appropriate economic incentives for investments
in needed expansion, upgrading, and modernizing of the
interconnected transmission systems and related critical
electric system infrastructure.
3) The need to provide for the siting of major transmission projects
through eminent domain, if necessary, when it is determined by
appropriate governmental authorities to be for the greater good
of the Nation.
4) The need for resolution of the on-going national debate regarding
the Federal Energy Regulatory Commission (``FERC'') initiatives
for the establishment of Regional Transmission Organizations
(``RTOs'') and Standard Market Design (``SMD'').
Mr. Chairman, on behalf of the ECAR membership, we are committed to
doing everything possible to determine the cause(s) of the August 14th
blackout and to help ensure that bulk power system reliability is
maintained in the future. ECAR is available to provide any additional
information the Committee may request.
Chairman Tauzin. Thank you, Mr. Eldridge.
Finally, Mr. Charles Durkin, who is the Chairman of the
Northeast Power Coordinating Council, New York, New York. Mr.
Durkin.
STATEMENT OF CHARLES J. DURKIN, JR.
Mr. Durkin. Thank you, Mr. Chairman. As the other
colleagues at this table, I am pleased to be here, and I thank
you for the opportunity to speak to you and the members of the
committee.
I am going to jump over a good part of what I was planning
to say, since the table has already said quite a bit of it. But
let me first talk about NPCC.
The NPCC region includes all of New York, New England, and
Eastern Canada. The Canadian provinces are Ontario, Quebec and
the Maritime Provinces. The load in our region between the
Canadian provinces and the U.S. States is split about 50-50,
with actually about 70 percent of the Canadian load within our
region.
The NPCC membership agreement provides for an open and
inclusive membership and a fair and nondiscriminatory
government structure. Within NPCC adherence to reliability
criteria is enforced through a comprehensive program of
compliance monitoring and nonmonetary sanctions.
So what happened on August 14? The immediate electrical
events observed at NPCC prior to the blackout occurred starting
at about 4:10 p.m. eastern daylight time, with a sudden
reversal of power flow between Ontario and Michigan. The NPCC
system appears to have remained stable during this energy power
surge. Within a minute or so, the NPCC region observed large
in-rushing power flows and severe frequency and load
oscillations. This power swing caused the tripping of
interregional and regional tie lines. Consequently, portions of
the NPCC region separated from the eastern interconnection.
As a result, most of New England and the Maritimes
successfully islanded from the rest of the interconnection. The
Quebec area, because of its HVDC ties, was not affected.
New York divided into two islands, a northwest island and a
southeast island. The northwest island was also connected to
eastern Ontario and continued to serve load. The southeast
island, also connected to southwest Connecticut and Long
Island, had insufficient generation to meet its load and
blacked out. That, of course, includes New York City.
Northwest Ontario, separated from the rest of the Ontario
system, remained connected to Manitoba and Minnesota. Eastern
Ontario separated from the rest of Ontario but remained
connected to the northwest New York island, which continued to
serve load. The remaining portion of Ontario had insufficient
generation to meet its load and also blacked out.
On August 15, NPCC announced that it would conduct an
investigation into what happened within NPCC. That
investigation involves determining a sequence of events,
figuring out why the sequence occurred that way, and also an
analysis of the restoration.
In addition, along with the Chairman of MAAC, which is the
regional council basically similar to PJM and ECAR, the three
chairmen and myself have established a flexible coordination
agreement with NERC as we proceed to investigate the blackout.
I serve as the facilitator for this coordination, and we
are presently using an existing group within the three regions
to develop both the steady state low flow cases and the dynamic
computer models that will be necessary to conduct a detailed
analysis once the sequence of events is put together.
Early indications are that the systems within NPCC that
have been designed to protect the power system operated as
expected. Similar to other regions, very little power system
equipment was damaged by the power surges; and that, of course,
was very important in allowing for a timely restoration.
The events of August 14 have focused attention on the
reliability interdependency of the systems within the eastern
interconnection. This interdependency is by design and has been
critical in avoiding blackouts in the past. As has been
mentioned, one primary responsibility of each of the regions is
to make sure local actions are taken to keep local problems
from spreading.
With regard to the future, we certainly need to wait until
the analysis is done. However, in the meantime, NPCC has
indicated its support for enactment of the U.S. electric
reliability legislation and its preference for section 16031 of
H.R. 6 as previously passed by the House of Representatives. In
a letter attached to this testimony, NPCC has outlined its
support for the provisions within this legislation which
authorize the establishment of industry-based reliability
organizations and advance NPCC's international reliability
assurance efforts. NPCC prefers the language in section 16031
of H.R. 6 because it contains express acknowledgment of the
necessity for more stringent criteria to address the unique
reliability needs within New York.
In closing, I thank you again for this invitation to speak
with you today.
Chairman Tauzin. Thank you, Mr. Durkin. Thank you for your
endorsement of our provisions in the House bill. I happen to be
closer to those provisions than those in the Senate bill, as
you might guess.
[The prepared statement of Charles J. Durkin, Jr. follows:]
Prepared Statement of Charles J. Durkin, Jr., Northeast Power
Coordinating Council
i. introduction
My name is Charles J. Durkin, Jr. I am Chairman of the Northeast
Power Coordinating Council (``NPCC''), the international regional
electric reliability organization for northeastern North America. My
business address is Northeast Power Coordinating Council, 1515
Broadway, 43rd Floor, New York, New York 10036.
Prior to acceptance of this position in January 1999, I was a
senior electric power executive for Consolidated Edison in New York
City. I continue to provide consulting services to them and the
industry. A summary of my qualifications is included at the end of this
statement.
I am pleased to have this opportunity to appear before you to
discuss the electric power disruptions experienced on August 14, 2003
and to tell you about NPCC's numerous follow-up activities.
brief description of npcc
Let me start by giving you a brief description of NPCC. The
Northeast Power Coordinating Council is one of ten Regional Reliability
Councils, which together make up the North American Electric
Reliability Council (``NERC''). NPCC's Region encompasses Northeastern
North America, including all of New York and New England, and the area
in Eastern Canada comprised of the Ontario, Quebec and Maritime
Provinces. NPCC is almost equally balanced, 50 percent U.S. and 50
percent Canadian. Approximately 70 percent of Canada's load is located
within NPCC's region.
NPCC plays a vital role in assuring the reliability of the
international, interconnected bulk power systems in its Region. The
NPCC Membership Agreement provides for open and inclusive membership,
and fair and non-discriminatory governance with the Council's
activities directed by a balanced stakeholder Executive Committee.
Each NPCC Member is obligated to plan, design and operate its bulk
power system in compliance with mandatory regionally-specific
reliability criteria and broad-based industry-wide NERC standards.
Within NPCC, adherence to reliability criteria is enforced through a
comprehensive program of compliance monitoring and non-monetary
sanctions.
ii. what happened on august 14th
The sequence of events experienced in the NPCC Region on August
14th happened in a very short time period (seconds) and was initiated
by events outside its boundary. A full understanding of the events will
come from careful review of all the data, on a consistent basis.
What we know at the present time comes from information supplied by
the operating entities within the affected areas. This information is
still in the process of being reviewed and time-sequenced by NPCC and
NERC. The following information may be revised as the disturbance
analysis continues.
The immediate electrical events observed in NPCC prior to the
blackout occurred starting at approximately 4:10 p.m. EDT with the
sudden reversal of power flow between Ontario and Michigan. The NPCC
system appears to have remained stable during this initial power surge.
Within a minute or so, the NPCC Region observed large inrushing power
flows, and severe frequency and load oscillations. This first power
swing caused the tripping of inter-regional and regional tie lines.
Consequently, portions of the NPCC Region separated from the Eastern
Interconnection. As a result:
Most of New England and the Maritimes Area successfully islanded from
the rest of the eastern interconnection;
The Quebec Area, because of its HVDC ties, was not affected;
New York divided into two islands, northwest and southeast. The
northwest island, also connected to eastern Ontario, continued
to serve load; the southeast island, also connected to
southwest Connecticut and Long Island, had insufficient
generation to meet its load and blacked out.
Northwest Ontario (west of Wawa, Ontario) separated from the rest of
the Ontario system, but remained connected to the Manitoba and
Minnesota systems and was not affected. Eastern Ontario
separated from the rest of Ontario, but remained connected to
the northwest New York island, which continued to serve load.
The remaining portion of Ontario had insufficient generation to
meet its load and blacked out.
summary of present analysis
On August 15th, NPCC announced it was assembling an assessment team
of regional experts to perform a detailed analysis of events within the
Region. This activity, which will require significant effort, will be
coordinated with NERC, the DOE, Provinces and States. The analysis is
expected to require extensive investigative work to determine the
factors within NPCC that contributed to the wide spread blackout. It is
anticipated that it will take several months to complete.
NPCC has adopted an aggressive three-phase approach in its internal
analysis of the blackout; first, to develop a detailed sequence of
events within NPCC; and second, to conduct a detailed analysis of the
events that resulted in the cascading collapse of a major portion of
the NPCC Region and identify areas for analysis. Included in this
analysis will be a review of the sequence of the restoration. The third
phase of the analysis will develop findings, conclusions and
recommendations for further study.
In addition, the Chairman of MAAC, a designated representative for
ECAR and I, as Chairman of NPCC, have established a flexible
coordination agreement with NERC as we proceed with our analysis of the
Blackout of 2003.
I serve as the Regional blackout investigation facilitator, working
closely with the NERC blackout investigation steering group. NERC's
efforts will supplement and contribute to the Joint U.S. DOE-Canadian
Task Force Investigation.
The Regions assigned an existing MAAC-ECAR-NPCC (``MEN'')
interregional Study Committee the role of lead industry blackout study
team and directed them to update the MEN 2003 summer load flow base
case computer model to represent the system conditions that existed on
August 14th. In addition, building on the dynamics analysis efforts
already underway within NPCC, a Major System Disturbance Task Force
(``MSDTF'') has been formed under the MEN Study Committee to develop a
companion dynamics database. These cases will serve as the basis of the
computer simulations of the events of August 14th.
iii. npcc systems operated as designed
Early indications are that systems in NPCC designed to protect
power system equipment operated as expected. Very little power system
equipment was damaged by the power surges that came crashing in over
the NPCC tie lines.
In an occurrence such as this, one of the greatest dangers to the
restoration of electric service is the potential for damage to the
system itself--the power plants and the transmission lines, and related
equipment. If damage of this nature occurs, it potentially could take
days, weeks, or months to complete restoration. The complex protective
mechanisms installed on the NPCC system, its power plants and related
equipment worked as intended and no serious equipment damage was
reported.
iv. lessons learned
The events of August 14th have focused attention on the reliability
interdependency of systems within the eastern interconnection. This
interdependency is by design. The resources of the interconnected
systems have throughout the years successfully supported individual
utilities during times of capacity shortages and following sudden
contingencies. As a result of this support, blackouts have been
avoided.
However, this interdependency also carries risk and specific
responsibilities. The system must be operated consistent with its
design in order to reap the economic and reliability benefits
associated with interconnections. One primary responsibility is that
local actions must be taken to keep local problems from spreading.
This appears to not have happened in this case. Speaking from an
NPCC perspective, by the time the systems in New York and Ontario saw
indications of a serious problem, it was already too late.
v. avoiding future blackouts
With regard to actions that can be taken to reduce the potential
for future blackouts, we must avoid speculation and wait until the
investigation currently underway is completed. Some of these possible
actions can be extremely costly.
However, in the meantime, NPCC has indicated its support for
enactment of U.S. electric reliability legislation and its preference
for section 16031 of H.R. 6 as previously passed by the House of
Representatives. In a letter attached to this testimony, NPCC has
outlined its support for the provisions within this legislation, which
authorize the establishment of industry-based reliability
organizations, and advance NPCC's international reliability assurance
efforts. NPCC prefers the language in section 16031 of H.R. 6, because
it contains express acknowledgement of the necessity for more stringent
criteria to address the unique reliability needs within New York.
closing
In closing, I thank you for the invitation to speak with you today,
and answer questions you may have. I reaffirm NPCC's unwavering
commitment to assuring a high level of electric system reliability and
stand ready to take the necessary actions to accomplish this objective.
Chairman Tauzin. Let me first see if you all agree with me.
We have heard from three panels now, all of whom have said that
before we definitively say what happened, how it happened, and
before we define the sequence of events and, therefore, before
you can tell us what you recommend we do to correct the
problem, there is still a little work to do and that none of
you are prepared to definitively say essentially what caused
this or why it spread and why some regions were able to isolate
themselves and others were not. Is that generally correct?
Let the record reflect the witnesses have all indicated
yes.
Second, Chairman Wood, I want to make sure the record is
clear on this, because people have confused the mandatory
reliability standards which Mr. Gent has spoken on television
about and on which our bill speaks to in the House provisions
that Mr. Durkin just endorsed. They have confused those
provisions of mandatory reliability standards in these
organizations with the questions of mandatory membership in the
RTOs, which is the subject of a Senate amendment, as you know.
Mr. Wood. Yes, that is a separate issue.
Chairman Tauzin. As far as we are concerned in the House
bill and the Federal regulatory commission which you chair, the
House provisions were, in fact, worked out in concurrence with
your office and you support those provisions, do you not?
Mr. Wood. We do.
Chairman Tauzin. And they include native protections for
native load customers, is that correct?
Mr. Wood. They do.
Chairman Tauzin. And for the purpose of explanation for all
who may be listening, those protections are designed to make
sure that when utilities join a regional transmission authority
that they do so with the capacity at least to ensure that it
doesn't prejudice those customers who live in the area where
the load is native, where it exists, and where those customers
have been supportive of that utility and its transmission
lines, is that correct?
Mr. Wood. That is right. Yes, sir.
Chairman Tauzin. And we have worked out that language to
your satisfaction, is that correct?
Mr. Wood. Yes, sir.
Chairman Tauzin. Next, I wanted to please have an
explanation, Mr. Eldridge. We have had a lot of members say, by
golly, with all of the kind of guaranteed profit a person can
make if they build a transmission line, why has demand
increased so dramatically on these lines? If there is a
guaranteed profit to be made, where are the investors? What is
not happening? Why aren't we building new transmission lines
just to take care of this enormously increasing demand?
Mr. Eldridge. Well, the demand has been driven by continued
load growth.
Chairman Tauzin. That just means people are using more
electricity. I have more customers using more electricity, the
government says I can make 11, 12 percent, whatever it is. Why
isn't Wall Street rushing, the financial markets rushing to
support investments in new transmission? What is the problem?
Mr. Eldridge. I can't answer that question.
Chairman Tauzin. Somebody on this panel can. What is the
problem? Come on. Anyone want to try it?
Mr. Lark, you look like you have the answer.
Mr. Lark. I don't know that I have an answer for you
exactly, but I wouldn't say there has been no investment.
Chairman Tauzin. There has been some.
Mr. Lark. As I understand it, and I think I get this from
NERC press releases, I think there is $3 billion per year.
Chairman Tauzin. Yes. And I have seen numbers coming out of
New York where demand is growing exponentially compared to
investment in new transmission lines. It is essentially the
problem in California, Path 15. You have extra power in
northern California, a big demand in southern California, they
can't get it from one end of the State to the other because you
can't build a transmission line. If it is so profitable, if
there is so much money to be made there, why aren't people
flocking to build transmission lines?
Do you want to handle that, Mr. Wood? The Chairman of the
FERC, tell us why.
Mr. Wood. If I were an investor, I would want to know what
the rules of the road are so I know how I am going to get my
money back, and I think there are a couple of different ways to
slice that salami, but pretty much put your money where you
have a good return. The promise of 12 percent is fine, but if
you have a State squabble over whether you get any percent,
much less 12, if there is a question about whether you have a
cap on your retail rate like we saw in the West and we have
seen in other States.
Chairman Tauzin. So there is uncertainty in investment,
essentially.
Mr. Wood. I would think that is an understatement.
Chairman Tauzin. And, second, you have to tie up your money
for a long time waiting for all the permitting to go through,
the siting problems, the lawsuits, the lawyers that come in and
file suits on behalf of everybody who doesn't want a
transmission line built in their backyard. So why would you tie
your money up for all of these years waiting for this project
to get approved?
Mr. Wood. It is not attractive.
Chairman Tauzin. It really isn't attractive today, is it?
Mr. Wood. And for a regular utility, it is a small part of
their business.
Chairman Tauzin. It is a small part of the business.
Mr. Wood. So why go through the headache?
Chairman Tauzin. Why go through that headache when you can
put your money into a new generation facility and just drop
that load on that old line and hope it holds up.
Doctor, you are about to tell us what is going on here.
Mr. Schriber. I think it is more than just a siting issue,
and I do agree that there are some siting issues there, but, as
you suggested, investment dollars are going to chase those
investments that have potentially the greatest yield at the
less risk.
Chairman Tauzin. And the quicker yield, right?
Mr. Schriber. And the quicker. But if each one of us at
this table had our own transmission systems and we each had our
own concept of where the dollars needed to be spent, I would
perceive that as more risky than if we all joined and agreed
that there was, with one of us in control, a specific place
that needed it more than anywhere else which would dictate the
maximum.
Chairman Tauzin. But the point I am making, and I hope you
don't disagree with me, and if you do, I would love to hear it,
is that it is not just the question of saying you can get a
guaranteed rate of return if you build one. There has to be
some rules of the road that are clear. There has to be an
investment opportunity that is clearly understood by investors.
There has to be some time certain in the process and some
clarity in whether or not you are going to get permitted or
whether or not you will be in court forever. Aren't all of
those problems with investing in transmission lines, and
shouldn't we be addressing as many as we can if we are going to
get some new transmission lines built?
I see you shaking your head, Mr. Durkin.
Mr. Durkin. I think I would add one more to that, and that
is exactly how does the return, be it 12, 13 percent or
whatever, you know, get collected and distributed.
Chairman Tauzin. Yes. That is another point: What happens
to those returns?
Let me ask you, too, you tell me there was some indication
that something was wrong within this area. There were some
fluctuations of frequencies. We saw a shift in the electrons.
Instead of flowing in one direction, they were shifting around
the loop in the other direction an hour or something before.
What happened? Who called whom? Did any of you get a phone call
or any of your counsels get a phone call saying there were some
real aberrations on the system going on?
Mr. Durkin. I will answer that. From so far, everything we
have investigated within NPCC is there was no phone calls.
Chairman Tauzin. No phone calls.
Mr. Durkin. The first indication there was a problem within
NPCC was the reversal of flow that took place at about 4:10.
Chairman Tauzin. So maybe we have to look real hard at how
these things get communicated and how people know there is a
problem and who is in charge of making sure the right person
gets the information so that they can make the right decision
in terms of separating from a system that is about to go down.
I mean, we don't--you are not ready to tell us what
happened, Mr. Gent. I know that. But we do at least have some
insights here, that there were a lot of surges occurring, and
that it had held together for a while and then there started to
be things separating and plants shutting down. And all of a
sudden there wasn't enough power, and switches started
tripping, and people were suddenly without lights. I mean, that
is generally what happened. How it all happened and in what
sequence you are going to tell us later. But doesn't that speak
to real communication problems, that all of this was happening
and the right person didn't get the right message to do the
right thing?
Mr. Gent.
Mr. Gent. Mr. Chairman, I listened to many people testify
today; and I would like to assure you that the communication
equipment and protocols are all in place.
Chairman Tauzin. But did they work well?
Mr. Gent. That is part of the investigation.
Chairman Tauzin. They are in place, but did they work?
Second, there was some comment and, Mr. Durkin, you talked
about mandatory regional specific reliability criteria, and I
don't want to get into all of that. But today if your members
join, they sign operating agreements with you, don't they? Are
they enforceable operating agreements? If somebody violates
them, what are your rights? What do you do?
Mr. Durkin. Our membership agreement requires anyone who
joins, which the five control areas that operate in our area,
our region are members, it requires them to adhere to the
criteria and so forth. We assess it. We do check. We make sure
they do, and we use enforcement tools such as--we use a
nonmonetary penalty, but we will inform the regulatory
structure, we will inform the governmental structure.
Chairman Tauzin. What does that mean? You have nonmonetary
regulatory tools. What are they?
Mr. Durkin. The first level is peer pressure within our
organization.
Chairman Tauzin. Peer pressure?
Mr. Durkin. Let me finish, because it works well within our
region.
The second thing that we do is we will send letters to
regulators, the regulatory structure.
Chairman Tauzin. Letters to embarrass them into doing the
right thing?
Mr. Durkin. Well, just to let the regulators who have
oversight for the operating entities within our region know
that they are not in compliance.
Chairman Tauzin. So you sort of report them to the dean?
Mr. Durkin. Well, we sit here talking about the need for
enforcement capability. I can tell you the regulators in our
region take very seriously compliance problems.
Chairman Tauzin. Nobody likes to have a letter like that
written about them, I take it.
Mr. Durkin. That is very correct.
Chairman Tauzin. But the bottom line is this is an area
that clearly needs some new enforcement authority.
Mr. Durkin. Without any question.
Chairman Tauzin. You guys endorse what is in House bill 6.
This is in conference today.
My time has expired.
Joe Barton is the chairman of our subcommittee; and he just
returned from Colorado, from an energy conference. I
understand, Joe, that in Colorado whiteouts are as big a
problem as blackouts in the wintertime. We want to welcome Joe
and put him in the Chair, and I now recognize the distinguished
ranking member of our committee for a round of questions.
Mr. Dingell. Mr. Chairman, I thank you for your courtesy,
and welcome and thank you to the panel.
These questions are for Mr. Gent. You have appeared before
the committee before. You have made some interesting comments
at that time. You said, as economic and political pressures on
electricity suppliers increase and as the vertically integrated
companies are being disaggregated, NERC is seeing an increase
in the number and severity of rules violations. Was that
correct at the time it was given?
Mr. Gent. That was correct then, and it is correct now.
Mr. Dingell. Is it correct now? That was the second
question.
In a letter I sent on August 22, which I ask, Mr. Chairman,
to be inserted in the record----
Mr. Barton [presiding]. Without objection.
Mr. Dingell. [continuing] I ask you, Mr. Gent, to expand on
that statement to provide specific examples of these
violations.
In your response you noted that, in 2002, NERC found 97
bonding standard violations and 400 operating policy
violations, is that correct?
Mr. Gent. That is correct.
Mr. Dingell. Has that changed in any way that would be
significant and would you like to make a comment on any changes
since that letter?
Mr. Gent. This is the latest data that we have. We will
have another report later this year.
Mr. Dingell. Thank you.
You further state in your response that although NERC does
not have the ability to level fines for violations, you do
calculate simulated penalties that would have been assessed
under a system of mandatory compliance. You state that the
value of the aforementioned violations would have been just
over $9 million, is that correct?
Mr. Gent. Yes.
Mr. Dingell. Would you tell us whether or not the character
of those violations was serious, imposed risk to the system,
and including possibility of shutdown of the kind that we saw
on August 14?
Mr. Gent. Yes. Chairman Dingell, the letter that you
referred to lists several possible types of violations for
which the violations occurred. I would like to give you a
little context of those violations. This probably encompasses
over 10,000 measurements, so when I come up with this 444
operating policy violations, they could vary all the way down
this page from being very serious to being, I won't say
trivial, but being less serious.
Mr. Dingell. I think it would probably therefore be useful
that you submitted those for the record and with such
explanatory comments as you might deem to be appropriate. Is
that acceptable?
Mr. Gent. I would be pleased to do that, yes.
Mr. Dingell. I think that would be appropriate.
Mr. Chairman, I would note that we have a good deal to
learn about the sequence of events from the blackout. This
information points to the urgent need to give NERC enforcement
authority over the mandatory rules and to do so quickly.
Mr. Gent, I thank you.
Now, I would like to address the independence of the NERC
blackout investigation. Mr. Gent, your testimony suggests that
NERC must determine whether standards were violated and whether
modifications to its rules are needed. I commend you for that,
but your testimony also indicates that you were closely
coordinating at least some of your efforts with DOE as a part
of the U.S.-Canada task force, is that correct?
Mr. Gent. Yes, it is.
Mr. Dingell. Now, I am not clear. Is NERC conducting then
its own independent inquiry? Will it issue its own independent
findings and/or recommendations, or will it merge its inquiry
with that of the Department of Energy? In other words, are we
going to have an independent research and inquiry from NERC, or
are we going to have something in which we are going to have
the input of DOE?
Mr. Gent. Right now there is one investigation under way,
and it is being primarily conducted by NERC, NERC personnel. We
have DOE people onsite, as I said in my oral. We have a FERC
person and others. They are of great help. These are people
there to dig through the data with us and try to help us
organize the sequence of events. At some point, NERC will have
to do what NERC does, and that is to take a look at whether our
standards and operating procedures were violated. We will do
that. And we will do whatever is necessary to correct the
standards, if the standards are incorrect, or to point out the
violations.
After the data is all in and verified, I suspect that the
Department of Energy will probably go in some other direction
and deal with policy issues like the ones you have been
discussing here today.
Mr. Dingell. Now, I would note that in the event that NERC
disagreed with DOE or the task force participants about finding
the recommendations related to the blackout, you have kind of
indicated to me then that NERC would issue its own independent
findings, is that correct?
Mr. Gent. That is correct, sir. We will do our own.
Mr. Dingell. Now, going back to the questions earlier, you
told me about the large number of violations, some of which
were of great significance and some of which were rather lesser
significance. Were any of these of the character which could
have contributed to the creation of a major blackout or
something of that kind?
Mr. Gent. I am sure they were. I don't have the numbers in
front of me or the specifics, but in that listing that we gave
you, virtually half of these could have resulted in that kind
of a blackout.
Mr. Dingell. Roughly half of those could.
Mr. Gent. Right.
Mr. Dingell. Would you want to elaborate on that, please,
because I think you have made a very important point.
Mr. Gent. For instance, the first one says operating
portions of the transmission system beyond their first
contingency rating. That is a factor that could have played
into and caused at least the start of the blackout.
Mr. Dingell. What other ones do you find of that character?
Mr. Gent. Failure to return the generation demand balance
within 15 minutes following the sudden failure of generation.
Mr. Dingell. What does that mean?
Mr. Gent. That means if you have a large outage, then you
have to get the system back in balance within 15 minutes.
Mr. Dingell. And if you don't?
Mr. Gent. Then you have exposed the system to compounding
outages.
Mr. Dingell. Okay. Any others of this character?
Mr. Gent. One that might play in later--of course, we don't
know this--is the lack of a restoration plan and training
documentation to show that those restoration plans are
conducted in training programs.
Mr. Dingell. You view these as being important violations
of the rules and exposing the system to substantial risk, do
you?
Mr. Gent. Well, we haven't seen--we are not at that point
in the investigation yet, but we expect that we will uncover in
our investigation plenty of violations of these rules.
Mr. Dingell. Now, have you any appreciation that you found
anything of that character in connection with your preliminary
inquiry with regard to the events of August 14?
Mr. Gent. We don't have anything conclusive yet.
Mr. Dingell. I see.
Mr. Chairman, you have been very courteous. Thank you.
Mr. Barton. Thank you, Congressman Dingell, for those
excellent questions.
I have just assumed the Chair; and I am told that the order
of appearance of our Republicans is Mr. Norwood, Mr. Walden,
Mr. Bass and Mr. Whitfield. Does anybody object to that order
of appearance on the Republican side? If not, then the Chair
recognizes Mr. Norwood for 5 minutes for questions.
Mr. Norwood. Thank you very much, Mr. Chairman. Welcome
back.
This has been a very interesting day of hearings. I thought
our Chairman Tauzin came up with a pretty good summary just
before he left, so I just have a couple of observations.
One of the questions he asked and was looking for answers
to is why would not investors wish to invest in transmission?
And I think there are probably a number of reasons, but maybe
high up on that list is that the utilities don't know which
Congress or which FERC may take away their ability to run their
business. That uncertainty would scare anybody; and I am
certain that, since they are investor-owned, they have to pay
attention to that. So I would like for us to think about that,
too, as we concern ourselves with why we have not invested.
Now I come from a part of the country where we have kept up
with the demand by increasing generation. We have a lot of
transmission, and we have relatively reasonable power rates. So
we are concerned that in involving problems for other parts of
the country that we sort of don't throw the baby out with the
bath water. I mean, I like a lot of you guys up in the
Northeast, but I am not willing to lower your rates to raise
ours. I am not willing for you to have more reliable
electricity as our reliability goes down. And as we are now, we
are fairly happy with it.
That doesn't in any way mean that we shouldn't try to solve
the problem in the parts of the country that are importing
electricity. We should. But we shouldn't maybe necessarily do
it as a one-size-fits-all.
One of you mentioned earlier about RTOs and the fact that,
well, why don't we do one in the Midwest and let's see if that
works. Don't make me do it if I don't want to, but if that is
the way to go up there and everybody is happy with it, why
don't you consider that, but don't mess with our little
backyard where things are working pretty well.
I don't think I have heard in all of the hearings we have
been into, Mr. Chairman, the word reliability standard used
more times than I have heard today. That was certainly part of
our discussions. Our bill does deal with some of that. But
witness after witness after witness has come forth today on
three panels and are saying we have to have reliability
standards.
Well, the NERC gives us reliability standards now. We have
them. The problem is, you can't enforce something that is
voluntary, and it is basically you can't oversee something that
you are suggesting people to do and, happily, Mr. Barton's bill
deals with that. We make reliability standards mandatory. That
is a good thing. We let NERC oversee it, enforce it, and, in
some convoluted ways, we pass off to FERC occasionally if
anybody can figure that out.
I just want to point out and remind you, Mr. Chairman, that
the two Governors here today implied pretty strongly that
States are perfectly capable of doing that enforcement and
probably in conference that ought not to be not considered. I
happen to fall under the heading that, if the States don't do
it, I would like to see NERC do it, but I am sure you are all
pleased, as were the other panelists, that we are going to at
some point this year, hopefully in the next month, make
reliability standards mandatory and something that will happen.
It is important, I think, that we don't confuse reliability
standards with standard market design. At a time right after
this blackout where everybody wants to solve this problem, that
can be confused. Now, we have solved the problem of reliability
standards, I believe.
The standard market design is still of great interest to a
lot of people. I find it interesting that the model that Mr.
Wood and FERC wants to put out or has been pushing their
concept about a standard market design is very similar to what
is, frankly, going on at the PJM, at the Midwest ISO, the New
England ISO, the New York ISO. They are pretty close to the
model that Mr. Wood is suggesting, and we ought to consider
that. Is there a problem there, that model may be part of the
problem that has happened? We don't know the answer, Mr.
Chairman. That is the purpose of this hearing, to find out why
we had a blackout, why it spread. I urge us all to let's take
our time and get the answers before we try to legislate.
Mr. Barton. I thank the gentleman from Georgia; and I
recognize the distinguished gentleman from Michigan, Mr.
Stupak, for 5 minutes.
Mr. Stupak. Thank you, Mr. Chairman.
Mr. Gent, your standards, they are all voluntary, right?
Mr. Gent. Yes.
We would like to refer to it as mandatory standards,
however the enforcement is voluntary.
Mr. Stupak. So no accountability in other words?
Mr. Gent. Yes.
Mr. Stupak. Regarding your investigation, you said you are
moving right along and the Canadian-U.S. Task force is working
with you. Will your hearings or meetings on what happened be
open to the public?
Mr. Gent. We have not held any meetings per se. We had a
joint meeting with the Department of Energy that was not open
to the public.
Mr. Stupak. Do you have any objections to them being open
to the public in the future?
Mr. Gent. If that meeting had been opened to the public, I
don't think we would have learned what we learned.
Mr. Stupak. Do you feel there comes a point in time that
the public should know?
Mr. Gent. Absolutely. It is important that we get what we
know out into the public.
Mr. Stupak. Would you agree with me that the previous
blackouts occurred before the deregulation or restructuring,
whatever you want to call them, the previous blackouts you
cited in your opening statement?
Mr. Wood. In 1996 and 1999.
Mr. Stupak. 1996 would have been part of deregulation.
Mr. Wood. And 1999 as well. 2000 and 2001 in California
were certainly in the post restructuring.
Mr. Stupak. Restructuring and deregulation.
Mr. Wood. The 1977 and 1965 would be different.
Mr. Stupak. Have you found 1996 and 1999--has the lack of
accountability led to or could be one of the problems we have
here for these blackouts, these failures?
Mr. Wood. Lack of accountability? Yes.
Mr. Stupak. You would agree with NERC's findings there are
violations; some could lead to blackouts and no one is held
accountable?
Mr. Wood. Correct.
Mr. Stupak. Would you suggest anything in the future of how
you put the accountability in there and what should happen?
Mr. Wood. The NERC language you just discussed which goes
through us and they do the detailed work and it is a pretty
strong structure.
Mr. Stupak. Would you see NERC taking a role of doing the
enforcement, leveling fines or whatever it might be or
something you feel FERC should do?
Mr. Wood. Either.
Mr. Stupak. You mentioned air traffic controllers in your
opening and the movement to privatize them, so I wouldn't use
that as an example anymore.
Mr. Wood. The privatization of the grid is a decent
outcome. I don't know that it has to be a public asset, but I
think what is important is that it not be operated by somebody
who has got a vested interest in whose plane lands first and
whose never gets to land.
Mr. Stupak. The standards should be pretty much the same.
If you are an air traffic controller in Washington, DC, or in
Green Bay, Wisconsin, you should be using the same standards to
land that plane, right?
Mr. Wood. That certainly is a benefit.
Mr. Stupak. Mr. Schriber, you mentioned a super regional
RTO and how large they can be. Is there no limit on how large
they can be?
Mr. Schriber. I think certainly there are physical limits
and economic limits. I think my reference to a super regional
RTO would be one that is larger than that which exists today or
those that exist today, for example, one that encompasses most
of the eastern interconnect, if you will.
Mr. Stupak. If you get larger does that lead to less
accountability?
Mr. Schriber. I don't think accountability is related here
in terms of size. I think that accountability--well, let me
retract that. I think the larger and the more centrally
governed the RTO, the stronger is the accountability.
Mr. Stupak. Give me some idea of maximum size. This
blackout was 50 million people. What do you think the maximum
size could be?
Mr. Schriber. The eastern interconnection which encompasses
the Northeast, the mid-Atlantic, the Midwest, part of the South
would probably be reasonable both from a physical and economic
point of view size.
Mr. Stupak. Mr. Lark, you mentioned there are 23 utility
members in MISO, and that is the Midwest ISO?
Mr. Lark. It is my understanding, yes, sir.
Mr. Stupak. And only one in Michigan, DTE, went down
basically?
Mr. Lark. Parts of Michigan. DTE was the largest utility to
go down, affecting 2.1 million customers. But in addition our
other large electric utility, Consumers Energy, was out for a
little while too, but to a much lesser degree, as was the
Lansing Board of Water and Light.
Mr. Stupak. Any idea why it stopped in basically mid-Lower
Peninsula in Michigan? Why didn't it go farther west?
Mr. Lark. My understanding of this and of course I even am
reluctant to speculate inasmuch as there are so many
investigations ongoing now, but from what I have been able to
understand--this could be a little lengthy--the power was
attempting to flow into the northern Ohio area. And as lines
tripped in northern Ohio so that the power could not get into
northern Ohio it began to flow through the southwestern
intertie in Michigan. Michigan has two points at which power
can come in, southeast and southwest portion. So the power
diverted itself in going through that southeast part and went
all the way over to southwest, came through the AEP system and
up through Consumers Energy, which occupies the western part of
the State. All of the transmission grid properly tripped off
between the Consumers Energy grid and the Detroit Edison grid.
And at that point what happened, as what has been described
earlier, there was a reversal in flow and the power suddenly
reversed around and went around Lake Erie and Ontario came in
through the Port Huron-Sarnia interconnect in Michigan into the
Edison system and down to Cleveland, and everything tripped off
from there. I don't know if that answers your question, but
that is my understanding.
Mr. Barton. The gentleman's time has expired. Before we
recognize Mr. Walden just on that point, it is true that once
you put power into the system it has to go somewhere. It can't
just sit there like in a lake and if there is water you could
put it in a lake. But once you put electricity, it has to move
and it has to go and it is going to find the path of least
resistance.
Mr. Lark. And that is exactly what happened, the speed of
just under 186,000 miles per second.
Mr. Barton. Which is the speed of light. The gentleman from
Oregon is recognized for 5 minutes.
Mr. Walden. Thank you very much, Mr. Chairman. I wanted to
first start out on this issue of the 1996 blackout and the
reference that maybe deregulation had something to do with it.
Now I am not a big fan of deregulation. I think it is
instructive to note what happened there. On August 10 of 1996,
Bonneville's transmission lines sagged into tree limbs
triggering outages and system oscillations. The western
interconnection separated into four electrical islands with
significant loss of load in generations and it impacted an area
from British Columbia to Baja, California and Norte in Mexico.
So the whole western region. So what happened out of that? In
response, Bonneville as well as other western utilities took
steps to ensure that it would not be repeated. The utilities
invested in voltage support devices, high-speed communication
and control and implemented more conservative operations.
Bonneville initiated a system-wide voltage support study,
revamped its grid operating procedures and spent more than $130
million to increase reliability of the transmission system.
Specifically, Bonneville and the neighboring utilities
aggressively ramped up the power lines to be as conservative
and safe as possible. Set interim operating procedure for the
intertie with Pacific Gas and Electric and Southern California
Edison. Set conservative operating limits on the intertie.
Installed additional remedial action schemes. Reviewed
equipment at McNeary Dam. Set new limits on the exciters to
assure generators wouldn't trip. And they went through step by
step very methodically to determine what happened. I don't
think sagging lines and tree limbs probably was directly
related to the change in Federal policy. The outcome though is
one that maybe is instructive here and I know that some of the
people involved in determining what went wrong there are going
to be involved in this discussion and investigation. One
question I have for Mr. Gent.
Mr. Gent. Gent.
Mr. Walden. There are mandatory standards and voluntary
compliance under the system you manage. What is the outcome? I
mean you held up the list of issues that some of the
participants have violated, some of the mandatory standards in
question. But I never did hear what happened. Did they just
blow you off and ignore you or were those issues you held up
for our ranking Democrat, were they resolved? Were they
addressed?
Mr. Gent. Most of them were addressed and didn't occur
again. But then they have a tendency of popping up elsewhere.
So there is a compliance program in each of the 10 regions. In
fact they have one in ECAR where they actually go out and
inspect to see if people are in compliance with these rules.
Mr. Walden. Do you have participants--I assume first that
everybody participates if they are on the grid. Second, do you
have participants who participate on the grid violate your
mandatory standards and continue to participate?
Mr. Gent. Yes.
Mr. Walden. And so you have no way to say you are out of
here?
Mr. Gent. No, we don't.
Mr. Walden. That is why the legislation we are working on
has those provisions?
Mr. Gent. That is part of it. And I would like to add that
one of the things they implemented in the West after the 1996
blackout was they all signed an agreement that they would
comply to certain standards with monetary sanctions, and there
has been a lot of money that has exchanged hands.
Mr. Walden. Good to know. As an observer of all this during
that period, the question kept going through my mind why did it
take so long to turn the power back on. I understand a little
bit about the tripping of things, but 30 hours is probably
miraculous in time for what you had to do and the utilities you
oversee. But could you educate a little bit about how complex
it is to get a system that large?
Mr. Gent. When you lose 280 something generating units,
some of those you could bring back on like this, the jet
engines and hydro. Others like natural gas where they have
steam could take 4 to 6 hours. Coal plant might take 10 to 24.
A nuclear plant might take 48 hours. And that is primarily the
reason it took so long to bring Detroit back. Despite their
best efforts they had to bring generation in. You had to get
generation running and match it with load.
Mr. Walden. So it is a sequencing of the generation and the
load so you maintain a balance on the grid?
Mr. Gent. Limited by the availability of generation and
limitations as to how quickly you can bring it back on line.
Mr. Walden. In terms of the lines themselves and the trip
points, have you found lines that were actually severed as
opposed to just tripping the relays?
Mr. Gent. No. I know we used this jargon, but by tripping
generally what happens is the relays trigger a breaker and they
open up the line and that has always been the case. We haven't
identified any lines or any other equipment that has been
damaged significantly.
Mr. Walden. In one way your system functioned the way it
was designed, which was to prevent the destruction of the
generating facilities; is that correct?
Mr. Gent. Yes.
Mr. Flynn. In New York the uniqueness, to add to his
explanation, is where in upstate New York we have generally
rural areas, you have above ground transmission lines, where as
you mover to the higher population areas, New York City,
Manhattan, Staten Island, you have underground transmission. So
the uniqueness of upstate versus downstate, the New York guys
not only had to balance demand and supply, but they also had to
take into account the infrastructure they were working with to
balance that demand and supply. You made note of 30 hours and
that is a remarkable amount of time I am told to bring the full
New York State system you know back on line.
Mr. Walden. Do you have any idea how many circuit breakers
broke, came open?
Mr. Flynn. I have no idea. Mr. Museler, who runs the New
York State ISO, will be here tomorrow to testify and he is
probably watching right now and he will have that answer for
you.
Mr. Barton. Gentleman's time has expired. The gentlelady
from Missouri is recognized for 5 minutes.
Ms. McCarthy. Thank you, Mr. Chairman, and I thank all the
witnesses for their wisdom.
Mr. Wood, I was looking through your testimony and your
optimism about the next steps. And again, as others have said,
the word ``reliability'' seems to be almost on every page and
almost every paragraph in much of the testimony, sometimes
twice in a sentence. I would like to talk to you about your
thoughts for the future that you talk about in section 4 in
your next steps testimony. But begin with just from you a
simple definition of reliability that you were perceiving as
you talk about those next steps. What do you see as the--what
is reliability in the future?
Mr. Wood. There are two levels, Ms. McCarthy. The one that
we focus the most on today is the one we refer to generically
as the short-term reliability, the real-time balance that keeps
that at 60 cycles per second all the time, plus or minus. The
other issues, which actually came up more when we were doing
hearings in California at this committee and others, deal with
the longer term reliability, which is long-term supply and
demand balance. So I think, depending on the context of the
paragraph in my testimony, I do tend to view both as really
shades of the same reliability concern.
Ms. McCarthy. Well, you talk about the conference providing
for mandatory reliability rules and enforced by a reliability
organization subject to the Commission's oversight and that
you--the industry has concluded a system of mandatory
reliability rules is needed to maintain the security of our
Nation's transmission systems. If the Congress were to mandate
reliability rules, which would then dictate both the categories
you described, including supply and demand balance, what would
be the next step then for the industry if that is, in fact, the
outcome of the conference committee work? How do they meet that
mandate of supply and demand balance? Will it be the same old,
same old or are we going to take a step back and look at the
future in terms of alternatives and other means to provide for
that reliability that we have not yet sought or found?
Mr. Wood. I understand where you are going. I am not really
sure and I will have to reread the language of the House bill.
If that actually encompasses that, you would have that long-
term reliability as part of that mandatory NERC language. If,
in fact, it does, certainly the rulemaking that we have been
looking at in our Commission does envision the State
commissioners at that level deciding if there are alternative
fuels or alternative demand side participation in the
marketplace; some of the technologies that may have been
ignored by the prior market structure that we had. Those
issues, I think, really still do lie fundamentally at the State
regulators. And we have indicated the ability to work with them
and have FERC be there to be able to implement those visions
for longer term reliability. I haven't thought through if the
rulemaking required in H.R. 6 would envision that breadth. I
would be glad to look that over.
Ms. McCarthy. I would appreciate that. I was a State
legislator before coming to the Congress and I am very
sensitive to that role of the States and this issue. And all
day as I have been listening, I am torn, where are we going. If
we create this national effort that has been traditionally the
regulatory bodies of the 50 States that have created and
supported this grid and the surety to the States of the cost
and pricing of energy, in whose lap does it rest to meet this
mandate? Will it come from at the Federal level from your
organization or others, something we create omnibusly or is it
the 50 States left to grapple with Federal language mandating
such an effort? And having been a State legislator it fills me
with some apprehension how we would resolve that. I think it is
a good goal that you have mentioned and called for. I don't
know how it plays out in reality.
Mr. Wood. At least the debate for the last couple of
years--and Mr. Gent might be able to shed some light on that--
has focused more on the short-term reliability, the minute-by-
minute supply and demand and not so much on the longer; that
really has been primarily a State domain. In our standard
market design rule, we call that resource adequacy and have
made clear that is really the State's role. We are here to
support that effort. If FERC is needed to help make it work on
a regional basis where a single State can't make it work alone,
we are glad to play that role. We know where our jurisdiction
stops and it does stop before we get to long-term resource
adequacy type planning, and whether that would actually be
changed by this reliability statute I haven't researched that,
and I would be glad to do that.
[The following was received for the record:]
Federal Energy Regulatory Commission
Office of the Chairman
October 2, 2003
The Honorable Karen McCarthy
Committee on Energy and Commerce
U.S. House of Representatives
Washington, D.C. 20515
Re: Response to Question Regarding the August 14, 2003 Electrical
Outage
Dear Congresswoman McCarthy: I am responding to the question you
asked me during the September 3, 2003 hearing before the House
Committee on Energy and Commerce, concerning the blackout experienced
in the Northeast and Midwest on August 14, 2003. As you know, there is
currently no direct federal authority or responsibility for the
reliability of the transmission grid. The energy policy bill now in
conference provides for mandatory electric reliability rules subject to
Commission oversight. During the hearing, you asked whether these
rules, as proposed in the pending legislation, would encompass both
short-term and long-term reliability.
Section 16031 of the House version of the draft energy legislation,
H.R. 6, currently sets forth that the Electric Reliability Organization
(ERO) would establish and enforce mandatory ``electric reliability
standards,'' subject to Commission oversight. These standards would
include requirements for the operation of existing bulk-power system
facilities and the design of planned additions of modifications to such
facilities, but would specifically exclude any requirement to enlarge
such facilities or to construct new transmission capacity or generation
capacity. Section 1603 1 also does not authorize the ERO or the
Commission ``to order the construction of additional generation or
transmission capacity or to set and enforce compliance with standards
for adequacy or safety of electric facilities or services.'' In
addition, Section 16031 states that it does not ``preempt any authority
of any State to take action to ensure the safety, adequacy, and
reliability of electric service within that State, as long as such
action is not inconsistent with any reliability standard'' (except that
the State of New York may establish rules that result in greater
reliability within that State). Further, Section 16031 would require
the Commission, within 90 days of the application of the ERO or other
affected party, to issue a final order determining whether a State
action is inconsistent with a reliability standard.
Thus, the mandatory electric reliability standards authorized in
H.R. 6 would allow the Commission to oversee short-term reliability by
approving requirements for the operation of existing system facilities.
But the provision, as presently drafted, would not clearly encompass
long-term reliability.
I believe that mandatory reliability standards are critical to our
Nation's security. If Congress wishes to establish a stronger federal
role in ensuring long-term reliability of the bulk-power system,
Section 16031 of H.R. 6 could be revised to authorize the ERO, subject
to Commission oversight, to order the enlargement of existing
transmission facilities or the construction of additional transmission
capacity. Apart from this possible exception, I believe H.R. 6 properly
preserves state authority over long-term reliability issues.
In conclusion, thank you for the opportunity to address these
issues in detail. If I can be of further assistance in this or anything
else, please call me.
Best regards,
Pat Wood, III
Chairman
cc: The Honorable W.J. ``Billy'' Tauzin, Chairman
The Honorable John D. Dingell, Ranking Democratic Member
Ms. McCarthy. Would you? And I would welcome some thought
on that so we are not creating a situation that is worse than
doing nothing. There is always that challenge in the things
that we do. And I have gone beyond my time. Also the--you also
mentioned we still need to attract capital transmission
investment in your testimony, which I very much appreciate, and
that is very much on our minds as we have these hearings this
week.
Earlier in the hearing, we talked about--one of our members
mentioned the built in profit that exists by regulation for
utility companies. And I wonder as we expect utilities to
alleviate the congestion on the grid and come up with some new
technologies and ways to assure that reliability, is it that 11
to 12 percent profit margin that is the stumbling block or why
is it in your testimony you tend to indicate that we have to
find other ways to, you know, attract investment to the utility
industry in order to accomplish the goal you and others share,
we all share, of making sure we modernize the grid and make
sure that it is working well and all of those things?
Mr. Wood. Representative McCarthy, there have been a few
instances since I have been on the Commission now for 2 years
that use of an incentive has been productive. One of them, I
guess most prominent, was the incentive that we gave of 13.5
percent to the investors in Path 15 in California, which was
kind of a notorious link in which was not being invested. We
also did it with the utilities in Michigan as they spun off
their transmission to stand-alone transmission companies. So,
we have looked at that on a case specific basis. And I heard
from a large company yesterday that admitted that the 12.8
percent we are giving all the utilities in the Midwest is more
than enough for them, that they just want to make sure that
they navigate the State-Federal maze of actually being able to
get their money back from customers at the end of the day. So
it may not be so much the amount you give them, it is just the
certainty of getting it back.
Ms. McCarthy. May I ask unanimous consent for 1 more
minute?
Mr. Barton. Why don't we let Mr. Bass--if you wait until
after him, I will let you ask some more.
Mr. Bass. I will be very fast.
Mr. Barton. Recognize the gentleman from the Granite State.
Mr. Bass. Thank you, Mr. Chairman. Can anybody comment as
to why the blackout stopped at the edge of New England? Are
there any theories as to why that happened? It didn't affect
except for a small part of Vermont, New Hampshire, Maine, Rhode
Island, Massachusetts and most of Connecticut?
Mr. Durkin. Probably the best place to start is that the
protective systems that operated in New England to separate it
from the rest of the interconnection are the same--designed
with the same criteria as New York and Ontario and PJM and so
forth. It is the function of the conditions that occurred when
the large power swing came through New York and into Ontario
that the New England systems saw that as crossing into the area
where the protection systems needed to operate and they did and
opened up that piece of the region from the rest of the region.
New England actually ended up along with the Maritime Provinces
as an island standing alone by itself. The--guessing at this
point, because we don't have all the study work done, is that
the magnitude of the surge was enough to cause generators to
automatically shut down in the eastern part of New York. But
that is very preliminary and only based upon some of the
initial data that is coming in and the sequences together yet
to know exactly how that played out.
Mr. Bass. Is there any validity to the observation that
perhaps the grid system was better in this region of the
country than it was in other regions of the country and built
better and better modernized and it functioned better? Any
validity to that argument?
Mr. Barton. I just heard that the Congressman was better.
Mr. Durkin. There have been claims made very early on that
were very unique characteristics in some of the systems, but
the criteria to which New England and the Maritimes and New
York and Ontario designed their system is all the same. It is
all the same criteria that MPCC requires. It is not unique in a
sense.
Mr. Bass. You mentioned--I don't remember the term you
used, I think it was recognized and cutoff. What do you mean by
that? It is different, for example, from other parts of the
country?
Mr. Durkin. I will get a little more technical. When a
large power surge runs through a system, two things happen. One
is the voltage on the system goes down and the current flow on
the transmission lines goes up. There are relay systems out
there that monitor for that condition. If it is severe enough,
the relays operate the disconnect from wherever the source of
the problem appears to be.
Mr. Barton. Would the gentleman yield on that point? Isn't
it true you actually have control rooms that you can physically
see this? I mean you actually have these monitors that you
watch the voltage in the current and you watch the cycle that
Mr. Wood was talking to and somebody in Mr. Bass' region saw
that happening and literally--part of it was human and part of
it was the program that just said save us. In his case they
were lucky enough that as they shut off from the rest of the
region they had a power supply to come in and pick up the load;
isn't that true?
Mr. Durkin. I would express it this way. What happened is
once it separated, the operators then stabilized the island and
did a very effective job in maintaining that island in service.
A separation within the MPCC region occurred within a matter of
seconds. There was insufficient time for operators to do
anything once the second surge came in to the MPCC region.
Mr. Barton. It was all computer generated?
Mr. Durkin. It is even more decentralized than that. The
transmission lines will protect themselves independent of any
computer signals. They have their own independent protection
systems to cause a separation or an opening to take place if
the conditions that they are monitoring occur.
Mr. Bass. If I can reclaim my time. I don't need much more
time, Mr. Chairman. It is also true that at this particular
time of year this region of the country may actually be
exporting energy because--and doesn't that create a different
kind of pressure differential, if you will? It is the reason
they were able to create the island and make it work. And it
might not have been the same in January or February but in the
summer, the region, especially my State, New Hampshire, was
pumping out electricity like crazy. And as a result, it
lessened the impact of the blackout as it reached that region
and they were able to get at it in time. Is there any validity
to that?
Mr. Durkin. The short answer is yes and the reason is that
when the island separated, the load that was lost in
southwestern Connecticut primarily and the generation that was
lost was above balance, so the remainder of New England and the
Maritimes were very well balanced. Actually there was excess
generation and the unit did come off line due to the action of
automatic control systems to stabilize the island and the
Maritimes.
Mr. Bass. Mr. Chairman, you know one of the big issues here
is we all know this is getting the differential between supply
and demand on a better parity nationwide. And despite what my
friend from Georgia said a few minutes ago, the northeastern
United States is in fact producing significant excess energy
for much of the year and exporting it to other parts of the
country and it did indeed mitigate to some extent possibly the
effect of this blackout.
One question for Mr. Gent. You have all these maps on the
walls. How long is it going to take before we have some
answers? Any idea?
Mr. Gent. We have most of the data collected that is going
to be collected. About 90 percent of the data has been
collected. We made an estimate today that we have about 40
percent of it certified and verified. It will take maybe
another 4 weeks.
Mr. Bass. Thank you.
Mr. Barton. Before the Chair asks his questions, he is
going to recognize the gentlelady from Missouri for one
additional question.
Ms. McCarthy. Thank you, Mr. Chairman. Mr. Wood, also in
your testimony you talk about repealing PUHCA, and I wonder why
a wholesale repeal is necessary. This is with regard to getting
investor certainty in your testimony, because we have examples
of targeted exemptions. We provided for the exempt wholesale
generators. Why repeal the whole act if it is about investor
certainty? Why not go down that same path of targeted
exemptions?
Mr. Wood. One good example I think of is, if there is a
merger or, perhaps, even a foreign utility wants to come and
invest in the United States and they want to sink capital into
our infrastructure, which I think we would welcome, there is a
strong prohibition on that, with some caveat. Certainly, the
law over 70 years has changed, but there is a restriction on
their ability to do that. And those may be beneficial mergers.
I know Mr. Buffett wants to go shopping around for some
transmission systems but he owns one right now, so that kind of
maxes him out. There was a merger that happened when I was
still a Texas regulator between a Texas utility and a Ohio
utility that had to be linked, and basically the court has
subsequently said, you failed PUHCA, although the merger
actually went forward because the court took a while, but they
have to be geographically connected to each other when the
merger happens. From one who worries about market power, I
actually would hope that utilities that are right next to each
other don't merge because they might actually merge their
competitive generation and create a market power problem in
generation. Wires are regulated. They will be regulated. If
they aggregate across the board or across the country, it
becomes a regulatory issue, but not a market power issue, which
is what we are concerned about when we look at how the
competitive markets work. So, PUHCA is a significant obstacle,
if not an outright bar to a number of companies that do have
access to lower cost capital, to coming into the current
market. It worked fine over the years, but I do think the
market structure has evolved beyond when that law was written.
Ms. McCarthy. I appreciate your comments and you will get
back to me on the other issues that were raised. I appreciate
the testimony that was shared today, and I appreciate the
chairman for his indulgence.
Mr. Barton. The Chair recognizes himself for the last
series of questions unless another member who hasn't asked
questions arrives. And Mr. Strickland has just arisen, so the
Chair would recognize Mr. Strickland for 5 minutes, and Mr.
Engel.
Mr. Strickland. Thank you, Mr. Chairman, for your
indulgence. Sorry I was called away, but since we have an
Ohioan here, someone that I very deeply respect, Mr. Schriber,
I did want to have a brief exchange because I note in your
comments, sir, you said that you thought the blackout was not
as a result of deregulation. But then I think you went ahead
and said something to the effect that the grid was much like an
interstate highway system, traffic patterns on the wires have
changed and congestion has increased and the like. So would it
be accurate to say that deregulation did not cause the
blackout, but the blackout may be at least in part the result
of deregulation because the traffic has increased on the grid,
has it not, as a result of deregulation? So we don't want to
unnecessarily fault deregulation. But when deregulation
occurred, maybe we weren't as sensitive as we should have been
to the need to attend to the additional strain that could occur
on the transmission system.
Am I reasonably correct in that description or tell me
where I am wrong?
Mr. Schriber. Thank you, Mr. Strickland. First of all, I
don't think it was as a result of deregulation. The one thing I
think we really need to distinguish here that I haven't heard
much of is the distinction between wholesale and retail, where
we have deregulated at the State level, 23 States if you will
at the retail end of it. You can buy from another supplier
other than your local. It has had a modicum of success. Ohio
has been remotely slightly successful and hasn't been
overwhelming anywhere. But the grid was actually at one time
built for wholesale transactions. I mean the reason the grid is
linked is so that you can have electricity moving from area to
area and utility to utility. So it is really nothing new to
have a large volume of transactions taking place around the
grid.
Mr. Strickland. Has the volume increased following
deregulation?
Mr. Schriber. It has increased but I am not convinced it is
totally because of deregulation. More merchant generators have
come on line looking for opportunities to sell electricity,
thereby pumping electricity in, but not pumping electricity in
if it is not economical. And if you look at August 14 we were
operating at below capacity, well below capacity. We weren't
pushing the limits. And I suspect at that point in time, there
may not have been every power plant pumping power into the grid
that might otherwise have been.
Mr. Strickland. That is interesting information for me and
it is enlightening information because I was operating under
the assumption that at least part of the problem on August 14
was that the system was in fact overloaded and was at or beyond
capacity and that contributed to the blackout. But you are
telling me that was in fact not the case?
Mr. Schriber. In the aggregate it was not the case.
However, there could have been pockets where there may have
been problems. If you take out a transmission line, then those
that run parallel will pick up the load. When another one goes
down, then two are left to pick up the load. In the aggregate,
we were not.
Mr. Strickland. That leads me to another question. You
know, we all thought when this happened this may be terrorism
and we were relieved when it wasn't. But I am just sitting here
thinking if one or two or three lines sagging and getting into
a tree or whatever could begin a process that led to the
cascading effect that led to this widespread blackout, my God,
if I were a terrorist I would be looking at that thinking, you
know, if the system in effect is that fragile, all I have got
to do is find a location where I can cause that kind of
disruption and we don't know what the result may be in terms of
a blackout. Is that a reasonable fear on my part?
Mr. Schriber. It is somewhat reasonable but I think there
are sufficient backup--parallel backups if you will. I have
seen a tornado take down a 765,000 volt line, which is huge,
and yet there was enough there to back it up.
Mr. Strickland. But there wasn't the backup in this case?
Mr. Schriber. No. In this case you had a series of events
that did cascade. But with respect to northern Ohio, it is my
understanding that the system stabilized itself even at that.
The customer, when those lines went down in that service
territory, those customers did not lose electricity. They
stayed on line. It was when the other events in addition to
that event, I guess you could say, if there were other events--
I don't want to speculate on exactly what happened, but I would
say that in and of itself would not have been catastrophic.
Mr. Strickland. My time is up and I thank you. It has been
enlightening.
Mr. Barton. Recognize another gentleman who represents an
area that was affected by the blackout, Mr. Engel of New York.
Mr. Engel. Thank you, Mr. Chairman. We have been at this
hearing since this morning. It is almost as long as the
blackout. Maybe some people would wish that we were blacked out
so it wouldn't keep going on and on. But I have learned a lot
and hope to learn a great deal more.
I would like to ask Mr. Gent, obviously you have a very
hard job and I think most of us agree that some kind of
national standards are necessary and that they need to be
enforceable. I am wondering if you could comment on which
agency in your estimation should have enforcement authority,
NERC or FERC, and why you believe that.
Mr. Gent. Yes, Representative Engel. We have had this bill
before the House and the Senate for a number of years and it is
the result of a consensus process where most of the entities in
the industry have agreed that we should have a system, as
Chairman Tauzin mentioned earlier, similar to what we have in
the relationship between the FCC and the NASD and that has been
sort of a basis of our proposal. And in that proposal, NERC
would have that authority and they would be backstopped by the
FERC. I need to also point out that if this goes through it is
likely that the standards would be submitted to the FERC and
those reliability standards would in fact be FERC standards. So
that is the way the current legislation is constructed to work.
Mr. Engel. Okay. Thank you. Mr. Flynn, let me ask you this.
First of all, I should ask you how Albany has been these days.
But let me just ask you, has New York determined why it didn't
just isolate itself from the grid when the power surges started
to occur? New Jersey did that, New England did that and why not
New York?
Mr. Flynn. That is the $64,000 question. And that is why
Governor Pataki has asked the Public Service Commission to
start a formal inquiry into why the circumstances affected the
State. So in a formal inquiry that will be one of the, if not
the No. 1 question we will be trying to answer.
Mr. Engel. My knowledge of--I have lived through three
power blackouts in New York, 1965, when I was in school; 1977,
which happened to be my first year in the State Assembly and I
was in Albany then, which wasn't blacked out but New York City
was blacked out. And we were lulled into this feeling that it
wouldn't ever happen again obviously, but it did. What is your
feeling about--we had asked the Governors earlier on that--I
appeared on a show where there was a panelist who was
supposedly an expert and said that the whole problem was
deregulation, that once things were deregulated, everything
fell apart. What is your view on that?
Mr. Flynn. My view is based upon some of the information
you just gave us and those two prior blackouts, one you were in
and one you were not, both were under regulated conditions. And
this latest one was under a scenario where we have a
restructured system on the generation side and still a
regulated system on the transmission side. So, in essence, I
don't think the issue of deregulation, someone would want to
pin it on something like that, but I think this is going to
come down to some of the other issues we talked about today,
communication, judgment by humans, technology. I don't think
deregulation is going to play as major a role as some of those
other issues that I just raised.
Mr. Engel. Mr. Wood, section 307 and 311, I believe, gives
FERC the authority to do investigations. Department of Energy
is obviously the lead agency in investigating. Why not FERC?
Mr. Wood. The last three large blackouts, including the
1977 blackout right after DOE was formed, the DOE took the lead
and the FPC and then the FERC supported that effort. Our role
is really to contribute our expertise to the team in this fact-
finding effort. If there are issues that do fall under FERC
statutes, which as I mentioned in my testimony are relatively
sparse on reliability issues, we will adjudicate those
independent of the task force. But in this fact-finding
gathering, like NERC, the Nuclear Regulatory Commission, and
the Canadian entities, we are all working together to do the
fact finding.
Mr. Engel. I told Secretary Abraham before that I had hoped
that whatever the investigation showed that everything would be
transparent; that there would be nothing that would be
classified or hidden from Congress or hidden from the public.
And I think that is very important because we obviously want to
make sure that the data that we get after conclusions are made
that we know exactly what was there and that books aren't
cooked and things aren't slanted so that people can have the
result that they wanted to see before the investigation
started, and I am wondering how you feel about that.
Mr. Wood. I feel very strongly about that. I think
certainly our experience with the California investigations,
which were very significant and deep and data-intensive and
gave answers that some people didn't want to hear, we released
that. We are still litigating just how much we put out. Some
people didn't want their personal e-mails out in public and we
are adjudicating that. I am a big believer of transparency and
I hope our record at FERC can demonstrate that to you. I think
that is applicable here, subject, of course, to the security
concerns about vulnerabilities or other issues related to
security. But, I think when you let the facts go where they may
and if that means dramatic changes in preconceived notions, we
need to be big enough to accept that.
Mr. Engel. Thank you, Mr. Chairman. I believe my time is
up.
Mr. Barton. The Chair would recognize himself for the last
round of questions. Before I ask questions, I think I need to
make a little bit of a statement since I have not been here
most of the day. I was out in Colorado in the Edison electric
Institute and their executive board and this was the topic of
discussion. The subcommittee that I chaired passed a bipartisan
bill that was modified at full committee. It then passed in a
bipartisan fashion and was sent to the floor and passed in a
bipartisan fashion. Many of the elements of that bill were
considered very ugly. We had quite a bit of testimony about our
poor little bill and it wasn't worth a warm bucket of spit
maybe, but the fact of the matter are had that bill been law,
say a dozen years ago, with mandatory liability standards and
with the creation of RTOs and with incentive rate making
authority explicitly for the FERC and accelerated depreciation
for transmission, repeal of PUHCA, I think you could make a
case of what happened on August 14 would not have happened. But
just passing the bill next month is not going to prevent what
happened until it is fully implemented. So I guess I just want
to pat my subcommittee on the back and Mr. Boucher and Mr.
Doyle and Mr. Strickland and Mr. Engel and Mr. Norwood and Mr.
Burr and others. Not all of them voted for the bill but they
had input into the bill and I appreciate them for their
efforts.
My first question to this panel and I apologize for keeping
us so long, how many of you gentlemen actually lost power
yourselves at your office or homes on August 14?
Mr. Flynn. I did.
Mr. Barton. Mr. Eldridge did and Mr. Lark did. So you
experienced the pain so to speak. Mr. Lark, how long did it
take you to get your power back on?
Mr. Lark. Truth of the matter is I didn't lose power at my
home but I did lose it at the office. And the office was up and
running the next day.
Mr. Barton. Mr. Eldridge.
Mr. Eldridge. About 6 hours.
Mr. Barton. Mr. Durkin?
Mr. Durkin. The MPCC's office came back about noontime the
next day.
Mr. Barton. We didn't lose power in Washington. Mr. Wood,
you had power? There are those who wished you would have lost
power.
Mr. Wood. I was actually in Texas.
Mr. Barton. I was in Houston, Texas. Some of you know what
it feels like to have something that we take for granted all of
a sudden not be available. Mr. Eldridge and Mr. Durkin, there
is a question at the staff level about how your two
organizations communicated before the blackout occurred. Were
you all on any kind of communication monitoring what happened
before--in other words, this thing looks like it may be bad and
we might need to do something about it. Was there any kind of
communications between your two organizations before the
blackout occurred?
Mr. Eldridge. No, there wasn't. As I indicated before, ECAR
is not an operating entity, the ECAR office operation, so we
don't have the capability to monitor what is going on in the
system. That is the responsibility of our operating companies
working in conjunction with the reliability coordinators.
Mr. Barton. Explain to me the difference between a
coordinating council and a reliability council. Are they the
same?
Mr. Eldridge. The regional reliability council, which is
what ECAR is and MPCC is, is a forum of members who coordinate
planning and operation of a generation and transmission
facility.
Mr. Barton. But you don't operate.
Mr. Eldridge. The members are the operating entities.
Mr. Barton. You are a board of directors. You don't have a
control room somewhere.
Mr. Eldridge. No.
Mr. Barton. So the control room would be Mr. Durkin, the
Coordinating Council.
Mr. Durkin. Within MPCC there are five control areas: the
New York ISO, ISO New England, the interior IMO, the Quebec
area and the Maritime Provinces. They are the ones who operate
the system in real time.
Mr. Barton. Do we have anybody here who actually works for
an organization that operates these systems? You guys are all
policy guys.
Mr. Flynn. Tomorrow.
Mr. Barton. Tomorrow at 9:30 we get to hear from the
operating guys.
Mr. Wood, you have already explained to Mr. Engel that your
group--that the FERC is not a part--you are not doing your own
investigation but are helping the investigation. Could you
elaborate on that a little bit? Are you providing more legal
assistance or staff assistance in terms of technical
explanations? Exactly what is the FERC role in this
investigation?
Mr. Wood. I am personally a member with Secretary Abraham
and Secretary Ridge and Chairman Diaz of the Nuclear Regulatory
Commission on the overall task force from the U.S. side. Our
counterparts, four gentlemen and a female from Canada, are of
the other half. So that is at the steering level.
There are three working groups. My assistant, Ms.
Silverstein, is on the electricity working group. There is a
separate working group on homeland security and a third one on
nuclear issues. Those are staffed with a number of people from
States, from industry, from experts outside the industry. So it
is a very broad group.
Our own people at FERC, like, for example, today, are up
there working at Mr. Gent's organization with some issues
related to the timeline that the Secretary spoke about earlier,
getting that finalized and going through the details and making
sure that it all works together. Contributing technical
expertise is the primary job we are doing, but we are also
offering legal assistance to the parties on confidentiality
issues and the like.
Mr. Barton. How many investigations are actually under way?
Is there one investigation, two investigations or three
investigations? Because we have the international task force,
we have the NERC technical, and we have the DOE--your
assistant, that is three. Do we have any interconnectivity?
Mr. Wood. They are highly interconnected.
Mr. Barton. Who is the ISO operator of all these?
Mr. Wood. From our side, the Secretary and his counterpart
in Canada are the guiding leadership on this joint
multinational----
Mr. Barton. Do any of the States--State of Ohio or the
State of New York have State investigation, so we have some
State investigations, too?
Mr. Schriber. Yes, we do. And we have called the other
companies in Ohio and have gone through time lines with them.
Even though they were with power, we wanted to know what they
were seeing. And I am on that binational task force, and we
will be providing information to that task force with what we
gather in Ohio.
Mr. Barton. Mr. Gent, in response to questions from Mr.
Bass, said that he had thought he would wrap his technical
collection effort up in about 4 weeks. Is that the general
timeframe for these other investigations?
Mr. Flynn, what is your timeframe?
Mr. Flynn. Hopefully, by the end of the year. But we are
striving to get it done right instead of getting it done quick.
We are already working with--the operator from New York State
has already provided us information. We are cooperating or the
utilities and generators in the State are cooperating along
with the associations, and whenever information will be proved
worthwhile we will feed it into the international investigation
that is going on.
Mr. Barton. So what is the--I mean, the Congress--we are in
the energy conference with the Senate. We hope to move a bill--
at least I hope to move a bill. I can't speak for all the
members of the committee. We hope to move a bill sooner rather
than later. So when do all these investigations finally come up
with their report? I mean, sometime next spring? Mr. Gent.
Mr. Gent. I may have given you the wrong impression that we
would be through in 4 weeks. That is when we hope to have the
data all finalized. Then we have to go into the phase of why it
happened, who is at fault, and that will go on. I have a whole
outline here of what will probably take another year to finally
conclude.
Mr. Barton. Another year. So if a Member of Congress would
say we ought to wait to get these investigation
recommendations, that is basically a recipe to do nothing.
Mr. Gent. I would very much be opposed to that.
Mr. Barton. Let me ask you gentlemen a few questions, and
then we will let you go.
One of the elements in the House bill is that we do repeal
PUHCA. The gentlelady from Missouri had a question about that.
Mr. Wood addressed that. But is it not true that if you don't
repeal PUHCA there is almost no way you are going to get the
capital to come into this industry to rebuild and refurbish the
infrastructure that I think everybody agrees that we need to
refurbish and in some cases add capacity? Do any of you
gentlemen oppose repeal of PUHCA?
Mr. Lark. I am not as familiar as I might be with it, but--
--
Mr. Barton. That doesn't mean you can't answer the
question.
Mr. Lark. I haven't seen the legislation and looked at it
and vetted it the way I would like to before responding to your
question. I do not believe in PUHCA repeal at this point,
unless it was going to be replaced by something else, some
other legislation with some consumer protections in it.
Mr. Barton. We will have some reporting requirements and
some expanded FERC authority for some increased FERC authority
for penalties, financial penalties and maybe even criminal
penalties. But the problem with PUHCA is, as Mr. Wood has
pointed out, that you cannot get--unless your primary line of
business is already utility business and unless you are
adjacent to the service territory, PUHCA prevents you from
merging or purchasing a utility. I mean, we have this huge
infrastructure need and I think everybody in the panel agrees
we are going to need more transmission siting. Is there anybody
that disagrees with that?
If you don't repeal PUHCA you either have to put the
government--the government has to come in and nationalize the
system to put the capital into it or you are going to have to
make do with the current system with a little bit of increase,
and we have been increasing transmission about a third as fast
as demand has been increasing or at least that is what I have
been told.
Mr. Lark. I would just say that, as to how much investment
is required in the transmission infrastructure, I don't think I
have made a conclusion on that point; and that is one of the
things I think we will learn following the outcome of the many
investigations that you alluded to earlier.
Mr. Barton. Does anybody on this panel oppose the incentive
authority for incentive rates for new transmission capacity?
FERC has some authority in that area already. The pending bill
that the House passed expands that and makes it explicit that
FERC has that authority. Are any of the panel members opposed
to that?
Mr. Lark. Well, don't want to say I oppose that, but I
would want to think that through just a little bit. I know that
my Governor made some remarks earlier and I think those went to
the point that I believe the return on equity at present is
12.88 percent. Membership in an RTO brings it up to 13.88, and
there are other aspects that FERC has in place that would bring
it up even higher. So I have not concluded that is the problem,
that, in other words, without additional incentives----
Mr. Barton. We don't have mandatory incentive rates for
transmission. What the bill would do, that would make it
explicit in certain cases that the FERC could do it. So you
could still have the traditional State or Federal rate-making
authority that would not have an incentive rate to it. So this
is not a blanket. Every transmission line that is going to be
built is going to have an incentive rate.
Mr. Lark. I would like to look at the legislation.
Mr. Schriber. Mr. Barton, you are talking part of this
incentive rate making is the participant funding, which is
pretty vague. It says those who benefit should pay, and it is
not clear who benefits. That is the problem, because there may
be benefits that are spread way beyond those that are perfectly
obvious. It is a difficult part and I think needs to be
ferreted before you go forward with that.
Mr. Barton. Anything we would like to do in the House-
passed bill is make it possible to get a more reasonable
depreciation schedule for transmission lines that are built. So
that instead of having a 40-year transition period you could
have 10 or 15 years so you get your capital back quicker.
Any of you gentlemen oppose that?
So we have agreement on that one.
Mr. Lark. Mr. Chairman, I, again, would want to take a look
at that. I think the general schedules presently are
approximately 15 years. I believe what I am hearing is taking
it down to 10 years. I wouldn't say I have a knee-jerk reaction
about that, but, again, I am not certain that is necessary for
transmission upgrades.
Mr. Barton. One more question. RTOs, how many of you
represent regions that are power generation sufficient? Ohio
could generate all of its power. Michigan could generate all of
its power. New York and New England could generate all of its
power.
Mr. Lark. Mr. Chairman, I wouldn't say Michigan can
generate all its power, but we are not generation deficient. We
presently bring in generation from the two southern
interconnects. So in our area we don't consider ourselves power
deficient.
Mr. Barton. Is there anybody who represents a region that
is not interconnected with other States? Is there anybody who
wants to be its own island and not be interconnected with other
States?
So at least in principle we all agree there should be RTOs.
The question is how to set them up and how to give the States
and the regions the authority to set them up in a way that each
State and each region has a say in that RTO that makes sense
for that State and region's perspective.
Mr. Schriber. Yes. And if I may, there are some States such
as ours that have more than one RTO which has problems of its
own.
Mr. Barton. I want to ask Mr. Eldridge and Mr. Durkin, who
do you actually report to? Who pays your salary?
Mr. Durkin. My case, I am chairman of MPCC; and the
membership pays my salary.
Mr. Barton. So the utilities that are part of the
Coordinating Council pay in and your salary is paid not
directly but they supply funds to the Council and you are paid
from those funds?
Mr. Durkin. Yes. The funds that they provide pay me, they
pay for the staff of the organization, and they also pay for
the support that we are required to pay for NERC and so forth.
Mr. Barton. What about you, Mr. Eldridge?
Mr. Eldridge. Very same thing. ECAR is a nonprofit member
organization.
Mr. Barton. If you did a bad job, who would make the
decision to replace you? Mr. Eldridge.
Mr. Eldridge. Different from MPCC, which has kind of a
permanent chairman, in ECAR we have an executive board which is
a governing body of ECAR; and the chairman of the ECAR
executive board is my boss. And----
Mr. Barton. And who picks the chairman of the executive
board?
Mr. Eldridge. The board itself. They have a nominating
committee process.
Mr. Barton. Is that chairman of the executive board member
a utility executive who would be an operating officer?
Mr. Eldridge. The current chairman of ECAR's executive
board is the CEO of Big Rivers Electric Corp.
Mr. Barton. That is the kind of person----
Mr. Eldridge. Typically, the people on the executive board
are senior executive level people.
Mr. Barton. You are not picked by Mr. Gent.
Mr. Eldridge. I am picked by my board.
Mr. Barton. The NERC puts these standards in place, but
NERC does not serve in a supervisory capacity over you or Mr.
Durkin.
Mr. Durkin. That is correct.
Mr. Barton. That is done by the participants who join your
nonprofit organizations, and in most cases those are executives
of utilities, is that correct?
Mr. Durkin. In the case of MPCC, we have an executive
committee that is split between transmission customers and
transmission owners. The transmission customers are independent
generation owners and so forth, market makers and so forth.
Mr. Barton. Now is there any reason to believe that this
structure--and I am not advocating that it did--but is there
any reason that the way the structure is set up is a problem in
terms of operating the system and preventing blackouts? Because
it seems to be a very diffused structure.
Mr. Durkin. Well, at ECAR each member company is
represented on the executive board. The executive board
determines the policy, direction and improves all reliability
criteria that the ECAR forum develops; and most of what we
develop is in conjunction with and in support of the NERC
reliability standards. We are just a regional implementer of
that, if you will. And--and I lost my train of thought there.
Mr. Barton. It is late in the day. I just had a general
question, and you have satisfied it.
Gentlemen, I want to thank you. This hearing is going to
recess and reconvene tomorrow morning at 9:30, and we do
appreciate your attendance.
[Whereupon, at 6:15 p.m., the committee was adjourned.]
[Additional material submitted for the record follows:]
Northeast Power Coordinating Council
1515 Broadway, New York, NY 10036-8901
October 7, 2003
Hon. W.J. Tauzin
Chairman, Committee on Energy and Commerce
Room 2125 RHOB
United States House of Representatives
Washington, D.C. 20515
Re: Committee on Energy and Commerce Request
Dear Chairman Tauzin: As requested, attached is Northeast Power
Coordinating Council's response to the questions transmitted in your
September 22, 2003 letter. We welcome this opportunity to provide
additional information. Please let me know if you or the Committee have
any other additional questions.
Very truly yours,
Charles J. Durkin, Jr.
Chairman
cc: Members, NPCC Executive Committee
Northeast Power Coordinating Council Response to the U.S. House of
Representatives Committee on Energy and Commerce
Question 1. You mention NPCC's preference for the reliability
language in H.R. 6, specifically due to its acknowledgement of New
York's unique reliability needs. Could you elaborate on what those
needs are and why it is important to recognize them?
Response. NPCC criteria establish the regionally specific
reliability requirements necessary to maintain the security and
adequacy of its interconnected bulk power supply system. These criteria
define the minimum requirements for both the design and operation of
the Northeastern North American electric power system. While they are
consistent with and meet NERC criteria, they are more stringent.
More stringent criteria and rules make for a more robust system,
especially when operation outside of normal system conditions is
encountered. These requirements provide for extra margin that adds
flexibility when extraordinary events occur and reduces the likelihood
of the need for load shedding in response to such system disturbances.
The New York State Reliability Council (``NYSRC'') establishes
rules for maintaining the reliability of the electric power system
within New York State (``Reliability Rules''). These Reliability Rules
may be more specific and more stringent than NPCC Standards,
recognizing special New York system characteristics or reliability
needs.
These Reliability Rules define standards for maintaining the
reliability of the New York State Power System. Compliance with the
Reliability Rules is required by the New York ISO and all entities
engaged in transactions in the New York State Power System (New York
ISO/NYSRC Agreement Section 2.1). Reliability Rules are developed in
accordance with NERC, NPCC, FERC, PSC, and NRC standards, criteria,
rules, and regulations, as provided in the NYSRC Agreement (New York
ISO/NYSRC Agreement Section 4.1).
The Reliability Rules pertaining to operation of the New York
System during impending severe weather conditions (New York City Storm
Watch in-city generation requirements, for example) recognize the
specific New York transmission configuration and outline the corrective
actions to protect the system for one contingency greater than that
required by the normal criteria. For example, limits may be imposed on
the 765kV tie line with Hydro Quebec when thunderstorms are reported in
the vicinity. Local reserve and installed capacity requirements
recognize specific New York transmission constraints.
In general, due to New York's geography and network topology, a
variety of local reliability rules are necessary in order to assure the
safe and reliable operation of its electric power system.
Question 2. Your testimony briefly explains how New York divided
into two islands. Can you elaborate on that occurrence and describe
what effect this had on power restoration?
Response. Our understanding of the events described here, and of
those not yet fully catalogued, may change as the investigation
progresses.
Initially, the Eastern Interconnection split into two sections
separated by an east-to-west line. To the north of that line was New
York City, northern New Jersey, New York, New England, the Maritime
Provinces, eastern Michigan, the majority of Ontario, plus the Quebec
system. To the south of that line was the rest of the Eastern
Interconnection, which was not affected by the blackout. During the
next nine seconds, several separations occurred between areas in the
northern section of the Eastern Interconnection.
The ties between eastern New York and New England disconnected, and
most of the New England area became an island with generation and
demand balanced close enough that it remained operational. However,
southwestern Connecticut separated from New England and remained
momentarily tied to the eastern New York system. At about the same
time, the ties between eastern New York and western New York
disconnected creating two islands.
Ontario and western New York then separated, with 15% of the demand
across New York State disconnected automatically. About 2,500 MW of
Ontario demand automatically disconnected as the Ontario system
attempted to rebalance.
The Ontario-New York separation left New York's and Ontario's large
hydro generators in the Niagara and St. Lawrence areas, as well as the
765 kV intertie with Quebec, connected to the New York system,
supporting the demand in upstate New York just south of Lake Ontario.
Three of the transmission circuits near Niagara automatically
reconnected Ontario to New York, and another 4,500 MW of Ontario demand
automatically disconnected.
Just after 4:11 pm (EDT), the Niagara lines disconnected again, and
western New York and Ontario again separated. Most of Ontario blacked
out after this separation, leaving 22,500 MW of demand disconnected out
of a total demand of about 24,000 MW.
The eastern New York island blacked out with only scattered small
pockets of service remaining. The western New York island continued to
serve about 50% of the demand in that island. When a 345 kV line
feeding from southwestern Connecticut into eastern New York
disconnected, it left southwestern Connecticut connected to New York
only through the 138 kV cable that crosses Long Island Sound. About 500
MW of southwest Connecticut demand was disconnected by automatic grid
operations. Twenty-two seconds later the Long Island Sound cable
disconnected, islanding southwest Connecticut and blacking it out.
Some isolated areas of generation and load remained on line for
several minutes. Some of those areas in which a close generation-demand
balance could be maintained remained operational; other generators
ultimately tripped off line and the areas they served were blacked out.
One relatively large island remained in operation serving about 5,700
MW of demand, mostly in western New York. This service was maintained
by large hydro generating stations in New York and Ontario in the
Niagara and St. Lawrence areas as well as the 765 kV inter-tie with
Quebec. This island formed the basis for restoration in both New York
and Ontario.
NPCC's Emergency Operation Criteria requires each area to have a
system restoration plan in accordance with NERC Operating Policies, and
requires that system operators be knowledgeable of the strategy,
priorities and procedures for implementing their system restoration
plan. NPCC regularly assesses and assures compliance with these
requirements.
Under the New York ISO's Restoration Plan, developed in accordance
with NERC and NPCC emergency operating criteria, priority is given to
energizing the power system, synchronizing it with neighboring system,
and restoring offsite power to nuclear facilities. The restoration of
load to customers is the ultimate plan objective.
The first step taken in the restoration process involved
stabilizing the system and restoring the tie lines to the neighboring
control areas. Within about three hours, the New York ISO was able to
restore the major tie line at Ramapo to the remainder of the Eastern
Interconnection. The first major New York power plant was returned to
service in just under an hour after that, and a few minutes later a
transmission path to New York City was re-established. From the outset
of the emergency, the New York ISO placed high priority on the
restoration of New York City, where the absence of electricity is a
more severe threat to health and welfare than elsewhere. Throughout the
next day, there was a painstaking process of bringing generators back
to the system and re-energizing lines.
New York State service was restored by 10:30 pm Friday, August
15th. The restoration process was aided and shortened by the fact that
the western New York island remained in service and by having on-line
generation already available in this island during the initiation of
the restoration process.
______
North American Electric Reliability Council
Princeton, New Jersey
October 2, 2003
The Honorable John D. Dingell
U.S. House of Representatives
2328 RHOB
Washington, D.C. 20515-6115
Dear Congressman Dingell: During the September 3, 2003 hearing of
the Committee on Energy and Commerce concerning the August 14th
blackout in the upper Midwest and Northeast United States and eastern
Canada, you requested that I supply additional information regarding
the nature of the violations that NERC had found through its compliance
enforcement program.
This letter provides that additional information. At the outset I
must emphasize that neither NERC nor the U.S.-Canada Joint Task Force
on the Power Outage has completed its investigation of the blackout.
Further, the violations described in this letter were not a product of
that investigation; rather, these violations were found through NERC's
ongoing compliance program.At the hearing you asked whether any of the
violations that NERC found through its compliance program imposed risk
to the system, including the possibility of a shutdown of the kind we
experienced on August 14th. NERC found several types of violations that
exposed the interconnected system to serious risk. A description of
those violations and the nature of the risks they present follow.
Operating portions of the transmission system beyond their
``first contingency'' rating. NERC's planning standards and operating
policies require that the transmission system be planned and operated
to withstand the failure of any single element without affecting other
portions of the transmission system. Some control areas and reliability
coordinators reported specific situations during which they operated
beyond the first contingency rating of a portion of their transmission
system. In 2002, NERC referred to this rating as the ``operating
security limit.'' Violating this limit increases the possibility that a
disturbance to the transmission system could result in a widespread
cascading failure. If portions of the system are being operated beyond
their first contingency rating and the contingency occurs (such as a
storm damaging a transmission line or a generating plant shutting down
because of a boiler tube leak), then other portions of the transmission
system could well be affected. Depending on the circumstances, such an
occurrence could precipitate a cascading failure of a portion of the
system. NERC's planning standards and operating policies require that a
system operator know the first contingency ratings of the portion of
the system under its control, that the system operator regularly assess
system conditions, and that the system operator take corrective action
to promptly bring the system back within first contingency ratings when
those ratings are exceeded.
Exceeding control performance limits. NERC operating policies
require that each control area maintain a constant balance between its
generation and demand within specified limits, recognizing that
customer demand is constantly changing and generation control is never
perfect. Operating outside those limits is considered a violation of
these control performance policies and places a burden on the entire
Interconnection as it feeds power to, or absorbs power from, the non-
compliant control area. NERC expects control areas to comply with these
control performance policies at all times, even when generation is
limited. That expectation might require a control area to curtail
customer demand through public requests for conservation, voltage
reductions, and even load shedding. NERC performs monthly surveys that
track each control area's compliance with NERC's control performance
policies. Although most control areas fully comply with these policies,
we have seen obvious instances of non-compliance that resulted in
noticeably lower frequency in the Interconnection. Non-compliance with
the control performance standards can also result in unscheduled flows
on the transmission system as the entire Interconnection responds to
correct the imbalance. These unscheduled flows may overload portions of
the system. Because the flows are unscheduled and therefore unknown to
the system operators, it may be more difficult to resolve the overload
because the system operators do not know what is causing it.
Failure to return generation-demand balance within 15 minutes
following the sudden failure of generation. Generating unit failures
cause an instant imbalance between a control area's generation and its
customer demand, resulting in a decrease in system frequency. NERC's
control performance operating policies require that a control area
return to a balance between its generation and customer demand within
15 minutes following the sudden generating unit failure. Many control
areas pool their generation reserve in a reserve-sharing group to
quickly restore this balance. Until that balance is achieved, the
entire interconnection feeds power to the deficient control area as a
result of automatic controls on the generators. Our monthly surveys
show that most control areas comply with this policy. Those that do not
are required to carry additional operating reserves. Until balance is
restored, unscheduled flows occur on the system, presenting the same
potential for overloads discussed in the prior example.
Lack of NERC-certified system operators. Since January 1, 2001,
NERC has required that all control center operators be NERC-certified.
NERC certification requires that the system operators pass an
examination based on our operating policies as well as a general
knowledge of interconnected system operations. Not having NERC-
certified system operators may place the system at risk because the
non-certified operator may lack a sufficient understanding of
interconnected system operations and the operating policies necessary
for interconnected operations. The system operator may not appreciate
the risk of operating in a particular manner. In the event of a system
disturbance, the system operator may not understand the steps needed to
bring the system back within acceptable operating parameters.
Non-compliance with regional underfrequency load shedding
programs. Underfrequency load shedding systems help provide a quick
generation-demand rebalance when a portion of the Interconnection
becomes isolated from the rest of the system. This underfrequency load
shedding is accomplished automatically in fractions of a second. Each
of the Regional Councils has established underfrequency load shedding
requirements for its control area members. This load shedding must
occur prior to generating units tripping offline to protect generating
equipment and attempt to arrest a decline in system frequency. Not
complying with these standards can result in insufficient
underfrequency load shedding, or load shedding that doesn't occur until
the frequency has declined too far. Once frequency declines to a
certain point, relays designed to protect equipment on the system from
physical damage begin to disconnect equipment (such as generating
units) from the system, causing frequency to decline even further as
demand and the resources available to meet it get even further out of
balance.
Lack of system studies. NERC planning standards require that
utilities model their systems under normal, single contingency, and
severe contingency situations. Studying the effects of contingencies on
transmission system models helps the utilities and reliability
coordinators understand how those systems are likely to respond under a
range of normal to stressful situations. Lacking those studies means
that the system operators may be faced with events whose outcomes might
be unknown, i.e., operating in an unstudied state. Without such
studies, system operators may not realize that they are operating
beyond first contingency ratings, or system operators may not
understand the limits they need to impose on transfers across the
system to avoid a voltage collapse.
The 444 violations of NERC Operating Policies included in the 2002
Compliance Report break down in the following manner:
Control performance standards, CPS-1 and CPS-2: 25
Disturbance control standard: 8
Formal policies and procedures to address the execution and
coordination of activities that affect transmission system
security: 11
Operating security limit:
Violation of first contingency limit: 15
Violation of regional criteria that are more stringent than
NERC criteria: 98
Path being up-rated (old limit violated--new limit not
violated): 12
Adequate facilities for system operators to monitor specific system
parameters: 8
Control area and operating authority to provide system data to
reliability authority: 10
Operators must implement and communicate emergency plan: 1
Emergency operation plans developed and maintained: 15
System restoration plans: 27
System operator authority: 12
Operator certification violation: 193
Reliability authority to perform next-day study: 8
Issuance of energy emergency alerts: 1
The 97 violations of NERC Planning Standards included in the 2002
Compliance Report break down in the following manner:
System performance under normal conditions with reporting
requirements: 11
System performance under single contingency with reporting
requirements: 12
System performance under extreme contingency conditions: 18
Recorded fault and disturbance data: 5
Develop and maintain a library of dynamic models: 2
Consistency of entities with regional underfrequency load shedding
program: 44
Analyze and document regional underfrequency load shedding program
performance: 2
Analysis and documentation of under-voltage load shedding event: 2
Regional assessment of special protection system coordination and
effectiveness: 1
I hope this additional information is useful to the Committee.
Please contact me if you have additional questions relating to the
reliability of the bulk electric system.
Very truly yours,
Michael R. Gent
President and CEO
cc: The Honorable W. J. ``Billy'' Tauzin
______
Prepared Statement of Hon. George E. Pataki, Governor, State of New
York
Mr. Chairman, thank you for the opportunity to submit testimony
regarding New York's experience during the recent northeast blackout.
On August 14, 2003, nearly ninety percent of New York State
experienced a loss of electric service that lasted for periods ranging
from several minutes to nearly 30 hours. This power outage has cost the
State and its citizens untold millions of dollars in lost commerce,
equipment damage, food spoilage and restoration, as well as
inconvenience and risk to public safety on a monumental scale.
At this point, the precise origin of the outage is still not
known--although speculation abounds. We also do not know how this fast
moving event on our power grid could have crossed through so many
jurisdictions and then entered New York without apparent warning. What
we do know is that New Yorkers--upstate and down, young and old, rural
and urban, responded to the situation with a sense of courage and
community that is, unfortunately, learned only from hard experience.
New Yorkers rose to this occasion as they have in the past--together.
As the sun began to go down on August 14, 2003, millions of people
tried to make their way out of New York City. They streamed across our
bridges on foot, caught rides with co-workers or strangers, and many of
them slept in our parks and on our streets. Neighbor looked after
neighbor and New York met the challenge with a peaceful determination.
In fact, during the time that New York was without power there was no
discernible increase in crime of any kind in our state. Contrast that
to 1977, when the last great blackout occurred. During that event there
was widespread looting and crime as many took the opportunity to turn
on their own neighborhoods. Not anymore, not in a City and a State that
has been through what New York has been through in the last two years.
Instead shopkeepers came out and directed traffic under darkened
traffic lights. People offered rides to strangers and got them home
safely. In some neighborhoods there were impromptu block parties as
people came out of their homes and gathered in the streets--peacefully.
These people deserve answers. They deserve results. They deserve a
rock solid assurance that this will not happen again.
One way we could fail them is to jump to conclusions. Another way
we could fail them is to engage in an endless cycle of finger pointing
or blame. But we will not fail them if we do two things: First, we must
obtain a true understanding of this event before reaching any
conclusions as to cause. Second, once those causes are identified,
swift and certain action must be taken that deals--once and for all--
with the weaknesses that allowed this to happen in the first place.
I would like to spend just a few minutes describing what was
happening in New York State in the immediate aftermath of the blackout
and some of the actions we took in response to this emergency. I then
will offer to this Committee some specific actions which New York
believes Congress can and should take to strengthen our nation's
electricity system.
Shortly after the first flickering of the lights in New York, the
state's emergency response system was up and running. Our Emergency
Operations Center in Albany was activated under the direct supervision
of my staff by representatives of twenty-three state agencies, FEMA,
and volunteer organizations like the American Red Cross. I declared a
statewide emergency less than one hour after the power failure.
The state's initial response focused on two major tasks: monitoring
the restoration of electrical power to the citizens, and supporting
local government efforts to protect public health and safety. While the
Public Service Commission monitored and assisted the power restoration
efforts of New York's major utilities and generators, including the
shutdown of the state's six nuclear power plants, our other state
agencies were engaged in public protection efforts.
During this phase of the emergency our Operations Center
coordinated the transfer of generators from state agencies to provide
power to three downstate hospitals. Additional generators were
dispatched to power local water supplies. The Department of Health
remained in contact with the state's hospitals and, in coordination
with New York City, organized the dispatch of over 50 ambulances from
upstate New York to support New York City's emergency service units.
The Department of Health in partnership with the Department of
Agriculture and Markets provided inspectors to augment local inspection
of grocery stores and restaurants as millions of refrigerators across
New York suddenly stopped working. Immediately the state's private
utilities and generators, as well as our own Long Island and New York
Power Authorities, began working together with the Independent System
Operator to restore electric service to 17 million people in a
deliberate and orderly fashion.
Late in the evening on Thursday night the New York Power Authority
and its counterpart in Ontario appealed to the International Joint
Commission for permission to divert additional water into the large
hydro-electric plants at Niagara Falls. At that point these huge hydro
plants were virtually the only generators running in our state--
thankfully they supply thousands of megawatts of dependable power.
Recognizing the magnitude of this emergency the International Joint
Commission quickly allowed the diversion of an additional 50,000 cubic
feet of water per second from the Niagara River into the hydro
projects. The famous tour boat ``Maid of the Mist'' had to temporarily
suspend operations because only half as much water was flowing over
Niagara Falls. However, the water diversion allowed for the generation
of an additional 1,100 megawatts of electricity beyond the normal
output of the facilities, enough to provide power to more than one
million homes. At a time when most of the northeast United States was
without electric generating capacity, this move turned out to be
critical to the restoration process, allowing other generators to come
back on line more rapidly and decreasing the severity and duration of
the outage across the state.
Over the course of the last two years we put together an initiative
we call the Coordinated Demand Response Program, and on August 14th and
15th it played a significant role. The program involves all of New
York's energy agencies acting together to strategically plan and
implement programs in cooperation with the New York Independent System
Operator (NYISO) and local utilities to reduce the demand for
electricity at key times. This program, which provides financial
incentives to customers who reduce their demand for power, uses a
``quick response'' alert system involving a statewide network of large
and small electricity customers. For example, by operating via a
combination of cellular and internet-based controls with 34 Home Depot
stores throughout New York City we were able to reduce the electricity
demand of these stores by over 4 megawatts--enough power for over 3,000
homes. We also had in place a coordinated program for reduced energy
consumption by State agencies and authorities across New York. On
August 14th and 15th, those programs were instrumental in helping to
restore electricity to New York State by balancing the load as the
electricity delivery system was re-energized. In New York State we
showed that energy efficiency, demand response programs, and public
appeals are important grid management tools. In this case they proved
to be an emission-free way of reducing electricity demand by
approximately 2,500 megawatts--the combined output of three large
generating facilities.
During this same time frame Consolidated Edison was engaged in a
major effort to restore power to the City of New York. Among the first
significant electric generating station to come back on line in the
greater New York City region was a small, clean-burning gas-fired
combustion turbine located at Hell's Gate in the Bronx. This power
plant and others in five locations throughout New York City had been
installed in preparation for the summer of 2001 by the New York Power
Authority. Because they are sited in strategic, energy-starved
locations within New York City and are not dependent on long-range
transmission, these small, clean power plants provided critical support
to the electric grid, and helped to reduce the duration of the outage.
In fact, many of the neighborhoods where these turbines are located
were among the first to come back on-line. The installation of these
plants is a clear example of New York's extensive planning and
preparation to prevent and minimize energy emergencies.
On Thursday, August 14th, we also appealed to Energy Secretary
Spencer Abraham for assistance with a vital link between Long Island
and the State of Connecticut. The Cross-Sound Cable, a 330 megawatt
power line that was fully capable of functioning but which had not yet
been activated due to what can only be described as parochial political
reasons, was the subject of a New York request for an emergency order
from the Department of Energy. Secretary Abraham and his staff answered
our request almost immediately and within hours the Cross-Sound Cable
was energized and critically needed power began to flow to Long Island.
The operation of this line will make the entire region's electric grid
more reliable as we begin to piece together how this event occurred.
These are just a few examples of the many stories of people working
together to restore service across the state. I am sure that you will
hear more as some of the affected utility companies come before you
tomorrow. Overall, the State's private utilities and generators, the
Long Island Power Authority, the New York Power Authority, and the
Independent System Operator worked closely together with an unmatched
level of cool professionalism. The system began to come back up piece
by piece, and less than thirty hours later, the electric system in New
York State was fully re-energized.
Again, we should not reach conclusions about what happened in this
specific instance before an intensive investigation has reached its
end. But that is not to say that we cannot begin the process of
identifying how we might address the general state of our electric
system and whether it is prepared to meet the challenges that we are
placing on it every day.
This event appears to have crossed through a number of states, and
indeed into Canada and back again, before it was done. No single state
or province can be expected to find the answers that a great swath of
our nation deserves today. I therefore look forward to the findings of
the Task Force headed by Secretary Abraham and the Canadian Minister of
Natural Resources. They are the right people to lead the inquiry. We
pledge our cooperation to the Task Force during this inquiry and have
already provided expert personnel to the working groups supporting
their effort.
As no single state or province can be expected to find the answers,
even more so no single state or province can be expected to supply the
solutions that will guarantee the reliability that our nation deserves.
The reliability of a system that is interconnected across nearly every
state and into Canada can only be assured by the federal government, by
Congress, by you. This Committee has an opportunity to begin breaking
the gridlock on an issue that has remained in conflict for too long--
this nation's energy future.
And so I cannot pass up this opportunity to tell you about how New
York can provide some very pertinent examples for federal action at
this crucial moment on the issue of energy and electricity.
First, the issue of under-investment in our electric transmission
system. When the federal de-regulation of the electric system was
conducted through the Order 888 Federal Energy Regulatory Commission
(FERC) rulemaking in 1996, the New York's Public Service Commission
went to court to seek to maintain its authority to set retail
transmission rates which in turn would have allowed New York to
encourage transmission investments to be made.
That case made it all the way to the Supreme Court of the United
States in a case now known as New York v. FERC which held that FERC has
jurisdiction over the rates for transmission to retail customers in
states that have implemented retail electric supply competition. The
case is rather prophetic considering the circumstances under which we
find ourselves here today, and if I may, I would like to quote from the
Court's unanimous opinion:
``New York argues that FERC jurisdiction over unbundled retail
transmission will impede sound energy policy. Specifically, New
York cites the States' interest in overseeing the maintenance
of transmission lines and the siting of new lines . . .
Regardless of their persuasiveness, the sort of policy
arguments forwarded by New York are properly addressed to the
Commission or to Congress, not to this Court.''
That was a unanimous United States Supreme Court nearly two years
before the blackout of 2003. The provision of financial incentives to
induce the construction of interstate electric transmission is an issue
that should properly, and legally according to the Supreme Court, be
addressed at the federal level. This Congress can and must provide the
level of investment certainty that will actually get transmission built
and upgraded so we do not repeat this kind of event again. The problem
is uncertainty. Nothing will chill investment like uncertainty. New
Yorkers and others have unfortunately paid the price for an uncertainty
that has existed for far too long. This Congress should fashion, or
direct the FERC to fashion, clear rules that will allow transmission
owners and other investors to know how, when, and by whom their
investment will be returned. Without clear incentive, there will be no
investment. Without investment, we cannot guarantee it will not happen
again.
A second and related issue I would like to cover concerns
reliability standards. New York has in place the strictest state
electric system reliability rules in the nation. In response to the
1977 blackout New York adopted dozens of new, reliability rules: One of
the most prominent is the need to protect against lightning strikes on
critical transmission facilities supplying power to New York City--
known as the ``Thunderstorm Watch'' Procedure. In the energy
legislation before Congress right now there are provisions which would
establish national reliability standards--we need federal reliability
standards in the form of law, not in the form of legislative proposals.
As we have now learned the hard way, a reliable system in one state may
be made suddenly unreliable by events outside of its borders. That is
why only the Federal government can put in place the fixes that will
ensure that it will never happen again.
I support federal legislation which would impose mandatory minimum
reliability standards nationwide, but with a retention of the ability
of states such as New York to set higher reliability standards provided
they do not negatively impact other states or regions. New York City,
with its high population density and dependence on electricity has
concerns not found in other portions of the country. We must have the
flexibility to respond to the needs of our own citizens, and
Representative Vito Fossella has recognized that and included a
provision guaranteeing that New York's high reliability standards can
remain in place. Nevertheless, this event demonstrates that we must
have minimum federal reliability standards, states are simply not in a
position to prevent events from occurring in other states. This
Congress can and should pass national reliability standards.
As I discussed previously, New York State has a long track record
of programs designed to promote energy efficiency and conserve energy
during periods of peak demand. Our efforts involve energy efficiency
programs like New York's ``keep cool'' air conditioner rebate program,
thermostats in houses that are controlled by the utility via the
internet, and public education campaigns that educate people when and
how to use energy wisely. In New York, already the most energy
efficient state in the continental U.S., we are proving that energy
efficiency is the most cost effective and cleanest grid management tool
available.
These programs not only make our electric grid more reliable, but
they create jobs and clean up the air while doing so. New York
currently spends nearly $290 million each year to improve the state's
energy efficiency, develop the state's renewable and indigenous
resources, and demonstrate new and emerging energy technologies. As of
the end of 2002, these efforts resulted in nearly 1,700 gigawatt hours
of electricity being saved--the equivalent of meeting the electricity
needs of more than 283,000 households for a year. Additionally, these
efforts have resulted in the creation or retention of more than 3,000
jobs. Furthermore by improving energy efficiency and using renewable
resources through the end of 2002, emissions of more than 1 million
tons of carbon dioxide, 790 tons of nitrogen oxide and more than 1,200
tons of sulfur dioxide have been avoided, helping to make the air
cleaner for all New Yorkers.
New York State calls on Congress to increase its support for
improving the nation's energy efficiency and developing the nation's
indigenous renewable energy resources. Federal tax policy should
reflect that saving a kilowatt hour of electricity, a therm of natural
gas, or a gallon of heating oil or gasoline, is more beneficial for the
economy, national security, and the environment than producing such
energy domestically or importing it from elsewhere. We need to expand
our focus on efficiency, which means being more productive with the
energy we do use. We need to implement a federal tax policy that
rewards efficiency through tax incentives for homeowners and businesses
that improve the way they use energy. Adoption of a national renewal
portfolio standard will ensure that the nation as a whole takes the
steps that New York and twelve other states are already taking to make
our electricity supply more sustainable, and to create and retain jobs
domestically. Further, funding for weatherization projects for homes of
low income residents, as well as funding for the highly successful
state energy grant programs, will continue to pay dividends well into
the future.
Finally, I would like to focus upon the importance of the use of
distributed generation and combined heat and power as part of a
comprehensive strategy to strengthen the electric grid. Distributed
Generation is finding applications throughout New York--from helping
hospitals to meet their critical energy needs to helping manufacturers
meet their need for reliable, uninterrupted power. This technology
offers many benefits: modern equipment is environmentally friendly; use
of available heat (thermal energy) increases fuel-use efficiency,
diversifies electric supplies to the end-user, and enhances energy
security, and on-site generation alleviates transmission and
distribution load pockets by targeting generation right where it is
needed most.
In New York State we have invested nearly $50 million that has
leveraged another $150 million in private sector capital to construct
and operate nearly 100 different distributed generation systems
throughout New York State, from office buildings in Manhattan to farms
in upstate New York. Through our efforts we are reducing the regulatory
and financial barriers that have inhibited this clean and efficient
technology. We have 12 megawatts on line currently with 20 megawatts
expected by the end of the year, and another 90 megawatts of
distributed generation projects coming on line over the next year.
During the Blackout of 2003 and the subsequent restoration of New
York's electricity grid, these systems were a part of turning the
lights back on in New York State. The New York Police Department
Central Park Precinct continued to serve and protect New Yorkers thanks
to the electricity provided by a fuel cell installed at the police
station by our own New York Power Authority. At the Rochester
International Airport a new distributed generation system financed in
part by the New York Energy Research and Development Authority helped
the Airport to continue to operate. Outside of Buffalo the Oakwood
Nursing Home distributed generation system kept the lights on and met
the critical needs of its clients while the area surrounding them was
without electricity.
Those are some of the solutions that I ask you to consider.
Increasing investment in our transmission systems, enforceable federal
reliability standards, as well as new incentives for energy efficiency,
renewable energy, and greatly increased use of distributed generation
are all actions that are needed to answer the wake up call we have all
now received. Once we have answers to what caused this outage it is
important that the investigative phase of this incident be followed by
swift and clear action on these and other issues. The people of New
York responded exactly as they should have--they deserve the same from
their political leaders. This is the year to get an Energy Bill done.
Thank you Mr. Chairman.
______
Coleman A. Young Municipal Center
Detroit, Michigan 48226
September 15, 2003
The Honorable W.J. Tauzin
Chairman, House Energy and Commerce Committee
U.S. House of Representatives
Room 2125
Rayburn House Office Building
Washington, DC 20515
Dear Mr. Chairman: I would like to thank you for the opportunity to
appear before the House Energy and Commerce Committee to discuss
Detroit's response to the Blackout of 2003. The hearings provided an
important opportunity to learn more about our nation's response to
critical incidents.
The Blackout of 2003 presented issues that are crucial to improving
not only the way this nation operates on a day-to-day basis, but also
the way it handles future crises, and possible acts of terrorism. I
believe that we, as a nation, need to refocus on the fundamentals.
Specifically, we need to complete an assessment of the nation's
critical infrastructures and immediately work to address our
vulnerabilities. The two-year anniversary of the attacks of September
11th reminds us the completion of this task is long overdue.
The City of Detroit demonstrated preparation could go a long way.
Thanks to a comprehensive homeland security plan the City was able to
handle the massive power outage that crippled much of the Northeast.
The lessons we learned during the Blackout of 2003 can be applied to
other cities and localities across the country. We recognize that:
Communication and information systems must remain operational every
day and be able to handle a dramatic increase in use during a
critical incident. Our key communications systems must have the
redundancy and capacity to be of use during crises. For
instance, Detroit's 9-1-1 and 3-1-1 systems remained up and
running during the blackout. Detroit handled a record high 576
emergency medical service calls.
The integration of communication among local, regional, state and
federal officials is vital during catastrophic events. The
blackout showed that communication between the Department of
Homeland Security and the City of Detroit was an issue.
National processes and procedures need to be implemented and a
national threat assessment must be conducted to identify
vulnerabilities. This assessment will help to identify critical
factors for targeting resources, funding and priorities.
Detroit has already conducted a full threat and vulnerability
assessment and developed a process for constantly updating this
assessment.
Local governments need to be prepared to respond to future critical
incidents. Detroit acknowledges the front lines of the nation's
war on terrorism are America's cities and towns. The same
communication and information systems we rely upon provide the
foundation for efforts to detect, prevent and respond to
terrorism.
Decisions related to homeland security cannot be done in a vacuum,
separate and apart from day-to-day services. It must be a truly
``all hazards'' approach and cannot take funding and resources
away from traditional public safety, public health and
emergency preparedness programs such as COPS, FEMA and OJP-
administered grant programs like Edward Byrne Memorial Grants
or Local Law Enforcement Block Grants Programs.
We need to view the role of localities as more than just first
responders. In the future, a police officer with the help from
a member of the community may be the first to identify an
impending terrorist threat. Likewise, city personnel, EMS and
firepersons will be the first to respond and confront the
issues and problems that arise during a critical incident.
I truly appreciated the opportunity to appear before your committee
in response to the Blackout of 2003 and I look forward to the
opportunity to work with you and members of your staff.
Sincerely,
Kwame M. Kilpatrick
Mayor
______
State of New York Department of Public Service
Three Empire State Plaza, Albany, NY
October 6, 2003
The Honorable W.J. ``Billy'' Tauzin
Chairman
Committee on Energy and Commerce
U.S. House of Representatives
2183 Rayburn HOB
Washington, D.C. 20515
Dear Chairman Tauzin: In response to your letter of September 22,
2003, I would like to thank you for the opportunity to clarify and
expand upon the New York State Public Service's position regarding
national reliability standards and the need for New York State to
retain higher standards than any that might be implemented at the
federal level.
As discussed in my testimony on September 3rd, H.R. 6 contains a
provision (sponsored by Congressman Fossella) that would permit New
York State to continue to set reliability standards greater than those
that might be established nationally. New York City presents unique
circumstances and challenges that warrant reliability standards that
exceed those of the rest of New York State or the nation. New York City
serves as the financial capital of the world, meaning the economic
consequences of power outages can literally be felt globally. We were
very fortunate that the local electric utility in New York City,
Consolidated Edison, was able to establish power to Wall Street hours
before trading opened on the next day following the August 14th
blackout. While emergency back-up generation exists throughout the
city, including on Wall Street, it is simply not adequate to sustain
the city's level of economic activity. Therefore, the loss of power in
New York City for an extended period of time can essentially translate
into billions of dollars in lost revenue for the financial industry and
others.
In addition, New York City is heavily reliant on electricity to
power a subway system that carries more than 7 million passengers a
day. The loss of power can have the impact of immobilizing the City,
stranding commuters and endangering the lives of those unfortunate
enough to be caught on the subway when an outage hits. Furthermore, the
population density of New York City is significantly greater than any
other large city in the nation. Due to its relatively small geographic
size, the city has residential and commercial skyscrapers that require
electricity for air conditioning, elevators, and lighting. In fact, it
is estimated that at any given moment on a workday, more than 1 million
people in New York City are either riding on elevators or in subways.
Clearly the continuous and reliable flow of electricity to these
buildings and subways is necessary to ensure adequate public health and
safety.
The city's population density also makes siting power plants within
the city difficult, albeit not impossible. We have recently made
progress in siting new power plants within New York City. Some are
currently under construction, while others are essentially on hold due
to the financial industry's reluctance to support large-scale power
projects. In addition, New York State maintains a rule requiring that
80 percent of the electricity consumed in New York City be capable of
being generated from within the city itself. Despite this rule, and
despite the promise of new power plants in the near future, New York
City will likely remain reliant on the transmission of power from other
regions of New York, as well as from other states, to fully meet its
electricity needs. The state therefore has an obligation to ensure that
those transmission facilities that operate under our regulatory purview
do so reliably. We have promulgated regulations to build redundancies
into these systems ensuring, to the greatest extent possible, that we
avoid outages as a result of damage to any two--and in some cases,
three--particular transmission facilities. This level of system
redundancy has not been duplicated anywhere else in the nation, nor
would we insist that any other state or region require such redundancy.
National reliability standards that do not permit New York State to
enforce higher standards could, however, undermine our ability to
maintain these redundancy levels.
The blackouts of 1965 and 1977 prompted New York State to develop
and implement reliability standards for New York City and New York
State that exceed those found anywhere else in the nation. We have
continued to build upon these standards over time to respond to changes
in the industry and ensure continued reliability. Some of the rules
unique to New York State include:
A requirement that operating reserves (generation available within 10
and 30 minutes in the event of an emergency) will equal, at all
times, one hundred and fifty percent of the single most severe
potential equipment outage;
Development of detailed procedures and objectives for each of the
five system operating states: normal, warning, alert, major
emergency and restoration;
Development of one of the most comprehensive set of guidelines and
procedures in the country for determining the operating
capacity of all bulk power system components in service in the
state;
Requirements for the Con Edison transmission system to operate as if
the first contingency has already occurred when thunderstorms
are within one hour of the system or are actually being
experienced. This is known as the ``Thunderstorm Watch''
procedure;
Requirements for the maximum capability of all generating units to be
demonstrated by a formal test twice per year, once in summer
and once in winter; and
Requirements that generating units be subject to minimum performance
targets to ensure they are available a high percentage of the
time.
The above list is not exhaustive, but does provide you with a sense
of the steps we are taking in New York State to ensure reliability. We
certainly would not advocate that all states or regions of the country
comply with such standards, but feel that the unique demographics and
characteristics of the New York City region warrant heightened
standards. At the same time, we would support the ability of other
states to also implement higher standards than those that might be
imposed by the federal government should they choose to do so, provided
that such higher standards have no negative consequences on reliability
in other states.
It is important to note that the utilities in New York State
generally comply with the reliability standards we have implemented and
are effectively penalized if they fall out of compliance. There is no
outcry from the industry that the standards are in any way unfair.
Utilities have made adequate investments to meet these standards and
have been adequately compensated for these investments through their
rate structures. The decision was made, and supported through the
years, that any added costs borne by ratepayers as a result of these
higher standards were acceptable given the greater reliability the
standards produce. The Public Service Commission supports mandatory
national reliability standards to ensure that utilities in other states
achieve at least a minimally acceptable level of reliability given the
potential for reliability problems in one state to cross borders and
impact other regions--as was demonstrated by the August 14th cascading
blackout. However, equally important to the Commission is the need to
retain the right to maintain and potentially enhance the State's
current reliability standards to minimize the threat of future
blackouts and outages to our citizens.
Thank you again for the opportunity to share our views on
reliability standards. Please do not hesitate to contact my office
should you need any further information.
Sincerely,
William M. Flynn
Chairman
cc: The Honorable Vito J. Fossella
The Honorable Peter V. Domenici
______
Federal Energy Regulatory Commission
October 17, 2003
The Honorable W.J. ``Billy'' Tauzin
Chairman
Committee on Energy and Commerce
U.S. House of Representatives
Washington, D.C. 20515-6115
Re: Responses to Questions from the Committee's September 3, 2003
Hearing
Dear Mr. Chairman: Thank you for forwarding Congressman Vito
Fossella's questions for the record of your Committee's September 3,
2003 hearing titled ``Blackout 2003: How Did It Happen and Why?''
My responses to Congressman Fossella's questions are enclosed. I
hope that this information is helpful. If you have further questions or
need additional information, please let me know.
Best regards,
Pat Wood, III
Chairman
Enclosure
cc: The Honorable Vito Fossella
responses to questions from congressman vito fossella
Question No. 1: Your testimony notes how RTOs could go a long way
towards improving reliability. Could you expand on this point and
discuss whether or not better regional coordination through RTOs would
have helped alleviate the effects of the blackout?
Answer: The United States-Canada Joint Task Force is still working
to identify the causes of the blackout that occurred on August 14, 2003
and the reasons for its cascading through eight states and parts of
Canada. Thus, I cannot state at this time whether better regional
coordination through RTOs would have helped alleviate the effects of
the blackout. However, the blackout demonstrates that our transmission
system operates regionally, without regard to political borders. Once
regional planning and coordination with respect to the system's day-to-
day operation and system upgrades are fully in place, they should help
prevent or minimize region-wide disruptions of electrical service.
As I indicated in my testimony, the Commission noted, in Order No.
2000, that RTOs would improve reliability because they have a broader,
more regional perspective on electric operations than individual
utilities. Some 130 control area operators currently manage the
operation of the transmission grid, whereas a smaller number of
regional organizations could more effectively manage the grid. The
Federal Power Commission's reports to President Johnson following the
Northeast power failure of 1965 called for reductions in the number of
control areas to improve system-wide communication and coordination. An
excessive number of control areas can impede taking the best corrective
actions during emergencies. Further, unlike utilities that own both
generation and transmission, RTOs are independent of market
participants and, therefore, lack a financial incentive to use the
transmission grid to benefit one market participant over another.
To expand upon my testimony, Order No. 2000 recognized that RTOs
have unique advantages to assist in both regional planning for
transmission infrastructure and the operation of the interstate
transmission grid. The Commission required that RTOs have a regional
planning process to identify and arrange for necessary transmission
additions and upgrades. The Commission also identified the benefits of
large, independent regional entities to operate the grid, and strongly
encouraged, but did not require, utilities to join together to form
such entities. For example, the Commission noted that an RTO of
sufficiently large regional scope would, among other things, resolve
loop flow issues by internalizing loop flow and addressing loop flow
problems over a larger region; manage transmission congestion by more
effectively preventing and managing transmission congestion over a
larger area; and improve operations by allowing a single OASIS operator
to allocate scarcity and reserve and schedule transmission use over a
larger area.
In Order No. 2000, the Commission also required that the RTO have
operational authority for all transmission facilities under its control
and serve as the security coordinator for its region. The RTO's
authority to control transmission facilities would include switching
transmission elements into and out of operation in the transmission
system (e.g., transmission lines and transformers), monitoring and
controlling real and reactive power flows, monitoring and controlling
voltage levels, and scheduling and operating reactive resources. In its
role as a security coordinator, the RTO would ensure reliability in
real-time operations of the power system by assuming responsibility
for: (1) performing load-flow and stability studies to anticipate,
identify and address security problems; (2) exchanging security
information with local and regional entities; (3) monitoring real-time
operating characteristics such as the availability of reserves, actual
power flows, interchange schedules, system frequency and generation
adequacy; and (4) directing actions to maintain reliability, including
firm load shedding.
Also as discussed in Order No. 2000, the RTO must have exclusive
authority for maintaining short-term reliability of the transmission
grid under its control. The four basic short-term reliability
responsibilities of an RTO include: (1) exclusive authority for
receiving, confirming and implementing all interchange schedules; (2)
the right to order redispatch of any generator connected to
transmission facilities it operates if necessary for the reliable
operation of these facilities; (3) when the RTO operates transmission
facilities owned by other entities, the RTO must have authority to
approve or disapprove all requests for scheduled outages of
transmission facilities to ensure that the outages can be accommodated
within established reliability standards; and (4) if the RTO operates
under reliability standards established by another entity (e.g., a
regional reliability council), the RTO must report to the Commission if
these standards hinder its ability to provide reliable, non-
discriminatory and efficiently priced transmission service.
Of course, RTOs must be fully operational to meet all of the
required characteristics and functions of Order No. 2000 to be
effective and bring more centralized control to the regional grids, not
only for day-to-day activities, but also to handle emergencies. This
will help ensure that transmission facilities are operated more
reliably compared to the balkanized operations prevalent in many
regions today.
Question No. 2: Along the same lines, could you discuss how FERC's
wholesale market platform proposal could help prevent another blackout?
Answer: In a July 2002 Notice of Proposed Rulemaking (the Standard
Market Design Rule), the Commission proposed to complete the nation-
wide transition to independent grid operators, building upon numerous
public hearings on best practices in power markets around the world,
and also upon lessons learned from market failures in California in
2000. In response to over 1,000 filed comments to the rulemaking, the
Commission issued a White Paper on Wholesale Power Market Platform in
April 2003, streamlining the rulemaking effort by identifying the key
elements of market design platform for improving the efficiency of
wholesale markets. Such a platform would, among other things: (1)
require the formation of RTOs with sound market rules and customer
protection; (2) provide greater regulatory certainty to promote
investment in new transmission infrastructure including new technology;
(3) require reliable and efficient management of the use of
transmission within the region and between neighboring regions, through
day-ahead markets, facilitation of demand response, and the use of
price signals.
For the basic wholesale market platform, the Commission intends to
build upon the existing rules adopted in Order No. 2000 for RTOs by
adding features that the Commission has learned are necessary for
effective wholesale power markets. For example, Order No. 2000 did not
include market power mitigation measures and does not prevent flawed
market designs. Wholesale electric markets will not be able to deliver
full customer benefits in the future without the oversight and
transparency that regional independent transmission organizations can
provide. Healthy and well-functioning wholesale power markets are
central to the national economy, and the Commission believes that
regional, independent operation of the transmission system, with proven
and effective market rules in place, is the critical platform for the
future success of electric markets.
In addition, Order No. 2000 did not include a regional view of
resource adequacy. The Commission has learned that if one state has
inadequate resources, it can create severe problems for the larger
region. It is difficult for the Commission to assure just and
reasonable wholesale market prices if there are insufficient resources
to meet demand. Each region with an RTO or ISO will determine how it
will ensure that the region has sufficient resources to meet customers'
needs. The approach to and level of resource adequacy will be decided
by the states in the region drawing from a mix of generation,
transmission, energy efficiency and demand response.
With respect to wholesale market design, the Commission has
promoted the use of transparent congestion pricing to better manage
congestion on the transmission system. Congestion usually occurs when
someone wants to import power into an area, but must use more
expensive, local generation because of transmission constraints. While
additional transmission investment may ultimately be needed to resolve
the congestion, such investment could take several years to site and
build. In the interim, an efficient congestion management system can
manage the use of the transmission system in a way that ensures
reliability.
In regions with an efficient congestion management system, such as
the Northeast, a transparent pricing process provides real-time
information on the level of transmission congestion. These price
signals provide both short-term and long-term benefits to wholesale
markets. In the short-term, spot prices can pinpoint where a
transmission problem exists and provide incentives to adjust schedules
to solve the problem. Wholesale market participants (including buyers
and sellers) then can respond quickly based on these price signals and
possibly prevent a blackout. In the long-term, consistently higher
prices can serve as an early warning of potential transmission problems
and signal the need for new investment.
BLACKOUT 2003: HOW DID IT HAPPEN AND WHY?
----------
THURSDAY, SEPTEMBER 4, 2003
House of Representatives,
Committee on Energy and Commerce
Washington, DC.
The committee met, pursuant to notice, at 9:30 a.m., in
room 2123 of the Rayburn House Office Building, Hon. W.J.
``Billy'' Tauzin, (chairman) presiding.
Members present: Representatives Tauzin, Barton, Upton,
Gillmor, Greenwood, Cox, Burr, Whitfield, Norwood, Shimkus,
Wilson, Shadegg, Fossella, Buyer, Radanovich, Bass, Walden,
Terry, Ferguson, Rogers, Otter, Dingell, Markey, Boucher,
Towns, Brown, Rush, Stupak, Engel, Wynn, Green, McCarthy,
Strickland, Doyle, Allen, Davis, and Schakowsky.
Staff present: Mark Menezes, majority counsel; Sean
Cunningham, majority counsel; Jason Bentley, majority counsel;
Bob Meyers, majority counsel; Andy Black, policy coordinator;
Peter Kielty, legislative clerk; Sue Sheridan, minority
counsel; and Bruce Harris, minority professional staff.
Chairman Tauzin. Would the hearing please come to order?
Let me set the stage. We are in the second day of the hearings
on the Northeast blackout. Today's effort following yesterday's
effort, in which we heard from government officials and
officials of the reliability councils to get their take on what
they understand probably occurred and some of their analysis of
what might be done to ensure that it doesn't occur again.
Today we follow up with representatives of the industries
and the officers of the entities that were in charge of either
producing or transmitting the power involved in the blackout.
We will also hear later on from representatives of the
electric industry institutes and other think tanks and consumer
advocate groups to get their take on this situation. By the
time we are through today, we will have, I think, as good a
picture as we can get before the reports are finally issued
next week on the definitive findings of the technical staffs
that are trying to analyze the tens of thousands of pages of
data that will more definitively describe how it occurred and
how, in fact, the damage spread across the system before it was
finally contained.
In yesterday's hearing, we opened up with opening
statements by all of the members. It is the chair's intent to
go directly to this panel of witnesses unless I am requested by
any member to strike the last word to say anything. But absent
that, it is my intention to introduce the panel and begin
immediately the consideration of the testimony of our
witnesses.
We have a distinguished panel again today. Let me first
thank all of you for being here, for coming the long distances
you have to share with us your perspective on this crisis, and
also to welcome you all to the Energy and Commerce Committee,
the oldest committee of the U.S. Congress and I believe the
best committee of the U.S. Congress, in this distinguished
room, where so many decisions have been made over the history
of our country through one crisis or another dealing with the
interstate commerce of our country and, more lately, the energy
situation our country finds itself in.
This panel consists of Mr. Peter Burg, the Chairman and CEO
of FirstEnergy Corporation; Mr. Eugene McGrath, the Chairman,
President, and CEO of Consolidated Edison Company of New York;
Mr. Nick Winser, the Group Director of Transmission of National
Grid U.S.A.; Mr. Richard Kessel, the Chairman and CEO of Long
Island Power Authority; Mr. Linn Draper Jr., the Chairman,
President, and CEO of American Electric Power of Ohio; Mr.
Joseph Welch, the CEO, International Transmission Company of
Ann Arbor, Michigan; Elizabeth Moler, the Executive Vice
President for Government, Environmental Affairs and Public
Policy for the Exelon Corporation, who has had extensive
experience here on the Hill. We welcome you back, Liz, and
thank you for your many years of public service before you went
into the private sector.
As I said, we have two excellent panels to follow. So we
have a lot of work to do. Under our rules, your written
statements are all a part of our record. We have, as you can
see, stacks of the written statements in front of the members.
As they arrive, they are going to be thumbing through it and
reading your written statements if they haven't yet read them.
What I ask you to do today is to recognize that we live
under what's called a 5-minute rule, which means that each of
you has 5 minutes. And we have lights, timing. You see the
lights. And if you look behind you, you'll see the members can
see the lights as to the timing. We ask you to stay within that
5-minute rule so we can hear all of your testimony and allow
members a chance to ask any questions that may arise from your
testimony.
So during that 5 minutes, if you will summarize. If you
would give us the highlights, the important points of your
testimony, and then allow us a chance to maybe get some
reaction from you as to what members think are important
questions that need to be answered.
We will start with the Chairman and CEO of FirstEnergy
Corporation, Mr. Peter Burg.
Peter?
STATEMENTS OF H. PETER BURG, CHAIRMAN AND CEO, FIRSTENERGY
CORP.; EUGENE R. MCGRATH, CHAIRMAN, PRESIDENT AND CEO,
CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.; NICHOLAS P.
WINSER, GROUP DIRECTOR TRANSMISSION, NATIONAL GRID TRANSCO PLC;
RICHARD KESSEL, CHAIRMAN AND CEO, LONG ISLAND POWER AUTHORITY;
E. LINN DRAPER, JR., CHAIRMAN, PRESIDENT AND CEO, AMERICAN
ELECTRIC POWER; JOSEPH L. WELCH, CEO, INTERNATIONAL
TRANSMISSION COMPANY; AND ELIZABETH A. MOLER, EXECUTIVE VICE
PRESIDENT FOR GOVERNMENT, ENVIRONMENTAL AFFAIRS AND PUBLIC
POLICY, EXELON CORPORATION
Mr. Burg. Thank you for the opportunity to be here. I'm
Pete Burg, chairman and chief executive officer of FirstEnergy.
I have submitted written testimony along with time line and
power flow charts. Together, these materials provide a picture
of conditions that existed on our system and in the region
surrounding us, but they are by no means an exhaustive list of
the events that occurred on August 14 on the Eastern
Interconnection.
Mr. Chairman, I have spent more than 30 years on the
electric utility industry. Along with my fellow panelists, the
thousands of dedicated professionals with whom we work, we take
great pride in delivering safe and reliable electric service to
our customers and are concerned whenever an outage occurs,
particularly one of this magnitude.
We have already provided a significant amount of
information concerning our system and are cooperating closely
with the Department of Energy and the North American Electric
Reliability Council.
While we are still analyzing data, it is important to
recognize that FirstEnergy's 345 transmission system is a top
performer in industry reliability measures and that the much
reported 345 kV lines that tripped off on our system that day
have a history of good performance. We also had experienced and
NERC-certified operators manning the system control room that
day.
Based upon what we know today, FirstEnergy believes that
the August 14 outage can only be the result of a combination of
events that occurred across the Eastern Interconnection. We do
not believe that events on any one system could account for the
widespread nature of the outage.
As my written testimony indicates, on August 14, a number
of generating facilities were offline in the region. And others
became unavailable during the course of the day. There were
significant power sales scheduled in the region, much of which
flowed through FirstEnergy.
Following the trip of several generating units in the
region in the early afternoon, including our East Lake unit
number 5, power flows adjusted, as expected. And our system was
in balance. And while a number of transmission lines in and
outside of our system tripped off later, power flows into and
out of FirstEnergy had not significantly changed as of 4:05
p.m. our time. The system was automatically adjusting to these
events.
At 4:06 p.m, FirstEnergy's Sammis-Star transmission line
tripped. That's when a small flow reversal with power now
flowing from Michigan into Ohio occurred, but not in a
magnitude that would appear to be of particular significance at
that point.
Then, at approximately 4:09 p.m., following the trip of two
other lines in the region outside of our system, power flow
from Michigan to Ohio substantially increased, but much, if not
most, of it passed through our system into other systems. After
that, additional transmission lines and generating plants begin
to trip off to protect themselves from damage.
This all occurred automatically on our system. And, to the
best of my knowledge, it happened automatically on other
systems throughout the region.
Our interconnections to Michigan and PJM were severed, but
we remained interconnected with Dayton Power and Light,
Duquesne, PJM West through Allegheny, and with AEP. None of
these systems with which we remained interconnected experienced
significant customer outages.
While we experienced problems with our Energy Management
computer system and we are still evaluating its performance,
information about the events of the day were occurring. The
events that were occurring throughout the day were available to
the group that coordinates electric reliability for our system,
the Midwest ISO.
Also during this time, our dispatchers were in
communication with other system operators and plant operators,
as well as the Midwest ISO.
Mr. Chairman, even though the events of August 14 are
complicated and interrelated in ways I think we don't yet
understand, we believe that it's not possible for a few
isolated events on any individual utility system to explain the
widespread nature of this outage.
While no one has all the answers at this point, my written
testimony details a number of recommendations that I believe
might help as we go forward. These include investments in the
grid to accommodate competitive markets; transmission rate
reform to encourage that investment; the implementation of new
technologies; and maybe most importantly, I think, a
comprehensive review of the significance of interstate power
flows across the interconnected grids.
Mr. Chairman, thank you for the opportunity to share
FirstEnergy's perspectives here this morning.
[The prepared statement of H. Peter Burg follows:]
Prepared Statement of H. Peter Burg, Chairman and Chief Executive
Officer, FirstEnergy Corp.
Mr. Chairman: Thank you for the opportunity to testify today. I am
Pete Burg, chairman and chief executive officer of FirstEnergy Corp., a
registered public utility holding company headquartered in Akron, Ohio.
FirstEnergy's seven electric utility operating companies provide
electric service to 4.4 million customers in Ohio, Pennsylvania and New
Jersey.
We commend your determination, Mr. Chairman, to understand the
events of August 14. Operation of the electricity grid is an extremely
complex matter. Knowing all of the facts is vital to arriving at the
policy decisions that could mitigate the risk of a repeat of this kind
of outage. We are committed to helping determine what went wrong in the
Eastern Interconnection on August 14 and are pleased to have the
opportunity to tell you directly what we know about our system and our
region within the Interconnection.
summary
Notwithstanding the service interruptions on August 14, the United
States has a reliable electric system, and I am particularly proud of
FirstEnergy's 345 kV transmission system, which has achieved a top-
quartile ranking among companies in the 2003 SGS Transmission
Reliability Benchmarking Survey.
FirstEnergy has been the subject of a great deal of speculation
during the past three weeks regarding the outage. Clearly, and as we
have said from the outset, events on our system, in and of themselves,
could not account for the widespread nature of the outage. After much
more evaluation, we continue to believe this is true.
We strongly believe that such a widespread loss of power could only
result from a combination of events, not from a few isolated events.
Industry experts share our view. Dave Nevius of the North American
Electric Reliability Council (NERC), an organization charged with
working to maintain electric reliability in the country, said, ``It's a
more complicated problem than just one utility.'' <SUP>1</SUP> Alan
Schriber, chairman of the Public Utilities Commission of Ohio, said,
``This has been the perfect storm of electricity. It's the confluence
of a lot of bad things going on that day, and I don't mean just after 4
o'clock. There had been noticeable aberrations throughout the system
all day.'' <SUP>2</SUP>
---------------------------------------------------------------------------
\1\ Reported in The New York Times, August 19, 2003.
\2\ ``Grid Signaled Breakdown,'' The Plain Dealer, August 19, 2003.
---------------------------------------------------------------------------
Today, I will highlight for you some of the significant events that
we know happened. Bear in mind, however, that no one has all of the
information yet, and it will take some time before we do. Much of the
information regarding the events of the day is still being collected
and analyzed. But from what we do know, a number of events occurred
throughout the day, all of which could have combined to affect the
Eastern Interconnection's ability to perform.
It is understandable that everyone is looking for the straw that
broke the camel's back. But there is no one straw--they're all heaped
together. And the camel's ability to support the load cannot be
overlooked.
The reliability of the system--maintained by built-in reserve
margins, operating protocols, sharing arrangements, communication
systems, sophisticated electronics, and human vigilance--is a marvel.
However, all those protections were not sufficient to prevent the
problems that arose on August 14. The electric system is designed to
handle contingencies that are bound to occur. Redundancies and
protective devices are built into the system to protect equipment,
maintain service to customers, and ensure safe operation. And, the
entire interconnected network was built to provide support in
emergencies. The interaction of all of these complex elements must be
considered.
The role of these protective devices--as well as their automated
operation on August 14--should be a focus of the investigation.
In addition, the investigation should take into account the fact
that the transmission system was not designed to serve regional
wholesale electricity markets as an integrated transmission
superhighway. Like other transmission owners, FirstEnergy built and
maintains its transmission facilities to reliably meet the requirements
of customers in its own service area. While we support federal policies
to adapt the existing transmission system to the needs of regional
wholesale markets, no one's transmission system was constructed with
this purpose in mind.
data collection process
As I mentioned, August 14 data are still being analyzed.
Our transmission experts are studying millions of data points. We
have digital fault recorder data, oscillographic data, analog charts,
and other recordings. Some of the computer records have readouts in
millisecond intervals, some in two-second intervals, and others in 30-
second intervals.
Additionally, the times for this information need to be calibrated
and synchronized. The industry calculates the precision of time for its
systems relative to the atomic clock. If the grid runs slightly above
or below 60 Hertz, clocks will deviate slightly from the atomic clock,
so the system must run slightly slower or faster to adjust. In fact, on
August 14, the Eastern Interconnection was being run slightly below 60
Hertz to slow clocks.
The relevance of the synchronization is that, when precipitating
events occur in rapid succession, it is necessary to establish precise
times to gain a clear picture of sequences and interrelationships. This
is a tedious and lengthy process that is still being completed.
We have shared the information we have gathered to date with the
Department of Energy and the NERC, and we will continue to fully
cooperate with them and with your Committee.
personnel and system reliability
FirstEnergy system dispatchers operating the facilities at the time
of the events on August 14 have an average of more than 10 years of
experience and are NERC-certified professionals. They are a dedicated
group that takes immense pride in ensuring the safe and reliable
operation of our system.
From 1999 through 2002, we have spent $433 million system-wide on
transmission operations, maintenance and capital, with nearly $200
million spent on transmission in Ohio. More specifically, the four
FirstEnergy 345 kV lines that failed on August 14 had a history of good
performance. There were no sustained outages in 2001, 2002 and through
August 13, 2003 on the Chamberlin-Harding, Star-South Canton and
Sammis-Star lines. The Hanna-Juniper line had six outages in 2001
ranging from four minutes to 34 minutes but none was tree related. The
Hanna-Juniper line had no sustained outage in 2002 or 2003 through
August 13.
In short, we have qualified operators and we are consistently
making the expenditures necessary to improve and maintain our
transmission infrastructure.
grid operation and oversight responsibilities
The NERC and its affiliated regional reliability councils have the
mission to ensure that the bulk electric system in North America is
reliable, adequate and secure. That system is designed to maintain the
interconnected network in order to provide emergency support and to
prevent actions on one system from having unintended consequences on
another. Since its formation in 1968, NERC has operated as a voluntary
organization, relying on reciprocity and the mutual interest of all
those involved. In recent years, NERC has made a significant effort to
respond to changes in the regulation of the electric utility industry.
For example, NERC has been aggressively seeking passage of legislation,
which FirstEnergy also supports, to enable it to become an industry-
based, self-regulatory organization enforcing mandatory reliability
standards.
Utilities operate their systems and maintain interconnections
consistent with standards and guidelines adopted by NERC and its
regional reliability councils. The systems are designed to withstand
single and multiple outages while still performing reliably. The
regional councils conduct assessments of the interconnected systems and
continuously revise the standards that utilities and other industry
participants observe to enable daily operations and, increasingly,
electricity trading to be conducted in a reliable manner.
The Federal Energy Regulatory Commission (FERC) has required that
Regional Transmission Organizations (RTOs) take responsibility for
regional reliability. The Midwest Independent System Operator's (ISO)
role as one of the reliability coordinators for the region is an
example of how that responsibility is discharged. While the physical
control of the system remains with the control area, the reliability
coordinator shares responsibility for assuring that the bulk electric
system is reliable, adequate, and secure. The Midwest ISO is the
reliability coordinator for our transmission assets in Ohio.
Clearly, a common understanding of the cumulative events of August
14 will contribute very significantly to the consideration of reforms
that can and should be made in reliability assessments and standards,
and in protocols and procedures for commercial operation. One issue
that comes to mind, however, is whether the reliability standards
related to protective systems and their interactions with one another
should be examined in light of the new ways we are using the
interconnected networks to support inter-regional and international
trading and marketing of electricity.
For example, according to the Electric Power Research Institute,
the number of wholesale transactions has increased by 400 percent over
the past decade. The East Central Area Reliability Council (ECAR)
transmission systems in particular have been used for increasing
volumes of area-to-area and region-to-region transactions, supplying
deficit areas within the Independent Electricity Market Operator (IMO),
the New York Independent System Operator (NYISO) and the Mid-Atlantic
Area Council (MAAC), predominantly from resources south and west of
FirstEnergy. To fully understand the events of August 14, and more
importantly, to evaluate what needs to be done to redesign the
transmission system, these changes in usage of the system must be
considered because they impact power flows and add stress to existing
facilities.
system conditions and events
Attached to my testimony is a chronology of events and summary of
power flows that describe, as we know them, the condition of the
regional transmission system on August 14, events occurring on that
system, and the changes in power flows through FirstEnergy's system.
This information has been compiled by a collaboration of our
transmission and generation personnel and other company and industry
experts. It should be noted that it depicts only a partial picture of
that day, because all of the conditions and events that took place
throughout the Eastern Interconnection are not available to us. That
broader information ultimately will be required to fully understand
what happened and what actions will be needed to mitigate the risk of
such an outage in the future. However, the following summarizes what we
know as of this point.
On August 14, our load was projected to be approximately 85 percent
of our estimated peak summer load. Load and weather conditions for the
day were typical for a mid-August day. The areas in our service
territory affected by the outage experienced seasonable temperatures
and no major storms.
The ECAR region had adequate generation available, even with a
number of large generating units owned by various companies off-line
during the day, including Detroit Edison's 800 megawatt (MW) Monroe
Unit 1, AEP's 1,133 MW DC Cook unit and FirstEnergy's 883 MW Davis-
Besse unit. AEP's 1,300 MW Gavin Unit 2 was also off-line and was not
scheduled to come back online until the afternoon of August 14.
FirstEnergy's projected load was 11,958 MW. Our generating capacity for
the day was 10,641 MW, and with net scheduled import power, we had
adequate spinning reserves.
Power generally was flowing from west to east, and from south to
north--its typical pattern. Ontario was importing about 2,500 MW; New
York was importing about 1,300 MW; and, the Mid-Atlantic Area Council
(MAAC) area was importing about 2,500 MW.<SUP>3</SUP>
---------------------------------------------------------------------------
\3\ MAAC includes territory in Pennsylvania, New Jersey, Maryland,
Delaware, Virginia and the District of Columbia.
---------------------------------------------------------------------------
It is now evident that unusual system conditions, some of which
were detected at the time, were occurring during the day. To get a
better understanding of these conditions, NERC has taken the right
approach by reviewing the events of August 14 beginning at 08:00.
FirstEnergy's attached list of events outlines conditions existing
within ECAR on August 14 and details certain occurrences beginning
shortly after 12:00. Some of the unusual events include oscillations in
flow, frequency dips and reversals in power flow between regions along
major interconnections.
As the afternoon progressed, a number of generation and
transmission facilities in the region became unavailable. In the hours
leading up to the outage, generation facilities that went off-line in
our region include, in chronological order: AEP's 400 MW Conesville
unit; DTE's 600 MW Greenwood unit; and FirstEnergy's 597 MW Eastlake
unit. Also that afternoon, Gavin Unit 2, which is a major facility, was
coming back online from an outage, though by 16:00 the plant was only
supplying 50 MW of power. Conesville also was coming back online later
in the afternoon but was not supplying its full load. Greenwood was
also being returned to service that afternoon.
Following the trip of the Eastlake Plant at 13:31:34, power systems
and flows corrected themselves and FirstEnergy's system was balanced
and stable. And even though, as the day proceeded, a number of other
events occurred, our system remained in balance and power flows
continued to be about the same as experienced earlier in the day.
Between 15:00 and 15:30, we lost our Chamberlin-Harding 345 kV
line. After that event and others during the same time frame, our
system was still stable and importing essentially the same amount of
power as earlier. During this time, our power flows to Michigan were
approximately 346 MW.
Between 15:30 and 15:45, a number of transmission lines in the area
tripped out of service. These included our Hanna-Juniper 345 kV line,
the South Canton (AEP)-Star (FE) 345 kV line, the Cloverdale (FE)-
Torrey (AEP) 138 kV line, AEP's East Lima-New Liberty 138 kV line and
our Pleasant Valley-West Akron/West 138 kV line. Even with the loss of
these facilities, our net imports remained approximately the same, with
power flows continuing into Michigan at 215 MW.
From 15:45 to 16:05, the Cloverdale (FE)-Canton Central (AEP) 138
kV line, East Lima (AEP)-North Findlay (AEP) 138 kV line, the West
Akron 138 kV bus, and the Dale (FE)-West Canton (AEP) 138 kV line all
tripped off. The Canton Central (AEP)-Tidd (AEP) 345kV line tripped and
reclosed, although two 345-138 kV transformers remained isolated.
Following these events, our net imports dropped by about 230 MW,
reflecting reduced loads within our service area. Even so, about 150 MW
continued to flow to Michigan.
At 16:06:03, FirstEnergy's Sammis-Star 345 kV line overloaded and
tripped. At this point, 150 MW that had been flowing into Michigan
reversed and 155 MW began flowing from Michigan into Ohio. A reversal
of this magnitude would not, in and of itself, appear to be of
particular significance.
Then, at 16:08:58, AEP's Muskingum-Ohio Central 345 kV line
tripped, and at 16:09:06, AEP's East Lima-Fostoria 345 kV line tripped
and reclosed automatically after a less-than-two-minute delay.
At this point, flows from eastern Michigan to Toledo increased by
1,855 MW; flows from FirstEnergy into AEP increased by 2,670 MW; and
flows from AEP directly into western Michigan increased by 1,630 MW.
Also at this time, because we had lost load, FirstEnergy's net imports
actually were reduced by 1,100 MW. Then, events began occurring rapidly
throughout the Eastern Interconnection.
A critical fact is that the system kept working as it was designed
to do, despite all of these circumstances. On the afternoon of August
14, before we began to see unusual loop flows--a result not only of
power seeking ways around unavailable lines, but also of the existing
power flows between regions--we did not see the system perform
inconsistently with its design. When a path started to overload, the
circuit breakers performed as designed to cut off flow on the line and
protect components from overheating and sustaining significant damage.
This all happened automatically.
In fact, to the best of my knowledge, no manual intervention to
disconnect from the interconnected network was taken by anyone. Our
system remained interconnected with DPL, DQE, APS, and AEP. And,
through APS, we remained connected with PJM through PJM West. None of
these interconnected systems experienced major service interruptions.
While we also experienced problems with our Energy Management
computer system and are still evaluating the functionality of that
system that was available to our dispatchers during this time frame,
information about our system and the events that were occurring
throughout the day were available to our reliability coordinator, the
Midwest ISO. Also during this time, our dispatchers were in
communication with other system operators and plant operators, as well
as the Midwest ISO. The Midwest ISO did not call for any system
interventions.
Looking back, however, I do not believe it would have been
appropriate for operators to intervene in this event. Again, these
systems are designed to protect themselves and interact in a way that
keeps power flowing to as many customers as possible. That is how they
functioned. The automation in fact did protect facilities and customers
in adjoining areas. NERC Policy Number 5, relating to Emergency
Operations, states: ``When an operating emergency occurs, a prime
consideration shall be to maintain parallel operation throughout the
Interconnection. This will permit rendering maximum assistance to the
system(s) in trouble.''
Had the ties been disconnected, the negative impact on these other
systems and their interconnections and customers could have been
significant.
Once systems were rapidly reacting to surrounding conditions, it
was beyond the ability of operators to control. Even recognizing the
point at which the automated response began moving too rapidly for
operator intervention may have been impossible when the systems are
doing what they are supposed to do. Even if such a point could have
been quickly recognized, there was no time to react. The Washington
Post reported last week that, according to a PJM spokesperson, the
blackout spread too fast to employ emergency measures, and that ``there
were no conclusions reached'' about transmission load relief (TLR)
measures until it was too late to implement them.
Everyone wants to know: ``Why did the blackout happen? What was the
precipitating event?'' Some might like to say it was the first outage
that occurred. If that were the standard, which of the above facilities
was the ``first'' outage? Some might like to say it was the first
outage that caused power flows to shift in response. But every outage
causes flows to shift. Others might like to say it was the moment the
system was ``in trouble'' and couldn't recover. However, we believe it
was the cumulative effect of occurrences in the region that combined to
impact the event, not unlike the boxer who gets knocked out in the
tenth round. That last punch was important, but the accumulation of all
of the previous blows led to his weakened condition.
We need to understand the many small, chance events that played a
role on August 14, but more importantly, we need to focus on the larger
system conditions that imposed a strain.
observations
I have several observations about the foregoing that I would like
to summarize.
First, the events of August 14 demonstrate that the facts are
complicated and interrelated in ways that no one yet understands.
Second, the systems appear to have responded as they should have to
address successive issues. However, at some point events began to occur
so rapidly that, even if human intervention were advisable, it likely
would have been impossible to avert the widespread nature of the
outage. As mentioned above, this was an automated event in which the
system and protective devices appeared to work as designed. However,
the broader question is whether the design is appropriate given what we
are asking the system to do today. Localized grid conditions do not
explain the widespread nature of the event.
Third, competitive markets impact the operation of the
interconnected grid. A significant amount of power passes through our
area en route to areas that do not have the same generation resources
that exist in ECAR. As many have observed, this puts additional stress
on the grid. On August 14, this situation resulted in certain areas
being left with excess generation or load when individual systems were
automatically separating themselves from one another.
In the past, utilities were responsible to match load and
generation within their own service territories. The system was
designed and constructed with that mission in mind. Interconnections
with neighboring utilities were reliability enhancements, not on-ramps
to an interstate highway. We support wholesale markets, and in fact
strongly rely on them to help serve our retail customers. However,
imbalances between regions are a new factor to consider in updating
reliability standards for the interconnected grid. This is especially
critical when power has to move through several systems to reach
customers.
Fourth, grid responsibilities are now in the hands of more entities
than ever before. This puts a premium on identifying new designs and
devices to better coordinate the operation across a wider region.
recommendations
I have several recommendations to decrease the likelihood of these
kinds of events occurring again.
The first is to make the transmission system more robust to
accommodate the growth in competitive markets. This requires investment
and the ability to site new facilities.
Transmission owners make regular investments in their facilities to
maintain reliability to their utility customers. I have already noted
FirstEnergy's investment and excellent performance. But the nation's
transmission investment in general is not geared today toward
development of facilities to sustain wholesale markets, which can
change on a day-to-day or hour-to-hour basis. This will be challenging
because, unlike building facilities to serve a relatively stable
customer base as was done in the past, investments to meet wholesale
market opportunities can be rendered ``excess'' by a change in those
markets.
Transmission rate reform is necessary to encourage investment in
the construction of a more robust interstate transmission network.
FirstEnergy has been a strong proponent of policies that encourage such
investment. We support the applicable language in H.R. 6.
Regarding transmission siting, we support provisions in H.R. 6 that
would grant FERC with ``backstop'' eminent domain authority to help get
critical transmission lines built in a timely fashion.
My second recommendation is to establish mandatory reliability
standards for the industry. FirstEnergy has long supported such
standards as an element of federal legislation, including those in H.R.
6.
Third, consistent with my previous observation, policy makers and
the industry need to review automated and control systems to determine
whether the right equipment is in place and whether new technologies
would prevent this type of event. Over the years, we have supported
proposals for the federal government to promote implementation of new
transmission technology. It may be too soon to tell what advances in
technology would have been necessary to mitigate the outage.
Fourth, the government needs to review the significance of
interstate power flows across interconnected grids. Experts agree that
a more vigorous grid is needed to accommodate wholesale markets. But
what does that grid and its protective equipment need to look like,
based on what we see today, and where the market development trends are
heading? In the course of reviewing the August 14 event, we may gain a
better understanding of the impact of regional power flows, at least in
the affected regions. But we must make sure that electric customers in
one area are not burdened by the cost of transmission facilities that
are being constructed because another region is not siting sufficient
generation. Like in the old days, utilities built generation and the
necessary transmission to get it to their customers. Generators should
not be able to avoid these costs today.
conclusion
It is not possible at this time to pinpoint the ``causes'' of the
outage. There are many contributing factors. FirstEnergy is committed
to working with Congress, the Administration, and industry
organizations to promote changes that will decrease the likelihood of
this kind of event occurring again.
Chairman Tauzin. Thank you very much, sir.
The Chair will now recognize Mr. Eugene McGrath, the
Chairman, President, and CEO of Consolidated Edison Company of
New York.
Mr. McGrath?
STATEMENT OF EUGENE R. McGRATH
Mr. McGrath. Thank you, Mr. Chairman and committee members.
I am Gene McGrath, and I'm the chairman of Con Edison New York.
I welcome the opportunity to discuss Con Edison's experience on
August 14 and to participate in the investigations and the
efforts to learn from this event.
For us, the power outage was a widespread, fast-moving
event, and it has not yet been fully analyzed. A number of
organizations have initiated investigations, including Con
Edison. In time, I'm confident they will paint a picture, a
full picture, of the events. But a great deal of data remains,
and we should take care not to draw conclusions prematurely.
This morning I would like to talk about what happened at
Con Edison on August 14, how we turned the power back on, and
then offer some thoughts on broader energy policy.
First, what happened at Con Edison, just before the outage,
the Con Edison system was operating with adequate resources,
and there were no unusual conditions. Preliminary reviews have
indicated that the initiating events occurred hundreds of miles
outside of the Con Edison service area.
Just before 4:11 in the afternoon, voltage on our system
began fluctuating wildly and declining and frequency began to
drop. Low system frequency triggered sensors that actuated an
automatic, four-step under-frequency load-shedding program
disconnecting approximately 50 percent of our load.
The voltage continued to fluctuate. And by ``fluctuate,'' I
mean it went down to less than 10 percent of its normal voltage
and did not recover. There was a loss of generation and
transmission, and our system shut down very quickly. After the
system shut down, we started restoration efforts immediately
using predetermined plans.
In New York City, because of our load density and the
complexity of our underground system, restarting has to be done
very carefully, thoughtfully, methodically, and in coordination
with many others. It requires tight control of system voltage
and balancing cable and equipment capacity with customer load
and available generation.
The first priority was to establish a stable transmission
backbone by sequentially reconnecting parts of the transmission
system to transmission lines that were connected to a source of
power and as each new section was energized, picking up the
amount of customer load necessary to maintain adequate
transmission system voltage. This required close coordination
with the New York independent system operator and to make
certain the transmission line had the capacity to support the
incremental customer load.
Once the backbone became stable and as generation came on
line, substations and distribution lines were energized,
picking up the remaining load.
Electricity was restored from 2 to 29 hours. And I am glad
to report that our restoration effort was completed without
injury to the public, company personnel, or significant damage
to equipment.
At this point I would like to offer some thoughts on our
national energy system. A lot of attention has been focused on
the grid and the possibility that interconnections between rate
regions aggravated the situation.
The Con Edison transmission system is connected to the
Eastern transmission grid that covers large parts of the
country from the Northeast to the Rocky Mountains and into
Canada.
The interconnection of transmission systems improves the
reliability of individual systems. Transmission lines provide
access to additional generation when local generating resources
are offline or insufficient to meet peak loads.
Transmission lines also provide access to economic sources
of electricity. Turning New York or any region into an energy
island without significant interconnections might protect us
from disruptions that originate outside our service area, but
doing so would significantly increase costs and undermine
reliability in other ways.
The power outage has also stimulated a lot of debate and
discussion about our energy system and about energy policy. I
would like to address some issues that we should keep in mind
as we approach those challenges.
We all know that delivering electricity is essential to
economic growth and it's crucial for energy companies to stay
ahead of demand and maintain strong generation transmission and
distribution systems.
Day-to-day reliability depends upon redundancy,
flexibility, and capacity. To that end, I offer a few comments:
one, the planning of electric generation and transmission
should be integrated across and within regions. When planning
to meet load growth, priority should be given to locating
generation at or near load centers. The process for siting
electric transmission, generation, and distribution facilities
must be improved so that utilities and other investors can
install the facilities needed to meet growing loads and support
economic development. There must be adequate financial
incentive to invest in all elements of the electric
infrastructure. Communication among regions must be enhanced.
Mandatory reliability rules established by an electric
reliability organization, as proposed in H.R. 6, are an
important step toward enhancing national electric system
reliability.
The Federal Energy Regulatory Commission should provide
oversight. We also believe that local independent reliability
organizations, such as the New York State Reliability Council,
should be permitted to develop and promulgate stricter
reliability standards when local conditions warrant.
The efforts that this committee is making to examine these
issues will improve the Nation's electric system. I thank you
for the opportunity to participate.
[The prepared statement of Eugene R. McGrath follows:]
Prepared Statement of Eugene R. McGrath, Chairman and CEO, Consolidated
Edison, Inc.
introduction
Good morning. Thank you, Mr. Chairman and committee members.
My name is Eugene McGrath and I'm the chief executive officer of
Consolidated Edison, Inc.
Con Edison's distribution companies, Consolidated Edison Company of
New York, Inc. and Orange and Rockland Utilities, Inc., deliver energy
to 3.4 million electric customers. Our service area includes New York
City and Westchester, Orange and Rockland Counties in New York, as well
as small portions of northern New Jersey and Pennsylvania. During the
restructuring of the electric industry in New York, we sold most of our
generating facilities and transformed from vertically integrated
utilities into electric delivery utilities. Primarily, we transmit and
distribute electricity that is generated by others. Con Edison also
distributes gas throughout most of its service area and steam in
portions of Manhattan. We are a member of the New York Independent
System Operator (NYISO) and the PJM Interconnection (PJM), which
administer the wholesale electricity markets and operate the bulk power
transmission grid in New York and a multi-state region including
Pennsylvania and New Jersey.
I welcome the opportunity to discuss Con Edison's experience during
the August 14th power outage and to participate in the investigations
and the efforts to learn from this event.
The power outage was a widespread, fast moving event that has not
yet been fully analyzed. A number of organizations have initiated
investigations, including the U.S.-Canada Joint Task Force on the Power
Outage, the U.S. Department of Energy, the North American Electric
Reliability Council, the Northeast Power Coordinating Council, the
utility regulatory commissions in New York and other affected states,
the regional ISOs, and various utilities including Con Edison. In time,
I'm confident they will paint a full picture of the events. But a great
deal of data remains to be collected and analyzed, and we should take
care not to draw conclusions prematurely.
I'd like to talk about what happened at Con Edison on August 14,
how we turned the power back on, and then offer some thoughts on
broader energy policy.
the power system shutdown: august 14
On August 14, just before the outage, the Con Edison system was
operating with adequate resources and there were no unusual conditions.
Preliminary reviews have indicated that the initiating event(s)
occurred hundreds of miles outside of the Con Edison service area. Just
before 4:11 p.m. EDT, voltage on our system began fluctuating and
declining and frequency began to drop. Low system frequency triggered
sensors that actuated an automatic, four-step under-frequency load
shedding program disconnecting approximately 50% of our load. The
voltage continued to fluctuate and did not recover. There was a loss of
generation and transmission and the system shut down very quickly.
Changes put in place as a result of our experience from the 1965 and
1977 outages allowed our system to shut down without significant
electrical or mechanical damage.
At this point, studies are underway to understand what caused these
changes in frequency and voltage and to determine the exact sequence of
events. We are continuing to analyze all of our own data and will
review information from others as it becomes available to us.
restoration, august 14-15
We started restoration efforts immediately.
Pre-determined system start-up plans were available to the system
operators and they were able to begin restoration without having to
perform time-consuming analyses and planning. Highly trained and
experienced operators staff our control rooms.
In New York City, because of our load density and the complexity of
our underground system, restarting has to be done very carefully,
thoughtfully, and methodically and in coordination with others. It
requires tight control of system voltage and balancing cable and
equipment capacity with customer load and available generation.
The first priority was to establish a stable ``backbone'' by
sequentially reconnecting parts of the transmission system to
transmission lines that were connected to a source of power, and as
each new section was energized, picking up the amount of customer load
necessary to maintain adequate transmission system voltage. This
required close coordination with the NYISO to make certain the
transmission line had the capacity to support the incremental customer
load.
Once the ``backbone'' became stable and as generation came on line,
substations and distribution lines were energized picking up the
remaining load.
Electricity was fully restored in 29 hours and for many customers
much earlier. I'm glad to report that our restoration effort was
completed without injury to the public, Company personnel or
significant damage to equipment.
conclusions
Substantial data is available that should allow the various
investigators now at work to determine the causes and sequence of
events. I'm optimistic that what we learn from these investigations
will enable us to further reduce the small probability of such events
recurring in the future.
A lot of attention has been focused on the grid, and the
possibility that interconnections between regions aggravated the
situation. The Con Edison transmission system is connected to the
eastern transmission grid that covers large parts of the country from
the Northeast to the Rocky Mountains and into Canada.
The interconnection of transmission systems improves the
reliability of individual systems. Transmission lines provide access to
additional generation when local generating resources are off line or
insufficient to meet peak loads. Transmission lines also provide access
to economic sources of electricity. Turning New York--or any other
region--into an energy island, without significant interconnections,
might protect us from disruptions that originate outside our service
area. But doing so would also significantly increase costs and
undermine reliability in other ways.
The power outage has also stimulated a lot of debate and discussion
about our national energy system, and about energy policy. I would like
to address some issues that we should keep in mind as we approach these
challenges.
Delivering electricity is essential to economic growth, and it is
crucial for energy companies to stay ahead of demand and maintain
strong generation, transmission and distribution systems. Day to day
reliability depends upon redundancy, flexibility and capacity. To that
end, I offer the following comments:
The planning of electric generation and transmission should be
integrated across and within regions.
When planning to meet load growth, priority should be given to
locating generation at or near load centers.
The process for siting electric transmission, generation, and
distribution facilities must be improved so that utilities and
other investors can install the facilities needed to meet
growing loads and support economic development.
There must be adequate financial incentive to invest in all elements
of the electric infrastructure.
Communication among regions must be enhanced.
Mandatory reliability rules established by an Electric Reliability
Organization (ERO), as proposed in HR 6, are an important step toward
enhancing national electric system reliability. The Federal Energy
Regulatory Commission should provide oversight. We also believe that
local independent reliability organizations, such as the New York State
Reliability Council, should be permitted to develop and promulgate
stricter reliability standards when local conditions warrant.
The efforts that this committee is making to examine these issues
will improve the nation's electric system. I thank you for the
opportunity to participate.
Chairman Tauzin. Thank you, Mr. McGrath.
And now we will hear from the President and CEO of the
National Grid Transco, Mr. Nick Winser. Is it correct, Nick?
Proceed, sir.
STATEMENT OF NICHOLAS P. WINSER
Mr. Winser. Thank you, Mr. Chairman. As an Englishman, I
feel particularly honored to address this congressional hearing
on this vital matter.
I am responsible for National Grid's electricity and gas
transmission networks, both here in the U.S. and in the U.K.
National Grid Transco, as is the group company, is one of the
world's largest independent energy delivery companies.
We own and operate the high-voltage transmission system in
the U.K., in England and Wales, and also the gas transmission
and distribution networks. Here in the U.S., we have
substantial transmission and distribution systems in New York
State and New England. We are also seeking to establish an
independent transmission company in the Midwest called
GridAmerica.
Most of our 1.5 million customers in New York State were
affected by the blackout on August 14. Our New England
customers were generally more fortunate. Our customers in New
York State were restored in about 7 hours. We are fully
cooperating with the various investigations which are going on
to establish why the outage occurred.
I would like to confine my remarks to one observation and
four recommendations. My observation is that this debate should
probably be about how we run large interconnected AC networks,
rather than deregulation. I think to talk about deregulation
may be missing the point.
All developed countries have large AC networks because they
are more economic and generally more reliable. Turning the
clock back and fragmenting the grid would be unthinkable.
The three large integrated grids in the U.S. are
characterized I think by three things. They are owned and
operated in a very fragmented way with thousands of entities
involved. Many of those entities also have generation
interests. And there have been very low levels of investment
for more than a decade.
Following from this, my four recommendations would be that
public policy should promote RTO formation to consolidate
control of this fragmented grid. I believe it should also
promote the formation of independent transmission companies;
independence of generation interests, which will bring renewed
management focus; and an appetite for investment of this
forgotten infrastructure. Reforming tax laws and repealing PUCA
clearly will move toward this goal.
Second, I believe that public policy should establish
effective regional transmission planning processes to identify
and direct investment in the grid.
Third, I believe that public policy should establish a
rational and stable pricing regime, which will give utilities
assurance that they will recover investments in the upgrades
that are needed. And I think substantial upgrades are needed.
And, fourthly, it should seek to reduce barriers to siting
new facilities or, probably, indeed, more importantly, remove
barriers to enhancing the existing facilities because we
believe that there is every opportunity to get a lot more out
of the existing rights-of-way. And we have quite a lot of
knowledge of that, we believe. So some sort of backstop
authority for FERC on siting would obviously be a help here.
Thank you very much for the opportunity to make that
address and welcome your questions.
[The prepared statement of Nicholas P. Winser follows:]
Prepared Statement of Nicholas P. Winser on Behalf of National Grid USA
Mr. Chairman, Members of the Committee. My name is Nicholas P.
Winser. I am a fellow of the Institution of Electrical Engineers and
have twenty years experience as an electrical engineer. I am Group
Director for transmission of National Grid Transco plc, which is an
international energy delivery business focusing on the transmission and
distribution of electricity and natural gas in the United States and
the United Kingdom. I am also Chief Executive Officer of National Grid
Company, the subsidiary of National Grid Transco that owns and operates
the high voltage electricity network in England and Wales.
I am testifying today on behalf of National Grid USA, whose public
utility subsidiaries transmit and distribute electricity in New England
and New York State. National Grid USA's subsidiaries are no longer
active in the electric generation business, having divested
substantially all of their generating assets. In addition, National
Grid USA's independent transmission company subsidiary, GridAmerica
LLC, has executed contracts under which it will undertake certain
responsibilities for the management and planning of the transmission
assets of three major electric utilities in the Midwest, once all
required regulatory approvals are obtained.
Thank you for inviting me here today to address the events of
August 14th and their implications for national energy policy. National
Grid is pleased and honored to assist you and your Committee in the
investigation of these events and in developing a comprehensive set of
policies to strengthen the transmission grid.
This inquiry is of particular importance to National Grid, since
approximately 900,000 customers served by its New York subsidiary,
Niagara Mohawk Power Corporation, lost power during the August 14th
blackout. Fortunately, Niagara Mohawk personnel, working closely with
the New York Independent System Operator, Inc. (NYISO), were able to
restore power to all of those customers within about seven hours. While
the immediate impact of the August 14th blackout on National Grid's
customers was thus temporary, it was disruptive. The blackout serves as
a reminder that electricity consumers are heavily dependent on the
integrated interstate electricity delivery system that is straining
under the weight of current demands.
National Grid is committed to strengthening and expanding the
transmission grid in the United States, not only by adding new
transmission facilities, but also by making maximum use of existing
facilities and rights-of-way. National Grid hopes that the unfortunate
events of August 14th will underscore for policymakers the urgency of
developing and implementing policies that will promote the
establishment of a reliable and robust transmission infrastructure
throughout the United States.
In this statement, I will respond to the specific questions that
you have asked. As you requested, I will address the important policy
questions that must be considered if we are to enhance the reliability
of the electric transmission grid and thereby minimize the risks of a
repetition of the August 14th blackout.
The Events of August 14th
We do not yet have a complete picture of the underlying causes and
contributing events that led to the August 14th blackout, though it
appears that the initial events took place off National Grid's system.
National Grid has been cooperating fully with the joint U.S.-Canadian
investigation of these events, as well as other investigations, and
will continue to do so. Based on preliminary review of available data,
we can provide the following description of the ``cascading'' effects
of the initial disruption on National Grid's system.
So that the Committee may understand how events occurring on other
utilities' systems, in this instance apparently in the Midwest, could
have such profound effects on service to customers on adjoining
systems, it is necessary first to explain briefly some of the
principles upon which the interconnected alternating current (AC)
electric transmission system operates. In order to control power flows
on an AC electricity system, the frequency at all locations on the grid
must be synchronized. (The interstate AC grid in the United States
operates at a design frequency of sixty cycles per second.) This in
turn requires that load and generation on the grid remain in close
balance at all times. If there is a mismatch between load and
generation on a particular portion of the grid, the frequency at that
location will attempt to deviate from the desired level. Because the
frequency is synchronized across the grid, energy will move across the
grid in an attempt to compensate for the local imbalance. This can lead
to uncontrolled power flows and severe damage to transmission and
generation equipment. System operators keep some generating capacity
synchronized as operating reserves in order to enable them respond to
relatively small short-term fluctuations in supply and demand,
including unanticipated outages of generation.
To prevent damage to equipment when large imbalances between load
and generation occur, automatic protective systems are in place (many
of them installed after the 1965 blackout) to respond to situations in
which the frequency deviates outside of a very narrow band around the
acceptable system frequency. Generating equipment has protective
systems that disconnect it from the transmission system if frequency
deviates outside the tolerable range (whether high or low) in order to
prevent damage that could otherwise render the generation unavailable
to restore the system and serve load after the incident.
An additional and extremely important measure put in place after
the 1965 blackout as a means of restoring the balance between load and
supply following a major disturbance, was the introduction of the
automatic capability to reduce demand (referred to as automatic under
frequency load shedding). While the use of automatic load shedding, as
a last resort, plainly inconveniences the affected customers, it
prevents the disturbance from spreading and causing equipment damage,
which would affect more customers by delaying even further the
restoration of service. The need to rely upon automatic protection
systems such as programmed load shedding can be reduced by good
operating practices, through which the delivery capability of the
system is monitored and analyzed on an ongoing basis and actions taken
in response to changes in the configuration of the system before
extreme and uncontrollable conditions result.
With that brief introduction in mind, I will turn to the August
14th blackout. On August 14th, the systems of National Grid and other
utilities in New York State were affected by external events occurring
within a very short period of time. From information made available by
the North American Electric Reliability Council (NERC), it appears that
a significant mismatch between load and generation developed in the
Midwest (though we received no notice of the emerging conditions at the
time). This caused large and abrupt swings in power flows and
frequency, and protective systems tripped several transmission lines in
New York State at approximately 4:10 p.m. This was the first indication
we received of a disturbance.
The electric system in western and central New York State separated
from the system in eastern New York State. The system in western and
central New York remained energized, and some load continued to be
served throughout the event. In accordance with the under frequency
load shedding program implemented by New York utilities in coordination
with the reliability councils, automatic protective systems operated
and initiated the controlled shedding of customer loads in an effort to
bring the load and generation into balance. In eastern and central New
York State, service was interrupted to a large number of customers,
though some pockets of load were served in areas where generation was
available, such as the Albany area. In most of eastern New York State,
the balance between load and generation could not be maintained and the
system collapsed into a blackout. As noted earlier, these events took
place within a very short period of time. Indeed, many of the events
occurred within a matter of seconds, well before operators could
intervene manually.
The transmission lines connecting the New York electric system and
the New England electric system were also opened by operation of their
protective systems. This separated the systems of New England and the
eastern Canadian provinces from those to the west. Those systems appear
to have been affected less severely by the power swings and voltage
fluctuations, enabling them to remain stable, without further loss of
service. In the end, New England only lost about 2,500 MW of load in
Southwest Connecticut, Western Massachusetts, and Vermont for brief
periods.
The Operation of Protective Systems
Preliminary analysis indicates that the protection schemes in place
in the New York/New England region generally worked as intended to
prevent more extensive and long-lasting disruptions. They allowed the
system to shut down with minimal damage to key transmission and
generation facilities. Most of the transmission system in New York
State indeed remained intact. While keeping the key components of the
transmission and generation system undamaged did not keep the lights on
for all New Yorkers, doing so was crucial to facilitating the
restoration of service after the event. Had critical transmission lines
or generating stations suffered significant physical damage, the
necessary repairs could have extended the restoration process for days
or even weeks in some areas, depending upon the location and severity
of the damage.
On National Grid's delivery system in New York State, approximately
900,000 of the 1.5 million customers connected to National Grid's
delivery facilities in upstate New York lost service on the afternoon
of August 14th. Service was restored as rapidly as the available
generation permitted, with all those customers back in service within
approximately seven hours. The following day, as part of the
restoration process, a small number of customers were again without
power for a brief period, while load was being balanced with the
generation that was coming back into service.
The transmission control centers in New York also appeared to
function well during the event. Back up power supplies to these control
centers appear to have worked correctly. As a result, the control
system stayed operable during the event, and the operators were able to
follow established plans and communicate effectively. This also speeded
the restoration process. It allowed the individual transmission owners
to give instructions to the generators in their individual control
areas while the NYISO coordinated bulk power restoration.
The equipment and processes in place in New York State and New
England therefore appear, based on preliminary analysis, to have
functioned as they were designed to perform: to isolate the portion of
the grid experiencing the disturbance and to protect generation and
transmission facilities from serious damage when large, uncontrolled
power swings occurred due to events on adjoining systems (which are
still being investigated). The automatic systems that protected that
equipment did so by disconnecting generation and load from the grid and
by opening some transmission lines. Unfortunately, millions of
customers lost power as a result. Each of the systems comprising the
interconnected AC transmission system is affected by conditions on all
other systems and we do not yet know exactly what happened outside of
New York to cause the large, unexpected power swings that appeared on
the New York State system. Accordingly, there are simply too many
variables involved to tell whether the results would have been the same
if the events of August 14, 2003 had transpired a year earlier.
Lessons Learned and Policy Recommendations To Enhance Reliability To
Guard Against the Recurrence of Similar Events
Because the investigation into the events that led to the August
14th blackout is still underway, it is too early to identify the
specific technical and operational solutions that are needed to
minimize the likelihood that similar events might occur in the future.
It is important nevertheless to recognize that continued employment of
sound operating principles will reduce the risks that severe
disturbances might occur on the grid in the first place. This will
minimize the need to rely on automatic systems that protect equipment
from damage by disconnecting components and customers from the network
when such disturbances occur. Once the circumstances that gave rise to
the August 14th blackout are identified, I would expect that utilities
and system operators will identify any shortcomings in existing
equipment and operating procedures to prevent those circumstances from
repeating themselves.
From a policy perspective, a significant amount of work has already
been done and can still be done to address problems like those
experienced on August 14th. While the investigation into the specific
technical and operational issues that led to the August 14th blackout
is not complete, it is critical for policymakers to take the steps
necessary to promote a more reliable delivery infrastructure. Those
steps cannot be limited to generation, transmission, or demand-side
measures in isolation. All of these areas may well form part of an
integrated solution to this complex problem.
For some years, National Grid and others have raised the concern
with Congress, the Federal Energy Regulatory Commission (FERC), and the
Department of Energy that investment in the interconnected transmission
system has not kept pace with generation and load growth and that
significant upgrades are needed to maintain and enhance reliability and
expand competitive markets. We have also underscored the need for
active and independent management of the transmission system. As a
result, we strongly advocate energy legislation and regulatory policies
that address the roadblocks to grid expansion and independent
transmission operation. To achieve these objectives, policymakers
should focus on the following areas:
Promoting Independent Transmission Companies. For too long, the
electricity delivery system has been the forgotten element of
the Nation's electricity infrastructure, largely left to fend
for itself while market participants focus on new generating
plants. The events of August 14th reveal the dangers of
treating the delivery system as an afterthought. Independent
transmission companies that will focus their business plans on
the ownership and efficient operation of the grid and in making
the investments needed to bring it in line with the demands of
the 21st century are critically needed. As proactive managers
and operators of transmission assets they will be well-
positioned to minimize instances when it is necessary to resort
to automatic protective systems. They also will be positioned
and motivated to maximize the use of existing transmission
facilities and rights of way. They will be able to make the
needed investments in the energy delivery infrastructure free
of competing demands for generation investments. Moreover, they
will promote open and non-discriminatory transmission service
because they have no generation interests to favor. For this
sector to develop, Congress must reform the tax laws to remove
impediments to transfers of transmission assets to new
independent owners and must repeal the Public Utility Holding
Company Act, which limits the expansion potential of
independent transmission companies. FERC also must allow these
companies sufficient authority over their assets to enable them
to do the job and enable them to employ performance-based rates
that reward increased efficiency.
Effective Transmission Planning and Expansion Policies. To ensure
that the transmission grid upon which we all rely is adequate
to serve current and projected needs, regional transmission
planning processes must be established to regularly assess the
need for upgrades both to improve and enhance reliability and
to remove bottlenecks that limit customers' access to cheaper
electricity. To be effective, those processes must be
streamlined. They must not afford opportunities for market
participants that profit from existing bottlenecks (because
they keep competing suppliers from reaching their markets) to
delay or frustrate needed expansion projects. In particular,
needed upgrades must not be put on hold by requirements that
utilities search for voluntary participant funding or
regulators resolve debates over cost allocation. Instead,
regional planning processes should look to the region's
utilities to make the grid upgrades required both to preserve
reliability and expand customers' access to lower cost power.
Rational and Stable Transmission Pricing. The transmission grid needs
significant upgrades to enable it to handle the increased
demands now placed upon it both for reliability and for
efficiency. FERC must establish transmission pricing policies
that give utilities adequate assurance that they will recover
investments in system upgrades. Those policies must recognize,
as the events of August 14th make clear, that customers and
generators throughout the region rely on and benefit from a
reliable and robust transmission system and should bear a fair
share of its costs. Policies must also be stable enough that a
utility can rely on them to return its investment over many
years and be simple enough to apply so that critically needed
delivery system upgrades are not delayed by battles to allocate
costs to different customer groups.
Removing Barriers to Siting Transmission Facilities. FERC lacks the
authority to grant certificates for interstate electric
transmission projects, even though it has had that authority
for natural gas pipelines for decades. This regulatory gap
makes it profoundly difficult to site, construct, or modernize
transmission facilities, particularly between states and market
regions, even when the need for greater grid capacity is clear.
Congress should, at a minimum, grant FERC backstop siting
authority for electric transmission projects.
As policy objectives, these are all key steps toward a regulatory
and market regime that fosters the development of a reliable delivery
infrastructure. FERC's proposed Wholesale Market Platform would make
significant progress in implementing the first three of these policies.
It consists of a significantly revised version of the so-called
standard market design that FERC proposed last year and incorporates
many of the comments that FERC received on that proposal from a broad
cross-section of the industry, as well as consumers and state
regulators. Progress on the policies embodied in the Wholesale Market
Platform proposal is essential to the development of independent
transmission companies, effective regional transmission planning, and
rational transmission pricing policies that would facilitate critically
needed grid expansion. From what we have seen, there appears to be no
substance to the speculation that electric industry restructuring and
FERC's efforts to develop competitive energy markets may have
contributed to the blackout. To the contrary, National Grid believes
that it is those efforts that will ultimately address reliability
concerns, if they are premised on independent operation of the
transmission grid and focused on the development of a delivery
infrastructure that is both reliable and sufficient to support
competitive markets.
Policymakers should also give serious consideration to the content
of the reliability standards that govern the design and operation of
the interconnected electric transmission system. In general, the
current reliability standards call for the transmission system to be
designed so that it can withstand the single largest contingency
considered by planners. Many other countries (as well as portions of
the U.S. grid) are designed to more stringent standards. Adopting more
stringent standards generally for the U.S. transmission system would
improve its capability to deal with unexpected power swings without
interrupting service. National Grid believes that closely scrutinizing
the content of the rules themselves and promoting transmission
companies focused on planning and operating to satisfy those
requirements is crucial regardless of whether compliance with the
reliability standards is enforced with a new regime of mandatory rules
and penalties.
While the cost of improving the Nation's transmission
infrastructure will have to be borne by customers in their rates,
transmission represents only a small portion of the total electricity
bill (ten percent or less in most cases). Since an improved
transmission grid will not only enhance reliability but will improve
the efficiency of energy markets and ultimately lower energy costs to
consumers, even modest energy costs savings are very likely to outweigh
transmission reinforcement costs. Moreover, a more reliable
infrastructure will reduce the likelihood of widespread outages and the
resulting costs to the economy.
In short, while the specific technical and operational solutions to
solve the problems of August 14th are still being identified and
assessed, it is incumbent upon policymakers to continue their work to
establish a regulatory environment that fosters the development of a
robust transmission grid--one that will ensure reliability of the
entire system and deliver efficient competitive energy markets.
National Grid appreciates the opportunity to assist the Committee
in its vitally important review of the causes of and solutions to the
problems experienced on August 14th.
Chairman Tauzin. Thank you very much, Mr. Winser. And we do
indeed welcome you here. Thank you. I'm just learning a lot
more about you and your company. I've got some questions I want
to ask you a little later.
We're now pleased to welcome Mr. Rick Kessel, the Chairman
and CEO of Long Island Power Authority of Uniondale, New York.
Mr. Kessel?
STATEMENT OF RICHARD KESSEL
Mr. Kessel. Thank you and good morning, Mr. Chairman and
members of the committee. I'm Richard Kessel. I'm Chairman and
Chief Executive Officer of the Long Island Power Authority,
commonly known on Long Island as LIPA. I want to thank you for
holding this hearing today.
And I want to commend you, Mr. Chairman, for the work that
you have done on behalf of energy consumers throughout the
country. I've personally followed your career and know a lot of
what you have done. And I commend you for taking this decisive
action and holding this hearing today.
Chairman Tauzin. Thank you very much, sir. You should like
Norm Lent, for some reason.
Mr. Kessel. Oh, I almost ran against him, actually, 1974.
But that was a long time ago.
Chairman Tauzin. Thank you.
Mr. Kessel. And I wound up running for the State Senate and
lost. Democrats from Long Island don't usually do well.
I do want to bring greetings from Governor George Pataki
from New York State. He sends his greetings.
I have to say from the outset Governor Pataki just did an
extraordinary job, a heroic job in my view, in helping LIPA and
the other utilities in this State back to full recovery.
And I have to tell you that if it wasn't for the Governor's
efforts, particularly on the night of the blackout, in
convincing the Department of Energy to energize the Cross Sound
Cable from Connecticut to Long Island, Long Islanders would
have experienced massive rolling blackouts on Friday. I think
the Governor deserves tremendous credit for showing very strong
leadership in New York State in stepping up to the plate when
it mattered.
Chairman Tauzin. Mr. Kessel, I am going to interrupt just a
second because I think you will hear this from more than one
member. I want to express to you the admiration of the entire
panel, our entire committee, and I assume the whole Congress.
We watched on television the experience in New York and the
eerie resemblance to 9/11 and the fact that you came through
that with so little injury and so little problem. And the calm
and patience of the people of New York and Detroit and the
other cities affected--we heard from the mayor of Detroit
yesterday--was quite a scene for all of us to watch. There was
a lot of admiration around the country for the way you handled
this thing.
I want to send my appreciation to both Mayor Bloomberg and
to Governor Pataki on behalf of the people of this country for
showing us such a good example.
Mr. Kessel. I appreciate that, and I will certainly tell
them that. I have to tell you that I was on the phone with the
Governor within a couple of hours. And he was helping us
throughout the night. And the next day, he came out to Long
Island. I know he went to other utilities around the State and,
really, I think did an extraordinary job. I want to talk a
little bit about that in a couple of minutes.
I think the Long Island Power Authority did very well. We
worked very closely with our partners at KeySpan Energy and the
employees, who I think don't get enough credit at the utilities
for the great job that they did in synchronizing the grid and
bringing it back in record time. In fact, we lost about
1,084,000 customers. And they were all brought back within 25
hours and 21 minutes, 80 percent by 8:30 the following morning.
And it was an extraordinary effort on the part of the
employees and all of the management of both LIPA and KeySpan.
And with assistance from the Governor and his staff and also
from the New York independent system operator and my friend
Bill Museler here, it was an extraordinary partnership in
getting everyone back together.
I would like to really get to the heart of the matter, in
my view, the issue that Congress ought to take a look at. It's
the national symbol of what is wrong in my view with the energy
grid in the country. This is it, the Cross Sound Cable.
These are two slices of the Cross Sound Cable that was
built for the Long Island Power Authority by a private company,
TransEnergie, a subsidiary of Hydro Quebec.
Several years ago, at the Governor's direction, Long Island
decided that, in addition to new power plants on Long Island--
and we have added over 500 megawatts of new generation in the
last couple of years.
We wanted to build an interstate transmission line to help
the reliability of the grid and the flow from Connecticut to
Long Island and vice versa. And obviously that would open up
the entire Northeast grid from New England through Long Island
and New York.
TransEnergie invested its own money and built what is known
as the first merchant transmission line in the United States of
America, the Cross Sound Cable, stretching from New Haven,
Connecticut to Shoreham on Long Island.
The transmission line was permanent, by Federal and State
authorities received all of its operating permits, was
completed right before the Summer of 2002, and lay dormant
under the Long Island Sound until the emergency of August 14,
when, thanks to the efforts of Governor Pataki and Energy
Secretary Spencer Abraham, this cable was energized in order to
not only enable Long Island to import electricity over the
cable to Long Island but also to stabilize the voltage on both
sides of the Long Island Sound.
That cable was energized under an extraordinary emergency
audit issued by Secretary Spencer Abraham. And, frankly, I
think he deserves a lot of credit for having the guts to do
that at the request of our Governor, Governor Pataki.
That line provided 100 megawatts of power on Friday
afternoon when we were right here. I mean, we were barely able
to keep up with the demand because we were restoring customers
too quickly.
The 100 megawatts from that Cross Sound Cable around 12:30-
1 o'clock on Friday afternoon was a godsend to Long Island. Had
we not had those 100 megawatts, we would have probably had to
initiate rolling blackouts all across Long Island.
The energy secretary issued the order. It was effective
until Labor Day. Governor Pataki went back and requested that
the order be extended because while the event of the blackout
is over, the emergency isn't.
We still don't know, really, what caused it or whether or
not it can be prevented again. As the head of a utility of over
a million customers, there is not a minute in my life that I
don't worry that this could happen at any moment. And we don't
know that it can't.
The energy secretary was kind enough to and I think correct
to issue a new order, which allows for the energizing of the
Cross Sound Cable and its use as a normal transmission line
during the emergency.
But here is the point and is my one recommendation. I've
got a lot in my testimony. If Cross Sound Cable cannot operate
because of parochial, petty politics from another State, this
grid is in big trouble. The only way in my view to rebuild the
grid--and everyone admits the grid needs rebuilding. It needs
tremendous investment. It's private capital.
Utilities like LIPA and my friends at Con Ed and National
Grid, we can't afford to invest all of that money at once in
our grid because our customers would wind up paying significant
rate hikes, although I have to tell you that LIPA has invested
over a billion dollars in the transmission and distribution
grid on Long Island since we acquired the Long Island Lighting
Company's electric business 5 years ago.
The issue is, is private investment, are private companies
like TransEnergie, willing to step up to the plate and invest
their hard-earned money in building transmission lines in this
country if individual States and parochial, political interests
are going to block transmission lines from operating. This is
the national symbol of what is wrong with the grid.
And so I have two recommendations. Recommendation No. 1 is
I believe that the Federal Government needs to take control
over the interstate transmission grid in this country. Now,
maybe there ought to be some process of one-stop shopping,
where local environmental concerns are addressed.
But the notion that environmental concerns, this has been
opposed because environmentally it could leak. Where is the
leak? There is no fluid in this line. But the Federal
Government has the capability of siting transmission.
Second of all, we have to encourage private companies to
invest in the grid throughout the Nation. It's the only way to
get sufficient capital to bolster the grid without burdening
our utility customers with rate hikes.
And I propose two things. No. 1, I propose that utilities
be able to invest by entering into power purchase agreements to
power purchase off of these lines for a 10 to 20-year period as
a way to pay back private companies for their investment.
And, second, I would urge Congress to look at incentives to
incentivize those private companies that are willing to invest
capital in bolstering the transmission grid as a way to enhance
service throughout the country.
[The prepared statement of Richard Kessel follows:]
Prepared Statement of Richard Kessel, Chairman and Chief Executive
Officer, Long Island Power Authority
My name is Richard Kessel and I serve as Chairman of the Board and
Chief Executive Officer of Long Island Power Authority (Authority)
located on Long Island in New York State. As an instrumentality of the
State of New York and a public power agency, the Authority and its
operating subsidiary, the Long Island Lighting Company d/b/a LIPA
(LIPA), provide electric service to nearly 1.1 million customers,
representing approximately 2.8 million people in Nassau and Suffolk
counties, and the Rockaway Peninsula in the Borough of Queens, New York
City.
Three weeks ago, on August 14, 2003, LIPA and its customers were
caught up in the Northeast power blackout which affected much of the
Northeast United States and South Eastern Canada. Through the
cooperation of LIPA customers who limited their demand and the
committed work of LIPA employees and the employees of our service
contractor, KeySpan, over 80% of LIPA customers had their power
restored by 8:30 A.M. on August 15th and all customers had electric
service restored within 25 hours, 21 minutes of the blackout.
The blackout provides a telling example of the fragility of our
electric transmission system and the need to continue our efforts to
improve system reliability. We at LIPA are as committed as the members
of this Committee to analyzing this situation and ensuring the
prevention of a similar occurrence. For that reason, I want to thank
Chairman Tauzin for calling this hearing and for providing me with the
opportunity to speak on behalf of the LIPA's customers regarding what
happened on August 14, 2003, and to provide recommendations on actions
that can be taken to improve our electric transmission system and
overall reliability.
lipa--providing reliable electric service to its customers on long
island
The Authority and its operating subsidiary, LIPA, own and operate
the transmission and distribution system on Long Island while also
providing retail electric service to customers on Long Island. The
Authority was established in 1986 by the New York State legislature to
resolve a controversy over the Shoreham Nuclear Power Plant and to
achieve lower utility rates on Long Island. Created as a corporate
municipal instrumentality of the State of New York, the Authority was
authorized under its enabling statute to acquire all or any part of the
securities or assets of the Long Island Lighting Company (LILCO). In
May 1998, the Authority acquired LILCO as an operating subsidiary. This
acquisition resulted in an average rate reduction of 20% to the Long
Island ratepayers.
LIPA owns 1,344 miles of transmission and sub-transmission lines
that deliver power to 175 substations in its electric system. From
these substations, 13,075 circuit miles of distribution lines deliver
the power to nearly 1.1 million business and residential customers. In
addition, Long Island is served by five operating transmission
interconnections to neighboring electric systems and a new high voltage
direct current interconnection to Connecticut--the Cross Sound Cable--
that is ready for full commercial operation which has been delayed for
more than a year due to a permitting moratorium enacted by the State of
Connecticut in June 2002. Instead, operation of the Cross Sound Cable
has occurred only as the result of emergency operating orders issued by
the Department of Energy for a short period of August and September,
2002 and since August 15th in response to the Northeast power blackout.
LIPA is committed to finding creative solutions to the provision of
economic, environmentally sensitive and reliable electric supply for
its customers. Historically, there have been reliability and service
issues for the residents of Long Island. As an island with a robust
economy, the demand for electricity on Long Island has been growing at
a record rate in recent years. On average, for the past several years,
our demand has grown at a rate of approximately 100 megawatts (MW) per
year. For example, in July 1999, a four-day heat storm produced a
summer peak demand record for LIPA of 4590 MW and 4757 MW for the Long
Island Control Area. That 1999 LIPA record was 382 MW higher than the
previous summer record of 4208 MW set in July of 1998. To provide some
perspective, however, at the time of the August 14th system
disturbance, all of the Long Island generation was functioning well
with a typical summer demand load of 4677 MW--a demand level that, just
four years ago, was a summer peak demand record. And this demand
continues to grow. The peak demand in the Long Island Control Area for
2002 was 5059 MW.
Meeting this load growth, however, is not an easy task. In many
ways, Long Island is a microcosm of the difficulties that face electric
utilities today in providing the reliable and cost-effective energy
that is critical to our local, state and national economy. Over the
past several years, LIPA has taken aggressive steps to maintain and
enhance the existing electrical system on Long Island to meet customer
demand and improve reliability. The initiatives that LIPA has
undertaken include:
Initiation of a power supply enhancement program that has included
execution of power supply agreements with developers of new
generation units on Long Island (totaling 500 MW in 2002 and
2003) to meet peak energy demands, siting temporary mobile
generation units (200 MW in 2002 and 130 MW in 2003) and
issuing an RFP for additional baseload energy sources on Long
Island and transmission interconnection siting (for operation
in 2006);
Initiation of conservation and efficiency programs such as LIPA's
Peak Load Reduction Partnership and LIPAedge which are designed
to help us meet and manage our demand obligations with the
assistance of our customers. LIPA's Clean Energy Initiative was
created in May of 1999 to support energy efficiency, clean
distributive generation and renewable technologies. The
Authority has spent more than $180 million in the first five
years of the program and has extended it for another five
years. Some of the accomplishments include the installation of
the largest commercial solar roof in the country, investment in
fuel cells and geothermal projects, as well as development of
wind turbine demonstration projects. The Authority is currently
reviewing responses to a recent RFP for a large offshore wind
project. In addition, LIPA's Peak Load Reduction Program and
LIPAedge Program were designed to meet and manage our demand
obligations with the assistance of our customers;
Upgrading the transmission and sub-transmission infrastructure to
improve energy transfer capability to and from Long Island and
neighboring electric systems, increase the internal interface
transfer capability and accommodate competition from new
merchant generators on Long Island;
Fostering the development of the Cross Sound Cable and, ultimately,
entering into a long-term transmission service agreement with
the builder of the Cross Sound Cable, TransEnergie U.S., which
made the financing of the project possible; and
Substation and distribution line capital improvement projects to
provide the capacity to serve forecasted load growth and to
improve the overall reliability of the system.
Electric energy is not a luxury. We must ensure that the
infrastructure supporting the delivery of electricity to our customers
is up to the critical task of ensuring that our homes are lit and our
businesses have the electricity necessary to produce the goods and
services that support our economy. On October 17, 2002, LIPA released
its Draft Energy Plan which details a comprehensive, multi-faceted and
flexible approach to providing a safe, reliable, environmentally
friendly and cost efficient supply of electricity to LIPA's customers
well into the future. In addressing the transmission and distribution
components of the Draft Energy Plan, the first and foremost criteria
for identification of projects was the ability to improve system
reliability. In order to meet demand and maintain reliability, LIPA has
invested heavily in transmission infrastructure and will continue to do
so. Since taking ownership of the Long Island transmission and
distribution (T&D) system in May of 1998, LIPA has invested $1.01
billion in our T&D system. The expenditures have been made on a wide
range of projects including new transmission and distribution lines and
upgrades of existing lines, new substations and upgrades of existing
substations. In 2002, LIPA invested nearly $332 million in improvements
to the T&D system alone. LIPA's 2003 budget commits an additional $240
million to such improvements. Projected expenditures for 2004 could
reach $216 million, with expenditures for 2005 reaching nearly $200
million.
As part of its efforts to improve the overall transmission
infrastructure serving Long Island, since 1998, LIPA has worked to
establish a new interconnection between New York and New England across
Long Island Sound--which ultimately became the Cross Sound Cable
project. Constructed in 2002 by TransEnergie U.S., Ltd. (TEUS), the
transmission line interconnects the New England and New York control
areas and is capable of transporting 330 MW of electricity between Long
Island and Connecticut. Although LIPA is not the owner or the operator
of this transmission line, LIPA's involvement in the project has been
critical to its construction and completion. By entering into a Long
Term Firm Capacity Purchase Agreement with TEUS in August of 2000, LIPA
provided the necessary support for the financing of this project. The
development of this merchant transmission line, in addition to LIPA's
other efforts, is necessary to continue to serve the growing demand for
electricity of the residents of Long Island.
Most recently, as part of our ongoing efforts to improve the
transmission system, on August 28, LIPA announced a Research and
Development (R&D) project with DOE and a consortium of manufacturers,
led by American Superconductor of Massachusetts for the installation of
a superconductive cable. This $30 million project will test the world's
first installation of a superconductor cable in a live grid at
transmission voltages. Called high temperature superconductor (HTS)
power transmission cables, superconductors can transmit two to five
times the amount of electricity through the same space occupied by
existing cables. The 2000 foot 138kV transmission superconducting cable
will be demonstrated as a portion of a circuit located in an existing
right-of-way in East Garden City. Project development has already
begun, and the superconductor cable will be installed in the fall of
2005 with full operation scheduled for the end of 2005. If the R&D
demonstration proves successful, LIPA would look to continue building
the superconducting cable to the next substation. Connecting the two
substations would provide a capacity of 600 megawatts.
Maintaining system reliability is a key mission for LIPA. LIPA is a
founding member of an international public/private R&D partnership to
apply new technologies to electric T&D systems to create a ``self
healing'' grid that will detect and correct problems before they occur.
Called the Consortium for the Electric Infrastructure to Support a
Digital Society (CEIDS), some 15 entities, including the U.S.
Department of Energy (DOE), the New York Power Authority (NYPA),
Consolidated Edison Company of New York Inc., Cisco Systems, Lockheed-
Martin, and Electricite de France have joined in the effort to develop
the ``self healing'' grid technology concept. The CEIDS effort is part
of the R&D projects spearheaded by the Energy Innovation Institute
(E2I) a subsidiary of the Electric Power Research Institute (EPRI).
Development of a ``self-healing'' transmission and distribution
system--capable of automatically anticipating and responding to
disturbances, while continually optimizing its own performance--will be
critical for meeting the future electricity needs of an increasingly
digital society.
long island's experience during the blackout of august 14
The events and circumstances of the Northeast blackout are still
being examined through such efforts as the U.S./Canada Power System
Outage Task Force (Joint Task Force). LIPA, as a transmission owner and
load-serving entity in New York, has been cooperating with the Joint
Task Force. Until the Joint Task Force completes its work, it is
difficult to speculate on any one set of factors or conditions that may
have caused the system disturbance.
From Long Island's perspective, what we presently know is that in
the moments leading up to the blackout, the Long Island transmission
and distribution system was operating under normal summer conditions
with a load demand of approximately 4,677 MW. There were no major
generation facility outages on Long Island. Of the interconnections
between Long Island and the rest of New York State and New England, the
Y49 and Y50, 901 and 903 Cables were operating and had scheduled power
flows. Due to operational rules regarding the interchange of energy
between New York and New England, the fifth line interconnecting to
Long Island, the Northport-Norwalk Tie had no scheduled power flow
moving over its lines. The Cross Sound Cable, however, was de-energized
due to the Connecticut siting moratorium that has delayed environmental
review of a permit modification required prior to commercial operation
of the facility.
LIPA has emergency plans to address blackouts like the August 14th
event. Consistent with LIPA policies and plans, our emergency plan was
immediately put into place when our system operator, KeySpan, called a
``Condition Red.'' Less than twenty minutes after the blackout, LIPA
had put its first ``black start'' generating unit into service which
served as the foundation of the system recovery. At 5:15 P.M., just an
hour after the blackout, LIPA's emergency team was assembled to assess
system conditions and determine critical tasks that needed to be
undertaken. Attached to my testimony as Appendix A is a presentation
that LIPA recently released detailing the power restoration efforts
that took place.
The Long Island T&D system and the interties with New England and
the rest of New York State were a critical component of the power
restoration efforts. During the restoration effort, LIPA's interties
were used to provide emergency energy support and to connect LIPA's
system to the Northeast power grid thus stabilizing system frequency.
The interties were a valuable tool during LIPA's efforts to complete
the restoration of its entire system. At 11:45 P.M., August 14th, LIPA
received notice from the Department of Energy that Secretary Abraham,
acting upon a request from Governor Pataki, had issued an emergency
order immediately directing the operation of the Cross Sound Cable
pursuant to Section 202(c) of the Federal Power Act. Once active, the
Cross Sound Cable provided essential electricity to Long Island and
helped stabilize voltage on both Long Island and in Connecticut. Cross
Sound Cable transmitted 15,000 megawatt-hours of electricity over the
critical three-day restoration period following August 14, enough to
repower about 300,000 homes on Long Island.
The ultimate effect of the Northeast blackout on Long Island is
still being tallied. Estimates have been made that LIPA, alone, may
have incurred an economic loss of $20,000,000. An assessment of LIPA's
T&D system is still ongoing but preliminary assessments suggest that
most of LIPA's transmission and distribution facilities were unharmed.
However, LIPA has already determined that there was damage to a major
power station step-up transformer and other facilities on its system,
including damage at several transformers and substations.
It is still too early to provide definitive opinions about what
went wrong on August 14th or what equipment worked exactly as intended
or not. However, in LIPA's opinion, it is clear that there is a lack of
transmission infrastructure--both lines and systems--necessary to
address a massive outage such as this one or to facilitate the
restoration of service to our customers. There may not be one piece of
equipment or hardware that would have prevented such a widespread
outage. However, we do know that the Cross Sound Cable, had it been in
commercial operation rather than sitting idle due to a politically-
motivated siting moratorium in Connecticut, would have, at the very
least, reduced the time for restoration of power to Long Island
residents. In this case, the Secretary of Energy properly stepped in
and issued an emergency order to facilitate the use of the Cross Sound
Cable in LIPA's power restoration efforts. I firmly believe that it did
not, and should not, have to come to the issuance of an emergency order
to initiate power flows over the Cross Sound Cable. It is the failings
of the present system, that has allowed parochial politics to override
the legitimate need for additional interstate transmission lines such
as the Cross Sound Cable, that we must address if we are to move
towards improving the reliability of our electrical grid.
lessons learned from the blackout and how similar incidents in the
future can be prevented
The Northeast blackout demonstrates the need for improving system
reliability through updates to operating protocols, modification of
system management software, emergency planning and infrastructure
investments. Many of these actions do not require Congressional action.
However, other matters surely require Congressional attention--in
particular, LIPA urges Congress to consider improvements that can be
made in: (1) ensuring the optimization and full utilization of existing
facilities such as the Cross Sound Cable to ensure system reliability;
(2) facilitating new investment in transmission infrastructure by
ensuring that there is certainty in cost-recovery and that all benefits
of new transmission investments are captured in the compensation
mechanisms; (3) removing obstacles to timely siting decisions for
transmission facilities and avoiding multi-jurisdictional in-fighting
over interstate transmission facilities; and (4) ensuring the
development of effective reliability criteria.
Ensuring Full Utilization and Optimization of Existing Facilities to
Support Regional Reliability.
The failure to fully utilize existing transmission facilities to
ensure the efficient and reliable delivery of energy is unconscionable.
For many of the same reasons that its energization pursuant to
Secretary Abraham's emergency order gave LIPA a critical asset in its
efforts to restore power to Long Island, the high voltage, direct
current, Cross Sound Cable could have provided valuable assistance in
efforts to stem the tide of the system disturbance that ultimately
blacked out Long Island. As detailed in Appendix B, which describes the
history of the Cross Sound Cable, state parochialism in the form of a
Connecticut state siting moratorium has kept this cable from being
placed into commercial operation--even though it is fully constructed
and its operation will not result in adverse environmental conditions
in Long Island Sound. Since the blackout, the Cross Sound Cable has
been operating subject to an Emergency Order from the Department of
Energy.
Last Thursday, the Secretary extended this order, finding that
emergency conditions continue to exist since there has been no
authoritative determination of what happened on August 14th or why the
existing system was unable to stop the spread of the outage. As a
result, the Secretary directed that the owners of the Cross Sound Cable
continue to energize its facilities to transmit and deliver electric
capacity between the New York and New England control areas as well as
to provide voltage support and stabilization facilities in accordance
with normal operating and scheduling protocols in the NYISO and ISO-NE
during the continued existence of emergency conditions.
While the Order allows operation of Cross Sound Cable at this time,
it is subject to revocation at any time. We must do more than just
recognize the Cross Sound Cable's contribution to removing emergency
conditions and allow the facility to be placed into full commercial
operation so it can fully support and enhance the reliability of the
adjoining New England and New York control areas.
Another example of the lack of full utilization of existing
facilities is that, presently, the NYISO and ISO-NE do not allow for
separate power schedules to flow over Northport-Norwalk Harbor intertie
and routinely set the available transmission capacity of this intertie
to zero in favor of sending all flows between New York and New England
over AC interties in upstate New York. While the NYISO and ISO-NE
certainly have operational responsibility to determine a reliable power
flow within their control areas and between the two regions, removing
certain facilities completely from the available options does not
provide the full amount of flexibility that can and should be present
in the New York and New England systems. LIPA has been working with the
NYISO and ISO-NE to resolve this matter. However, even under the most
optimistic estimates a permanent solution is unlikely to be in place
before Summer 2004--at the earliest.
We must ensure that existing transmission facilities are fully
utilized. Actions must be taken to immediately direct the operation and
full utilization of existing interstate transmission facilities, such
as the Cross Sound Cable, to support reliability while ensuring that
such operations are conducted in a manner that protects the
environment.
Certainty of Cost-Recovery and Recognition of All Benefits Provided by
New Transmission System Investments.
At present, transmission owners are faced with a regulatory
environment that does not provide certainty in rate recovery and does
not fully recognize the reliability and market-related benefits created
from transmission system improvements. This issue is not merely a
question of what rate of return should be provided to a transmission
owner. Rather, there is a more fundamental uncertainty as to whether,
regardless of the rate of return applied to the expenditures made, cost
recovery would ever actually occur. Further, all benefits of
transmission investments must be recognized. Transmission facilities
can provide reliability benefits, facilitate additional energy
exchanges, improve access to additional installed capability resources,
and provide voltage support.
Further, there are innovative, leading-edge and smart technologies,
such as high temperature superconductor (HTS) power transmission cables
and ``self healing'' grid technologies that can infuse the transmission
system with additional flexibility. Simply providing for cost recovery
through a traditional transmission usage charge does not fully
recognize the benefits provided by the new generation of transmission
investments that electric utilities, like LIPA, are making today.
Ultimately, the federal regulatory framework for wholesale transmission
service must allow for cost-recovery certainty and fully recognize and
capture the multiple benefits to the market and reliability that are
created by transmission system improvements.
Removing Obstacles to Transmission Facility Siting.
One of the most glaring issues that must be addressed to ensure
future investment in transmission facilities is the complexity of
siting multi-state transmission facilities. As a matter of course,
transmission lines often cross multiple jurisdictional boundaries.
Unlike interstate natural gas facilities (that are subject to siting
certificate approval from a single entity, FERC), construction of an
electric transmission facility can require the approval of multiple
siting authorities. Furthermore, there is no standardization of
facility siting review requirements or timelines for approvals. The
result is a patchwork of siting authorities, with each one having the
ability to fundamentally affect the ability of a particular project to
proceed.
LIPA believes that there must be a reconsideration of how siting
decisions are made for interstate transmission facilities to ensure
that there is not parochial, jurisdictional interference in the
functioning of what is truly an interstate market in electric energy.
The Mid-Atlantic and Northeast states are too densely populated and too
interdependent economically and environmentally to permit one
recalcitrant state to block environmentally benign and urgently needed
infrastructure. LIPA has no objection to reasonable state oversight of
permitting to ensure that legitimate local and environmental concerns
are met. However, the fact remains that interstate transmission lines
do not serve a single jurisdiction and provide critical bridges for
regional reliability.
A federal framework must be in place that ensures that interstate
transmission facilities that are needed for reliability are not stymied
by conflicts between multiple jurisdictions or political interference.
Such a framework may be achieved through a number of different
mechanisms, such as a one-stop siting approval procedure before FERC;
or allowing the Secretary of Energy or FERC to direct the construction
and operation of an interstate transmission facility upon a specific
finding that it is required for regional reliability and can be
accomplished with all necessary environmental safeguards. Ultimately,
what is needed is a clear path by which critical, reliability
improvements to the interstate transmission system can be made in a
timely manner.
Improving Reliability Criteria and Coordination.
The development of effective reliability criteria is a critical
element in transmission system planning. As transmission system
investments are made, it is important that such investments in new
technologies and facilities incorporate and accommodate the appropriate
reliability criteria to ensure a more stable and reliable network. To
that end, the current reliability criteria and structure for regional
reliability coordination should be reviewed and recommendations made
for improvement. Further, reliability benefits of transmission system
improvements must be fully recognized through such mechanisms as
payments for generation.
recommendations for congressional action
In closing this testimony, LIPA urges Congress to take the
following steps to ensure that our nation can be served by a safe,
efficient and reliable transmission and distribution system:
Actions must be taken to immediately direct the operation and full
utilization of existing interstate transmission facilities,
such as the Cross Sound Cable, to support reliability while
ensuring that such operations are conducted in a manner that
protects the environment.
The federal regulatory framework must support transmission system
investments by providing for cost-recovery certainty and fully
recognizing and capturing the multiple benefits to the market
and reliability that are created by transmission system
improvements.
A federal framework must be in place that ensures that the siting of
interstate transmission facilities that are needed for
reliability are not stymied by conflicts between multiple
jurisdictions or political interference.
The current reliability criteria and structure for regional
reliability coordination should be reviewed and recommendations
made for improvement. Further, reliability benefits of
transmission system improvements must be fully recognized
through such mechanisms as payments for generation and
transmission improvements that result in a measurable benefit
to system reliability.
LIPA looks forward to working with Chairman Tauzin and all members
of this Committee on passage of legislation that enhances the
reliability of our electric transmission and distribution systems.
Chairman Tauzin. Thank you. Thank you very much, Mr.
Kessel. By the way, did you personally cut that line? We may
have found the problem.
Mr. Kessel. Yes. This is it. Actually, I should say that
the line, by the way, Mr. Chairman, is operating today. And we
are hoping that by this afternoon, it will carry electricity
from Connecticut across Long Island and back to southwest
Connecticut. This is not a one-way street. And the grid is not
a one-way street.
Chairman Tauzin. Thank you, sir.
We are pleased now to welcome Dr. Linn Draper, Jr., the
Chairman, President, and CEO of American Electric Power. Dr.
Draper, you and I go way back a long time, when you were I
think a professor in the 1970's.
Mr. Draper. That's correct in the Gulf States.
Chairman Tauzin. And I believe I called upon you to come as
a consultant to the Natural Resource Committee hearings in
Louisiana way back then.
Mr. Draper. That's absolutely right. You have a good
memory.
Chairman Tauzin. We meet each other in a new life. And I
thank you for coming and appreciate your testimony, sir.
STATEMENT OF E. LINN DRAPER, JR.
Mr. Draper. Thank you, Chairman Tauzin, members of the
committee. I appreciate the opportunity to appear before the
committee and provide AEP's perspective on the August 14
outage. I am Chairman, President, and Chief Executive Officer
of American Electric Power. We are based in Columbus, Ohio.
AEP is the largest generator and transmission owner in the
United States. We have about 5 million customers linked to an
11-State grid. With over $5 billion invested in our
transmission grid, ours is a unique perspective.
From the outset, let me be clear. Our system worked as
designed. The AEP system held together, a point in which we
take great pride. Our automated systems performed as they were
designed to perform and our employees communicated as they
should have. Our load and generation remained in balance.
From an operational standpoint, August 14 was a fairly
typical August day until we detected a transmission line
problem at an interconnection with our neighbor FirstEnergy.
AEP contacted FirstEnergy to discuss the problems. And we
remained in extensive communication throughout with our
reliability coordinator, PJM, and with FirstEnergy.
As the power flows exceeded safe operating levels, our
equipment in northern Ohio automatically tripped to isolate the
problem. The protection devices isolated our system and
prevented damage to equipment. They also stopped the cascade
and prevented situations that could have threatened public
safety.
AEP's system was not the only one to respond this way.
Consumers Power had the same scenario. I don't know why
everyone's system didn't, and I won't speculate on the root
cause.
I take great exception to the characterization that the
United States transmission system is a Third World grid. It's
the strongest in the world, although it is being pushed to its
limits on a continuing basis.
The grid was designed to get a local utilities generation
to its own customers, not to transport massive wholesale
transactions across the country. Clearly there is a need to
strengthen the grid through greater investments, to support it
for the manner in which it is used today.
Several factors will hasten grid improvement. Foremost, we
must have regulatory certainty. Today a company's proposing a
new transmission line must go through multiple State and
Federal hurdles.
We proposed a 765 kV line in West Virginia and Virginia in
1990. After spending more than $50 million on the approval
process, we were cleared to build the line this year, 13 years
later.
We respect the interests of all jurisdictions, but we'll
never get where we need to be if it takes this long to get
permission to build one line.
Second, we must improve coordination and communication
among the various entities that oversee the grid. We don't have
one single grid owner or operator in this country, nor would it
be physically feasible or even wise to do so. We will always
have seams. And given those seams, we need to make sure they
are in no way obstructive.
We need continuing coordination among the various grid
operators to ensure planning and operations and quick response
in emergency situations. We must not let the endless
controversies over RTOs get in the way of reliability.
AEP has committed $50 million toward RTO development,
chasing the changing Federal policy direction. The key points
in the RTO debate, as we see it, our policy should balance both
generation and transmission. Transmission owners must receive
sufficient revenues to assure adequate investment. Parties that
benefit from the competitive markets should bear the costs,
including those that use the transmission system.
Some have suggested splitting the AEP system to appease
opposing political interests in the RTO debate. We think that
is unacceptable and counterproductive. We have the strongest
transmission system in the United States, and we don't think it
should be split.
AEP's system has been touted as being the backbone of the
Eastern Interconnect. Splitting apart a highly integrated
system the size of AEP's amidst efforts to increase the
Nation's electric reliability flies in the face of reason.
We need consensus on an appropriate use of the grid. The
balance between reliability and commerce must be tipped toward
reliability.
Additionally, we must approve NERC as the enforcement
entity for mandatory reliability standards, not voluntary ones.
Our grid is interconnected. We must all play by the same rules,
and we must have knowledge of an independent entity, such as
NERC, empowered to enforce such standards.
Thanks for the opportunity to address the committee. I
pledge that AEP will continue to work with DOE, NERC, and all
entities embarking on the investigations of the events of
August 14 and look forward to a complete analysis of that day.
And at the appropriate time, I would be delighted to respond to
questions, Mr. Chairman.
[The prepared statement of E. Linn Draper, Jr. follows:]
Prepared Statement of E. Linn Draper, Jr., Chairman, President and
Chief Executive Officer, American Electric Power
Mr. Chairman, members of the Committee, thank you for the
opportunity to appear before this committee and provide AEP's
perspective on the August 14th outage. My name is E. Linn Draper, Jr. I
am Chairman, President and Chief Executive Officer of American Electric
Power, the largest electricity generator and transmission owner in the
U.S, with 38,000 MW of generation capacity and 39,000 miles of
transmission line. Almost 5 million customers are linked to AEP's 11-
state electricity transmission and distribution grid. The company is
based in Columbus, Ohio. With $5 billion invested in our transmission
grid, ours is a unique perspective.
From the outset, let me be clear, we did it right. The AEP system
held together--a point of pride for us. Our protective systems
performed automatically as they were designed to perform, our operators
performed and communicated as they should and our load and generation
remained in balance throughout the day. Our grid is large, robust and
integrated, and can therefore withstand the power swings we experienced
that day. Michehl Gent, NERC President and CEO, on Aug. 15 said AEP's
765-kV transmission system is ``often heralded as the world's finest
transmission system.''
From an operational standpoint, the 14th was a fairly typical
August day until our operators first detected transmission line
problems at an interconnection point with FirstEnergy, and AEP
contacted FirstEnergy's operators. Throughout this event, we maintained
extensive communications with our reliability coordinator, PJM, and
with FirstEnergy.
Power flows before the event, especially into Michigan and northern
Ohio, were high but not unusual, given typical summer loads. It's
important to note that Michigan is often a significant importer of
power. Power flows on our lines continued to increase because of
increased demand outside our system. We still do not know the cause of
that increased demand.
As the flows of power exceeded safe operating levels across our
lines, our equipment in northern Ohio operated automatically to isolate
the problem. This is exactly the way the equipment is designed. To
quote the DOE's National Transmission Grid Study, released in May of
last year, ``electricity flows according to the laws of physics and not
in response to human controls, what happens in one part of the grid can
affect users throughout the grid.''
The opening of the lines isolated our system and prevented damage
to the equipment. More importantly, it avoided cascading outages across
the AEP System and probably far beyond, given the central role of AEP's
transmission grid in the Eastern Interconnection. AEP's system was not
the only one to respond this way--the transmission system serving
Consumers Power's load, among others, also isolated from the problem
during the event, and their system held. I don't know why all systems
didn't perform in a similar manner.
Automatic tripping of lines is not simply a matter of protecting
our equipment. There are serious reliability and safety implications if
the automated protection mechanisms do not activate.
First, if the equipment is damaged, it can be out of service for an
extended time--further burdening other lines that are, as we all know,
already stressed. In short, the system holds for as long as it can, but
at some point equipment must trip off to prevent further cascading
outages. In this instance, tripping off stopped the cascade to the
south, enabling AEP's personnel to assist others in their restoration
efforts, because we were not busy with restorations of our own.
Tripping off also has safety implications. If current runs as high
as it was during the event, it could actually cause the lines to
literally melt or to sag beyond design criteria, which can result in
safety hazards to the public.
I can't speculate on the root causes for this event, so I can't
tell you that it wouldn't have occurred a year ago, or that it will
never occur in the future. The interconnected nature of our grid, and
the fact that we're now using it in ways that it was not originally
intended or designed, mean that these kinds of events can occur in the
future, although lessons learned can prevent a reoccurrence of the same
magnitude.
I take great exception to the characterization of the U.S.
transmission system as ``third world grid,'' as some have said. The
American transmission grid is the strongest in the world, although it
is being pushed to its limits on a continuing basis.
The electrical grid in this country was designed in large part to
get a local utility's generation to its customers--not to carry
thousands of cross-country and regional transactions, as the grid is
now called to do. In the five-year period during which wholesale
electric competition first gained momentum, the number of wholesale
transactions in the U.S. went from 25,000 to 2 million--an 80-fold
increase. And many stakeholders are striving for continued growth.
Needless to say, transmission infrastructure expansion--which is an
expensive and time-consuming prospect at best--did not increase 80-fold
in that time frame. In fact, very little expansion has taken place.
Clearly, there is a need to strengthen the grid through greater
investments--new equipment, new lines and new technologies--to support
the grid for the manner in which it is used today.
Several factors will hasten grid improvement:
First and foremost, we need regulatory certainty. If we need to
build new transmission facilities today, we must navigate through
multiple state and federal regulators to get that done. Processes vary
in every state. For permits and siting, for instance, we must get
approvals from multiple state regulators, and probably multiple federal
regulators as well. We proposed a 765-kV line in West Virginia and
Virginia in 1990. After an expenditure of over $50 million, we received
final clearance to build the line this year. While we respect the
interests of all jurisdictions in siting decisions, we'll never get
where we need to be if it takes 13 years to get permission to build a
power line.
And for every dollar we spend--and the National Transmission Grid
Study quoted a price of $1.8 million per mile for a new 765-kV line--we
must go back to those multiple state and federal regulators to receive
full recovery. In this context, it is difficult to understand recent
actions by the FERC to eliminate transmission revenues from third party
or wholesale customers. If what FERC is proposing comes to pass, power
can move from St. Louis to New Jersey for the same fee as moving power
from Pennsylvania to New Jersey. Such scenarios not only jeopardize
existing investments, they create a disincentive for future investments
since full and fair cost recovery is even more difficult.
Second, and also critically important, we must improve coordination
and communication among the various entities that oversee the grid. The
reality is that we don't have one single transmission grid owner and
operator throughout the country, nor would it be feasible or wise to do
so. It's a given that there will always be seams--or boundaries--
between various grid operators.
What's required is continuous improvements in the coordination
among the various grid operators to ensure coordinated planning and
operations, and quick response in emergency situations. On Aug. 14, our
operators did coordinate and communicate with other operators, which
helped to prevent this from spreading even further across the country--
but we can all strive to improve. Those who are using this event to
promote their desire for a single RTO administering a spot market are
not only missing the boat, but misleading you and others into thinking
that simply installing such an RTO would answer the reliability issues
that have been raised by this event.
Next, I fear that the current controversy and seemingly endless
debate over the role of RTOs is hindering our ability to make progress
and create an environment that is conducive to investment. While AEP
has committed $50 million to RTO development, many states now are
opposing an expansive role of RTOs, including a number of AEP's 11
states, while others fully support a broad role for RTOs and more
federal control over the grid and the wholesale market.
While debate about RTOs rages on, let's not forget some key points:
AEP is at the center of the current debate largely because of the
quality and the scope of our system, which is at the crossroads
of many markets--that's one big reason we're coveted by market
stakeholders in their attempts to expand.
Policies should balance both generation and transmission.
Transmission owners must receive sufficient revenues to assure
adequate investment.
Parties that benefit from competitive markets should bear the costs.
Those that use the transmission system to receive those
benefits should pay for it.
While some have even suggested splitting up the AEP system, that's
unacceptable and counter-productive. AEP's system has been
touted as the backbone of the Eastern Interconnect. Splitting
it apart amidst efforts to increase the nation's electric
reliability flies in the face of reason.
We need consensus on an appropriate use of the grid. If we focus
solely on competitive markets and economics, serious implications for
reliability and security arise. We need a balance, but that balance
must be tipped toward reliability--the fundamental foundation of the
transmission grid. Without reliability, we have no market to structure.
The benefits of competitive markets should not only flow to
generation owners or electricity users, as seems to be the present
policy, but also to the transmission owners who need to receive a
sufficient share of benefits to assure investment in the transmission
infrastructure necessary to support competitive markets.
Additionally, we must approve NERC as the enforcement entity for
mandatory reliability standards. Our grid is interconnected. We must
all play by the same rules, and we must have a knowledgeable
independent entity--such as NERC--empowered to enforce such standards.
Thank you again for the opportunity to address this committee. We
will continue to work with DOE, NERC and all entities embarking on
investigations of the events of August 14th and look forward to a
complete analysis and answer to what happened that day.
I encourage you to wait until the NERC/DOE investigation is
complete to draw conclusions. Thank you again and I will be happy to
respond to any questions from the Committee.
Chairman Tauzin. Thank you very much, Mr. Draper. Doctor,
we deeply appreciate your testimony.
We are going on now to Mr. Joseph Welch, the CEO,
International Transmission Company of Ann Arbor, Michigan.
STATEMENT OF JOSEPH L. WELCH
Mr. Welch. Mr Chairman and members of the committee, thank
you for this opportunity to appear before the committee to
present my company's views on the electrical blackout that
began on August 14, 2003.
My name is Joe Welch, and I am President and Chief
Executive Officer of International Transmission Company,
headquartered in Ann Arbor, Michigan.
Regardless of the cause of this occurrence, all of us in
the electric power industry need to commit to take whatever
action is necessary to prevent such a widespread event from
happening again.
We designed this vast interconnected grid to increase the
reliability of service to our customers. And on August 14, that
system failed us. While we await the outcome of the
investigation into the cause of the blackout, I believe it is
not too soon to begin thinking about steps we can begin taking
to prevent its reoccurrence.
Much of the problems associated with this blackout have
been discussed and debated over years. The ITC staff is
cooperating fully with the investigative teams. And we have
shared much of this data in my written testimony.
This morning I would like to focus on next steps. The
letter inviting my testimony correctly notes that all
indications are that the electric power supplies in the region
affected by the blackout have generally been more than adequate
to meet the peak summer demands.
This blackout did not arise from a lack of electric
generation supply. Rather, this blackout was rooted in a
disconnect between the use of and the capability of the
transmission system to deliver that supply. This disconnect, in
turn, is rooted in institutional failures to properly regulate
and monitor transmission usage such that the transmission
system stays within its physical limitations.
Ultimately, more transmission infrastructure will be
required to accommodate increased usage of the transmission
system, but until it can be provided, the proper and safe use
of the transmission grid must be enforced.
Ultimately, the safe and reliable operation of the grid can
be restored by ensuring that the standards and procedures
required to do so are developed and enforced, independent of
market participants.
Where the market desires transactions which the current
grid cannot safely accommodate, new infrastructure investments
must be made, rather than relying on complicated operational
protocols. Some required infrastructure improvements will span
multiple traditional utility footprints.
Regulatory and rate changes will be required to get those
facility investments made. Some of these investments will
require significant time to obtain rights-of-way and address
environmental issues.
Let me identify some next steps I would hope this Congress
would consider. First, mandatory reliability standards
developed and enforced by non-market participants and funded
independently of market participants is absolutely critical.
Second, mandatory RTO participation is essential. And these
RTOs must be tasked with the elimination of unscheduled loop
flow. No seams which overlap natural markets can be tolerated.
Reliability plans, such as the proposed MISO-PJM plan,
which embeds loop flows on transmission systems, such as
Michigan companies, will virtually assure additional blackouts.
The August 14, 2003 blackout highlights the fact that loop
flows have undesirable reliability consequences. These
standards and protocols, coupled with investments in
transmission infrastructure, must address the severity of loop
flow to avoid events like this from happening again.
Third, transmission pricing must reflect the actual flows
on the system. FERC has provided sufficient ROE incentives, but
without a pricing system that aligns cost recovery with real
usage of the system, we will have a disconnect between
incentives and the ability to recover costs.
Finally, in addition to reliability standards, RTO
participation and transmission pricing, the communication
mishmash underlying the August 14 blackout must be unwound. As
has been discussed throughout this hearing, there is a
confusing array of entities with responsibility for different
parts of the transmission grid.
Governor Graham, Home, and others have talked about the
lack of accountability in transmission operations.
Accountability extends beyond any single identity or owner.
The interconnected grid crosses State and National
boundaries. And we need to develop structures that can control
this interconnected grid and ensure single point accountability
I commit my company to work with you on implementing these
suggestions and others that will prevent a reoccurrence of
severe problems, such as those we experienced on August 14.
We have shared data with you on the committee and with
others investigating this. We encourage others to share as
well. While respecting sensitive commercial information, we
hope that all investigations are conducted in the open so that
we can avoid the appearances of manipulation to preserve market
positions.
Thank you very much. And I'm pleased to answer questions
that you may have.
[The prepared statement of Joseph L. Welch follows:]
Prepared Statement of Joseph L. Welch, President and Chief Executive
Officer, International Transmission Company
introduction
My name is Joseph L. Welch. I am President and Chief Executive
Officer of International Transmission Company.
ITC is a truly independent stand alone transmission company with no
ties to any market participant or company that brokers electricity,
owns electric generating facilities, or has an obligation to serve end-
use customers. Our sole mission is to provide the transmission
infrastructure necessary to reliably support the electric market in a
fashion that minimizes the total delivered cost of electricity to
customers.
ITC, jointly with the Michigan Electric Transmission Company (METC)
(which is another independent transmission company), operates the
Michigan Electrical Coordinated Systems (MECS) Control Area in Ann
Arbor . This Control Area is responsible for ensuring that generation
and load within the Michigan peninsula remains in balance and reports
when it is not.
ITC is also a member of the Midwest Independent Transmission System
Operator (MISO) Regional Transmission Organization (RTO). MISO is the
Transmission Provider for the Michigan transmission systems, and is the
Security Coordinator responsible for the safe operation of the
transmission grid. As Transmission Provider, MISO also schedules the
use of the Michigan transmission grid (within its physical limitations)
and bills the transmission customers for their use of the transmission
grid.
ITC became the sole owner of the transmission lines formerly owned
by DTE Energy in southeast Michigan on February 28, 2003. DTE Energy's
distribution utility subsidiary, Detroit Edison, physically operates,
repairs, and maintains all of the ITC transmission assets under
contract for a period of one year which began on February 28. On
February 28, 2004, ITC will be solely responsible for such physical
operation and maintenance in accordance with the February 20, 2003
Federal Energy Regulatory Commission (FERC) Order in Docket Nos. EC03-
40-000 and ER03-343-000 which approved the sale of ITC.
On August 14, 2003, with absolutely no warning, the ITC
transmission grid experienced severe electric flows (which were a
result of energy demands of electric customers other than those
residing in Michigan) which collapsed our grid and the grids of our
interconnected neighbors, ultimately blacking out over 50,000,000
customers. This event is akin to a ``tsunami'' hitting an unsuspecting
costal community. These severe electric flows described above are known
in the electric industry as loop flow which is electric energy flow
that travels over a transmission system without that flow being
scheduled on the transmission system. It can be the results of another
transmission provider scheduling and selling more capacity than its own
transmission system(s) will accommodate without regard for its impacts
on other interconnected transmission systems. Such loop flows also
occur when an entity fails to curtail its transactions (imports and/or
exports of power) when the transmission needed to support those
transactions is no longer available.
The letter inviting my testimony correctly notes that ``all
indications are that the electric power supplies in regions affected by
the blackouts have generally been more than adequate to meet peak
summer demands.'' As I will discuss in my testimony, this blackout did
not arise from a lack of electric generation supply. Rather, this
blackout was rooted in a disconnect between the use of and the
capability of the transmission system to deliver that supply. This
disconnect in turn is rooted in institutional failures to properly
regulate and monitor such transmission usage such that the transmission
system stays within its physical limitations. Ultimately, more
transmission infrastructure will be required to accommodate increased
usage of the transmission system, but, until it can be provided, the
proper and safe use of the transmission grid must be enforced.
1. What exactly were the specific factors and series of events leading
up and contributing to the blackouts of August 14th?
See Attachment 1.
2. At what time did your company first become aware that the system was
experiencing unscheduled, unplanned or uncontrollable power
flows or other abnormal conditions and what steps did you take
to address the problem? Were there any indications of system
instability prior to that time?
August 14, 2003 began as a typical summer day in Michigan. The only
notable generation event was that Detroit Edison's Greenwood #1 unit
shut down in a controlled fashion at 1:14 pm EST and returned to
service at 1:57 pm EST later that day Electric system metrics :such as
system voltages and frequency, as seen from Michigan, were completely
with normal limits. Attachment 1, slides 19 through 21, are plots of
voltage beginning at 7 am, and Attachment 1, slide 15, is a plot of
system frequency for the same time period. Likewise, tie line flows
across Michigan's three interfaces with the Eastern Interconnection
(METC lines connecting to American Electric Power (AEP), ITC lines
connecting to FirstEnergy (FE), and ITC lines connecting to Ontario)
were all within normal parameters (Attachment 2) throughout the day, up
until the blackout event (Incident).
The MECS Control Center has a disturbance monitoring system which
collects large amounts of data related to the operation of the
transmission system. When the Incident occurred, this system was
triggered and began collecting very comprehensive data throughout the
Incident in very small time increments, tracking power flows, voltages,
frequency, and generator outputs and status. This data enabled ITC to
determine:
a. A very large demand (2200 MW plus voltage support demand) was
suddenly thrown on the ITC's three 345 kV interconnections to
FirstEnergy.
b. This sudden demand forced power flows to drastically increase across
the entire state of Michigan and to a lesser extent, via the
ITC-Ontario 230 kV interconnections. This in turn caused
depressed voltages on the ITC transmission system (leading to
the total voltage collapse).
c. These extreme power flows caused the four METC 345 kV lines
connecting the METC transmission system to ITC's transmission
system to disconnect resulting in the disconnecting of the
remaining lower voltage connections between METC and ITC as
well. This occurred in a matter of seconds.
With METC and ITC disconnected, there was no other supply route
for the sudden demand on the (FE) ties except for Ontario. The
power demanded by FE subsequently caused the existing flow
across Michigan to reverse and flow around First Energy and
then through systems such as AEP, Pennsylvania--New Jersey--
Maryland (PJM), New York, then into Ontario, Canada via the
Ontario-New York ties.
d. The voltage collapse within Michigan in conjunction with the power
swing through Canada was accompanied by the sudden loss of
generators connected to ITC's grid.
All of these events and consequences were viewed from within
Michigan and I can attest to the data that documents the event which we
witnessed.
Subsequent reports from various entities including AEP, the MISO
RTO, the PJM RTO, and the North American Electric Reliability Council
(NERC) indicate that areas in northern Ohio were experiencing serious
internal problems for some time prior to the event (approximately two
hours before the Incident). AEP and PJM reported they were also
experiencing problematic high electricity demand on their connections
to FE. While FE is connected to the three different transmission
systems of ITC, AEP, and PJM, system flows and voltages within ITC and
the rest of Michigan were well within nominal limits all day,
notwithstanding the problems to the south.
When the AEP and PJM systems disconnected from FE without warning
to Michigan, the electricity demand that appeared to have been
overloading the AEP-FE connections was thrown onto Michigan. Michigan
is a peninsula and the Michigan transmission system was never designed
to support northern Ohio on its own, and the results were devastating.
The Michigan system collapsed under the strain, followed by the
Ontario system shortly thereafter. PJM reported it had disconnected
itself from the trouble areas to its west and north, which would make
New York and New England a peninsula, isolating them from the Eastern
Interconnection. When isolated in this fashion, portions of New York
and New England were unable to avoid collapsing when the Ontario system
disconnected.
3. What systems operated as designed and which systems failed?
Physical systems within ITC operated substantially as designed. I
cannot speak to the systems belonging to other entities.
The protective relays on transmission lines are designed to
disconnect lines for ``faults'' (for example, a wire touching the
ground). Great care is taken to set them so that they do not
inadvertently disconnect when there is no such fault (known as
``overtripping''). They are also set to reclose automatically,
following a safety check, to ensure that the overall grid remains
reliable. However, these relays will disconnect lines when voltage
collapses, as occurred within Michigan, because voltage collapse
presents conditions which are similar to a fault. Transmission line
protective relays within ITC appear to have operated properly in
response to the conditions presented.
The earlier NY blackouts of the mid-sixties resulted in the
installation of technical safety devices (``underfrequency relaying'')
throughout the transmission grid. which undoubtedly have protected the
security of the grid in many cases in the past. Unfortunately, in this
instance, such equipment was designed to address an imbalance in load
and generation (a frequency event), not overuse of the system resulting
in voltage collapse as we saw within Michigan, and had little value in
mitigating the August 14 event.
Black start procedures were generally effective in restoring
operation of the grid after this blackout. Protective relays on
generators largely disconnected generators before they were seriously
damaged. I cannot speak for systems outside of Michigan but ITC
transmission lines were undamaged and ready for restoration when the
generation needed to supply the load was brought back on line.
The systems which did fail were the ones underlying communication.
(The communication failures were themselves a predictable outcome of
new institutions even now being promulgated by a few parties,
notwithstanding substantial objections.)
Had Michigan been warned of the problems, a number of actions which
would have forestalled the blackout were available.
Michigan, in concert with AEP and PJM, could simply have opened its
ties to FE as well. The FE system may have survived with some load
loss, but more importantly, no cascading would have occurred as the
problem would have been localized to the FE system.
A better option, given advance warning, would have been for
Michigan to prepare for the oncoming tsunami by interrupting air
conditioner load in Detroit Edison, by interrupting the large
voluntarily interruptible industrial load in Detroit Edison's area,
starting Michigan peakers and other available generation), all
basically reducing the initial loadings on the Michigan grid and
bolstering the voltage support. The Michigan system would not have
collapsed, and the cascading blackout would not have occurred. The
worse case would have been the collapse of the FE system but FE's
problems would have been localized.
The best option of all, given an appropriate advanced request,
would have been for Michigan to take the same steps outlined above;
these steps could have strengthened FE sufficiently that FE may have
survived; it would not have been necessary for AEP and PJM to
disconnect their systems to save themselves. However, no such call was
made or warning given. I have confirmed that by having my staff listen
to control room operator tapes. I hope that the DOE task force will
review all control room tapes for all the systems that were involved in
any way.
Phone calls are not the only means of communication. Within MECS at
least, there are three electronic systems through which Control Area
Operators and Security Coordinators communicate system status, convey
warnings, etc. I asked my staff and MECS operators to determine what
information was conveyed via that route. They informed me that there
were no records or reports of the line outages which were so critical
to this event. Without such information, there is no way for Control
Area Operators or Security Coordinators to take actions necessary to
mitigate problems, especially those events in other systems which could
affect our system. I would expect that DOE will review this matter and
determine why information was not communicated via those systems.
The fact that no such calls or communications were undertaken or
warnings extended or even properly reporting of the (subsequently
reported) line failures in FE and AEP and PJM illustrates the number
one cause of the blackout in my opinion.
4. If events similar to those that occurred on August 14, 2003 had
happened a year ago, would the results have been the same?
Yes. The infrastructure components underlying this event were the
same a year ago.
5. If similar events occur a year from now, do you anticipate having in
place equipment and processes sufficient to prevent a
reoccurrence of the August 14 blackout?
ITC will proceed immediately to implement a plan that will protect
ITC and its users, and Michigan as well, from further blackouts. It is
unlikely that the physical infrastructure will be implementable within
a single year, but we will proceed as soon as possible. The external
processes necessary to avoid a reoccurrence will have to be undertaken
at the national level; at the moment, a number of entities are
attempting to institutionalize the underlying structure which sets up
conditions which led to the blackout.
6. What lessons were learned as a result of the blackouts?
On August 14, it was apparent that parties were choosing to operate
the grid within their sphere of influence for their own purposes
without regard to rules, procedures, or the impact of their actions on
other users of the grid. Further, the convoluted RTO configurations
which major entities have contrived to create virtually guarantees that
communication, when it occurs, will be a matter of luck. As MISO Market
Monitor Dr. David Patton warned in a March 2003 MISO market monitor
presentation to FERC, ``The electrical configuration between the PJM
and the MISO also raises substantial gaming concerns.''
Entities will have the means to game the system to their own ends
to the disadvantage of all other users.
The regional RTOs have proposed to ``paper over'' this ``seam''
which is the focal point of the blackout with even more convoluted
operational procedures and protocols, when there is insufficient
evidence that even the current more elemental protocols have been
followed.
The result of the 1965 and 1977 blackouts in the Northeast resulted
in many fine reliability standards of operation and planning that were
followed with very good results until relatively recently. Loop flows
such as those onerously imposed on Michigan allow over scheduling of
the grid on fictitious contract paths without regard to the
consequences. Operational practices such as ``parking'' and ``hubbing''
of transactions (scheduling of transactions using intermediary third
parties rather than transacting directly between buyer and seller),
cause actual use of the grid to be cloaked. This is because the park/
hub transaction, with its fictional flow of electricity, can fall
beneath the screen whereas the original transaction would have been
visible. Entities responsible for ensuring proper use of the grid
ignore threats to reliable operation in response to pressure from
market participants wishing unfettered use, regardless of actual
infrastructure capability--to substitute operational procedures for
infrastructure--to ignore the rules when it is advantageous.
7. How can similar incidents in the future be prevented?
Mandatory reliability standards, developed and enforced by non-
market participants, and funded independently of market participants
are absolutely critical.
Mandatory RTO participation is essential to ensure elimination of
unscheduled loop flow. No seams between RTOs can be allowed, and no
seams which overlay natural markets can be tolerated. Reliability plans
such as the proposed MISO-PJM plan which embeds loop flows on the
transmission systems of Michigan companies will virtually assure
additional blackouts.
The communications mishmash underlying the August 14 blackout must
be unwound. MISO is Michigan's and FE's Security Coordinator, and PJM
is AEP's Security Coordinator. Michigan companies are members of MISO
but FE is not. (The Security Coordinator is the entity which oversees
the reliability of the grid within his footprint, acts to ensure that
action is taken to maintain safe and reliability operation, and
communicates to other Security Coordinators within other regions to
ensure overall safe operation of the grid). AEP is not a member of any
RTO but the Southwest Power Pool (SPP) is AEP's transaction scheduler.
PJM does not report its internal flows and circuits to the systems
which allow tracking and unwinding of transactions when necessary to
resolve overload problems; MISO does, but only within its footprint.
Unfortunately, Commonwealth Edison (an Exelon operating company)
(ComEd), for example, is embedded within the MISO grid, so that ComEd
transactions across the AEP grid into its affiliate in PJM are not
subject to MISO oversight. As part of PJM, ComEd flows are no longer
visible to the entities outside PJM. While these flows contribute
significantly to the loop flows through Michigan, they are no longer
curtailable through the current TLR (NERC's Transmission Line Loading
Relief) process.
When these RTO configuration issues were first raised at the July
17, 2002 FERC meeting, NERC's Mr. Gent, in discussing the concerns
raised, stated ``is this the configuration as you would have designed
it? Probably not. Is it the configuration that I would have designed?
Probably not. But it is the configuration that the participants have
chosen, . . . Therefore, our recommendation to you is that you
condition your approval of any configuration on the participants
successfully convincing the industry, through our NERC Operating
Committee, that reliability is not impaired.'' However, notwithstanding
the forceful, unanimous, and continuous objections of the Michigan
companies, the NERC Operating Committee and NERC regional council,
ECAR, have approved, and continue to approve the proposed reliability
plan. In fact, ECAR voted to approve the plan on August 15, 2003, while
major areas of Michigan were still blacked out, when none of the
Michigan companies were present.
Ultimately, the safe and reliable operation of the grid can be
restored by ensuring that the standards and procedures required to do
so are developed and enforced, independent of market participants.
Where the market desires transactions which the current grid cannot
safely accommodate, new infrastructure investment must be made, rather
than rely on luck and prayer. Some required infrastructure improvements
will span multiple traditional utility footprints. Regulatory and rate
changes will be required to get those facility investments made. Some
of these investments will require significant time to obtain rights of
way and address environmental issues. The institutional and regulatory
changes I have described must come now so that the existing
infrastructure can be optimized within its capabilities without
repeating August 14.
My findings are based on the data that we collected within Michigan
which I will make publicly available. I urge that others do the same.
At ITC, we chose to work in the open because our job is to serve the
market to the benefit of all electric users.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Tauzin. Thank you very much. I hope you notice the
cameras are going in this room. Everything we do is in the
open.
Before I introduce the next witness, I want to announce
that I will be putting Joe Barton, the chairman of the Energy
Subcommittee, in the Chair temporarily. I have been summoned by
the speaker, I believe, to have a meeting on the appointment of
conferees on the energy bill. So I need to get over to his
office just now.
I wanted to introduce our next witness before that, Joe,
because I wanted to especially honor and respect her service to
this country. Betsy Moler is a very familiar face to all of us
who have served in government for as long as I have.
She obviously served this country in an enormous capacity
as counsel to the Senate Energy Committee for my colleague and
friend, J. Bennett Johnson, who was a senior senator from
Louisiana, who served as junior senator then with Russell Long,
who served as chairman of the Energy Committee on the Senate
side and did enormous work in the energy bills that flowed from
those years of his chairmanship.
She then went on to chair the Federal Energy Regulatory
Commission, which I know is fond memories for you, Betsy, doing
that work----
Ms. Moler. Absolutely.
Chairman Tauzin. [continuing] and then, finally, to serve
our country as deputy secretary of the Department of Energy
itself. So she brings enormous experience to the table when she
now comes as an executive vice president for government and
environmental affairs and public policy for the Exelon
Corporation.
I should point out that there are few women in this
industry who have risen to the rank that Betsy Moler has risen
to. And I think with the exception of Hazel O'Leary, she is
probably one of the pioneers of women in the electric industry.
And I wanted to say all of this, Betsy, to again honor and
respect all of the work you have done and the pioneering work
you have done in this industry and to particularly honor you
for your service to our country. Will you please all join me in
welcoming Betsy Moler, the Executive VP of Environmental
Affairs and Government Policy for the Exelon Corporation.
Betsy?
STATEMENT OF ELIZABETH A. MOLER
Ms. Moler. Thank you, Mr. Chairman, for that very warm
welcome.
I will not reintroduce myself, but let me talk a little bit
about Exelon. While Exelon is not a household word, our two
subsidiaries, PECO Energy of Philadelphia and Commonwealth
Edison of Chicago, serve the largest electricity customer base
in the United States with over 5 million customers, 12 million
people. We also have one of the industry's largest generation
portfolios, with 40,000 megawatts of capacity, either owned or
under contract.
PECO was one of the founders of PJM. The PECO transmission
system is in PJM. And we expect the ComEd transmission system
will join PJM later this year or early next year.
I would also say that it is my privilege to serve as a
member of the Secretary of Energy's Advisory Committee on
Electricity and chair its Transmission Subcommittee.
During last month's blackout, ComEd and PECO were far
enough away from the origin of the problem and fortunate enough
to escape the blackout. We were not as lucky in 1999, when
ComEd had its own problems. Since then, we have spent more than
$2 billion upgrading our system.
There are three primary actions that I believe Congress
must take to improve the reliability of the Nation's electric
grid: first, authorize the establishment and enforcement of
mandatory reliability standards; second, provide incentives for
and remove barriers to construction of transmission capacity,
both by addressing barriers to siting and by clearing the way
for increased investment in the transmission system; and,
third, to facilitate the development of regional transmission
organizations to oversee competitive wholesale markets.
As you heard yesterday, there is near universal agreement
that mandatory reliability standards are needed to improve the
reliability of the Nation's electric grid. This panel concurs
with that. And I will not belabor the point.
However, as an aside, I vividly remember in 1996, following
the August blackouts in the West, that Hazel O'Leary called a
meeting in Chicago to talk about mandatory reliability rules.
We're still talking.
This committee should be applauded for its consistent
support of those rules. And we certainly hope that the soon-to-
be-convened conference will adopt that.
But reliability standards alone are not enough. Expansion
of the Nation's transmission infrastructure is critical. We
have talked a lot about the interstate highway being the
electric transmission system. It's got too many cars on it. And
we need to expand the grid. It's that simple.
H.R. 6 does contain a number of provisions to address the
need for additional transmission facilities, including
accelerated depreciation for transmission facilities and tax
provisions to remove barriers to selling transmission to
independent entities.
Critically, H.R. 6 also addresses the siting issues. And we
are pleased to support all of those provisions. The energy
legislation passed by the Senate in August is not nearly as
comprehensive. And we hope that the conferees will adopt the
House-passed provisions.
Since the blackout, we have heard a lot about----
Mr. Barton. I didn't hear that. Would you repeat that,
please?
Ms. Moler. How many times? Yes, sir.
Since the blackout, we have heard a lot about the need for
mandatory reliability standards and additional transmission
facilities. However, largely ignored have been the important
rules that RTOs and wholesale market rules can play in assuring
a reliable grid.
Some have urged Congress to quickly pass reliability
legislation, reliability legislation alone, and to forego
efforts to address the broader range of electricity policy
issues. We think that is a bad idea.
Lack of rules and reliability are, in fact, inextricably
linked. Let me emphasize and reemphasize we will not have a
reliable system unless we get the wholesale market rules right.
Some have blamed RTOs for contributing to last month's
blackout. I believe that we need to strengthen RTOs and have a
much more seamless approach from RTO to RTO. The folks in New
England have to coordinate closely with New York. New York has
to coordinate closely with PJM, PJM with MISO, et cetera.
In addition, a properly designed energy market, such as
that operated by PJM, enhances reliability. Arcane, need I say
geeky issues, like congestion management and generation
redispatch, really matter and affect reliability. My prepared
testimony addresses this in some detail.
But I cannot overemphasize this point. Regional
transmission organizations with well-functioning wholesale
markets are essential for assuring the long-term reliability of
our Nation's electric grid. We should not make it impossible
for FERC to do its job by taking away its authority to do both.
Thank you.
[The prepared statement of Elizabeth A. Moler follows:]
Prepared Statement of Elizabeth A. Moler, Executive Vice President,
Government and Environmental Affairs and Public Policy, Exelon
Corporation
Mr. Chairman and Members of the Committee: Thank you for the
opportunity to testify today on the recent blackout and its
implications for our national energy policy. I am Elizabeth A. (Betsy)
Moler, Executive Vice President, Government and Environmental Affairs
and Public Policy for Exelon Corporation. Exelon is one of the nation's
largest electric utilities and is a registered utility holding company.
Our two utilities, Commonwealth Edison (ComEd) of Chicago, and PECO
Energy of Philadelphia, serve the largest electric customer base in the
U.S. with over 5 million customers, a combined service territory of
over 14,000 square miles, and a population of nearly 12 million people.
Exelon owns and operates transmission lines in Illinois, Indiana
and Pennsylvania. Our transmission facilities in Pennsylvania are part
of the PJM Regional Transmission Organization (PJM), which provides
operation, planning and reliability coordinator services. In Illinois
and Indiana, ComEd provides these services working closely with
neighboring transmission operators to comply with reliability rules and
to manage daily operation the grid. Since February, PJM has also been
the reliability coordinator for our Chicago area transmission system.
We plan to fully incorporate the ComEd transmission system into the PJM
system later this year.
Exelon also has one of the industry's largest generation
portfolios--more than 40,000 megawatts of owned or controlled capacity
resources--with a nationwide reach. Exelon Power Team, our wholesale
power marketing division, markets the output of our generation
throughout the continental United States and Canada with a perfect
delivery record.
At Exelon, ``Keeping the Lights On'' is job number one. It is a
commitment that is engrained in our corporate vision statement and is
shared by each of our 20,000 employees. During last month's blackout,
Chicago and Philadelphia were far enough from the origin of the
problem, and Exelon's transmission system was strong enough, well
managed enough, and--above all--fortunate enough, to escape the
cascading outages of transmission lines and power plants that struck
much of the Northeast and Midwest regions of the country. Nevertheless,
there are important lessons to be learned by us from this experience.
The primary lesson learned is that the wholesale electricity grid
is highly interconnected and interdependent. Given this physical
reality, the electricity system requires carefully designed and
consistent rules of the road so any investment will bring the maximum
benefit to consumers throughout the region.
The Committee has requested that I address several issues related
to the cause of the blackout, its impact on Exelon and actions that can
be taken to avoid such events in the future. Exelon's views on these
issues are contained in our response to a separate letter from Chairman
Tauzin that I have attached to my testimony.
I would like to focus my remarks today on the primary question
facing Congress and other Federal policymakers: how to improve the
reliability of the nation's electric transmission grid to prevent a
recurrence of last month's blackout.
There are three primary actions that Congress must take to improve
the reliability of the nation's electric grid:
1. authorize the establishment and enforcement of mandatory reliability
standards;
2. provide incentives for, and remove barriers to, the expansion of the
nation's electric transmission infrastructure, both by
addressing barriers to siting new lines and by clearing the way
for increased investment in the power grid;
3. facilitate the development of regional transmission organizations to
oversee competitive wholesale power markets.
mandatory reliability standards
In the aftermath of last month's blackout, there is near universal
agreement that mandatory reliability standards are needed to improve
the reliability of the nation's electric grid. The nation's
transmission grid is really three separate systems: the Eastern
Interconnection, which was the site of last month's outage; the Western
Interconnection, which suffered a serious outage in August, 1996.; and
the Electric Reliability Council of Texas, or ERCOT, which is virtually
an electric island. While our nation's transmission system's
reliability is the envy of the world, the grid is suffering growing
pains. Compliance with the North American Electric Reliability
Council's (NERC) reliability standards is entirely voluntary. Expert
after expert has called upon Congress to give FERC authority to oversee
an enhanced NERC with authority to make compliance with its rules
mandatory for all market participants. It is time to heed those calls.
As an aside, I vividly remember attending a meeting in Chicago that
then-Secretary of Energy Hazel O'Leary called in September 1996,
following the Western blackout, where all in attendance recognized the
need for mandatory reliability rules. The mantra at that meeting was,
``We are only as strong as our weakest link.'' That was true then; it
has been demonstrated again today, but we are still waiting to see this
much-needed legislation enacted.
This Committee should be applauded for its repeated support for
legislation to address the reliability of the electric grid. The Energy
Policy Act of 2003 (H.R. 6), approved by the Energy and Commerce
Committee and passed by the full House of Representatives in April of
this year, includes provisions that would create an electric
reliability organization to develop and enforce mandatory reliability
rules. I urge the Committee to work with the Senate to assure these
provisions are included in comprehensive energy legislation that must
be enacted as quickly as possible.
expansion of transmission infrastructure
While it is essential for Congress to empower an electric
reliability organization, reliability standards alone are not enough.
Expansion of the nation's transmission infrastructure is critical to
ensuring the reliability of the electric grid. The nature of the
electric power industry has been fundamentally transformed in the
decade since Congress passed the Energy Policy Act of 1992, from a
system of largely local electric utilities that relied on the
transmission grid to engage in transactions with neighboring utilities
to a complex system of utilities and merchant power generators that
regularly buy and sell large blocks of electricity on a regional basis.
It is clear that last month's blackout was not the result of an
inadequate supply of electricity. Mr. Chairman, as you noted in your
letter soliciting testimony at today's hearing, electric power supplies
in the regions affected by the blackouts have generally been more than
adequate to meet peak summer demands, with capacity margins exceeding
20 percent or more. The policies put in place by Congress in 1992 have
been successful in spurring the construction of electric generating
capacity in many regions of the country.
Having adequate generation resources in place, however, is not
enough to keep the lights on. To provide a reliable supply of
electricity to homes and businesses, companies must be able to get
power from where it is generated to where it is needed. Unfortunately,
the nation's transmission infrastructure has not kept pace with the
changing nature of the electric power markets.
If you think of the electric transmission grid as being similar to
the nation's interstate highway system, it is easy to understand why we
need to expand our transmission infrastructure: we have a lot more
``cars'' on the ``road'' today than we did 10 years ago. While we can,
and must, build distributed generation and embrace conservation to give
people incentives to stay off the road. That alone will not do the job.
We simply must build new roads and expand the highway from two lanes to
three in parts of the country where the grid is inadequate.
H.R. 6 contains a number of provisions to address the need for
additional transmission facilities. The legislation includes provisions
to attract capital investment by directing FERC to utilize innovative
transmission pricing incentives and by repealing the Public Utility
Holding Company Act of 1935, an antiquated law that effectively
prevents many potential investors from investing in the construction of
transmission facilities. The bill also amends the Internal Revenue Code
to provide for accelerated depreciation of electric transmission assets
from 20 to 15 years and to remove barriers for companies to sell their
transmission assets to FERC-approved RTOs or independent transmission
companies.
H.R. 6 also addresses siting issues by granting FERC backstop
transmission siting authority to help site transmission lines in
``interstate congestion areas'' designated by the Department of Energy
if states have been unable to facilitate such siting and by reforming
the transmission permitting process on federal lands. Some have been
leery of embracing these vital transmission siting provisions, arguing
that states should remain supreme in the siting area. Simply put, that
will not work any more. As we saw vividly last month, blackouts do not
stop at a single state's border. We must recognize that an adequate
transmission network is a national priority that requires a national
perspective. Frequently you need to enhance transmission in State A to
serve customers in State B or even C, D or E. Authorities in State A
may be loath to act to approve a transmission enhancement to serve
State B if they see no benefit to their citizens. Indeed, they may not
have authority under state law to approve facilities that benefit
customers in another state. FERC, working with DOE, must be given the
tools to ensure that the transmission grid infrastructure is adequate
to the task or we will undoubtedly have recurring outages. We at Exelon
congratulate this Committee, and the House Ways and Means Committee,
for their support of these critical initiatives.
Energy legislation passed by the Senate in August includes some,
but not all, of these provisions. We strongly urge the conferees to
adopt the House-passed provisions.
regional transmission organizations
Since the blackout, we have heard much about the need for mandatory
reliability standards and additional transmission facilities. Largely
ignored, however, has been the important role that RTOs can play in
assuring a reliable grid.
Some have urged Congress to quickly pass electric reliability
legislation and to forgo efforts to address a broader range of
electricity issues as part of the comprehensive energy legislation.
While electric reliability and the structure of wholesale electric
markets may appear at first blush to be separate from one another,
these issues are, in fact, inextricably linked. Policy decisions
regarding reliability will ultimately affect the operation of
competitive wholesale markets; similarly, decisions about the structure
of wholesale power markets will have significant implications for the
reliability of the grid.
The Secretary of Energy's Electricity Advisory Board considered the
reliability of the power grid last year. I had the opportunity to Chair
the Board's Subcommittee on Transmission Grid Solutions, which examined
in detail many of the questions facing this Committee today. The
Subcommittee's Transmission Grid Solutions Report,<SUP>1</SUP> in
addition to identifying many of the initiatives included in H.R. 6,
highlighted the importance of Regional Transmission Organizations. The
Subcommittee unanimously concluded, ``RTOs can provide the key to the
success of a long-term, dependable, reliable and competitive wholesale
energy market.''
---------------------------------------------------------------------------
\1\ The Subcommittee's report is available at http://eab.energy.gov
---------------------------------------------------------------------------
Exelon's PECO Energy affiliate is a member of the PJM RTO, which
serves 25 million people in 8 states. Unlike some regional
organizations, PJM operates the entire system under its control and is
the control area operator, balancing load and generation on a real-time
basis. As a result, there is a single decision-maker who sees
everything that happens in the region as it happens and who can take
actions necessary to effectively manage the grid. PJM experienced only
minor outages on August 14, when neighboring systems in the Northeast
and Midwest crashed.
Some have blamed RTOs for contributing to last month's blackout,
citing the fact that the blackout appears to have begun in an area
within the Midwest Independent Transmission System Operator (MISO). It
is important to note that, in contrast to PJM, MISO does not control
the transmission operations of its member companies. There are 23
separately operated Control Areas in MISO, an area that includes
portions of 15 states and serves 20.5 million people.
A properly designed energy market, such as that operated by PJM,
enhances reliability. In a PJM-type market, congestion is relieved in
real-time by generators and load reacting to price signals, effectively
preventing the types of system overloads that threaten reliability. In
non-market systems, the system operator must deal with congestion by
canceling transactions--a process that can take up to 30 minutes and
divert the attention of the operator from other matters. PJM redispatch
occurs every five minutes, allowing congestion issues to be addressed
as they arise. Currently, MISO does not operate an energy market; nor
does it redispatch generation.
Operating facilities in multiple states has taught Exelon the
value, security and strength of regional coordination and planning,
especially in times of crisis. RTOs offer a sound mechanism for
addressing many of the barriers to the expansion of the nation's
transmission grid. You cannot plan a viable, efficient transmission
system on a state-by-state basis. Nor can you make the best decisions
about the need for additional generation. RTOs can assess transmission
needs on a regional basis, work with states to coordinate transmission
planning and siting, and manage the daily operation of an energy market
and regional transmission assets. Thus, while Congress must act to
authorize mandatory reliability standards and to facilitate expansion
of the transmission infrastructure, it is equally important to ensure
that the structure of power markets will facilitate the effective
operation of the electric grid and allow reliability standards to be
enforced in an appropriate manner.
I cannot over-emphasize this point: electric power markets are
regional. Regional Transmission Organizations are essential for
assuring reliability of electric power grid. Properly functioning RTOs
operate as multi-state electrical regions. RTOs must closely coordinate
with each other, and the borders between RTOs must be seamless. The
market rules in New England must be compatible with those in New York
and PJM; MISO and PJM need to work closely together, too. Given the
catastrophic events of August 14, it would be irresponsible for
Congress to halt progress towards the establishment of a wholesale
electricity system that would better ensure reliable operations and
provide the regulatory certainty essential to encouraging investment
needed to modernize our wholesale electricity infrastructure.
Thank you for the opportunity to appear today. I look forward to
working with the Committee on these important issues.
Mr. Barton. Thank you, Mrs. Moler. The Chair would
recognize himself for the first round of questions. I think
that it's 5-minute rounds.
My first question is for you, Mr. Draper. I understand that
your company is headquartered in Ohio, but I understand you
have a football team and college that is your favorite football
team and it's not from Ohio. What is it?
Mr. Draper. That's correct, Mr. Chairman. The University of
Texas paid my salary for a good many years, and I have remained
loyal to them as a football team.
Mr. Barton. I just wanted to get that on the record. There
are some fans in Ohio that are not Ohio State Buckeyes all the
way.
Mr. Draper. I think there are a good many here on the
committee that are from Ohio----
Mr. Barton. There are.
Mr. Draper. [continuing] that are Buckeye fans. And I must
say that they have had a terrific----
Mr. Barton. He is not running for office in Ohio.
I want to ask you, Mr. Kessel. You talked quite a bit about
petty parochial politics, stopping that underground and
underwater transmission line from being energized. What petty
parochial State or locality was it that stopped that line?
Mr. Kessel. The petty parochial policy came from the State
of Connecticut.
Mr. Barton. Connecticut?
Mr. Kessel. Yes.
Mr. Barton. In all seriousness, now that you have had the
August 14 incident, what do you think Connecticut's view would
be today? Would they be approving of that line being energized?
Mr. Kessel. Well, they are continuing to oppose the Cross
Sound Cable. In fact, it's my understanding that they have
asked the energy secretary to rescind the order that was
issued.
The three issues--and I just should mention this. The three
points of opposition from Connecticut are, No. 1, that this
poses an environmental hazard and somehow would leak. There is
no fluid whatsoever in this cable. It is the most modern
technology available.
The second argument against the cable is that in some way,
New York Long Island would be stealing Connecticut's
electricity, not recognizing the fact that the line flows both
ways. In fact, New York exports more power to Connecticut than
Connecticut exports to New York and Long Island.
The third issue--and it's interesting when you look at
these issues--is that Long Island hasn't done enough for
itself, that Long Island should really add more generation. But
we have added in the last decade or so over 600 megawatts of
new generation on Long Island net. Connecticut when you include
the decommissioning of all of the facilities has netted 18
megawatts. And so these are arguments in my view that aren't
really relevant.
In my view--and, listen, I used to be in the consumer
movement. I am in a very unique position. I headed a consumer
group on Long Island for many years. I headed the State's
consumer protection agency. We consumer advocates know how to
get before the public.
But these arguments are--in my view, if a State can step in
and because of local political issues or grandstanding to the
public step a major transmission intertie from operating that
is so critical to the Northeast regional grid, there is
something very wrong with the system.
Mr. Barton. The members would like if you could pass the
samples up to the dias so that they could actually look at
them.
Mr. Kessel. Sure.
Mr. Barton. You don't have to do it yourself. We have
people that will do that. I want to point out that the bill
that passed the House on a bipartisan basis, we don't preempt
the States from having a row in this process, but we do have
Federal backstop authority so that if you did have a deadlock
or a stalemate, the Federal Government could step in and say
that was a critical path element that needed to be built. But
we would not preempt any of the State and local authority until
there was a stalemate.
So we are not trying to totally tell the States. We are not
trying to Federalize this.
Mr. Kessel. I think, congressman, just to say one other
thing about this cable, what is so frustrating is that the
cable was ready to operate over a year ago. And it took an
emergency to wake people up. And despite efforts by the
Governor and a number of other officials in New York, it just
kind of stayed there dormant. And that is a tragedy.
Mr. Barton. And I need to ask Mr. Draper a question. Some
have said that we need to go back to the old way, that this
blackout for 50 million people proved that what is called
restructuring the deregulation has gone too far and the problem
was there was too much interconnectivity. And we just really
need to go back to the old system. What is your view on that?
Mr. Draper. Mr. Chairman, I don't believe we need to go
back to the old system. I believe that we can have a reliable
system under a variety of market conditions. I disagree with
Betsy Moler a bit on that. I think if you have the wrong market
structure, it will hamper reliability.
But I believe that you can have a reliable system either in
a regulated environment or one in which there is open and free
wholesale commerce. And I think that our system is an example
of such a situation. We have a system. In some States, there is
retail choice and some there is not. But we have been able to
maintain our system in a quite reliable situation.
It is clear that we need to do things to further enhance
the national grid. We need additional investment, but I don't
believe it is necessary to either roll back to where we were or
to dramatically change the situation that we now have. I
think----
Mr. Barton. My time has expired, but I want to ask one
question, Mr. McGrath. Your service area, as I understand it,
is principally New York City. Is that correct?
Mr. McGrath. New York City, Westchester, Orange and
Rockland Counties in New York, a little bit of New Jersey and
Pennsylvania.
Mr. Barton. Is it possible in your service area to build
new generation next to the customer base or are you pretty much
now having to get the transmission capacity to import it from
outside your service area?
Mr. McGrath. Well, we have a requirement in New York that
80 percent of the capacity needed to meet the estimated peak
has to be physically located in New York. It's very difficult
to locate power plants in New York, but that is absolutely the
right direction to go in.
I really believe as an engineer you want to have a
generation at the load. When you start separating generation
and load, you introduce another component which has the
potential to impede reliability. You can't always do that, and
there are economic reasons, transmission. But the first
priority ought to be to locate the generation----
Mr. Barton. When is the last power plant that was sited,
permitted, and actually built in your territory?
Mr. McGrath. Well, we built some gas turbines very
recently, within the last few years. New York Power Authority
built about 400 megawatts of gas turbines. And we have an RFP
out now to build a 500-megawatt unit in Queens that will come
on line in a few years.
Mr. Barton. Very good.
Mr. McGrath. We still need more. We need about 3,000 more
megawatts of generation over the next 5 years in this city.
Mr. Barton. My time has expired, and I apologize for going
over. We would next recognize Mr. Stupak. I think he is first
in line on the minority side.
Mr. Stupak. Thank you, Mr. Chairman.
Mr. Burg, you flow your energy or some of it up through
Michigan to ITC. Is that correct?
Mr. Burg. Well, we're interconnected with Michigan. And it
goes through ITC at our power that's going there. But yes,
power goes that way.
Mr. Stupak. When you testified, when you mentioned power
flowing to Michigan, that would be through ITC?
Mr. Burg. Yes.
Mr. Stupak. Yes. The first event appears to be after East
Wake, you testified, after about 1:30. And then it appears from
about 3 o'clock to 4 o'clock, there are a number of failures or
tripping of plants, as they call it, right?
Mr. Burg. My testimony indicates that we had some lines
tripping as well as some other power plants going out in the
general area as well as some other transmission lines going out
in the area.
I really don't have information with respect to----
Mr. Stupak. Let's go to page 2 of your testimony. I think
you lay it out there pretty well between 3 o'clock and 3:30.
You lost the Chamberlain-Harding line. And then you go on to
3:33-45, Hanna-Juniper, South Canton, Cloverdale. You are
familiar with all of that, right?
Mr. Burg. Yes, sir.
Mr. Stupak. Okay.
Mr. Burg. I was just referring to the fact that other
events were going on as well. That's all I meant.
Mr. Stupak. Right. I'm talking about your testimony, what
you testified to. The point I am trying to make, what should
have happened when all of these things started tripping?
Mr. Burg. Well, I think what should have happened happened.
A number of the----
Mr. Stupak. Wait a minute. You mean when they started
tripping, we have these blackouts?
Mr. Burg. No, sir.
Mr. Stupak. What should have happened?
Mr. Burg. The automatic nature of the system took over.
Mr. Stupak. Explain the automatic system for those of us--
--
Mr. Burg. In other words, if a transmission line trips out,
the megawatts get rerouted on the system, if you will. That's
all I was referring to.
Mr. Stupak. Did that happen here, it got rerouted on the
system?
Mr. Burg. I believe so. Yes, sir.
Mr. Stupak. Why do we have all of these problems, then?
Mr. Burg. Sir, that's obviously a very complex issue. I
don't know that we know all of the facts yet. We are
cooperating with the parties that are trying to obtain those
facts. And hopefully we'll get to that position.
Mr. Stupak. Let me ask it this way because we're still
stuck with this system. Everyone has testified about things we
should be doing in the future. And that's all great, but right
now we are still with this system.
Once it started tripping--and I am looking at your
testimony because you sort of lay out all of these trips that
go on. Who did you notify? Should you notify people? At what
point in time does it appear to you and who makes the call, the
responsibility here, that this is out of our control, things
are going haywire here? Is there someone you have to call?
Mr. Burg. Sir, we were in contact, as Dr. Draper said, with
AEP. They called us, in fact, on a few occasions. We were in
contact with the Midwest ISO during that timeframe.
I would also tell you that the first line that you are
talking about was a line in, really, eastern Ohio, northeastern
Ohio, had really little, if any, effect on our system. Our
voltage remained as----
Mr. Stupak. I agree. One-thirty made the difference, but
about 3:30-4 o'clock gets to be a critical time when a lot of
things have started to trip. It had to be a point in time when
someone had to realize, ``We can't control this anymore.''
And who do you call? Who do you send it to? That seems to
be the problem here. There is no accountability or
responsibility when things started going haywire in this. The
Governors talked about it yesterday.
I've got some other questions for other panel members
because they also have responsibility to monitor as well as
being communicated to. It seems like we have a system that is
put together in bits and pieces. When one thing starts going
wrong in one part of the system, it is going to affect the
whole system.
Where is that legal, ethical, or moral duty when we have to
start saying, ``Hey, this is out of our hands. We need some
help here''? I guess that is what I am trying to look for. I
don't see that anywhere in all of the testimony I have read for
the last couple of days. There is no point in time when we say,
``We have to get other help.''
Mr. Burg. Well, again, as I think my testimony indicated,
as you indicated, as late as 3:45 p.m. or so, when we had a
number of transmission lines out of service, as did others, the
flows into and out of our system were remaining stable. The
Midwest ISO was in contact with us. They were doing contingency
planning to look at what would happen if additional lines went
out of service.
It would appear that based upon what they are saying and
what was flowing through our system at the time, we were not at
a critical situation at that point in time, at least in
hindsight. Once again, all of these things are being done and
talked about in hindsight.
Mr. Stupak. In the testimony from AEP, they said that their
system worked--I'm looking at page 3 of theirs. It said,
``avoided cascading outages across the AEP system''--and you
are interconnected there with AEP on some of these--``and
probably far beyond, given the central role of AEP's
transmission grid in the Eastern Interconnection. AEP's system
was not the only one to respond this way.''
If theirs responded appropriately, I guess I have to ask
why didn't FirstEnergy's respond this way?
Mr. Burg. Congressman, our generation on the Ohio River,
which is where the bulk of our generation is located, it
remained on beyond the event. At least half of our customers in
Ohio, unfortunately, went out, but the other half stayed on.
We remained interconnected, as I said in my testimony, on
certain lines at least, with AEP, with Duquesne, with Dayton,
with PJM-West. So in many ways our system did work. It also
protected our facilities, as others have said on this panel, in
such a way that we were able to get those unfortunate customers
that were out of service back on within in some cases 12 to as
long as 36 hours. But they were back on.
Mr. Stupak. Let me ask one more, if I may, Mr. Chairman.
Mr. Barton. This will have to be the last one.
Mr. Stupak. Yes. Mr. Welch, FirstEnergy's power flows on
ITC's on your system into Michigan, and we had some problems in
Michigan. So I guess what I am asking here, is what is the
balance between ITC's own monitoring and information it relies
on from FirstEnergy, as this problem goes on? How do you
balance it?
Whose responsibility is it here? Is it your responsibility
to monitor to make sure this doesn't happen? Do you need more
monitoring equipment or do you feel FirstEnergy should have let
you know earlier? Where is the balance here, if you can, Mr.
Welch?
Mr. Welch. I'm sorry. First of all, it's the role of the
system security coordinator to take into effect the continual
outage of lines and loss of generation, to then monitor and
remodel the system to make sure that there are no abnormal
flows that are going to exist.
One of the things that our post-examination found is that
we can find nowhere in the SDX, which is the system data
exchange, or in the interchange distribution calculator that
any of these outages were accounted for.
Had they been accounted for, the normal response of the
system through the system security coordinator is to then issue
under the MISO rules a transmission load relief, which we call
a TLR, to start to curtail transactions or bring on other
generation and redistribute the flow to prevent future
overloads and any other abnormal event from happening.
On that day in question, on the western side of Michigan,
there was one TLR event for some outage way over by Holland,
Michigan, which they said there are going to be no more
transactions. In the ITC Michigan system, both METSI and ITC,
all of that information is automatically telemetered on a real-
time basis to MISO on an ongoing basis.
I don't know how others do it, but we send our data
straight through the computer system as quickly as it comes in
through our supervisory control and data acquisition system.
Mr. Stupak. Thank you.
Mr. Barton. Thank you for those questions. The Chair would
recognize the gentleman from Georgia, Mr. Norwood.
Mr. Norwood. Thank you very much, Mr. Chairman. Glad to
have you back.
Mr. McGrath, I found some of your comments very refreshing,
and I want to just briefly explore it a little further. You
implied that someone insists that Con Ed have 80 percent of its
generation within reasonable reach of your end-users. Is that
what you said?
Mr. McGrath. That's correct. Eighty percent of the capacity
we need to meet New York City load has to be physically located
in New York City.
Mr. Norwood. Is that a State law?
Mr. McGrath. That's a requirement with the New York ISO.
And I believe it's under NPCC criteria also.
Mr. Norwood. Is that fairy typical of other ISOs?
Mr. McGrath. No. It's one of the reasons we think that
mandatory reliability standards are absolutely essential, but
also local localities need to have the flexibility to impose
stricter standards where it makes sense.
Mr. Norwood. Do you think mandatory reliability standards
would include having generation closer to the end-use?
Mr. McGrath. I think as an engineer and as an operator,
having the generation as close to the load center as it can be
done is in the best interest of everybody.
Mr. Norwood. Why do you say that?
Mr. McGrath. Well, because as you separate generation from
load, you introduce another component. And as you introduce
other components, you can introduce cost and you can introduce
reliability problems.
On the other side of the coin, transmission is very helpful
in cases where the generators, for example, are offline and you
need to bring in power from somewhere else.
And in New York, for example, for a summer peaking company
and Canada is a winter peaking company, through the
transmission system, we are able to build the capacity we need
to meet the load in the summer in New York and Canada builds
the capacity needed to meet the winter peak. And there's excess
capacity in Canada in the summertime that we can use in the
city.
So transmission certainly is economical and does help with
reliability in some cases. Plus, as a general rule, I think
generation ought to be located at the load center.
Mr. Norwood. I wonder if typically you have been able to
increase your generation to be able to meet the increase in
demand.
Mr. McGrath. We have in New York State an 18 percent
reserve requirement. We meet the 18 percent reserve
requirement. That's probably tighter, is tighter than it was
10-15 years ago. We probably have had 20-25 percent reserve. We
still meet the criteria, but the gap is getting narrower.
Mr. Norwood. So back to reliability, my impression is--and
I am here for you to correct me--the most reliable thing is
less day-to-day long distance hauling of electricity versus
having generation close to the end-user. That's more reliable.
Mr. McGrath. It's not always possible to have the
generation right at the load center for environmental reasons
and for physical location reasons. So to that extent, it has to
move away a bit.
My point would be that ought to be a very high threshold.
We ought to have it located there. If we can't, then separate
it, but it ought not to be our first approach.
Mr. Norwood. And there probably are some political reasons,
too.
Mr. McGrath. There are always political reasons.
Mr. Norwood. Yes.
Mr. McGrath. Yes, sir.
Mr. Norwood. Well, I wonder if other members of the panel
could just, anybody who likes, briefly describe your situation
about that. If reliability is at its best being close to the
end-user, hadn't we ought to look at reasons in order to help
with that and make certain that that occurs, which doesn't
necessarily mean in my mind you can't haul long distances?
There are times and situations in which to do that, but
generally speaking, do we need to deal with the problem that
many States have not kept up with their generation, many States
are wishing to import their electricity over long distances?
Anybody?
Mr. Draper. I would be glad to address the AEP situation.
Mr. Norwood. I'm glad. I can understand somebody from
Texas.
Mr. Draper. We are a quite different system from Gene
McGrath's. He has a principally urban system. Ours is
principally rural. We serve customers in 11 States, stretching
from Michigan down to Texas.
We have a very extensive network of power plants. Our
system generates about 25 percent more electricity than our own
customers use. And we sell that in the wholesale market. So we
have plenty of generation capacity, but we also have a very
robust, very strong transmission network that has the largest
collection of extra high-voltage transmission in North America.
Mr. Norwood. You have invested heavily in your
transmission?
Mr. Draper. Yes. We have over $5 billion in book value in
our transmission and invested in the last 10 years close to $2
billion.
Mr. Norwood. Well, everybody yesterday said you didn't want
to do that because it was only a 12 percent return. Why are you
settling for a 12 percent return?
Mr. Draper. We have routinely invested in transmission
because we do have a large, strong system. We believe it's in
the best interest of our own customers to have that strong
transmission system and the reliability that comes with it.
Mr. Barton. The gentleman's time has expired.
Mr. Norwood. Yes, sir.
Mr. Barton. The Chair would recognize the ranking member of
the Energy and Air Quality Subcommittee, Mr. Boucher of
Virginia.
Mr. Boucher. Well, thank you very much, Mr. Chairman. I
want to join with you and Chairman Tauzin of the full committee
in welcoming these witnesses today. This is a very
distinguished panel, and we very much appreciate the time you
have taken to prepare your informative testimony.
Ms. Moler, let me begin my questions with you. I know that
much has been said about the fact that some regional
transmission organizations have greater authorities than
others. Some have authorities to manage the transmission lines
that are entrusted to them. PJM is an example of that. The MISO
regional transmission organization does not have that
authority. I noticed in your testimony, in particular, you make
reference to that distinction.
My question to you is this. Had the MISO had management
responsibility and authority for the transmission lines in the
territory that it serves, do you think that would have made any
difference in terms of either eliminating this blackout or
perhaps diminishing its effects?
Ms. Moler. Congressman, no one yet knows the reasons the
blackout occurred in any detail. So I cannot possibly speculate
on whether if MISO had been a single control area and had
complete authority over the transmission system, that it would
have been avoided.
As a policy matter, though, I think for the members of this
committee, you should want fewer control areas, rather than
more, and you should want fewer organizations with fewer
conflicts between those organizations, rather than more.
So the trend toward large regional transmission
organizations with authority to actively manage the grid, do
congestion management, re-dispatch, et cetera, is a very
positive one and something that we believe this committee has
and should continue to support.
Mr. Boucher. Now, I believe the standard market design
proposal as put forth by the FERC does have elements that would
require that the regional transmission organizations have
overall management and control responsibility for the lines. Is
that correct?
Ms. Moler. Yes, it does, though the wholesale market
platform, as it was called in the April white paper, would
respect regional differences to the extent that folks in a
region want to do something slightly different.
Mr. Boucher. Well, if the SMD went forward in accordance
with the terms of the white paper released subsequent to the
original standard market design proposal, do you believe that
would be adequate in meeting the goal that you have established
in your statement to the effect that control through the RTOs
would be appropriate?
Ms. Moler. Yes, we do. We support the implementation of SMD
as refined in the white paper.
Mr. Boucher. My question for this entire panel relates to
the reliability standards that have been published so far on a
voluntary basis by the North American Electric Reliability
Council. These standards may be followed or not by the owners
of transmission. If they're not followed, no formal penalty can
result. And we have evidence submitted by the NERC that there
have been more than 400 violations of these voluntary standards
within recent history.
Many of those have been resolved through the voluntary
action of the various transmission owners, but they're not all
resolved. My question to you is this. If the reliability
standards had been mandatory and if appropriate enforcement
powers had been conferred upon the NERC and also the FERC to
make sure that these standards are followed, what difference,
if any, would that have made with respect to this blackout
either in eliminating the blackout or diminishing its effects?
And a second question to each of these panel members is
this. Do you believe that it is so important that we adopt
these consensus-based standards, to which, as far as I know, no
opposition has been expressed from any quarter, that if the
overall energy bill, which is now in conference and contains a
section that would make these standards mandatory and confer
appropriate enforcement authority gets bogged down--many
elements of it are controversial and there is certainly the
potential that that energy bill would not be approved in the
conference committee this year. If it does get bogged down, do
you believe that it is sufficiently important that the Congress
adopt the reliability standards and confer enforcement powers
upon the NERC and the FERC, that we should pull that provision
and pass it separately and make sure that that happens this
year?
So two questions. If the standards have been in effect,
would it have made any difference in this blackout? And,
second, should we act on those separately in order to make sure
that they are passed this year? Who would like to respond? Yes,
sir, Mr. Winser?
Mr. Winser. Sir, I believe that the question of mandatory
standards is an important one, but I would further believe that
it's not only a question of whether they are mandatory or
voluntary but also whether they're at the right level, whether
they are conservative enough.
I think, indeed, that leads back to a question of how much
investment there is in the system because, of course, one could
adopt. In various places around the world, there are more
conservative standards for operating these sorts of grids.
Mr. Boucher. Well, let me say we know what the standards
are basically. They have been published by the NERC for some
time. Let's suppose that the NERC would promulgate these very
standards that are voluntary today for mandatory application.
Do you believe that that would be a valuable step? And should
we pass the legislation independently, if necessary, in order
to make that possible?
Mr. Barton. This will have to be the last answer to that
question. I am sure every other member of the minority is going
to ask the same question in some shape, form, or fashion, but
at least this particular questioner. Then it will be the last
time before we go to Mr. Greenwood.
Mr. Winser. Sir, I believe it would be a valuable step but
not on its own. I believe a whole raft of measures, as I
outlined----
Mr. Boucher. I understand. Thank you very much. Thank you,
Mr. Chairman.
Mr. Barton. Mr. Greenwood of Pennsylvania?
Mr. Greenwood. Thank you, Mr. Chairman.
I would like to address some questions to Mr. Burg, if I
could. Mr. Burg, what can you tell me about the timing of when
the Perry nuclear power plant went down and when East Lake
power plant went offline?
Mr. Burg. Well, I can tell you with respect, first of all,
to the East Lake power plant, I believe it was early in the
afternoon on the day of the event.
Mr. Greenwood. Was it about 1:30?
Mr. Burg. About 1:30 in the afternoon, a voltage regulator,
as I understand it, acted, if you will, on some impulse. And it
began to back down to a manual mode, if you will, to reduce the
voltage in the plant.
Mr. Greenwood. When that happened, did the operators out at
East Lake call into the SCC? And would you explain what the SCC
is?
Mr. Burg. The SCC I believe you're referring to would be
our system control center.
Mr. Greenwood. Right.
Mr. Burg. I'm not sure, sir, whether they called in
directly there or they would have called in to our generation
dispatch area, which is a separate component. The generation
dispatch is in one area, system control in another.
But they were in contact, I'm sure, in some ways with both
of those, either----
Mr. Greenwood. Did the SCC computers corroborate what they
were hearing from the plant?
Mr. Burg. I don't know the answer to that question. I know
that an automatic reserve-sharing procedure was put into place
at that time, which is a procedure that is used on the
interconnection where other systems use some of their reserves
to make up for lost capacity. I know that was done at just
after 1:30 p.m. And the plant stayed off. And our system
remained stable from that point on.
Mr. Greenwood. When did the Perry nuclear power plant go
offline?
Mr. Burg. Sir, I believe the Perry plant was one of the
last units to go off. It may have been as late as 4:10 p.m.,
plus or minus, and some seconds. So it was one of the last
units to go down.
Mr. Greenwood. Well, the information that I have is that
there were massive voltage swings in the 345-kilovolt system.
And operators from the field were calling in to your SCC
reporting these problems and that the guys at the SCC were
looking at their computer screens. And the computer screens
were not reflecting these problems in the field. And they were
tending to believe their computer screens, instead of what the
guys were calling in and telling them who were sitting in the
power plants. Is there truth to that?
Mr. Burg. Well, there is no question that we had, as we
said on I think the day after the event happened, that we were
having some problems with our computers at our system control
center.
Mr. Greenwood. Well, you and I spoke yesterday in my
office. And you talked about having problems with your
computers in terms of the alarms not functioning.
Mr. Burg. Right.
Mr. Greenwood. But I am not sure and it may well have been
that we discussed this, but I don't recall hearing from you
that, in fact, a significant part of the problem here was that
the guys in the fields out in the generators were calling in
reporting very unusual massive swings, problems in the field,
and that the folks at the control center were essentially
flying blind because they weren't seeing this in their
computers. Therefore, they didn't respond. Is that a fair
analysis?
Mr. Burg. Well, we know that the manual alarm system was
not working at some point in the afternoon.
Mr. Greenwood. Right, but I am specifically getting at the
fact that here is a guy out at the power plant calling in and
saying, ``My God, we've got these huge problems out here. What
is going on?''
And your guy is staring at the screen saying, ``We don't
see anything'' and, therefore, not reacting. Is that an
overstatement?
Mr. Burg. What they were seeing--and, again, we're
investigating this to the nth degree. We want to know as much
as you do about what was on that screen and what was not. The
screens were not black. The screens were on. The question is
whether or not they were updating themselves as they should
have been doing during that sequence.
Mr. Greenwood. Would you explain what a SCADA is?
Mr. Burg. A SCADA is really a supervisory control and data
acquisition kind of a program that both our distribution as
well as our transmission operators use in----
Mr. Greenwood. Am I correct when I say that the SCADA
system is supposed to look at every power plant and various
components of the system once a second to get real-time
feedback on voltage, amperage, et cetera? Is that pretty much
what it is doing?
Mr. Burg. I think the SCADA system is used for that purpose
as well as actually controlling the system.
Mr. Greenwood. Was part of the computer problem that the
SCADAs were not communicating with the substations, that they
weren't getting this information?
Mr. Burg. I don't know that part to be true at this point
in time. As I've said, we are going through everything we can
to find out what was going on with that computer system.
Mr. Greenwood. You don't know it for sure, but have you
heard about it? Has anybody reported this to you?
Mr. Burg. We really haven't discussed the SCADA system as
such. We were discussing more what kinds of information did our
operators have in front of them at various points in time.
We do know that the system was going directly to the
Midwest ISO, who is our security coordinator. We also know that
the information was going to what is called the inter-regional
security network, which was set up after the 1965 blackout for
this very reason, where data points would go to other entities
in the region so they could see what was going on in other
systems.
Mr. Greenwood. My time has expired. Correct me if I'm
wrong, but it seems to me that the problem with your computers
was a lot bigger than the alarms just not functioning. The
problem with your computers was that your computer system in
your central control center was not reflecting the reality out
with your reactors in your system. And the guys that were out
in the system were calling into the control center and saying,
``We've got big problems out here.'' And the guys in the
control center were saying, ``Well, we don't see it.'' And the
question is, ``Since they didn't see it on their computers, did
they, therefore, not believe it and not respond?''
Mr. Burg. They were in----
Mr. Barton. This will have to be the last answer to this
question.
Mr. Burg. They were in communication with the Midwest ISO.
So they were in consultation with them. We don't see any
changes on our system until the very end in terms of voltage
flow----
Mr. Greenwood. I understand you don't see the changes----
Mr. Burg. [continuing] megawatts coming in.
Mr. Greenwood. [continuing] but you're hearing the guys----
Mr. Burg. Even now. But I'm saying even now, in hindsight,
our system was relatively stable until the very end. And I wish
they had. Had our system operators had perfect knowledge at
that point in time, I don't know that they would have done
anything differently than what was done. No one else
intervened. The system shut down automatically and so forth.
But we are trying to find that out, Mr. Greenwood. And we
will provide that to you when we do.
Mr. Greenwood. Thank you, Mr. Chairman.
Mr. Barton. We have a series of either two or three votes
on the floor. We're going to go to Mr. Dingell for his 5
minutes of questions. Then we're going to recess. When we come
back, Mr. Buyer will be the first questioner on the Republican
side.
So Mr. Dingell is recognized for 5 minutes for questions.
And then we will recess after Mr. Dingell's questions.
Mr. Dingell. Mr. Chairman, I thank you. You are very
gracious.
Mr. Draper, you found that there were peculiar events which
were transpiring in connection with the events of August 14,
did you not? Just say ``Yes'' or ``No.''
Mr. Draper. Yes.
Mr. Dingell. Mr. Burg, did you find that there were events
that were curious which occurred on and around the 14th with
regard to both cycles and voltage? In your system, did you find
that?
Mr. Burg. Some was going on at the time. We see more of
that now in hindsight, sir, yes.
Mr. Dingell. Okay. Ms. Moler, did you at Exelon?
Ms. Moler. No, sir. We were----
Mr. Dingell. Did not. Now, Mr. Draper, you were able to
separate from the system. Why were you able to separate and
others were not?
Mr. Draper. You give us more credit in terms of physical
actions. In fact, we separated automatically. The protective
systems that are designed into this transmission system
operated as they should and automatically separated. Why others
did not, I don't know.
Mr. Dingell. Now, were they all supposed to separate
automatically?
Mr. Draper. Ours are supposed to separate when certain
conditions detect a fault on the line; that is, the line short-
circuits, goes to ground. They are supposed then to trip out.
And they did.
Mr. Dingell. Now, Ms. Moler, did yours separate
automatically?
Ms. Moler. There was no need for ours to separate.
Mr. Dingell. Then somebody to the east of you must have
separated to save you that trouble. Is that right?
Ms. Moler. We did not have the kind of voltage fluctuations
that occurred on other systems.
Mr. Dingell. You did not?
Ms. Moler. No, sir.
Mr. Dingell. But you were able to--you did not have to
separate. That means somebody to the east of you must have
separated. Mr. Welch, did you separate?
Mr. Welch. At the time that there was a voltage collapse
that basically happened in the center of the State of Michigan,
there were 30 lines that all operated automatically within an
8-second period that isolated the eastern and the western side
of the State.
Mr. Dingell. Okay. They were separated, but the others were
not.
Mr. Welch. The thing that I want to lay out here is that
the only reason those lines operated is that there was a
voltage collapse, which may----
Mr. Dingell. Voltage but not a variation in cycles?
Mr. Welch. No. I supplied in my pre-filed testimony the
frequency charts out of the MEPCC, which showed that, actually,
at the time that this event occurred, the region, not just
Michigan, the region, was in a time error correction, which
means we were actually beating the system up. And there should
be no frequency drag anywhere. That means there was adequate
capacity, and we were bringing the system back up because the
system had dropped down a little bit through the day. It has
nothing to do with frequency.
Mr. Dingell. Okay. Now, I'm trying to figure out, Mr.
McGrath. You found that there were strange events affecting the
operation of your system. Did you warn any of those to whom you
are intertied or to the independent system operator that you
were seeing these kinds of things?
Mr. McGrath. We saw the lights blinking, voltage swinging
rapidly. And our system shut down within seconds.
Mr. Dingell. Did you warn anybody----
Mr. McGrath. No time to warn----
Mr. Dingell. [continuing] about error curiosities in the
operation of the system?
Mr. McGrath. There was no time to warn anybody. It
happened----
Mr. Dingell. But you had seen earlier events, had you not,
which indicated that there were some aberrant events occurring
in the system? Had you not?
Mr. McGrath. The swings occurred somewhere between 4:10 and
4:11. And within a minute, our system was shut down.
Mr. Dingell. All right. Mr. Burg, do you have a comment on
that?
Mr. Burg. Well, sir, our system did appear to be stable
until the very end, as Mr. McGrath just said. We were importing
about the same amount of megawatts as we had been during the
whole day. And the power flows into Michigan, in fact, were
fairly stable until maybe 4:09 p.m. or so.
Mr. Dingell. Some witnesses suggest that there was an
inadequacy in NERC's rules for operating the system or
noncompliance with NERC's rules. Do any of you gentlemen desire
to comment on that fact?
Mr. Welch. That there may have been noncompliance?
Mr. Dingell. Either that there was an inadequacy in NERC's
rules or there was noncompliance with NERC's rules.
Mr. Welch. I would like to respond to that.
Mr. Dingell. Please.
Mr. Welch. As has been documented in all of the time
sequences that have been published by ourselves and other
people, there was a sequence of line outages that took place.
And, as I stated earlier, I can find nowhere on any document
that we have checked, either during the event or post the
event, where the record of these line outages was put into the
system data exchange system, where these line outages were
accounted for in such a way that when a line goes out of
service, we know that the power is going to continue to flow on
other portions of the system.
So at that point, you need to check with and re-look at the
system, model the system to say, ``Okay. Do we have any
overload contingencies? Is there anything that we are doing out
there that we need to be very careful on?''
And we have a sequence of several lines that go for--in
this case, it starts in our time line at an hour and 5 minutes
before the blackout with a sequence of lines that go out. And
we can find no recordings anywhere where these were taken into
account for by the system security coordinator. And the way
that you would see that later is there would be some kind of
issuance of a transmission load relief, meaning that some
transactions out there have got to be curtailed in order for
the system not to do what it did. We can't find that.
So I don't know if there is a violation. I just didn't find
it.
Mr. Dingell. I don't mean to be discourteous, but our
chairman has got his gavel in his hand. I am using more time
than I should, but----
Mr. Barton. We also have 5 minutes and 24 seconds in which
to vote on the floor.
Mr. Dingell. There's one question I would like to have
anyone at the table address. And that is, what notices were
given to anybody by anybody else with regard to the impendency
of the events of August 14, including irregularities in the
functioning of the different systems?
Why, for example, was Ms. Moler's system able to not shut
down, the New York systems able to not shut down, portions of
Michigan able to not shut down while others did not and while
people complained to me that they received no notice? Can
somebody give me an answer to that question?
Mr. Barton. And it needs to be a quick answer,
unfortunately.
Mr. Dingell. This is a question I think----
Mr. Barton. It is an excellent question. I understand. We
may have to have them respond to it in writing, but----
Mr. Dingell. I will respect the wishes of the chair.
Mr. Barton. Mr. Burg, do you want to give us an attempt at
a verbal answer in about 30 seconds or less?
Mr. Burg. I don't know that there would be the occasion for
one major communication. I think there were a series of
communications, whether oral or telephonic or through
computers. I think those were the kinds of communications in
terms of data that----
Mr. Dingell. Did those occur, though? I'm gathering that
they did not occur and----
Mr. Burg. Again, this is part of the setting that we have
to find out about.
Mr. Dingell. And, yet, Exelon was able to separate itself.
The New York folks were able to separate themselves. Others
were not. Mr. Kessel, I apologize----
Mr. Barton. Each of you all that chooses to answer that
question, if you would do so in writing and try to get it to us
as expeditiously as possible.
We have 3 minutes and 55 seconds in which to go vote on the
floor. So we are going to take a brief recess, try to reconvene
at approximately 11:30.
I can announce that the speaker and the chairman have met
on conferees and conferees have been decided upon. I am going
to leave it to the chairman to make those announcements. But we
do have conferees scheduled to be announced or voted on in the
House sometime this afternoon. We are in recess until
approximately 11:30.
[Brief recess.]
Chairman Tauzin. The meeting will please come to order.
Apparently we do have votes being called, but we'll try to get
in a few more members. Mr. Buyer is ready to go. I think Mr.
Towns is on his way or can he be here? If you can get him here,
we will try to get Mr. Buyer and Mr. Towns a chance to do a
round of questions. And then we will take some more votes and
come back. Just want you to know we are all working hard for
you out here. Mr. Buyer is recognized for 5 minutes.
Mr. Buyer. Thank you. Mr. Chairman, I want to thank you for
holding the hearing and all of the witnesses for coming today.
A word that has been used often here is the word
``incentivized.'' I suppose it can be inferred from that work
it's defined subjectively, but let me use it in two questions.
The question I have, I am quite interested in distributive
generation. So Congress over the years----
Chairman Tauzin. Steve, I am told we only have 3 minutes on
this vote, that it's a motion to recommit or something and we
have 5 minutes on it. So Ed, Steve, Mr. Towns, I think we had
better all go make a vote. So we will take a recess, make a
vote, and come right back.
[Brief recess.]
Chairman Tauzin. When last we recessed, we were questioning
our witnesses. And the Chair now again recognizes Mr. Buyer for
5 minutes for a round of questions.
Mr. Buyer. We have used the word ``incentivized.'' And I
have two questions, one dealing with distributive generation.
Over the years, Congress has turned to incentivize the use of
wind; solar, whether it's bioenergy; fuel cells; gas micro
turbines; hydrogen; combined heat and power; hybrid power
systems.
I had held an energy forum in Indiana. And in Indiana, we
have two very large manufacturers, not only Cummins but also
Caterpillar, who built a lot of these very large generators.
They had brought the issue about gaining greater access to the
grid to me.
As we were putting together the blueprint for a national
energy policy, I was really focused on the incentives of how we
upgrade the grid, not so much on backup systems. I think that
Cummins and Caterpillar were thinking correctly. And, as it
turned out, issues with regard to how we incentivize or get
better access to connectivity to the grid really isn't part of
the energy bill.
In 2001, to help increase electricity supplies in the
Western States, FERC even waived its prior notice requirements
for businesses with onsite power generators that sell wholesale
power to the grid. It was intended to encourage more generation
from distributed renewable energy power sources.
I ask unanimous consent to place in the record a letter
from the vice president of Cummins addressed to me regarding
issues on distributed generation.
Chairman Tauzin. Do we have the letter?
Mr. Buyer. Yes.
Chairman Tauzin. Without objection, it is so ordered.
Mr. Buyer. I'll submit it to you.
[The letter follows:]
Cummins Power Generation
Minneapolis, Minnesota 55432-3796
August 28, 2003
Congressman Steve Buyer
2230 Rayburn House Office Building
Washington, D.C. 20515-1404
Dear Congressman Buyer: I am writing to update you on the role
Cummins Inc. played in the recovery from the recent East Coast
blackout. I am also requesting your assistance in gaining an
opportunity for Cummins Power Generation to testify at hearings
regarding the blackout or participate in any Task Force considering the
cause of the blackout, its impact and the recovery. Further, as
Congress considers energy legislation in response to the blackout, I
ask that you consider policies, such as uniform interconnection
standards, that allow customers to invest in distributed generation
systems that can protect them from outages and provide some relief to a
clearly congested grid.
Earlier this year, Jack Edwards, past President of Cummins Power
Generation, testified at your Energy Forum in Indianapolis. In his
testimony he discussed the important role distributed generation can
play in the event of a blackout and the need to develop policies
allowing distributed generation to more easily interconnect to the
grid. Although it seemed unthinkable at the time, that blackout did
happen. The massive power failure August 14-15 in parts of the East,
Canada and around the Great Lakes forced more than 50 million people to
cope without lights, public transportation, refrigeration and air
conditioning for more than 24 hours. Although the public stayed
remarkably calm, most businesses and factories shut down,
transportation systems screeched to a halt and communications systems
stopped working. Normal life was disrupted for just about everyone in
the affected areas--except those with distributed generation systems.
Throughout the cities affected by the power grid failure, Cummins
Power Generation's commercial power systems kept the lights an and
equipment operating for our customers. Our customers not only avoided
the inconveniences associated with the loss of electric power, they
were also able to stay in business and avoid serious financial losses
during the outage.
New York Mayor Michael Bloomberg was able to quickly respond to the
blackout because New York City Hall was powered by a Cummins
Power Generation power system.
At a New York City hospital, doctors reportedly completed four
operations that were underway at the time of the blackout
thanks to a standby power system from Cummins Power Generation.
In upper New York State, a Cummins Power Generation standby power
system at Buffalo General Hospital kept the lights on and
patient treatments on schedule.
All airports have standby generation to power air traffic control
systems and runway fighting, but at Newark Liberty Airport, a
Cummins standby power system provided uninterrupted power to
the entire airport terminal throughout the outage.
Water systems and sewage treatment facilities stopped working in
Detroit, Cleveland and several other cities in the affected
area, but in Mississauga, Ontario, outside of Toronto, a
Cummins Power Generation prime power system kept the sewage and
water system operating for the city's 800,000 residents.
While people whose cell phones stopped working waited in long lines
to use a public phone, Verizon Wireless customers throughout
upper New York State enjoyed uninterrupted service because of a
cellular system backed up with Cummins Power Generation
equipment. According to Rick Polatas, director of network
services for Verizon Wireless, ``The outage had no impact
whatsoever on service to our customers. Every Cummins generator
at our remote cell sites and switching stations started and ran
perfectly.''
As Congress begins to consider legislation in response to the
blackout, there will be a lot of focus on large power plants and
transmission lines, as is appropriate. But I believe Congress should
not end its consideration there. The above examples demonstrate not
only the significant role we played in supporting our customers, but
also show the national importance of distributed generation and having
diverse resources of generation on the grid. We would very much like to
testify at Congressional hearings or serve on any outage Task Force to
help inform the debate on the national benefits of distributed
generation. Further, I hope Congress will consider these issues and
adopt polices that will encourage this type of investment in the
system.
Please do not hesitate to contact me if you have any questions or
comments regarding this letter.
Sincerely,
Tom Linebarger
Vice President--Cummins Inc.
President--Power Generation
cc: Dan Garcia
Mr. Buyer. Thank you.
My question to this panel is, should we make part of this
national energy bill the development of uniform interconnection
standards to make it more possible for small generators to be
considered a power generation choice for electricity and energy
customers, especially given the fact that when it went to the
blackout, what was there to provide backup, not only for the
self-systems and the hospitals and et cetera? I am interested
in your opinions, please.
Mr. Kessel. Yes. Thank you, congressman. I think that is an
excellent question. When looking at that issue, first of all,
New York State is pretty much a leader in terms of distributive
generation. Under Governor Pataki's leadership, actually, the
State has spent about $50 million on distributive generation.
And that has leveraged about $150 million in private capital.
We have got about 12 megawatts online, 20 megawatts in the
State by the end of the year, 90 megawatts in the pipeline.
Interesting, on Long Island, Long Island has the largest
collection of individual fuel cells grid-connected of anywhere
in the world at our West Babylon substation. And we think that
this is a major solution to the problem.
Ultimately when you look at the grid, you can't just look
at generation and transmission. Those are critical. And there
is no question generation is critical for reliability.
Transmission is important to open up access to be able to move
power back and forth. But distributive generation and clean
energy and energy efficiency, reducing demand at critical hours
if very important.
I believe that we need to have some kind of uniform, simple
standards of interconnection for devices like fuel cells, solar
roofs, and micro turbines.
I will tell you just one quick thing. On Long Island, one
of the problems we have is that each town has a different
policy about how to put up a solar roof. The bottom line is
people can't even connect----
Mr. Buyer. I don't have a lot of time. So I guess I have
got about a minute left. We can go right down the line. I am
interested. Give me 10-15 seconds. Should we have uniform
interconnection standards? And should we make this part of the
energy bill, even though it's an out-of-scope provision,
meaning the chairman would have to introduce that at the
conference? Just go right down the line, please. Mr. Draper?
Mr. Draper. I think there should be uniform standards. I
think there also ought to be consideration to how we pay for
the connections that occur.
Mr. Buyer. Thank you.
Mr. McGrath. Yes, I think we should.
Mr. Buyer. Thank you.
Mr. Burg. We have no problems with uniform standards. I
think we also, though, have to look at unintended consequences
with respect to the whole issue you are talking about. I think
that is another issue that should be--I don't know what those
are. I'm just saying look at those.
Mr. Buyer. All right. You could develop that further in a
letter to us, sir, or follow-up, please.
Mr. Burg. Glad to.
Mr. Buyer. Thank you.
Mr. Welch?
Mr. Welch. I believe that we should have uniform standards
for interconnection. I think, however, our focus is to try to
get this reliability plan straightened out and don't want to
bog it down.
Mr. Buyer. I understand. Mr. Winser?
Mr. Winser. I think, speaking as a transmission engineer,
what is important is to have a good transmission planning
process so that it can play its part in stable tariffs so that
the people, at best, can get their money back.
Mr. Buyer. Ms. Moler?
Ms. Moler. I agree with Nick Winser's comments. I would
also point out that FERC has just adopted uniform
interconnection rules. And they are now exploring what you have
to do for small generators as well. So maybe that will be done
sooner, rather than later.
Mr. Buyer. Okay. Thank you. Thank you, Mr. Chairman.
Chairman Tauzin. The Chair recognizes Mr. Allen for 5
minutes under the rule.
Mr. Allen. Thank you, Mr. Chairman.
Mr. Burg, what I would like to be talking to you today
about I am going to pass. What I would really like to talk to
you about is new source review and the weakening of the Clean
Air Act by the Bush Administration because in my home State of
Maine, Republicans, Democrats, all of us are very, very
concerned about those issues. But I am going to stick to the
ones that are the subject of this hearing.
I wanted to follow up on Mr. Boucher's questions. He asked
if mandatory standards and enforcement powers would have made a
difference. I want to rephrase that question but basically go
down the line and ask you essentially this. The underlying
assumption is that the Midwest ISO, MISO, as not able to
control events on August 14 because they didn't have
operational control of the grid. If you disagree with that,
that view, you can state it.
But the question to each of you for whom this is relevant
is, for those of you who have facilities in the Midwest, would
you be willing to cede operational authority over the
transmission system to a single reliability authority, such as
an RTO, which would be fully accountable for system operation?
Another way of saying that is, would you agree to support the
restructuring of MISO as an independent RTO, however you want
to begin? But I would like to have all of you answer that
question.
Mr. Welch. I'll go first. The simple answer to the question
is yes, we support having a single RTO in the Midwest, but it's
not just a simple ``Yes'' or ``No'' answer. There are
reliability rules and seams issues.
And right now the Midwest is bifurcated, and it is not
cohesive, nor connective in the communicative sense. Unless all
of those other things are put in place, there is nothing that
having MISO do or not do would change the events that happened.
It has to be one large RTO with all of the information and
unilateral control. At that point, yes.
Mr. Allen. Mr. Burg?
Mr. Burg. I would just say that I don't know the number is
what is important. I think it is the interconnectivity, the
knowledge, and the flow of information, the ability to act and
react.
And I think, even more fundamentally, we talk about
mandatory standards, but I really believe we have to go back
and find out, do we have the right rules and processes in
place?
We could all follow the rules. But if the rules maybe need
to be changed because we are operating systems in ways for
which they were never intended, then we have to go back and
look at the fundamental rules. I think that is important.
Mr. Allen. Okay.
Mr. Draper. At one time several years ago, there was a
group of utilities that were contiguous that were proposing an
RTO called the alliance. We thought it made good sense to have
that collection of utilities in a single entity. The FERC found
that that was not the appropriate configuration and, rather,
there should be the PJM and the MISO.
From AEP's point of view, the logical RTO to be a part of
is not the MISO but the PJM system just to our east. We have
more transactions in that direction. And so that is the one we
have chosen to become a part of.
Mr. Allen. Is the question appropriate for anyone else?
Does anyone else want to answer?
Ms. Moler. Mr. Allen, PECO was a founding member of PJM. We
are working very hard to get ComEd in PJM. I agree, though,
that whether you have one RTO or two RTOs, the critical thing
is that they talk to one another. PJM and MISO have been
working on a reliability coordination agreement. We are happy
to turn over, we are anxious to turn over control to PJM, but
they need to have well-coordinated, well-understood protocols
with one another.
Mr. Winser. In a general sense, I would say that the sector
is very, very fragmented, both from the perspective of control,
operation, and ownership. I think a very useful first step is
to try to consolidate and control into larger groupings.
Therefore, I would certainly support RTOs doing that job.
Mr. Allen. And having the operational authority or with the
transmission grid?
Mr. Winser. Yes.
Mr. Allen. Anybody else?
Mr. McGrath. We don't have any facilities in the Midwest,
but I would support the idea.
Mr. Allen. Good. Thank you very much. Thank you, Mr.
Chairman.
Chairman Tauzin. Thank you, Mr. Allen.
Mr. Whitfield, are you prepared, sir? Mr. Whitfield is
recognized for 5 minutes.
Mr. Whitfield. Thank you, Mr. Chairman. I had to leave
earlier today, but I did understand that Mr. McGrath made a
comment in response to Charlie Norwood that not too long ago,
you had a reserve of like 25 percent and you are down to about
18 percent now. Is that correct?
Mr. McGrath. Yes. I've been around a long time, though. So
I have been 40 years in the company, not too long ago, maybe
longer than you think it is. Ten, 15 years ago or so, we went
through cycles, but we had periods where we had 25 percent
reserve capacity. Now we're right down about the 18 percent.
Mr. Whitfield. You know, we have all been focusing on the
transmission side of this equation. There is basic agreement on
how we can improve that. It is in the energy bill. Charlie's
comments raised another question, at least in my mind, which I
guess was in his as well. And that is, should we also be
focused on the generation side?
The comment was made, obviously, the closer the generation
is to the end-user, the more reliable it is. And I know from
experience in my district that a company trying to locate a
generating plant, it is going to take years and years and
years.
Do you think there is a need or will be a need for
legislation to streamline the entire process of generating
plant locations and whether or not the Federal Government
should be involved in helping make decisions on where those
plants should be located more so than--I mean, today my
understanding is that outside the environmental aspect of it,
there is not an extensive amount of Federal involvement.
Mr. McGrath. I think as we restructure the industry, the
bogey that we need to look back on is, how did this work under
the old rules? We are trying to improve, improve this industry.
And under the old rules and the old regulated industry, the
utility had the responsibility for integrated planning, looked
not just at transmission or not just at generation or not just
at distribution but looked across the whole spectrum and
decided which was the best solution for the particular problem.
Was it put a generator at this area or put a transmission line
or whatever?
I think we need to be very careful going forward that what
we replace the old rules with has the same ability to make that
judgment as to what the appropriate way to deal with load
growth is. And we have to monitor and watch the market
mechanisms that have sent people to do that to see that they're
working properly to come up with the--so we have great
difficulty with siting; we are no longer in the generation
business, but in the distribution transmission business a great
difficulty siting substations in our service territory. And I
think that is an issue that needs to be dealt with.
We brought some property in 1965, I believe it was, in the
1960's for a substation in Chelsea, in Manhattan that we knew
eventually we would need.
Along around 1990, the zoning was changed for that area,
but we were kind of grandfathered because we were on notice
that we were going to use it for a station.
Then around 1995, they redid the streets. So as not to dig
it up again later on, we put our facilities under the streets
in the area.
Then last year, we said, ``Okay. We want to build a
station.'' And we were turned down. That's pretty far ahead of
the curve.
So I think this whole siting issue, not just transmission,
distribution generation transmission needs to be dealt with.
Mr. Whitfield. Is there anyone else who has any comments
about it on the generating side?
Mr. Burg. I was going to say, sir, that I agree with you
totally, but, on the other hand, there are places where there
is good news. We located a peaking unit in the State of
Michigan in the last few years and a couple of peaking units in
the State of Ohio. I would say in both of those jurisdictions,
the various parties were very responsive, very helpful, went
through all the proper protocols but allowed us to get those
built in a very reasonable period of time.
Mr. Draper. Our situation is a lot like Pete's. We have had
success where we wish to build. We do business in 11 States. In
some of those States, the generation has been separated from
the distribution and transmission business. In others, like
yours, they are still integrated utilities. And we have had
relatively little difficulty building adequate generation in
any of the 11 States in which we do business.
Ms. Moler. Mr. Whitfield?
Mr. Whitfield. Yes?
Ms. Moler. The DOE Electricity Advisory Board looked at
this. We found that there had been a lot of difficulties with
transmission siting. And we did not conclude that you need
similar Federal involvement in generation.
Mr. Whitfield. Okay. Thank you. Mr. Chairman, I will yield
back the balance of my time.
Chairman Tauzin. The gentleman yields back. Mr. Dingell has
a question he would like to pose to each one of the witnesses.
And I would like to recognize him for that purpose.
Mr. Dingell. Mr. Chairman, I thank you.
Gentlemen, starting with Mr. Draper, if you please, this is
going to be kind of a long question. It is in several parts.
One, when did you become aware of the different aberrations in
the operation of the system?
Two, how did you become aware?
Three, when did you see signs that indicated that there was
a shutdown, and what were those signs? Did any of you receive
calls, either from your neighboring systems by phone or by
other mechanism, electronic device, or something which would
warn you that there was an aberration in the system which was
leading to a shutdown? Mr. Draper, if you please?
Mr. Draper. We saw signs on the system in the early
afternoon. And I can't tell you with----
Mr. Dingell. Early afternoon of the 14th?
Mr. Draper. Yes.
Mr. Dingell. Like about when? Shutdown was about 4:08, if I
remember. I was----
Mr. Draper. Hours before that, we saw that the lines
tripped off, no big deal. We called FirstEnergy to talk about
it. Later we saw more and more lines trip off.
We were not aware that the system was in peril of collapse
until it did. At the time it did, we automatically separated.
Mr. Dingell. You did talk to FirstEnergy?
Mr. Draper. Yes, sir.
Mr. Dingell. Okay. Mr. McGrath?
Mr. McGrath. The first indication we had of abnormalities
on the system that could lead to a shutdown was between 4:10
and 4:11 on the afternoon of the 14th. The first indication to
us was lights flickering, shortly followed by severe voltage
swings on our system, followed very quickly with a reduction in
frequency from 60 cycles on down.
Our system is designed as frequency comes down, frequency
is a proxy for a misbalance between generation and load. If
there is not enough generation to meet the load, frequency
starts to slow down.
What we do on our system then is automatically rely sense
data and start stripping load. In a matter of seconds, a half a
load was stripped off. And the frequency continued to go down,
as did voltage. And the whole system shut down.
Mr. Dingell. Did you see any aberrations in the system
prior to that time?
Mr. McGrath. Nothing that would be outside the whole
ranges.
Mr. Dingell. Did you notify anybody, Mr. McGrath, that you
were seeing these aberrations or anything of that sort?
Mr. McGrath. The aberrations happened so quickly the
operator did two things. He pressed the backs generation
button, started up the gas turbines that weren't running. And
by that time, the system was down.
Mr. Dingell. Thank you. Mr. Burg?
Mr. Burg. Well, again Mr. Dingell, during the afternoon, we
obviously had lines going down, but we did not see any real
changes in voltage conditions to speak of or in power flows
into our system. We had lines going down, but basically I would
say our system was stable.
We were in contact, as Dr. Draper said, with AEP. We were
in contact with the Midwest ISO. They indicated that our system
was stable. So, really, until after 4:05 p.m., something in
that nature, maybe even 4:09, that's when the flow reversals
and so forth, and things really started to happen at that point
in time.
The power plants remained on. Except for East Lake 5, which
went off at 1:30 in the afternoon, all of our power plants
remained on until around 4:10, in that range.
Mr. Dingell. Did you warn any adjacent systems that you
were seeing these aberrations in the functioning of your system
or did you receive warnings from any of your neighboring
systems that they were seeing similar events in their systems?
Mr. Burg. Well, again, we were in contact with the Midwest
ISO, but our system was really, we felt, stable. So maybe there
was no reason to do anything beyond what was done.
Mr. Dingell. Mr. Welch?
Mr. Welch. Basically I became aware of the system
aberration when the lights in my office went out. Immediately I
was on a telephone call. I got up from my chair, went
downstairs, which is where the control center is physically
located in our office building. And I asked what had happened.
By that time, I was told that we were on emergency backup
generation in the control center and that all the generation
had tripped offline.
Three minutes prior to this happening, every system that
our control center sees, which is essentially the lower
peninsula of Michigan, everything, every flow, all voltage
readings were totally normal. And I've provided those in my
pre-filed testimony and exhibits.
Frequency? As I said earlier, we were in the process of
doing a time error correction, which means we were actually
speeding the system up, which means there are no capacity
problems. There are absolutely no warning signals, no
transmission load relief called to give warning that there is
anything.
We see 3 minutes prior to the event that we see a flow
reversal on the lines, which would be normally consistent if
you're sitting here just looking at the world out, that
something had tripped or opened in the outside world.
The job then of the control area operator is to make sure
that everything is in balance. Our system was totally in
balance. The flows were normal. So we would expect to see
someone else if this was causing an imbalance somewhere else to
do their normal thing. Their job is to get that back in balance
in 10 minutes.
Chairman Tauzin. Let me interrupt. We have a vote on the
floor. By unanimous consent, the gentleman's time is extended
to allow the other witness to respond.
Mr. Dingell. You have been very gracious, Mr. Chairman.
Mr. Kessel, can you give us an answer on this?
Mr. Kessel. Yes. Just very quickly, people in our control
room had about 9 seconds on advance warning. No calls were made
to us. The entire system dropped about 1,084,000 customers
within 2 minutes. Immediately after this occurred, within a
minute or 2, we reached out to the New York independent system
operator to inform them and to find out what was going on.
Mr. Dingell. Mr. Winser?
Mr. Winser. We had no prior knowledge either. The first
thing that was really witnessed was lots of the circuit
breakers opening. Our New England assets were obviously
unstable because there was a balance of generation demand. The
New York upstate assets, mostly low frequency, load shedding
came into play. And that was the first we knew. We didn't
receive any calls.
Mr. Dingell. Now, Ms. Moler, your system did not go down.
How is it that you were able to protect your system from the
events that transpired that affected everybody else?
Ms. Moler. Mr. Dingell, when you asked me the question
earlier, I was in the Midwest in my answer for our Commonwealth
Edison, our Chicago-based utility. We had some low-voltage
variations. We learned of them at approximately 4:10 Eastern
time, 3:10 Central time. They were just very short-lived
frequency aberrations. Then the system returned to normal.
From the PECO point of view, though, Philadelphia, we did
have one nuclear generating plant trip. And we saw some
automatic alarms as early as 4:06 p.m. And there were extensive
communications through PJM.
In Chicago, I also want to tout the fact that we do have a
very good working relationship with the city of Chicago. We
have what's called at 911 center. We man the 911 center. It's
cooperative with the city of Chicago. And we worked extensively
with the local officials there as well.
Mr. Dingell. How was it that your system separated? Was it
automatic or was it somebody to the----
Ms. Moler. It didn't really separate. Nothing bad happened
is the best way to think of it.
Mr. Dingell. It happened to the folks to the east of you or
in your Pennsylvania operation, it happened to the folks----
Ms. Moler. Right. And it just happened automatically with a
trip at one of our nuclear generating stations called Oyster
Creek.
Mr. Dingell. Mr. Chairman, I thank you. You have been very
gracious.
Chairman Tauzin. I thank the gentleman.
We have less than 10 minutes on the vote. My suggestion is
that we take a break again. My apologies to the witnesses, but
I know members do have additional questions. So maybe you will
take this break and use it wisely. And we will be back in a few
minutes.
[Brief recess.]
Chairman Tauzin. May we please come back to order? Let me
thank our witnesses for their patience again. The Chair
recognizes Mr. Ferguson for a round of questions.
Mr. Ferguson. Thank you, Mr. Chairman.
Mr. Welch, I had a question, I think just one. One of the
repeated themes that we heard over and over and over again
yesterday that we have heard from Secretary Abraham right on
down is that the answers to the questions that many of us have
are simply not in yet. We don't have the data. We haven't done
the research. We just simply don't know a lot of the answers
yet. And to speculate or to jump to conclusions would be
premature at best and irresponsible at worst.
I've heard it loud and clear. I think most of us have heard
it loud and clear. I think it's good advice. And I have read
and listened to the testimony that I have heard today. It seems
that you seem to be the one who is most willing to kind of
begin to start drawing conclusions in coming up with some of
these answers.
Yesterday the committee released the operator transcripts
that came from the Midwest ISO. These transcripts by any
measure show a great deal of activity, significant operator
concern, lines tripping, overloading, voltage regularities in
an area broader than the area that your testimony addresses.
Have you seen the transcripts that I have referring to?
Mr. Welch. I've only looked at the stuff that was on CNN's
news release. So I have not looked at those tapes.
Mr. Ferguson. Okay. In the preparation of your testimony,
did you consider the information from these transcripts that I
am talking about yesterday when you prepared your Powerpoint
presentation that was--obviously we're all familiar with the
media. It has drawn a great deal of media attention. Were you
familiar with these transcripts when you prepared that
information?
Mr. Welch. I just stated that I have not seen those
transcripts, and I only read what was on the CNN newscast
yesterday.
Mr. Ferguson. Okay. It just seems to me that when we are
going through looking at data that the DOE is still compiling,
to study it, to consider it, to try and take it in its totality
in regard to what is happening, what did happen, what is
continuing to happen, before we start drawing conclusions and
coming up with answers and pointing fingers, it seems to me it
would be a more responsible way to go.
Mr. Burg, I have a question for you. We have talked about
PJM. I am from New Jersey. We have talked about PJM. I am,
frankly, proud of the way our RTO in New Jersey helped to stop,
helped to control the blackout from the 14th.
Regarding the questions from my friend from Michigan
before, Mr. Stupak, the line of questioning that he was
addressing with you, wouldn't it have helped to have solved
some of the problems from August 14 and wouldn't some of those
problems have been avoided if your RTO, Midwest ISO, was
communicating with everybody more effectively?
Mr. Burg. Well, Mr. Ferguson, again, I have tried very hard
in this whole endeavor not to try to throw stones or blame
anybody else. I think we have to find out all the facts here. I
do believe in the end, though----
Mr. Ferguson. The question was, who did you call? Where was
the communication? My question is, doesn't the Midwest ISO have
some responsibility for making those calls?
Mr. Burg. Well, again, I think the important thing to keep
in mind as we go forward here is that the fundamental
communication system I think probably needs to be upgraded
across the region. What is important, though, from my
standpoint with respect to your question is, the information
from our system, the information from our system, was going
real time to the Midwest ISO all through the day. They have
corroborated that. They saw our system. That is No. 1.
No. 2, I mentioned this. I just touched on it before. There
is a another real-time system called the inter-regional
security network. It was established after the 1965 blackout
to, really, get at the kind of question or the answer to the
question that you are asking.
We have 2,100 different nodes on our sites, on our lines
and so forth that send out information real time on our system,
what kind of voltage is going on, are generators tripping, et
cetera. That information went out real time to that inter-
regional service, if you will, all through the day.
Mr. Ferguson. Okay. Thank you. My time is very short.
Ms. Moler, in your testimony, you talked about the need for
mandatory participation within RTOs. How do you feel like
mandatory participation could have protected some of the events
or helped the situation on August 14?
Ms. Moler. My hope is that there would be much better
communication and coordination through the single entities,
larger entities, rather than the multiplicity of smaller
entities.
PECO and ComEd both communicated extensively with PJM. We
also talked to NERC in Maine during the relevant time line. But
I think fewer chefs in the kitchen would be better.
Mr. Ferguson. My time has expired. Thank you.
Mr. Shimkus. Yes. Your time has expired. Thank you.
Just for a public announcement, I am going to miss the vote
so we can keep the panel moving forward for folks on this side.
Now, in the order of identification, we have Mr. Strickland is
recognized for 5 minutes.
Mr. Strickland. Thank you, Mr. Chairman. I will be brief
because the panel has been very patient. And we appreciate the
fact that they have given us so much of their time.
I said yesterday as Governor Taft and the good Governor of
Michigan were seated there side by side that it was good to see
them in that position. I have been very pleased with this
process so far in that, as Mr. Ferguson indicated was his
preference, I think there has been a minimum of preliminary or
inappropriate finger-pointing. I think the fact is that there
is much we don't know and there is much more we need to find
out. And that is a part of this process.
I had two goals for these hearings. One was to try to find
out what happened and to identify steps we could take to keep
it from happening again. And the second one was to try to make
sure the process was focused on the broader problem of our
transmission system, rather than simply trying to lay blame.
Mr. Welch, I have a question for you. As I understand your
testimony thus far, you have indicated you had no warning of
what was going on with FirstEnergy. I point this out because,
as all of us know, FirstEnergy has in the past few days been a
focal point of interest.
Doesn't the Michigan electrical coordinating system receive
computerized information? The reason I ask there, there have
been discussions about courtesy calls and, even today, there
have been questions about ``Did anyone call someone?'' You
know, if that is what it takes, then I think we have got
serious problems.
Do you receive computerized information regarding what is
going on with those facilities that you are interconnected
with?
Mr. Welch. Yes.
Mr. Strickland. And did you receive this information from
FirstEnergy?
Mr. Welch. We did not receive any information from anyone.
Mr. Strickland. Well, then, Mr. Burg, can you tell me
whether or not FirstEnergy provided this computerized
information that should have been available to Michigan or in
Michigan?
Mr. Burg. Mr. Strickland, as I understand it, the data from
our EMS system, our energy management system, was working
properly to the Midwest ISO. So they had it.
In addition, there is this inter-regional security network.
We have like 1,200 analog devices and 900 digital devices
throughout our system that automatically collect data real time
and send it directly out under this system. Now, if Mr. Welch
or others on the panel have access to that data, which I assume
they do, and they use it, they receive it.
I mean, we send it out. It's out there. The whole process
was set up after the 1965 blackout to really get to your point.
You just can't be relying on telephone calls. There has to be
some kind of automated information out there. That is my
understanding.
Mr. Strickland. Does everyone agree that before we reach
conclusions, we should find out, first of all, whether or not
the information just shared by Mr. Burg did, in fact, go out;
if it was received, was it attended to; if it was not received,
why wasn't it received?
It seems to me that that is absolutely critical to any
conclusions that we may reach before we start pointing fingers
at any particular entity or point in this process. Is that
something that we can all agree on or does anyone take issue
with that conclusion on my part?
Ms. Moler. I agree.
Mr. Strickland. Mr. Kessel?
Mr. Kessel. I definitely agree that we need to know that
information. Obviously we are on Long Island. We're kind of
like at the end of the system.
Mr. Strickland. Sure.
Mr. Kessel. And I think one of the questions that I have
is, why did our operations room not really know about it?
Basically the entire system collapsed in 9 seconds. And there
should be some way that there can be communication between the
various regional transmission organizations. I am not sure,
frankly.
One of the questions I get asked by our customers all the
time is, ``Why didn't you disconnect? Why couldn't you just
disconnect?'' And it's a question I have. You can't just
disconnect. First of all, in 9 seconds, you can't do anything.
Mr. Strickland. Sure.
Mr. Kessel. But, even if you had time, you know, you would
need at least an hour notification. It seems to me pretty
shocking that somehow this is the sequence of events without
assessing any blame to anyone. And somehow that is not
communicated throughout the system.
Mr. Shimkus. I am out of time. I want to thank you for your
information that you have all provided to us today. Thank you
all.
And I thank my colleague. I am going to go out of order and
let my colleague from Texas go since I decided to stay here. So
I now recognize Congressman Green from Houston.
Mr. Green. Thank you, Mr. Chairman. I appreciate the time
of the panel. I know it's been a long morning. I apologize for
all of us for having to run back and forth to vote, but that's
the nature of the beast that we have to deal with.
Mr. Kessel, your experience with that underwater line from
Long Island to Connecticut, I think generally all of the
testimonies talked about it, but Mr. Draper in his testimony
talked about the electrical grid and our country was designed
in large part for local utility generation to their customers,
from the plant to the customers and, yet, because now we're
doing so much more interstate, we just haven't kept up with the
grid. I wish that was a silver bullet. It may be, but I think
there are so many other ways of communications, as we just
heard from my colleague in Ohio, that also helps.
Mr. Draper, in the energy bill that is in conference
committee now, and each of you, there are provisions in there
that would solve some of the problems that we are identifying
now? H.R. 6 or the energy bill that was passed by the House,
not the Senate necessarily because I know the Senate adopted
what they had last year, but from the House side, anything that
would help with some of the problems with both siting, and also
with leveling the playing field for permitting so it doesn't
take 10 years, for example, to get a permit?
Mr. Draper. I think it would help. It is clear that one of
the issues is that, unlike the natural gas business, the
electric business doesn't have the right of imminent domain for
transmission lines. We still will have the issue of
coordinating activities among multiple jurisdictions if a
transmission line goes through several States. But I believe
that there is no question that the proposals will help.
The idea of having a greater ability to site transmission
will be extraordinarily helpful, as will some of the other
provisions that would include the mandatory standards.
Mr. Kessel. Congressman, though, let me add that one of the
issues that you kind of are getting to that is important to
point out is that the Connecticut State legislature enacted a
moratorium on all lines emanating from Connecticut through the
Long Island Sound. Now, that just doesn't include this Cross
Sound Cable, which, by the way, received all permits from the
Federal and State government. The Connecticut Department of
Environmental Protection said that this would not harm the
environment and permitted the cable.
But the moratorium also blocks other lines. As an example,
there is a proposed Islander East gas pipeline that would bring
natural gas from New England to Long Island and allow for the
construction of new natural gas-fired generation plants on Long
Island. That moratorium is stopping that Islander East line
from connecting to Long Island.
And if we want to build new generation on Long Island, we
are not going to go nuclear. I mean, no one is. Coal is out of
the question for us on Long Island. Natural gas is the
preferred technology. Yet, we can't get enough gas to Long
Island because, again, one State is able to stop interstate
commerce of natural gas in order to fire up new generation.
That is very frustrating.
Mr. Green. And, obviously, if you can't tell from my
accent, I understand. And I understand that natural gas is
awfully important.
Mr. Kessel. I like oil, too, though. I love oil.
Mr. Green. We actually have more natural gas in the Gulf of
Mexico than we do anything else, which gets me to the next
question.
Mr. Museler, I know we are speculating all sorts of things
on the blackout, but I know New York State has to import so
much more of their energy. Do we see any assistance in trying
to actually build some generating plants so the New York ISO
would have generating facilities, instead of worrying about
cross-State transmission?
Mr. Kessel. I'm Richard Kessel, but I'll speak for Bill
Museler because he's my buddy back there from the ISO.
Let me point out that I think we have had some success in
New York State. In fact, several years ago, Governor Pataki had
the New York Power Authority construct 11 new small generators
that, frankly, in my view saved the city of New York from
blackouts 2 summers ago. And on Long Island, we were able to
construct 13 new of these smaller generators on Long Island
that avoided rolling blackouts on Long Island as early as the
Summer of 2002.
I'm not speaking for Gene, but both Con Edison and the Long
Island Power Authority have issued requests for proposals for
new generation. We just received 15 very solid proposals back
on September 2, just 2 days ago.
This is a unique opportunity, congressman, for the public
and the people in this country, who do resist many times the
siting of new generation and even transmission, to recognize
that if we want to keep the lights on, we can't have all this
nimbiism. We've got to be very careful about environmental
concerns. We have to reach out to the public beforehand. We
have to work with communities. But at the same time, I think
there is a unique window for America and certainly in New York
State in my view to be able to convince people that if we want
to avoid blackouts and brownouts, we need new generation to
meet that need.
Mr. Green. Mr. Chairman, I apologize. I've got to run to go
vote, but I apologize for asking the question of you from the
second panel.
Mr. Museler. That's okay.
Mr. Green. Obviously I got the answer I wanted.
Chairman Tauzin. You had better run. You have got 10
seconds.
The Chair recognizes himself just briefly. Mr. Winser, I
want to visit with you a second on exactly a little bit more
about your company. Your company manages the transmission
system pretty much for Great Britain, doesn't it--for England,
I should say?
Mr. Winser. For England and Wales.
Chairman Tauzin. England and Wales?
Mr. Winser. Thank you. For England and Wales.
Chairman Tauzin. You are it? Is there any competition or
you are the transmission operator there?
Mr. Winser. We are it.
Chairman Tauzin. You are it? Are you regulated as a
monopoly? Are you----
Mr. Winser. Yes, indeed. We have 5 yearly discussions with
the regulator. And he allows us some revenues to fund our
operational----
Chairman Tauzin. But you have one regulator, I understand,
in England, right? You have one regulator, right?
Mr. Winser. That is correct.
Chairman Tauzin. Now, here in the United States, you have
invested or bought transmission facilities as well, right?
Mr. Winser. Yes.
Chairman Tauzin. And you operate them in this country, and
your intent is to continue to acquire transmission facilities
and grow in this country?
Mr. Winser. Yes. It's an opportunistic thing, but we
certainly feel that we bring some value to transmission in this
country. And we have got a model which I think will help
customers. So we are certainly very interested in that.
Chairman Tauzin. The reason I am asking that is, to follow
up on this conversation, there is a lot of puzzlement on this
panel and I'm sure around the country with people who may be
watching this hearing as to why, in fact, incentive of a
guaranteed rate of return has not generated more investment in
transmission facilities, why someone like you would be visibly
expanding your business in transmission when others are not
willing to make investments when we learn of a 13-year effort
to try to get a transmission line sited, by the way, not in New
England but in Virginia and West Virginia, where you would
think siting would be less of a problem than it would be in an
urban New England setting?
Tell me a little bit about it. What is your take on this?
Why don't we have more investment in transmission facilities?
Why is transmission attractive to your company and perhaps not
to other investors?
Mr. Winser. Well, sir, we would be and are very interested
in building transmission in this country. This is the core to
our business. But that would be on a case by case sort of
basis. And as it stands at the moment, we would and do, indeed,
negotiate with the State regulatory authorities and, indeed,
with the FERC. The particular footprint that we're operating in
here has rate plans that give adequate remuneration. We think--
--
Chairman Tauzin. In other words, you are buying existing
transmission facilities. You're expanding by acquiring existing
facilities, rather than going through the hassle of trying to
get approval to build new ones, right?
Mr. Winser. Well, we are buying existing systems. We are
also reinforcing them.
Chairman Tauzin. Right.
Mr. Winser. We are spending quite substantially above the
average spent of a----
Chairman Tauzin. But modernizing a facility, as opposed to
building a new transmission facility, right?
Mr. Winser. Well, one of the great opportunities we think
is to take existing rights-of-way and really pump them up and
get more power through them.
Chairman Tauzin. Out of existing rights-of-way. So where a
line has already been approved?
Mr. Winser. Yes.
Chairman Tauzin. That's my point. There seems to be a big
difference between the willingness of investors to put some
more money into an existing right-of-way than there is to go
out and finance the construction of new facilities where, in
fact, transmission lines probably should be built in order to
complete the capacity of these grids to handle the increased
demand.
I see a lot of you shaking your head. Does anybody want to
jump in here? Dr. Draper?
Mr. Draper. I think there are two issues, Mr. Chairman. One
is the ability to site or even upgrade existing transmission
lines. And that's a siting hassle. It's not an economic
question particularly.
There is a separate question, which is the willingness to
invest funds in transmission facilities, where you are quite
right there are adequate rates of return set by the Federal
Energy Regulatory Commission. But for most companies, only
about 10 percent of the use of the transmission system is in
the wholesale realm. The other 90 percent is at the State
level. And those rates are set by State commissions. In
virtually all of the States we----
Chairman Tauzin. I want to stop you there. That is an
important point to make. All these folks have been talking
about this great rate of return. We are only talking about
whole sale rates set by the Federal Government. The States
themselves set transmission rates for distribution within the
State at retail. Is that correct?
Mr. Draper. For about 90 percent of our transmission
revenues, we are dependent on actions by the State commissions.
Chairman Tauzin. And that may be quite different than the
rate of return predicted by FERC?
Mr. Draper. It's even worse than that because in most
States, in all the States in which we do business,--and that's
11--we have relatively long-term rate freezes.
Chairman Tauzin. Yes.
Mr. Draper. So if we make an investment, there is no way to
recover those costs until that rate freeze expires.
Chairman Tauzin. You were shaking your head, Mr. Kessel?
You wanted to----
Mr. Kessel. Well, I think you were making a couple of very
important points. Uniquely, Long Island Power Authority is a
State authority. And we actually set our own rates. But at the
direction of Governor Pataki, who has been very interested in
the transmission system within the State and on Long Island, we
have been able to spend a little bit over $1 billion in 5 years
on the system.
I think the issue, though--and I have heard it said
before--is that the public needs to be more aware of the siting
issues because when you want to do a local transmission line
somewhere, people get nervous about it, even if you take an
existing line and you need to upgrade that line, you have a
line there. You have got the rights-of-way and all you want to
do is double that line, double the ability of that line, or to
carry more electricity. And then if people hear that, they get
nervous.
I know on Long Island, we have that situation right now in
the great Town of Riverhead, where we need a new line. There is
tremendous growth out on the east end of Long Island in the
Hamptons and the North Fork. We need a new line to sustain the
growth.
Do you know what the public says? No. Take the line that
you have and bury it. And then you can double it. So I think
there are perception issues that really have to be dealt with.
The other thing I have to say to you, congressman, is that
transmission isn't as sexy as generation. Everyone focuses on
power plants. People don't really pay a lot of attention to
wires.
Chairman Tauzin. I think you're right.
Mr. Kessel. And I don't think there is enough interest.
Chairman Tauzin. Just one other quick--you don't have to
answer because my time is up. I just want to know if anybody
disagrees with me. Does anybody in this panel disagree with the
Secretary's decision to withhold the findings on this
investigation until all of the facts are in? Do any of you want
to criticize him for not yesterday telling us exactly what
happened because he doesn't quite yet know?
Ms. Moler. No, sir.
Chairman Tauzin. Anybody?
[No response.]
Chairman Tauzin. Thank you. The Chair recognizes Mr. Brown.
Mr. Brown. Thank you, Mr. Chairman. And thank you all for
your testimony.
Mr. Burg, you testified that FirstEnergy noticed unusual,
your word, system conditions on that day in August 14. Tell us
more about those conditions. Why were they unusual? Were they
unusual conditions limited to FirstEnergy facilities? What was
the status of power flows between Ohio and Michigan around the
time of the blackout, that sort of thing?
Mr. Burg. Well, again, for most of the day--I shouldn't say
``most of the day.'' During the afternoon, as we have
documented, at various times, we lost some transmission lines,
not necessarily to overloading, but we lost some transmission
lines. Other players in our general vicinity that we knew about
also lost some transmission lines.
There were two or three generating units in the region,
I'll say, that went down. So all of these events were
happening. And that's why I guess we said maybe some unusual
occurrences were going on.
We also at this time still don't know what else might have
been going on, really, in the Eastern Interconnection. And
maybe that had something to do with what ultimately happened.
Anyhow, those things were going on. However, for the most
part, our voltages, our power flows, our imports, if you will,
were really stable, all the way up to maybe 4:06 or so in the
afternoon. So while all of these things were going on around
us, we were virtually stable at 4:06 and beyond even and as
late as--I just looked at my time sheet here--I don't know--
15:48, the MISO reliability coordinator for us and PJM another
reliability coordinator were looking at some of these outages
on our system.
And we're looking at what they call the next contingency.
In other words, they were doing studies to see what else should
happen if another line went out.
So I won't say they weren't concerned, but they weren't
overly concerned at that point in time.
Mr. Brown. Thank you.
Mr. Welch, you testified ``a very large demand, 2,200
megawatts plus voltage support demand'' was suddenly thrown in
the ITC's interconnections to FirstEnergy. That makes it sounds
like FirstEnergy was demanding power from you. Earlier today in
his written testimony, Mr. Burg testified that FirstEnergy was
actually sending you power right up until 4:05 or so. Can you
clarify that? Was their system, the FirstEnergy system,
delivering power to you up until that time at least?
Mr. Welch. You can see it in my testimony, too, that I have
a sequence of the power flows. For an hour up to the blackout--
and you can see that in the sequence of pictorials there.
What we see--and I can reference my testimony so I can get
the time on its right--is that there were flows from Ohio into
Michigan on the FirstEnergy tie. And it was in the direction of
Michigan at 3:41 to 3:46 p.m. Okay?
At 4:06 p.m., we see for the first time a reversal of flow,
not only on the FirstEnergy interconnection--I have to check
that. Yes. We see a reversal of flow on the FirstEnergy
interconnection. And we see an increase, a slight increase, in
the flow across Michigan. And that's the 2,900 megawatts and
that arrow going across the top.
At 4:09 p.m., then we see the other two lines that we were
talking about. They go out of service. All of a sudden, there's
a sudden in-rush of power from the western side of the State
that takes the cross-State flow from 2,900 to 4,800 megawatts,
which then sets the whole cards up which causes the cascading
voltage problems in Michigan, which led to the blackout.
Mr. Brown. So, after 4:05, when things reversed and
Michigan began sending power to Ohio, my understanding is
FirstEnergy wasn't using most of that power. It was moving
through the FirstEnergy system, through AEP, and back into
Michigan. Is that your understanding?
Mr. Welch. I have no knowledge of where that power was
coming from or going. Our job as a control area operator is to
balance the needs of the State and make sure that everything
that appears at the import that is not accounted for via
contract inside the State is exported. In other words, we make
sure that there is a net energy balance in the State. That's
all we do.
Mr. Brown. Mr. Burg, was that your understanding, that it
went back through AEP back----
Mr. Burg. Again, all I know is this. Some allegations have
been made, and I read about them in the newspaper. I don't know
who makes them all the time. Somehow we were sucking power from
Michigan. What we're saying is power was flowing at the very
end, before the event.
Power was definitely flowing from Michigan into our system,
but it was going right out the other end. I don't know where it
went either, quite frankly. This is part of what we have to
find out in this investigation.
Mr. Brown. And last, Mr. Chairman, real quick. Dr. Draper,
would you know that?
Mr. Draper. No, I don't know the specific answer to that
question. We are interconnected with FirstEnergy. And to the
western part of Michigan, we are not directly interconnected
with Mr. Welch's company. So we don't know what flows to his
company and from where.
Mr. Barton. The gentleman's time has expired. The gentleman
from New York, Mr. Fossella, is recognized for 5 minutes.
Mr. Fossella. Thank you very much. Thank you for your
patience, all. And, Mr. Chairman, if I could submit in
unanimous consent the statement of Governor Pataki----
Mr. Barton. Without objection, so ordered.
Mr. Fossella. [continuing] and questions from witnesses
that appeared yesterday.
Thank you again, all.
My question will be directed to Mr. McGrath. Thank you for
coming. Separate and apart from the big blackout, as you might
be aware, there was a separate blackout on Staten Island
specifically, about 42,000 customers on the south shore of
Staten Island.
As I understand it, NYISO ordered you at approximately
9:30-9:45 to shed load on the system for an hour. And, as a
result, there were some portions of Staten Island and I'm told
some portions of Westchester that were shut down for a period
of time upwards of 8 hours, in some cases longer than the first
blackout.
There are a couple of questions on the point that I would
like to bring up. The questions are, when Con Ed was ordered to
shed load for an hour, did it anticipate that the power in
these 42,000 or so customers would be shut down for upwards of
8 hours?
Throughout the day, what led Con Ed initially to make the
determination to shed load on those customers in Staten Island?
And throughout the day, as power was being restored in other
parts of the region, what types of decisions were being made to
sort of keep the lights off in those areas because those lights
had been turned back on, the power had been turned back on
during the night?
Mr. Barton. Would the gentleman let me interrupt? We are
going to keep this hearing going. We are not going to suspend
the hearing. So those who want to go vote and come back, do so.
Mr. Fossella. Okay. So I am just curious in a layman's
point of view how these decisions were reached and then
throughout the day, in effect, what were so-called going to be
rolling blackouts out, but in these areas of Staten Island,
they weren't rolling at all. They were just the blackout.
The third--and this may be an area of perhaps constructive
relief down the road. In terms of notifying the public, many
folks thought that the lights and the power were going to be
back on indefinitely.
And then in trying to elicit information from those,
whether it's Con Ed or someone else, it was very difficult to
convey or communicate that information to the public, at least
initially, that their lights were turned off again. Whether
it's Con Ed or NYISO, in the future, is there a better way to
provide adequate communication and/or notification to the
people who will be affected? A lot of questions, but I
apologize.
Mr. McGrath. Okay. Thank you.
Our first priority in restoring New York City was to get
access to power through transmission lines that had already
connected up to power. So we worked from the south end of our
system through Staten Island and the north end of our system
through Westchester County. And we energized section by section
of our 345 kV, 345,000-volt transmission system.
As you energize a section of unloaded transmission line, it
tends to rapidly raise voltages. So, for example, Buchanan at
one point on our 345 kV system, when we energized it without
load on it, it jumped up to about 412 kV.
So one of the very important issues that the system
operator is wrestling with is how to energize these sections
and how to control voltage. A way to control voltage as you
energize a section is very quickly put the appropriate amount
of load, pick up the appropriate amount of customer load to
balance that and bring the voltage down to normal ranges.
Now, you can only pick up customer load to the extent that
you have generation available to support it. So it's a kind of
a balancing act. So early on in the process, we started working
our way from the south and from the north section by section,
very meticulous approach, picking up sections, picking up load,
to support the continuation of connecting up our transmission
grid.
All the while until they came together, the north and south
transmission came together, they were, in effect, a radial
system, not very stable. Any event on a system could have taken
everybody out. So our priority is to get an established
transmission system.
Early on, we energized parts of Staten Island to provide
that voltage control for the transmission system. As you said,
about 9:30 in the morning, we were still going through that
process and hadn't yet brought the transmission system together
so it was stable. There was an event upstate. I believe a
generating station dripped out. And the ISO Statewide asked for
the utilities to shed load.
The only place, of course, we could shed load was those
places we had already energized. We couldn't shed load where we
didn't. So Staten Island and Westchester were energized. We
took pieces of a load out of Staten Island and Westchester in
response to that order to bring the load down.
Meanwhile, we're doing switching and whatever to continue
to connect up sections of transmission. Our ultimate priority
is to get the transmission system together. As the day went on,
the load that was already connected at Staten Island grew. As
people went to work on the remaining areas that stayed
energized, that load continued to grow. And we could satisfy
that voltage constraint that we had and enable us to go to the
next sections of transmission.
To energize those, we had the same problem. We had to pick
up local load where those transmission lines connected to keep
the voltage under control. It didn't do us any good to put more
load on Staten Island at that point. We needed to put it where
we were energizing the new transmission connections.
We went through that process until we synchronized the
transmission from the south to the transmission from the north.
We then brought in separate other lines. And now we had a
stable system where we could bring up and load up the
distribution system.
So that was kind of our whole intent there and whole
approach. I think Staten Island area went back in the
afternoon, on Friday afternoon, as we were picking up other
areas that had been connected through the transmission system.
Now, with regard to communication, all of these events are
enormous communication issues. We made almost 14,000 phone
calls to customers that are on life-sustaining equipment,
medical hardships. We contacted all the hospitals, nursing
homes, housing projects. We contacted all elected officials
throughout our service territory. We had 1,000 press calls. Our
first media announcement went out at 4:25. This happened at
4:11. We had nine of those through the day. We attempted to
keep up communicating with all parties.
That's an area that can always be improved. We'll look at
this event and see how we can do better with that the next
time.
Mr. Barton. I'm going to have to cut this off. We have got
9 minutes into the vote. I need to let Mr. Rush ask his
questions so he can go vote. So the gentleman from Illinois is
recognized for 5 minutes.
Mr. Rush. Thank you, Mr. Chairman. You are so kind. Mr.
Chairman, I want to welcome all of the panelists here, the
witnesses here. I certainly want to take a moment to welcome
Mrs. Betsy Moler from Exelon to this panel and look forward to
hearing her testimony.
And I'll begin by making a statement. Ms. Moler, today in
the Chicago Sun Times, there was an article in the Business
section entitled ``ComEd President Says Blackout Less Likely
Here.'' The article says that since the 1999 Chicago blackouts,
your subsidiary Commonwealth Edison has invested $2 billion in
its high-voltage power lines and distribution system. It goes
on to say that, in addition, ComEd will spend another $2 to
$2.5 billion over the next 5 years on its transmission system.
It concludes that, as a result of these improvements, the
article says that Exelon is less vulnerable to blackouts
compared to other utilities.
Can you tell us why ComEd is able to make these sorts of
important investments? And upgrades and what can other utility
companies learn? And what can the Congress itself learn from
your experiences?
Ms. Moler. Mr. Rush, our $2 billion investment began, had
its infancy, in a 1999 blackout in Chicago that I mentioned in
my written comments and in my opening statement. We obviously
had system issues we had to address. Our system was not well-
designed.
We have built both transmission and distribution and
basically rewired, if you will, big parts of downtown Chicago
as to the way the system is designed. We have an obligation
under the Illinois statutes to provide reliable service. And we
had problems in 1999, and we fixed them.
I will say that we have not recovered big parts of that
investment because we have frozen rates in Illinois. So we just
had to do it.
Mr. Rush. I just want to say that I remember the blackouts.
I was there. And I remember the contrasting picture. I remember
the mayor of the city of Chicago--and I mentioned this in my
opening statement--taking ComEd to the woodshed. I mean, he
really--and I was proud of the way he was able to speak on
behalf of the citizens of the city of Chicago.
What was also illuminating to me and fairly remarkable was
the response of John Rowe in terms of he wasn't defensive, he
was very agreeable. And he displayed an attitude that I thought
was very progressive, illuminating, and enlightening because he
assumed the responsibility and he said, as you indicate, ``We
will fix this situation.'' That was met with some skepticism.
But now I am just delighted to know that he has kept his
word and he is really moving to rebuild the transmission system
there in the city of Chicago.
I just want to say to you that I am proud of what ComEd has
done in the city of Chicago--I really am--in regards to
rebuilding the grid system.
Ms. Moler. Thank you.
Mr. Rush. You have indicated that the rates, the retail
rates, are frozen in the State of Illinois. Is that correct?
Ms. Moler. Yes, sir. Thank you for your comments. I will
certainly tell him. He will be delighted. We were humbled. We
can't say it won't ever happen again, but we have certainly
done the best we can.
Mr. Rush. So you assume the responsibility for the
investment? You didn't place the responsibility solely on your
retail customers; is that correct, to finance it?
Ms. Moler. That's correct.
Mr. Rush. Mr. Chairman, thank you very much. I yield back
the balance of my time.
Mr. Bass. Thank you very much. Thank you very much.
The Chair will recognize himself for 5 minutes. I want to
start with an apology. Due to the situation going on this
afternoon, I haven't been able to hear the other questions, the
other answers. I hate to be too repetitive. So, if I am, please
just say, ``Keep it brief'' so we don't repeat too much.
If part of the solution to preventing a recurrence of what
happened on August 14 requires investment in electric
transmission systems, what can and should Congress do to
encourage the needed investment in the transmission grid? Do
any of you wish to address that? Go ahead, sir.
Mr. Kessel. Well, I'll just quickly repeat what I said
before. I think that the Federal Government needs to take a
role in siting interstate transmission lines and encourage
private industry to partner up with utilities to make
investments in that system.
And I think the Congress can help by having some kind of
financial incentives for interstate transmission by private
companies whereby a private company would construct a
transmission line for a utility, the utility would then enter
into a power purchase agreement for a period of time to
purchase the power off that line to repay the private company
for their investment.
If this is all left to the utilities, I don't think there
are too many utilities that ultimately wouldn't have to raise
rates significantly and quickly to catch up with the grid.
I mentioned--and I said this before, and I am not going to
repeat myself; I've said it many times--I think that when you
have a situation like you have where the Cross Sound Cable was
built between Connecticut and Long Island and was not allowed
to operate, even though it was sound----
Mr. Bass. Right.
Mr. Kessel. [continuing] that does not give an incentive
for private industry to act.
Mr. Bass. In fact, I was impressed by your opening
statement.
Again, another general question. There had been barriers to
installing infrastructure. And there are obviously indications
that we haven't met those requirements in investment and
transmission facilities during the last decade.
What specifically do you think Congress can do to remove
barriers to siting transmission facilities outside of what we
currently have in the energy bill that is in conference? Any
other ideas?
Ms. Moler. I believe that providing a regional planning
process where you bring the relevant folks in to discuss the
infrastructure needs so that there can be agreement, to the
extent it is possible, on what the infrastructure needs are,
that needs to be done through an RTO planning process. An open
RTO planning process would also help.
Mr. Burg. Congressman, we have talked about a lot of
elements that would be helpful. One we may not have talked
about as much as maybe we should have has to do with what some
call participant funding. In other words, the people that
benefit from the transmission lines should help pay for those
transmission lines, possibly even in some up-front way.
So I think that is an important element that it is easy to
say, ``Well, a company like ours, we build a transmission line,
say, across Pennsylvania, but generators in Ohio use it to
transmit power across Pennsylvania. It may not help many people
in Pennsylvania.'' So I think that is an important element as
well that we need to look at.
Mr. Welch. I think that as an alternative to that, we have
to look at the pricing issue itself and how transmission is
paid for. And we have supported that it should be done on a
flow-type basis, just like it's done in the gas pipeline and
where the gas in the pipe is what pays for the transmission
charge. We think that the flow, the energy flow, in the wire
should pay for that.
Then you don't have to worry about whether there is a
benefit study or not. The actual flows are going to be who are
the recipients of it because in an interconnected grid, it will
ultimately start to pick up all of the flow. And so it benefits
the grid. And so let the flow pay for it.
Mr. Bass. One last question. Do you think there is a point
at which a grid is too big, can't be controlled, too
complicated, more than can be understood by the human mind,
even with the aid of computers? Is there such a thing?
Mr. McGrath. I think, congressman----
Mr. Bass. Too large an RTO, let's say.
Mr. McGrath. I think we have to be careful until we look at
the whole picture. You know, the focus is on transmission here.
And whatever we do on transmission, we have to do that in the
context of what is best considering transmission, generation,
and distribution.
We can't go off and look at one piece of the equation and
optimize that and optimize the whole. So I think what we have
to be sure to monitor and make work is, are the market
mechanisms working to optimize the whole picture, not just one
segment of it?
Mr. Welch. I don't think that you can actually build a
transmission system to be too complex to operate. Actually, as
the transmission system gets larger and more robust, it
actually becomes easier to operate. I mean, if you look at what
we have here today, it is that we have a very complex set of
operating rules that were all put in place as a substitution
for infrastructure investment.
And what we will ultimately uncover is that there was some
breakdown in communication, some breakdown somewhere that
allowed flows to happen where they couldn't be supported.
Mr. Bass. But the underlying system was inadequate in your
opinion?
Mr. Welch. The underlying system was inadequate. And if you
undo the underlying inadequacies, you don't have to have the
complex operating protocols.
Mr. Bass. Thank you very much.
Mr. Doyle?
Mr. Doyle. Thank you, Mr. Chairman. And I thank you to the
panel for your patience. I know you have been here a long time.
I am sure you have been asked every which way possible
about how you think this happened. I want to just take a
slightly different tact. You know, as we have tried to pass an
energy bill in this Congress, the electricity title has been
one of the more controversial ones. And it seems to break down
along regions, not parties.
I am just curious. Secretary Abraham was here yesterday and
told us that the administration would support a delay in FERC's
SMD rulemaking until 2007, along the lines they had a
negotiation with the Senate.
And my question is--and this is for all of you--what impact
would such a delay have on reliability and on the functioning
of existing RTOs if we were to delay that rulemaking until
2007?
Mr. Welch. I believe that if we delay the rulemaking, we
are going to start to take steps backwards. The whole issue is
about the enforceability of reliability standards. It's clear
that we have to get one point of accountability in one identity
that says, ``Look, this is the information we have to have.
This is the form we have to have it. This is what we are going
to do with it. And these are the circumstances under which it
operates.''
What we have today is reliability counsel spread around,
RTOs spread around, seams between RTOs. Standard market design
will start to bring that under one roof. And it is absolutely
the direction we need to go. To delay it means that we are
going to have a lot more of this in between. And I, for one,
think that it is not the right move.
Ms. Moler. Mr. Doyle, if I could comment on that? It was my
privilege to chair FERC for a number of years. I believe that
the FERC needs to have authority to oversee the grid and energy
markets.
The unintended consequences of the delay are significant.
They would make it impossible to have price caps, for example,
because of the way the language is written. They would make it
impossible to have market monitors. It would make it impossible
to have mitigation when necessary.
The rulemaking would put into place cyber security
standards, for example. Because of the language of the delay,
that would be impossible to do. There are just numerous
unintended consequences from the delay. And I think it would be
a very bad thing.
Mr. Winser. To save time, could I just say that I agree
with both of those points of view?
Mr. Doyle. Thank you.
Mr. Burg?
Mr. Burg. Congressman, I was just going to say that I would
encourage you to focus on reliability over markets, No. 1. I
think Dr. Draper's testimony even talked, we have both. We have
to balance them, but I would put the balance to reliability
over markets.
The other thing in the standard market design, we're not
opposed to it, but I think it's important to recognize that one
size may not fit all areas of the country.
The country is different in some respects in terms of how
far they have deregulated or where they are at with generation
or capacity. So one size may not fit all. I think that is
something that has to be looked at.
Mr. Draper. I agree with what Mr. Burg just said. We do
business in 11 States. Those 11 States have very different
views about whether standard market design is desirable or not.
We would hope that----
Mr. Doyle. We've heard that on this committee, too.
Mr. Draper. We would hope that the FERC and the States
would get together and get this worked out so that we're not
caught in the middle. But we do believe that it is important
that we have mandatory NERC standards, that we get the
reliability issues right. We think that can be done independent
of solving this battle between the States and the FERC.
Ultimately we think it makes perfect sense to be in an RTO,
but we can't deal with the situation in which a number of our
States believe one way and a number another way.
Mr. Doyle. Mr. McGrath?
Mr. McGrath. I think we need to get on with things here. To
the extent we can clarify the rules, take care of siting
issues, take care of reliability requirements. That's got to
help this industry in its transition. And I think the sooner we
get on with it, the better off we are.
Mr. Doyle. Very good. And, last, obviously we have a number
of RTOs functioning today. As you see it,--and, again, this is
for all of you--what additional action should FERC take to
facilitate the effective operation of the existing RTOs? And I
also wonder whether any of those actions would be prohibited by
the proposed delay in this standard market design rulemaking.
Mr. Welch. I think that the RTOs should be made mandatory.
I think that the FERC should be given the authority to tell the
utilities what RTOs they're going to be in. What we have in the
Midwest has absolutely been set up as from an operational point
of view, from a reliability point of view, a disaster waiting
to happen.
There are too many scenes, too many handoffs, too many
pieces to be coordinated. We need to get this, and they need to
get it aligned such that you have an RTO that serves a region
that is basically where the trading has been taking place and
not a continual hash and rehash. The voluntary nature is just
not working.
Mr. Doyle. Yes?
Ms. Moler. With your permission, I would like to submit a
paper for the record that will talk about some of the potential
unintended consequences of the delay. I think they are
significant.
[The paper offered by Elizabeth Moler follows:]
Unintended Consequences of Delaying FERC's Standard Market Design
By Elizabeth Anne Moler,<SUP>1</SUP> Executive Vice President,
Government and Environmental Affairs & Public Policy, Exelon
Corporation
---------------------------------------------------------------------------
\1\ Ms. Moler served as a Commissioner (1988-1993) and then as the
Chair (1993-1997) of the Federal Energy Regulatory Commission and as
Deputy Secretary of the United States Department of Energy from 1997-
1998.
---------------------------------------------------------------------------
As conferees on the energy bill race to complete action on the
legislation, they will be faced with a proposal from the Senate to
prohibit the Federal Energy Regulatory Commission (FERC) from
implementing its July 2002 Standard Market Design rulemaking proposal
(SMD).<SUP>2</SUP> Prohibiting FERC from implementing SMD is one of
those things that ``sounds good if you say it fast.'' But a close look
at the proposed SMD rule, and FERC's April 2003 Wholesale Market
Platform White Paper, clearly shows that delaying SMD will have
numerous unintended consequences. The conferees should oppose the SMD
delay proposal.
---------------------------------------------------------------------------
\2\ Neither the House-passed nor the Senate-passed version of H.R.
6 contains an SMD delay provision. However, Chairman Domenici and his
staff have stated publicly that he made a commitment to Senator Shelby
to support a provision to prohibit FERC from issuing its final rule in
the SMD docket, or any related rule or order of general applicability,
until December 31, 2006 in order to secure consent to pass the energy
bill. According to press reports, Vice President Cheney supported the
SMD delay provision in a telephone call to an unknown group of Senators
just prior to final passage of the energy bill in the Senate in order
to secure their commitment not to object to passage of the bill. The
agreement is modeled after Section 1121 of S. 14, as reported by the
Committee on Energy and Natural Resources, with the delay extended from
July 1, 2005 to December 31, 2006.
---------------------------------------------------------------------------
Those advocating SMD delay have proposed to prohibit FERC from
issuing any ``final rule pursuant to the proposed rulemaking, including
any rule or order of general applicability within the scope of the
proposed rulemaking'' until December 31, 2006. Prohibiting FERC from
issuing any rule or order that applies to more than a single utility,
pertaining to any issue ``within the scope'' of the SMD notice of
proposed rulemaking (NOPR), will have unintended consequences that even
the opponents of SMD don't want.
rtos and smd are intertwined
Those advocating for Congress to ``delay SMD'' argue that FERC
should be stopped from implementing SMD, but should continue to
encourage voluntary RTO formation. Frankly, it is not clear to me how
Congress can ``delay SMD'' and ``encourage RTOs'' at the same time.
How can an RTO do its job if it does not plan the transmission
system, and address generation needs, on a regional basis? How can an
RTO do its job if it does not manage congestion on its system and does
not redispatch generation to avoid problems on its system? How can an
RTO do its job if FERC is prohibited from acting to deal with market
problems that develop, as in California?
A close look at issues ``within the scope of the proposed
rulemaking'' shows how harmful the unintended consequences of the
broadly worded delay would be. Many initiatives included in the SMD
NOPR have wide support, but FERC could not finalize or implement them
broadly if the SMD NOPR is put on hold. If FERC's hands are tied by the
SMD delay provision, these consequences will follow:
1. FERC will not be able to respond to the August 14 blackout by
requiring better coordination among regional transmission
organizations (RTOs) and individual public utilities that are
not in RTOs.
The U.S. Department of Energy, Natural Resources Canada and the
North American Electric Reliability Council are still working to
complete their analysis of what caused the August 14 blackout. If the
Senate SMD delay proposal were adopted, FERC would be powerless to
address any RTO coordination issues, information sharing requirements,
and the like until 2007. Nor would FERC have authority to issue a
general rule requiring utilities that are not yet in RTOs to
coordinate, share information, or take other appropriate steps to try
to avoid another blackout. Thus, FERC would be sidelined with its
shoelaces tied together, prohibited by Congress from adopting changes
that DOE and NERC conclude are necessary to avoid a repeat of the
blackout. Even so-called ``mandatory reliability rules'' would leave
FERC very limited in its authority to develop solutions to whatever
caused the blackout. Simply put, that is not an appropriate way for the
Congress to respond to the blackout.
2. FERC will not be able to approve voluntary RTO development or
proposals to improve the operational efficiency and reliability
of existing RTOs.
Many state regulators, public utilities, and other stakeholders are
advocating that RTO development should be ``voluntary.'' Numerous
utilities are actively engaged in discussions they hope will lead to
voluntary RTO filings to form RTOs, perhaps even later this year. And
the existing RTOs are constantly striving to improve their performance
and advance their market design. Prohibiting FERC from issuing an order
addressing RTO development would thwart even voluntary RTOs.
3. FERC will not be able to eliminate transmission rate pancaking and
adopt transmission rate reform, including so-called
``participant funding.''
In the SMD NOPR, and the White Paper, FERC proposes to eliminate
transmission rate ``pancakes'' across an RTO (that is, charging
multiple rates to wheel electricity across multiple utilities);
incentives for construction of new transmission facilities; and
authority for RTOs to require ``participant funding'' of transmission
upgrades (requiring those who cause utilities to incur costs to expand
their transmission system to pay the cost of the expansion).
Putting SMD on hold would prohibit FERC from adopting any final
rule that would codify these much-needed transmission rate design
reforms. Ironically, some of the most vociferous opponents of SMD are
touting the need for incentive pricing to encourage investment in our
transmission system and participant funding so that their native load
customers do not pay for system upgrades needed by generators locating
in their service territory who propose to export their power outside
the region.<SUP>3</SUP> Putting these important initiatives on hold for
three years is a bad idea.
---------------------------------------------------------------------------
\3\ See Testimony of H. Allen Franklin, Chairman, President and CEO
of Southern Company, on behalf of the Edison Electric Institute before
the Committee on Energy and Natural Resources, United States Senate,
March 27, 2003, in which he endorses participant funding.
---------------------------------------------------------------------------
4. FERC will not be able to issue rules governing how market monitors
can ensure that generation owners do not game the markets, as
happened in California, and adopt mitigation measures, such as
bid caps, to address market power or gaming.
One of FERC's most important proposals in the SMD NOPR is to codify
use of independent ``market monitors'' in existing RTOs and other
regional markets to actively monitor markets and mitigate market power
abuses and gaming, as in California. The SMD delay provision would
eviscerate FERC's use of market monitors by prohibiting FERC from
requiring RTOs to have market monitors, bid caps, and other initiatives
to address Enron-style gaming practices. FERC must also be able to
enforce orders requiring a utility to join an RTO to mitigate its
market power, particularly market power resulting from a merger.
5. Regulatory uncertainty will be perpetuated that is dampening
investors' interest in building new transmission needed to
avoid future blackouts.
The SMD rulemaking proposal was issued in July 2002. FERC received
an avalanche of public comments and Congressional inquiries. In
response, FERC issued its April 2003 White Paper, changing the proposed
rule significantly. It recognized the need for regional variations
among RTOs, proposed to give State officials a formal role in the RTO
process by forming Regional State Committees, and pledged that FERC
would not assert jurisdiction over the rate component of transmission
used to provide retail service to native load customers. SMD delay
would prolong an already lengthy period of the regulatory uncertainty
that is chilling investment in transmission. The August blackout made
crystal clear that we need robust investment now.
6. FERC will not be able to require RTOs and utilities to do ``regional
planning'' in order to address the need for new facilities
(both transmission and generation) on a regional basis.
The SMD NOPR includes an initiative to foster a regional approach
to planning transmission expansion and addressing the need for
additional generation. If SMD is delayed, utilities would not be
required to collaborate in the planning process. Capacity additions and
transmission expansion would continue on a utility-specific or
generator initiated basis, rather on a regional basis. Putting this
initiative ``on hold'' for three years is a bad idea.
7. FERC will not be able to address transmission congestion and adopt
congestion management rules.
The SMD NOPR proposes to mandate that RTOs adopt locational
marginal pricing (LMP) to address congestion on transmission lines.
PJM, ISO-New England, and the New York ISO use the LMP model. Even the
most ardent opponents of SMD have endorsed the LMP
initiative.<SUP>4</SUP> The White Paper nonetheless backs off mandating
LMP and proposes to defer to regional needs for congestion management
systems. Both the LMP congestion management initiative and the White
Paper's endorsement of regionally based congestion management
initiatives would be victims of SMD delay. Congestion on transmission
lines is a nationally recognized problem that must be addressed to
enhance the reliability of the transmission grid. Putting congestion
management initiatives ``on hold'' for 3+ years is another bad idea.
---------------------------------------------------------------------------
\4\ The Alan Franklin testimony, cited previously, also endorses
LMP.
---------------------------------------------------------------------------
8. FERC will not be able to adopt the North American Electric
Reliability Council's (NERC) cybersecurity standards.
The North American Electric Reliability Council (NERC) has adopted
a proposed industry cyber-security standard. It is self-evident that
such a standard is necessary in the era of cyber terrorists and
dependence on the Internet and other forms of electronic commerce. The
SMD NOPR proposes to codify cyber security standards and FERC has
indicated that security measures to protect critical information
systems, like the Internet, would be a condition of market-based
tariffs. Because the cyber security standards were a part of the SMD
NOPR, an SMD delay would have the unintended consequence of prohibiting
FERC from codifying the cyber-security standard.
9. FERC will not be able to adopt market rules developed by the North
American Energy Standard Board (NAESB).
The SMD NOPR proposed to incorporate business practice standards
for the industry developed by the North American Energy Standards
Board. An SMD delay would prohibit FERC from doing so.
10. Finally, an SMD delay would invite litigation over the scope of
FERC's authority to do its job.
The SMD delay provision is poorly drafted with undefined terms and
untold consequences. It is a litigator's dream, virtually inviting
lawsuits about what Congress allowed FERC to do and what Congress
prohibited FERC from doing.
conclusion
These potential unintended consequences of tying FERC's hands with
the Senate's deal to delay SMD should make clear that Congress should
not legislate an administrative process. These issues should be left to
the established regulatory process where market participants, state
regulators and consumers can participate in reaching acceptable
compromises. The SMD delay provision is a law of unintended
consequences. It would hamstring FERC at the very moment that we need
better reliability and better coordination in wholesale energy markets.
It should not be included in the final version of the energy bill.
Ms. Moler. Clearly RTOs need to coordinate better with one
another. The market rules, while we agree that one size may not
fit all, they need to work. And there are numerous parts of the
FERC initiative that I think everybody on this panel would
agree need to happen that would be set back a number of years
if a delay were enacted.
Mr. Doyle. I see my time has expired. Thank you, Mr.
Chairman.
Mr. Bass. Thank you.
The gentleman from Illinois?
Mr. Shimkus. Thank you, Mr. Chairman. Again, I apologize
for our delay on the floor. We are trying to keep things
moving.
Let me first say that I am a big supporter of standard
market design. And I know we have got some critical problems
with that, but we have standard market design for the natural
gas infrastructure. We have it for the railway industry.
I taught history. In the Civil War period, we had different
gauges. The gauges really did not help the movement of troops
and materiel. It stopped the interstate aspect of rail
transportation.
So I think we're foolish if we don't take this opportunity
to move to a standard market design. But that's been done
before here in Washington. So we'll see how far we'll get.
But the benefits that we do have on the table now, the
point was we've got to get to it. This is the time. We have an
energy bill moving to conference. The conferees will be named
today. And if there is a time to move on this, it will be in
this energy bill.
And there is depreciation. There is FERC authority
increased, return on investment, siting issues. If you read
some of the testimony yesterday, we had the Governor of
Michigan. The Governor of Ohio said, ``After a given period,
amount of time, should FERC then have a date certain on
siting?'' And they both agreed. Now, they don't represent all
the States, but that was very good to hear because maybe the
siting issues aren't as critical now as they once were.
Illinois, we produce more than we consume, especially in
the southern part of the State. There are States that do not
want to produce. There are States that do not want to generate
electricity. So if they don't want to generate electricity, you
have to have a transmission system to get power.
And I'll tell you what. My State wants to generate it. We
want to generate it by nuclear power. We want to generate it by
coal power. And we do have natural gas facilities. I have other
problems with those.
Are retailing of PUCA, depreciation issues, FERC
jurisdiction, return on investments and siting all helpful in
moving the ball down the road and moving our grid to a more
efficient system? I'll throw that open. Yes, sir?
Mr. Winser. I think they are all helpful. I would chip in,
in addition, that we really do need a rational and simple
transmission pricing mechanism, though.
There has been a lot of talk of things proposed, such as
market participant funding, which seems to be proposed on a
voluntary basis, where basically you sort of pass the hat
around and try to get enough money to build something. Some
people put in, and some people probably take out. And some
people don't bother.
What we need is to recognize these are shared resources and
they will benefit a number of different people in the market,
customers, generators. We have to recover the money from all
the people that benefit. So I would add that to your list. And
I would say that we do need to recognize that this is shared
resource, recognize that for the most part, it is going to be a
regulated shared resource and that we do need to have mandatory
recovery of the investment.
Mr. Shimkus. I was interested. A lot of the comments
yesterday dealt with ``Well, the Federal Power Act gives us
12.5 return on investment.''
But then I turned to the Governors and said, ``If that's
good, as a lot of people are claiming that that should be good
enough, why aren't we getting the investments? There must be
other reasons.''
I'm not sure. Maybe it was Mr. Draper who said $50 million
on approval. There was a $50 million cost on just the approval
of transmission. I took that not even the costs that were
incurred for the actual construction and the string of wires.
Is that correct?
Mr. Draper. That's right.
Mr. Shimkus. Let me go on. And then you also applied to
Alliance, right? What was the cost for the application to
Alliance?
Mr. Draper. I'm not sure how much money we spent, but it
was----
Mr. Shimkus. And what about MISO?
Mr. Draper. [continuing] tens of millions of dollars.
Mr. Shimkus. So that is what I want to really to my friends
on the other side. The bureaucratic wrangling and the legal
issues are very, very costly. So obviously a 12.5 ROE on the
Federal Power Act is not sufficient. Otherwise we would have
it.
Mr. Draper. We talked a bit earlier--I am not sure you were
in the room--about the 12.5 percent and whether you actually
recover that, but I have made the point that for many
companies, including my own, only about 10 percent of our
transmission revenues are allocable to FERC wholesale
transactions. And the rest are retail transactions within the
State for which we don't recover the costs because we have rate
freezes.
Mr. Shimkus. Let me just finish. I know we have ComEd and
Exelon here. They had power problems in 1999. In fact, the
Chicago Sun Times ran an article. Great investment. Can you
talk about that and really in the guise of we have had problems
today? Do you see that as helping us move? Were the power
problems in 1999 helpful in moving your company? And then do
you think this engagement will help, as I say, the engine that
moves an energy bill?
Mr. Barton. This will have to be the gentleman's last
question. Go ahead and answer.
Ms. Moler. I would hate to say that the power problems in
1999 were helpful. We certainly were humbled, learned a lesson,
redesigned our system, and have spent $2 billion in
transmission and distribution upgrades since then. And we are,
knock on wood, hoping it will not occur again.
I also believe that the blackout has brought the attention
of this Congress and this committee to the electricity business
in a way that I am hopeful will get the electricity title
across the finish line this year.
Mr. Barton. Gentlelady from Illinois, Ms. Schakowsky, is
recognized for 5 minutes.
Mr. Engel. Mr. Chairman, I am wondering if I can ask
unanimous consent to go ahead of the gentle woman.
Mr. Barton. If it's okay with the gentlelady. Without
objection, so ordered. The gentleman from New York, Mr. Engel,
is recognized for 5 minutes.
Mr. Engel. Thank you, Mr. Chairman. I thank Ms. Schakowsky.
I want to welcome everyone on the panel. I think you have
gotten a little bit of an idea of how Congress works. Perhaps
you're wishing we would have a blackout here this morning. I
want to especially welcome the two New Yorkers on the panel,
Mr. McGrath and Mr. Kessel.
Mr. McGrath, I just wonder if you can help me understand
how decisions are made when power is restored. As you know, I
represent areas of the Bronx, Westchester and Rockland Counties
in New York. Obviously when the power went out, it didn't
return at the same time all across New York.
How are these decisions made? Are there actual decisions
made or is it simply a matter of when you can get the power
back to different communities, you do it as quickly as possible
or is there a priority list?
Mr. McGrath. Well, the law of physics is probably the major
determinant. Electricity follows certain rules. It depends on
the event. Generally we need to reach out to supplies that are
online and connect them into our system. That's a meticulous
step-by-step process.
In this case, I mentioned earlier we had to come from the
south and the north. And we had to along the way pick up pieces
to establish the grid. And that allowed us to startup
generators, which were necessary to get enough capacity to pick
up load.
So although it looks like a patchwork pickup of load, it
actually depends on the route that is taken to restore power to
the transmission system. And that route meanders through our
territory, came together down in the city, and we were able to
synchronize. And then we had a stable grid, where we could pick
up the rest of the load.
Mr. Engel. But if you have a situation where you could get
power back to different communities at the same time, is there
a priority list? Do you, for instance, say, ``Well, since
Manhattan is the hub of activity in New York City, that's where
the priority would be'' or is it not done that way at all?
Mr. McGrath. Well, actually, the load picked up at parts of
Westchester and Staten Island before Manhattan because of this
process that I went through. If we had a choice, we would try
to get the high rises and the parts of the city that move
people underground who depend on electricity and people who
need water because of the vertical height of the buildings. We
would try to give preference to that.
But we don't have a lot of flexibility. It depends on the
amount of load we need to pick up to stabilize voltage, the
amount of generation available for us to pick up load. And that
was a moving target as we brought together transmission systems
and as generators came on line to give us more capacity.
Mr. Engel. Let me ask you. I understand that Con Ed is
joining a coalition of companies to pursue superconductors. Is
that a fact? I have been interested in this area. I think it is
good to pursue it. Do you have plans to use superconductors?
And is there anything that Congress can do to make
superconductors more attractive?
Mr. McGrath. Well, there is a great potential provided by
superconductors if they're made practical. We are involved with
some R&D groups to look at what has to be done to make that
practical out in to the future. Obviously if you can get a
system where resistance doesn't matter, it can really improve
the efficiencies of our system. So we would be interested in
that. It's not anywhere near a proven technology, but we are in
the R&D phases.
Mr. Engel. Thank you.
Mr. Kessel, can you talk to me a bit about the Cross Sound
Cable? Secretary Abraham obviously used his authority to allow
use of the cable. Can you talk about that a little bit? Why has
Connecticut been holding it up? And what are the problems
there?
Mr. Kessel. Well, yes, I will, congressman. It's good to
see you again.
Mr. Engel. Thank you.
Mr. Kessel. And I would report to you and to the committee
that I have been informed that for the first time, the Cross
Sound Cable today is being used to take power from Connecticut
to Long Island across Long Island and into southwest
Connecticut for the first time, which shows that we can help
Connecticut as much as Connecticut can help us, which is what
this is all about.
The major opposition to the cable comes from the attorney
general in Connecticut. And it's legislative in nature as well.
There are three objections. One is environmental, that somehow
the Cross Sound Cable would create environmental problems in
the Long Island Sound.
I indicated before--and I know you weren't here--I don't
know if we have the cable, but it's a solid cable. There is
absolutely no environmental harm from the cable whatsoever. In
fact, I have challenged the attorney general in Connecticut now
that it's operated if there is environmental harm to show it to
the public. We certainly wouldn't want to do anything to harm
the Long Island Sound.
The second objection comes from people who say that New
York is trying to steal electricity from Connecticut. The fact
of the matter is that we actually import less electricity from
Connecticut than Connecticut imports from Long Island. In fact,
I actually have some numbers that, actually, between 1998 and
2001, the flow from New York to Connecticut was 5,754,550
megawatt hours. The flow from Connecticut to New York was only
2,207,450 megawatt hours. In effect, more electricity flows
from New York to Connecticut than from Connecticut to New York.
The final issue that has been used is that somehow New
York, Long Island in particular, is not paying attention to its
own generation needs and why should Connecticut help out, why
doesn't Long Island build more generation or New York.
The answer is very simple. We have. We have added in the
last 2 years over 500 megawatts of new generation on Long
Island itself, which is more than has been added in the prior
25 years.
I would point out that if you looked at the Connecticut
versus Long Island alone and you net out plants that have been
decommissioned in Connecticut, Long Island has added slightly
over 600 megawatts while Connecticut has added slightly over 18
megawatts.
So I think those arguments are specious. I think it's
political parochialism. And I think it's a bad policy for this
country.
Mr. Barton. The gentleman's time----
Mr. Engel. Thank you. Thank you, Mr. Chairman. And thanks
to Ms. Schakowsky again.
Mr. Barton. We have now got the answer why Connecticut
doesn't want that line. They don't want that tainted New York
electricity, see?
Mr. Kessel. Our electricity is much cleaner than
Connecticut's.
Mr. Engel. I was going to say point of personal privilege,
Mr. Chairman.
Mr. Barton. Well, they certainly don't want that dirty
Texas electricity getting up there, you know.
The gentleman from Michigan, Mr. Rogers, 5 minutes.
Mr. Rogers. Thank you, Mr. Chairman. And thank you,
gentlemen and lady, for taking so much time and effort to be
here today on such an important issue.
It sounds like we are starting to coalesce, at least around
some critical mass of----
Mr. Barton. Excuse me. Would the gentleman suspend just
briefly?
Mr. Rogers. You bet.
Mr. Barton. You all have been here a long time. If anybody,
not the whole group at one time but if you want a personal
convenience break one at a time because we are going to keep
going, so if you all want to kind of cycle that through but
keep the voltage within 60 seconds as you do it, we're okay on
that.
Gentleman from Michigan? Reset your clock.
Mr. Rogers. Thank you, Mr. Chairman.
I would direct this question to Mr. Welch to change a
little bit. I have heard some reports that Michigan consumers
may be footing the bill to the tune of maybe even $30 million a
year on energy that is put into the grid and not compensated
for that gets lost--I don't know--maybe for people leaning on
the grid or other issues. And I wonder if you could help me
understand how that happens and if there is anything that we
can do to rectify that.
Mr. Welch. The phenomenon that you're talking about is loop
flow. Loop flow is a very critical issue. First it has the
economic consequences that you talked about that this flow is
unscheduled and as a result of being unscheduled also usually
winds up not curtailable in the event that there is some kind
of reliability issue.
It was actually a huge amount of loop flow on our system
that brought the system to collapse. It was clearly
unscheduled. We in Michigan--and this is all of the utilities,
the major utilities, in the lower peninsula; let me clarify
that, CMS, DT Energy, METC, and ITC--have had issues on the
loop flow from a reliability perspective. That needs to be
dealt with.
If there is going to be any kind of reliability package,
this loop flow issue because of the peninsulas' nature that we
are surrounded by the Great Lakes, we absolutely get an
additive effect. It has both financial and reliability issues.
And as a result of that, we are constantly being asked to
upgrade the transmission system for something that there is
virtually no compensation for because there is no compensation
for it.
Mr. Rogers. Does technology fix that problem?
Mr. Welch. There are technological fixes. You can either
start to use asynchronous connections; i.e., DC. We actually
had going into service a device called a phase angle regulator
that would not have corrected the problem that we had on August
14, but it would start to limit some of that.
Mr. Rogers. Leaning on the grid, how much of an issue is
that in the current system?
Mr. Welch. In our case, it's fairly significant. Most of
the time we see as much as 50 percent of the flow on our
southern 2 interfaces being unscheduled flow. Going into the
day of the blackout, I think the schedule was 800 and the line
was going somewhere around 12 or 14 hundred, which means the
difference between the schedule and the actual is this loop
flow. And obviously the effects of whatever happened were an
additional 2,500 megawatts of loop flow put on our system that
was what caused the voltage collapse.
Mr. Rogers. How would you define in your words leaning on
the grid? What in your mind?
Mr. Welch. Well, normally leaning on the grid isn't
referred to in transmission talk. It's usually one control area
is out of balance with another control area. In other words,
the control area operator is to balance the load consumption in
their control area and make sure that all schedules are adhered
to; in other words, that what arrives at your border and is to
be shipped somewhere else is shipped to that other point.
As the day goes on, there are ebbs and flows. Generators
come in and out of service. Lines open. And so you will have
imbalance in that flow. Control area operator then gets
generators. The deficient control area's job is to get the
generators to pick it up or to allow for a purchase.
The loop flow is just an uncompensated flow. And it has
effect for both transmission and generation in that because it
is unscheduled, that means it is not accounted for. So it has
to be delivered to the other part of your system. That means
that the losses have to be made up for it. The bar support, the
voltage support has to be done. That means the generators in
that region are being asked to make that up all the time.
The negative effect that it has on transmission is that in
the case of some of our interfaces, they basically consume 50
percent for flow, of which there is no tracking or knowledge
of.
Mr. Rogers. Would you agree with that estimate of $30
million a year?
Mr. Welch. No. Actually, I think it is more than that.
Mr. Rogers. You think it is higher than that?
Mr. Welch. Yes.
Mr. Rogers. Interesting.
Mr. Welch. Actually, I think that if you look at the
affected utilities in this case, a combination of transmission
revenues and generation costs, it's more in the $40 to $50
million range annually.
Mr. Rogers. Ma'am, did you want to respond as well?
Ms. Moler. Yes. Thank you. I would not want my silence on
this subject to reflect that I concur with Mr. Welch's
conclusion that ``loop flow brought the system to a collapse.''
I don't know what brought the system to a collapse.
We are litigating the loop flow issues right now at FERC.
We have been for a long time. And I just did not want my
silence to indicate that I agree with Mr. Welch's conclusion. I
don't believe that any of us has defined movement on this
subject at this point.
Mr. Barton. Will the gentleman yield?
Mr. Rogers. Yes.
Mr. Barton. The gentleman's time has expired. If it's
directly on point.
Mr. Otter. Would you spell that? Is that loophole? Is that
loop or----
Mr. Welch. L-o-o-p f-l-o-w, loop flow.
Mr. Otter. Oh, okay. Thank you.
Mr. Barton. The gentlelady from Illinois, Ms. Schakowsky,
is recognized for 5 minutes.
Ms. Schakowsky. Thank you, Mr. Chairman.
I have questions for Ms. Moler from Exelon, Commonwealth
Edison. I talked to the citizens utility board yesterday to ask
about the vulnerability of our system. They reinforced what we
have been reading and I have been hearing that since 1999, I
participated in a hearing that Representative Rush had that
Commonwealth Edison has made significant investments in the
grid. And I applaud you for that.
In the testimony, a couple of things. First off, how is
Commonwealth Edison's economic health just briefly? How is it
doing? You said that you haven't recovered all of the costs of
that investment. And I was just curious about how the company
is doing.
Ms. Moler. We are financially healthy, I am pleased to say.
Ms. Schakowsky. Wonderful. In 2006, when the rate freeze is
over, can consumers based on this $4 million plus, then, $4.5
million investment in the transmission system, expect a spike
in its rate?
Ms. Moler. We expect to file a transmission rate case one
of these days to recover some of our investment in the near
future, but in 2006, I would not expect a price spike. We are
in active dialog with the Illinois Commerce Commission about
what to do when our current rate freeze expires in 2006. And we
will put proposals before them. But I would not expect a price
spike.
Ms. Schakowsky. You spoke in your testimony of innovative
transmission pricing incentives. I have to say from a consumer
point of view when one hears the words ``innovative'' and
``incentive'' kind of pricing, what people hear is ``Our rates
are going to go up.'' What do you mean by that?
And while it was the chairman's questioning and the answers
were instructive to me that we are talking about when we talk
about the 11, 12, 13 percent rate of return, we are only
talking about 10 percent of transmission costs, as I understand
it, that the rest is regulated at the State level; is that
right, talking about wholesale costs that can be recovered
through those regulated national FERC rates?
Ms. Moler. There is a difference between--the transmission
rates are regulated by Federal Energy Regulatory Commission,
all of them.
Ms. Schakowsky. Oh, okay.
Ms. Moler. But then the question is whether one can pass
through all of those rates----
Ms. Schakowsky. I see.
Ms. Moler. [continuing] because of the various retail rate
freezes, such as we have in Chicago. We can increase our
transmission rates, but we cannot pass them through because of
a rate freeze.
Ms. Schakowsky. Except that, well, I guess I'm confused,
then. If we're talking about rate of return on your investment
of 11 to 13 percent--I understand a rate freeze, but absent
that, you wouldn't be able to pass those through. Is that not
true?
Ms. Moler. That is correct.
Ms. Schakowsky. So why isn't that sufficient? And what are
we talking about when we talk about innovative transmission
when incentive rates are talked about? And why do we need them?
Ms. Moler. There are lots of ways that one can do rate
design. It's an arcane thing that lots of people in this room
are involved in. And I would submit to you that if you do it
right, in some cases because you do not have to have additional
generation, if you do transmission rate, you can actually save
customers money by operating the transmission system more
efficiently so that they do not have to invest in the
generation. And there are lots of creative things that we could
go on and on about.
Ms. Schakowsky. But don't necessarily mean end consumer
pays more, correct? Okay.
One of the things that we could do, the DOE national
transmission grid study conducted, ``Expansion of the
transmission system must be viewed as one strategy in a
portfolio to address transmission bottlenecks.'' This portfolio
also includes locating generation closer to load, relying on
voluntary customer load reduction, targeting energy efficiency,
and distributive generation.
In the past, I know Commonwealth Edison has spent less than
most utilities on energy efficiency. I was involved in a lot of
pretty adversarial relationships with ComEd and know that to be
true. Maybe that is different now. Are we seeing an investment
in local distribution and efficiency, et cetera, that will----
Ms. Moler. We have an active efficiency program. We have a
very large distributive generation effort. We also have
interruptable load. Customers have agreed to be interrupted in
stressful times so that we don't have to build as much
additional generation. We have actively explored all of these
kinds of efforts.
Ms. Schakowsky. Thank you very much.
Mr. Barton. The gentlelady's time has expired. Before we go
to Mr. Otter, could we have one, Mr. Draper, what is the
breakdown of the average customer bill? What percent did the
commodity charge of the generation? What percent is the
distribution charge? And what percent is the wholesale
transmission since there seems to be some confusion about this
10 percent number.
Mr. Draper. Well, it's all over the map, Mr. Chairman. As
you know, the electric rates of retail customers in the United
States vary by more than a factor of two. It depends on the
fuel source for the generation. It depends on how big the
transmission system is.
Generally speaking, I think it's accurate to say that the
generation element is in most parts of the country the biggest
element. And the transmission is the smallest perhaps, 10
percent or so.
Mr. Barton. So generation may be 60 percent and
distribution 30 percent and transmission 10 percent just
generally?
Mr. Draper. Could be.
Mr. Barton. Could be. The gentleman from Idaho is
recognized for 5 minutes.
Mr. Otter. I thank you, Mr. Chairman.
Much has been said about the investment or the lack of
investment. I think we're confusing some terms here. In reading
most of the testimony this morning, I see the term ``return on
ROE,'' instead of ROI, which is what we have been concentrating
on here. Is it ROI? Is it return on equity or is it return on
investment? Anybody could answer that.
Mr. Welch. The authorization that you get from FERC is
return on equity.
Mr. Otter. Which is decidedly different than when we are
figuring return on investment. And it has also been the
testimony that we have heard here this afternoon that the 12
percent or 13 percent, which is continually used, is not close
to the mark. Is that pretty much the consensus of the panel?
Mr. Welch. We're a transmission-only company. And we don't
find that that is an inadequate rate of return.
Mr. Otter. I want to pursue that because I think there are
some other things that are involved in here that kind of
imbalance the true answers that we are talking about here as
far as some of these investments are concerned because one of
the ingredients in our energy bill, which is now languishing in
purgatory, so to speak, has some investment attractions to it.
Environmental costs, filing environmental impact
statements, making structural changes for environmental
purposes, can you capitalize those?
Mr. Welch. Yes.
Mr. Otter. All of them?
Mr. Welch. Normally.
Mr. Otter. I see. How about acquisition costs for rights-
of-ways, transmission lines?
Mr. Welch. Yes.
Mr. Otter. Are all capitalized?
Mr. Welch. Yes.
Mr. Otter. Over how long a period?
Mr. Welch. I think the depreciation period is somewhere in
the 30-year range.
Mr. Otter. Okay. So if you are depreciating both your
environmental, up-front environmental costs----
Mr. Welch. Right, but you don't depreciate property.
Mr. Otter. But you are depreciating the acquisition costs?
Mr. Welch. No. You just earn a return on it. You don't
depreciate it.
Mr. Otter. Well, but if you have got to go through some
condemnation or legal proceedings in order to get the rights-
of-ways,----
Mr. Welch. You take that off.
Mr. Otter. [continuing] you take that off. But that is
capitalized, right? And then that goes on your depreciation
schedule. And your depreciation then goes into cash-flow,
instead of into investment return. Am I right? Good. It works
the same way in the French fry business most of the time.
I am interested in this loop flow that we heard from my
colleague from Michigan talking about. What happens to that $40
million or $50 million? What happens to that money?
Mr. Welch. Basically, since there is no revenue stream for
it, when you do a calculation for your revenue requirements,
which is the way you calculate rates, it doesn't show there as
any kind of offset. So maybe customers picked that up, they pay
for it. They pay for it in the form of higher fuel bills if you
are a generating company.
My company is transmission only. But they also pay for it
in the fact that there is no offset in their transmission bill.
That's why our position has been that the fix that we need in
the transmission, one of the fixes that we need is that we need
to get the flow base for revenue distribution, that the flows
in the wire are what works the wire. And, therefore, the wire
will get built where it is needed because the flows are there.
It's just that simple.
Mr. Otter. I understand. Ms. Moler, you talked a little bit
about interruptable rates. Are the interruptable rates
generally something that business and industry would buy
because, No. 1, it's cheaper?
Ms. Moler. Yes, sir.
Mr. Otter. And, No. 2, unfortunately, when they shut down,
people get laid off or people get sent home early or whatever.
Does your interruptable rate generally go to business and
industry?
Ms. Moler. The program to which I was referring is
generally business is industry. We look for large users who get
a lower rate who would be willing to be interrupted, hopefully
for a very short period of time. We're not talking about
sending them home for the summer or anything like that. When
we're an absolute--we call it a needle peak.
Mr. Otter. On a kilowatt basis, how much cheaper would that
be?
Ms. Moler. I'm sorry. I don't have that.
Mr. Otter. But it is cheaper?
Ms. Moler. It is a distribution rate, and it is cheaper,
yes.
Mr. Otter. But it is an overall income scheme that helps
the bottom line eventually. Am I not right?
Ms. Moler. It makes it so we have to have less generation
ultimately to serve those very hottest days. We can interrupt
them.
Mr. Otter. Okay. Thank you. I am getting interrupted myself
here.
Mr. Barton. Yes. The gentleman's time has expired. The
gentleman from Massachusetts is recognized for 5 minutes.
Mr. Markey. Thank you. Thank you, Mr. Chairman, very much.
Mr. Burg, in January of this year, the Davis-Besse nuclear
reactor, which is owned by FirstEnergy, was penetrated by the
slammer worm. A safety monitoring system was disabled for 5
hours, despite a belief by plant personnel that a firewall
existed.
Of course, the Davis-Besse reactor is offline because of
boric acid, which almost ate through the head. So there is no
power to black out at the time, but the incident raises some
troubling questions.
One, after the smaller worm incident, did FirstEnergy
conduct an assessment of cyber security at all of its other
facilities?
Mr. Burg. Mr. Markey, I can't give you time and date, but
it's my understanding we have been going through this process
almost since 9/11 throughout our system in terms of looking at
what the potentials are with respect to cyber security. So I
would assume, yes, sir.
Mr. Markey. You would assume, but you don't know?
Mr. Burg. I haven't asked that question, but I know our
people have been going through cyber security.
Mr. Markey. You have not asked the question of what is the
level of cyber security at the rest of your plants after the
slammer worm successfully penetrated your Davis-Besse plant?
Mr. Burg. I didn't say that, sir. What I said was I didn't
ask our people when they started their examinations and so
forth. I knew they were doing those examinations and reviewing
not only our nuclear facilities but other facilities throughout
our organization.
Mr. Markey. What did you do to ensure that all cyber
security vulnerabilities at all FirstEnergy facilities were
corrected?
Mr. Burg. Well, in some cases--and I am not trying to be
off the subject here, but I would suggest that there are some
things that we're not allowed to talk about in this area in
terms of how they go about----
Mr. Markey. I don't want to know the--what did you order to
be done?
Mr. Burg. I didn't order anything. It was automatically
done by our people, sir, in looking at the vulnerabilities on
our system. We are in concert in this case with the NRC. I am
sure we may have been in concert with the Homeland Security
Agency in terms of what are some of the things that all
companies should be doing in this area.
Mr. Markey. You stated that FirstEnergy experienced
computer problems in the hours leading up to last month's
blackout. Could they have been due to the blaster worm, which
was at its height of activity at that time?
Mr. Burg. We really do not believe so because the kind of
software that is involved at our system control center, the
kind you are now referring to, is not Microsoft-based and,
therefore, as I understand it, not susceptible to that
particular worm.
Mr. Markey. So you do not have communications systems that
rely upon Microsoft technologies?
Mr. Burg. No. We do, sir. I didn't say that. I said the
particular technology that you were referring to is not micro-
based technology. It's probably for security purposes. It's
kind of a stand-alone system, if you will, right there at the
site.
Mr. Markey. According to this morning's papers, your
control room operators were in the dark about what was going on
within your system. You said earlier that you still don't know
what exactly happened to your computers on August 14. What is
to prevent, then, your computers from misreading what the
actual situation is going on in your system?
Mr. Burg. We, as I said, have, from what I am told, the
world's foremost expert on those kinds of systems totally going
over our system as we speak; the designer of the system, G.E.,
going through our system.
Mr. Markey. So you don't know the answer yet?
Mr. Burg. I don't know the answer to that yet as we don't
know the answer to the entire situation yet.
Mr. Markey. So it could happen again?
Mr. Burg. Anything in life can happen again, Mr. Markey. We
would expect----
Mr. Markey. So the answer is yes? You don't know what
happened. And, as a result, it could happen again?
Mr. Burg. We know that the information on that particular
day was not being updated as fast as it should have been on our
systems. We also know that the information was flowing directly
to our security coordinator on a real-time basis, as it is
today. We also know that some 2,100 nodes, if you will, of
information were being put on an inter-regional security
network that others could look at that day. So we have verified
that all of those kinds of backup redundant systems, those
copilot systems, et cetera, are also working as we go forward.
Mr. Markey. My time is going to run out, Mr. Burg, but from
what I can tell, FirstEnergy should not have a license to drive
a car, let alone operate nuclear power plants and an
electricity generation, transmission, and distribution system.
All of the evidence appears to be focusing on FirstEnergy as
the culprit in this blackout. And you appear to be trying to
shift the blame elsewhere.
There is a pattern here, Mr. Burg. You failed to properly
maintain your nuclear power plant, as the Davis-Besse situation
clearly indicates. You allowed a computer virus to infect your
corporate computer systems and let it get into the Davis-Besse
safety systems. You have been found liable by the courts for
violating the Clean Air Act by spewing pollution into the air
at some of your other plants. And you freely acknowledge that
on August 14, you had wires going down but no warning flags
going up to anyone else who could be affected and a control
room whose computers couldn't tell your operators what was
actually going on during the crisis.
There is a pattern here at FirstEnergy. It is a pattern of
cutting corners and neglect. And it has devastating
consequences, not only on your consumers but for consumers
throughout the Midwest and the Northeast.
I hope that the result of these hearings, Mr. Chairman,
will be that we guarantee that we never again in our country
see a repetition of what happened on August 14.
Mr. Barton. We thank the gentleman. Before I recognize Mr.
Walden, I want to point out that all the witnesses who are here
are here voluntarily. There is nobody here under subpoena. And
the gentleman's questions are exactly the kind of questions we
should be asking, but as of yet, we are not here thinking that
there is any criminal activity. Of course, the gentleman didn't
infer that. We appreciate everybody being here.
Does Mr. Walden wish to ask questions?
Mr. Walden. Mr. Chairman, I will pass at this time.
Mr. Barton. Mr. Davis?
Mr. Davis. I'll pass for now, Mr. Chairman. Thank you.
Mr. Barton. Seeing no other members present who haven't had
an opportunity to ask questions, we are going to excuse this
panel and thank you for your attendance. And we will call the
second panel forward.
[Brief recess.]
Mr. Barton. Okay. If everybody would find their seat. We
welcome our second panel. Our first witness is Mr. William
Museler who is president and CEO of the New York Independent
System Operator in Schenectady, New York. Mr. Museler, your
testimony is in the record in its entirety. We ask that you
summarize it in 5 minutes. You have to push that button.
STATEMENTS OF WILLIAM J. MUSELER, PRESIDENT AND CEO, NEW YORK
ISO; JAMES P. TORGERSON, PRESIDENT AND CEO, MIDWEST ISO; DAVID
GOULDING, CEO, THE INDEPENDENT MARKET OPERATOR OF ONTARIO;
GORDON VAN WELIE, CEO, ISO, NEW ENGLAND; AND PHILLIP G. HARRIS,
PJM INTERCONNECTION, INC.
Mr. Museler. Thank you, Mr. Chairman and members of the
committee. I have been asked on behalf of all of the ISOs and
RTOs to start my statement with a brief description of their
ISOs and RTOs and their function as system operators. I
currently serve as chair of the Independent System Operator
Regional Transmission Organization Council, which is comprised
of the CEOs of existing U.S. ISOs and RTOs, plus Ontario's
Independent Electric Market Operator and the Alberta Electric
System Operator.
Each of these organizations performs analogous functions
that I will now describe for the committee. By way of
background, independent system operators and later regional
transmission organizations were established to help implement
the Federal Energy Regulatory Commission's policies of
restructuring of wholesale electric power delivery and markets
as originally set forward in Order 888 issued in 1996. FERC set
forth certain functions of ISOs including responsibility for
ensuring a reliable supply of energy for their respective
regions and for operating fair and efficient wholesale electric
markets. Subsequently, FERC created a related entity known as
an RTO, which is a regional transmission provider.
In 2000, FERC charged RTOs and ISOs with the added
responsibility for assessing and planning for the short-term
and long-term reliability needs of the system in their
respective regions. ISOs and RTOs are responsible for the
reliable daily operation of the bulk electric generation and
transmission system in their control areas. To meet this
objective, ISOs and RTOs, sometimes operating through satellite
control centers with differing degrees of authority and
autonomy, administer the bulk transmission system and dispatch
power from generators onto the grids in accordance with system
demands and reliability criteria. ISOs and RTOs in the
Northeast, for example, adhere to reliability standards
established by the North American Electric Reliability Council,
the NERC, and the Northeast Power Coordinating Council, NPCC.
A primary function of ISOs and RTOs is to ensure non-
discriminatory access to the transmission system and fair and
efficient markets. This objective is achieved through the
development and implementation of transparent market rules and
procedures that facilitate accurate market-based rates. Thus
ISOs and RTOs are structured to be independent of any
individual market participant or any one class of market
participants, do not have any financial interest in any
transactions for the generation or sale of electricity and do
not own transmission assets or purchase transmission services.
The regional planning function assigned by FERC to ISOs and
RTOs in 2000 is critical to their reliability and efficiency
objectives.
ISOs and RTOs with input from a broad range of affected
stakeholders, including States and market participants,
independently assess the needs of the entire grid in their
geographic footprint. ISOs and RTOs also work together to
ensure interregional coordination of planning activities. An
independent regional and interregional approach to grid
planning serves as an essential source of information, both to
achieve competitive market outcomes and to develop transmission
solutions that best serve the overall reliability and
efficiency needs of the region.
I will now turn to the remarks of the New York Independent
System Operator. The New York Independent System Operator began
in operation in 1999, and we are charged with the
responsibility to operate the New York State electric grid for
providing non-discriminator access to that grid and for the
operation of New York's electricity market. The exact causes of
the August 14 outages are not known at this time, and we should
not speculate on them. The International Commission and NERC
will make that determination. We are cooperating fully with the
NERC as well as with the New York State Public Service
Commission's formal inquiry on that outage.
What we do know is that the New York electric system was
subjected to very large power swings beyond what the system was
designed to withstand. At the time of the event, the New York
system was operating normally and within all of its prescribed
design limits. Based on the data we have thus far, and I
emphasize again that firm conclusions must await analysis of
all of the data, but based on what we know so far, the New York
electric system and its components operated as they were
intended to operate. The system was overwhelmed by the power
surges that flowed through New York and through Ontario as well
as through the other systems in the Northeast.
The New York system was isolated from the Eastern
Interconnection by those power surges, and the system broke
into two electrical islands. The upstate island shed a
considerable amount of load but enough generation stayed online
such that the system was balanced at about 5,000 megawatts.
About 20 percent of the New York State load in the upstate area
stayed up and enough generation survived the event in order to
achieve a balance.
Mr. Barton. You need to summarize. I hate to make you do
that but if you could do it in the next 30 seconds.
Mr. Museler. Mr. Chairman, your staff indicated that the
initial statement was not part of the 5 minutes. If it is, I
will certainly adhere to whatever your ruling is.
Mr. Barton. Well, we have a difference of opinion about
that. How much longer do you have, do you think?
Mr. Museler. About 2 minutes, and I will go fast.
Mr. Barton. Okay. Thank you.
Mr. Museler. The Eastern Island, which included New York
City, was left with a very large mismatch of load and
generation, too much load and that area went black. Power was
fully restored to New York State in about 30 hours, and the
workers and all the utilities and generators in New York, both
public and private, did a superb job. Our neighbors in PJM in
New England were also very helpful in restoring power in New
York, and throughout all of this we coordinated our restoration
activities with the IMO in Ontario.
While we do not know all the facts yet, the New York ISO
believes there are three recommendations which we would like to
present to this committee for your consideration. First, the
current NERC voluntary reliability rules should be made
mandatory under FERC jurisdiction, and entities that wish to
have more stringent reliability rules should be allowed to do
so. Second, the New York transmission grid should be
strengthened, and we have provided specific recommendations
along those lines in a document called ``Power'' in March and
in a more detailed report, ``The New York Transmission Grid:
The X Factor,'' which has been provided to the PSC and to the
New York market participants late last year. Third, the
internal New York and interregional planning processes should
be enhanced and operating and communication protocols developed
over a larger area. I would stress that it is not just the
communication but it is the protocol in terms of what you do
when you know that there may be potential problems out there.
Finally, I agree with Mr. Gent of NERC that this should
never have happened. Having the lights go out in New York City
was our worst nightmare, and the NYISO will do all in its power
to get to the facts and to do all we can to reduce the
possibility of future events of this type. Thank you for your
consideration and the extra time, Mr. Chairman.
[The prepared statement of William J. Museler follows:]
Prepared Statement of William J. Museler, President and CEO, New York
Independent System Operator
Good morning, ladies and gentlemen. My name is William J. Museler,
and I am the President and Chief Executive Officer of the New York
Independent System Operator, or NYISO. I appreciate the opportunity to
brief the Committee on what we know so far about the August 14, 2003
blackout and our restoration operations. My testimony today will focus
on the questions raised by the Committee in the Notice of Hearing.
Immediately prior to coming to the NYISO, I was the Executive Vice
President of the Transmission/Power Supply Group of the Tennessee
Valley Authority, which in terms of MW served, is the size of New York.
Prior to that, I was Vice President of Electric Operations at Long
Island Lighting Company. I serve as the Chairman of the ISO/RTO
Council, and have served on the NERC Board and as Chairman of the
Southeast Electric Reliability Council. I am a graduate of Pratt
Institute and Worcester Polytechnic Institute.
The NYISO was created to operate New York's bulk transmission
system and administer the wholesale electricity markets. We are a New
York not-for-profit organization and started operation in 1999. As you
know, we are pervasively regulated by the Federal Energy Regulatory
Commission (``FERC''). As provided in the Federal Power Act, we are
also regulated with respect to certain financings by the New York State
Public Service Commission.
ISOs, and later regional transmission organizations (``RTOs''),
were established to help implement the FERC's policies of partial
deregulation as originally set forth in its Order 888, issued in 1996.
In its order, FERC set forth certain functions of ISOs and, in a later
order, of entities with similar functions such as RTOs. ISOs and RTOs
generally act as the primary interface between generators, transmission
owners and other participants in the wholesale electric marketplace.
ISOs and RTOs accomplish this by dispatching the power system in their
control area (i.e., directing the power plants to generate a specific
amount of power at a specific time) to supply electricity to customers
while maintaining safety and reliability. In addition, ISOs generally
facilitate and administer a number of different electricity markets,
thereby providing market participants with the ability to sell and
purchase various services on an unbundled basis.
The primary market function of ISOs or RTOs is to ensure fair and
non-discriminatory access to the transmission system. As such, ISOs are
meant to be independent of any individual market participant or any one
class of participants. Reliability and security of the transmission
system represent the other critical functions for a system operator.
For example, the NYISO, in accordance with NERC, the Northeast Power
Coordinating Council (``NPCC'') and the New York State Reliability
Council (``NYSRC'') rules, implements and adheres to reliability
standards intended to ensure that the integrated New York State
electric system has enough generating capacity, including reserves, to
provide a reliable power supply. Although ISOs play a key role in
ensuring reliability, ISOs have only operational control of the bulk
power system. They do not generate power, or own any generating or
transmission equipment. They do not have any financial interest in any
transactions for the generation or sale of electricity.
I would like to make clear at the outset the areas that we know and
those that we do not. While I am, of course, aware of what has been in
the press regarding the events that initiated the blackout in a
significant part of the Eastern Interconnection, I am not yet able to
tell you anything in detail about those events because they have not
yet been determined in detail, and details in this case are extremely
important. Because the initiating events happened in a very short
period of time--really just a matter of seconds--and happened away from
New York, understanding them fully depends largely on interpreting
electronic data that we do not have. The International Commission
formed by President Bush and Prime Minister Jean Chretien of Canada is
being given the data <SUP>1</SUP> and is undertaking its
interpretation. We are, of course, cooperating fully in this
investigation. The U.S. end of that investigation is well underway and
is headed by the Department of Energy. Like you, I'm anxiously awaiting
their conclusions.
---------------------------------------------------------------------------
\1\ NERC has been designated as the central data collection and
analysis point and all data is being sent to them.
---------------------------------------------------------------------------
In addition to outside investigations, the NYISO began its own
investigation and analysis within hours of the event. The NYISO is
reviewing its own records to determine the precise sequence of events
that took down major portions of the New York system within fractions
of a second. We have, in our preliminary analysis, identified two
uncontrollable power swings that led to the New York system disturbance
that occurred at about 4:11:00 p.m.
Up until the event, our system was operating normally, well within
applicable criteria and with adequate reserves. There had been a
routine scheduling call with adjoining control areas that occurred only
11 minutes before the event (at 4:00:00 p.m.) without indication of a
problem. The first indication of a possible problem somewhere on the
Eastern Interconnection occurred at 4:09:09 p.m. in the form of a
counter-clockwise 700 MW power swing that flowed from the PJM control
area through New York into the Ontario control area (which is operated
by the Independent Electricity Marker Operator or ``IMO''). The 700 MW
power swing did not, however, create a system contingency on the New
York system (i.e., the system was still secure and within intended
operating criteria). This 700 MW power swing was not a very unusual
occurrence and thus did not alarm the operators. Such a swing usually
indicates that a power plant or transmission element has failed in
another region.
A second counter-clockwise 1100 MW power swing occurred a minute
later, at 4:10:40 p.m., again flowing from the PJM control area through
New York into the Ontario control area. At this point, there were
approximately 2700 MW flowing through this New York transmission
corridor, consisting of approximately 900 MW of normal flow compounded
by the 700 MW and 1100 MW power swings. Our preliminary data indicates
that seconds thereafter, a 2700 MW reverse power swing either from or
through Ontario into the New York system occurred, which
instantaneously took down major portions of the New York system.
However, several hydro plants in upstate New York, as well as the
Quebec tie line, remained in service, as did the majority of the
upstate transmission system. Thus, about 20% of the New York load
continued to receive service during the disturbance. Unfortunately, New
York City was completely without service at this point.
Immediately after the event, the NYISO began implementing its
restoration plan. The first step in the restoration process involves
stabilizing the system and restoring our ties to the neighboring
control areas. After that, the process of bringing power plants and
outside sources back online must take place, including the delicate
balancing of the power they can supply with the demand in the
individual area being restored. If the demand were greater than the
supply, the system would crash in the affected area, and fortunately
that did not occur.
Within about three hours, we were able to restore one major tie to
the remainder of the Eastern Interconnection at Ramapo. The first major
power plant was returned to service in just under an hour after that,
and a few minutes later we re-established a transmission path to New
York City. Throughout the next day, there was a painstaking process of
bringing generators back to the system and re-energizing lines.
Statewide service was completely restored by 10:30 p.m. Friday, August
15th. The restoration process followed NYISO's pre-arranged plan and it
worked well.
Preliminary analyses indicate that the New York system operated as
designed, given the event, and that the power swings New York
experienced were beyond anything the system had been designed to
withstand.
In an occurrence such as the recent blackout, the greatest danger
to electric service is potential damage to the system itself--the power
plants and the transmission lines. Had that kind of damage occurred, it
could have taken days, weeks, or even months to restore. Fortunately,
the complex protective mechanisms that had been installed on New York's
transmission system and on its power plants worked as intended and no
serious damage was done. This protection shortened the restoration
process considerably.
We do not know at this time what equipment, design, or process
improvements would be required to prevent a reoccurrence of the August
14th blackout. It is important to understand that the facts must drive
the measures taken to prevent a reoccurrence of the August 14th
blackout. Until the cause of the cascading blackouts is ascertained, we
cannot anticipate what design changes, preventive equipment, or process
improvements should be put in place. Needless to say, we will
thoroughly review our own operations to determine if they can be
improved, and all of our data and analyses will be forwarded to NERC
for use in the International Commission's investigation.
The events that so affected New York on August 14th are not yet
known in sufficient detail to plan and implement specific solutions.
However, we believe it makes sense to examine the known problems that
could give rise to other reliability concerns in the future. We believe
that the reliability standards set by the NERC, which are now
voluntary, should be made mandatory. That issue is now before the
Congress in the energy legislation now before a conference committee.
We also believe those standards should mandate significantly improved
communications and operating protocols among the various regions of the
country, since we are now painfully aware of the extent to which events
in one region can affect neighboring regions. Right now, there is no
expectation that a non-adjacent system operator would communicate to
other, non-contiguous control areas the existence of a condition or
disturbance on its system, which is outside of allowable operating
limits. Neither, is there an obligation on the control area's neighbors
to communicate to the control area any information they obtain
regarding problems on other systems. Communications alone,
unfortunately, will not prevent a future blackout from occurring. The
goal of having better communication is to enable ISOs and RTOs to take
anticipatory action, if required, as soon as a system condition or
disturbance becomes apparent anywhere on the Interconnection. Of
course, there is no guarantee that prior knowledge or notice will
translate into anticipatory action that can prevent a system
disturbance.
There are some actions that can be taken in New York to help ensure
that other reliability problems do not arise. New York has been short
of generation in the recent past and projections indicate that
deficiencies are likely again later this decade. That shortage will
grow and will represent both a reliability concern and, in our new
competitive markets, a cost to consumers. The NYISO has already
reformed its capacity markets to encourage investment in needed
facilities and is working with neighboring regions to develop regional
capacity markets.
New York's transmission grid and its internal planning process
needs to be strengthened. Current incentives for building transmission
are inadequate. Likewise, inter-regional planning processes should be
improved, and in the case of interstate facilities, a federal override
(backstop authority) may be appropriate. I should note that this
problem also has a continuous upward effect on electricity prices,
since congestion on our transmission grid inhibits the free trade in
electricity that the competitive markets were designed to foster.
In this brief statement, I have tried to respond to the Committee's
questions and to summarize the state of the investigations into what we
know about how we handled the recent blackout in New York. I have tried
to do so without speculating on things about which it is premature to
draw conclusions. Needless to say, once the results of the
international investigation are available, the NYISO will move
aggressively to implement appropriate changes, as indicated by that
investigation. Finally, I have taken the opportunity to alert the
Committee to some of the measures, which can help to avoid future
problems.
I want to thank the Committee for the opportunity to come here
today, and we will be cooperating with the Committee and the on-going
inquiries into the outage.
Mr. Barton. Thank you, sir. I want to just clarify
something. Everybody's testimony is in the record, and all the
members and their staffs, I am told, have had the testimony in
advance so that we can read it and prepare questions, but we
really do ask that you summarize in 5 minutes. Now, obviously,
we are not going to shoot you if you don't, but we would like
you to hold it as close to 5 minutes as possible. So with that,
we will go with Mr. Torgerson who is the CEO of the Midwest ISO
in Indianapolis, Indiana and ask that you try to summarize in 5
minutes.
STATEMENT OF JAMES P. TORGERSON
Mr. Torgerson. Good afternoon, Mr. Chairman and members of
the committee. My name is James Torgerson. I am the president
and chief executive officer of the Midwest ISO. I would like to
thank the committee for allowing me to appear today to provide
what insights I can concerning the circumstances surrounding
the power outages of August 14 and offer suggestions as to what
might be done in the future.
The Midwest ISO was formed in 1998. The Midwest ISO was the
Nation's first voluntary regional transmission organization
that did not originate from a legislative mandate or against
the back drop of a tight power pool. The Midwest ISO is also
the first entity found by the Federal Energy Regulatory
Commission to be a regional transmission organization.
The Midwest ISO's region covers portions of 15 States and
the Canadian province of Manitoba. Of relevance to your inquiry
here, our current role is that of a NERC-certified reliability
coordinator. As a reliability coordinator, the Midwest ISO
monitors flows on key transmission facilities, develops day-
ahead plans, conducts next-hour analysis regarding the high
voltage grid and communicates with the control areas in our
region who have the primary control capabilities to open and
close transmission circuits and to redispatch generation. Three
of the more than 30 companies within our reliability
coordinator territory suffered outages in the black out:
Consumers Power Company, Detroit Edison Company and FirstEnergy
Company.
The cause of the blackout and why it cascaded will be
forthcoming from the work being done by the International Task
Force formed by President Bush and Prime Minister Chretien of
Canada. The Midwest ISO only has a part of the data needed to
reconstruct the events. The Midwest ISO is cooperating with the
committee, the International Task Force and the General
Accounting Office. Likewise the reason for the cascading effect
of the outages is unknown at this time.
The analysis that has been done to date in the Midwest
seems to indicate that there were a number of events in the
Eastern Interconnection on August 14. Some are surely related
to separations and the substantial losses of load that
occurred, and others are likely unrelated. At approximately
4:10 Eastern Daylight Time portions of the Eastern
Interconnection were separating from one another, and the loss
of significant load was only seconds or minutes away. At 4:19,
the Midwest ISO initiated the first NERC coordinating call of
the day among NERC and the regional reliability coordinators.
During that first call, the issues became ascertainment of
system conditions and then commencement of restoration
activities.
The Midwest ISO worked with each control area to ensure the
individual area restorations would not threaten even a small-
scale repeat of Thursday afternoon's events. The Midwest ISO
was able to relay information to Michigan about power available
from Illinois that could safely be imported to hasten the
restoration of load. Additionally, the Midwest ISO, in
combination with the IMO and others, determined when it was
safe to reestablish the ties between Michigan and Canada.
As only one of the companies contributing information to
NERC and DOE, we do not have a picture of events across and
adjoining the footprint of affected systems. Events occurring
across the Eastern Interconnection, including plant outages,
voltage conditions and the operation of protective relay
schemes, will have to be evaluated before cause can be
distinguished from effect.
The question has been asked, what systems worked and what
failed? The full answers to the questions posed cannot be known
until the work of the DOE-led investigation is complete.
However, it seems there were a number of items that did work as
they were intended. Equipment that was designed to protect
transmission lines and generators during cascading events
operated successfully to isolate equipment before there was
permanent damage. Automatic protection systems did keep the
blackout from spreading even further. Considering the size of
the area impacted, the restoration proceeded in an orderly
manner with much of the load restored within 48 hours.
The committee is also confronting the question of what can
be done to prevent a recurrence of the outages. I believe that
you will find agreement that widespread adherence to strong
reliability standards will be important. Other matters will be
crucial as well, and in my opinion they include the development
of more transmission infrastructure consistent with regional
plans, such as the one recently developed by the Midwest ISO, a
reassessment of the existing hierarchical control structure
between the control areas and reliability coordinators,
increased automated data sharing about system conditions over a
wider area and review of protective relaying practices in the
industry.
Finally, for the Midwest ISO in particular, acceptance by
the FERC of our tariff filing to establish energy markets in
our territory is critical. This will bring added elements of
region wide action that are not present today--a security
constrained generating unit commitment program and a real-time
security constrained economic dispatch.
This concludes my remarks, and I would be pleased to answer
questions.
[The prepared statement of James P. Torgerson follows:]
Prepared Statement of James P. Torgerson, President and Chief Executive
Officer, Midwest Independent Transmission System Operator, Inc.
Good morning, Mr. Chairman and Members of the Committee. My name is
James P. Torgerson. I am the President and Chief Executive Officer of
the Midwest Independent Transmission System Operator, Inc. (``Midwest
ISO''). I am appearing on the panel with the other CEOs of the
Independent System Operators (ISOs) and Regional Transmission
Organizations (RTOs) that were affected during the blackout of August
14 to offer what insights I can concerning the circumstances
surrounding the power outages and offer suggestions as to what might be
done in the future.
The Midwest ISO was formed in 1998. The Midwest ISO is the nation's
first voluntary regional transmission organization that did not
originate from a legislative mandate or against the back drop of a
tight power pool. The Midwest ISO is also the first entity found by the
Federal Energy Regulatory Commission to be a Regional Transmission
Organization.
The Midwest ISO's region covers portions of fifteen states and the
province of Manitoba. Of relevance to your inquiry here, we act as a
Reliability Coordinator for three sets of companies. As Reliability
Coordinator, the Midwest ISO monitors, plans, conducts analyses
regarding the high voltage grid and communicates with the Control Areas
in our region who have the primary control capabilities to open and
close transmission circuits and to redispatch generation. We perform
this coordination function for the companies that have transferred
functional control of their transmission systems to us. We do it
through contract with the East Central Area Reliability Council (ECAR)
for two systems that are scheduled to transfer control to us in the
future, Northern Indiana Public Service Company and First Energy's
Northern Ohio system (First Energy's eastern assets are under the
control of PJM). Finally, through a contract with MAPPCOR we perform
this service to companies in the Mid-Continent Area Power Pool (MAPP)
region that have not transferred control of their transmission systems
to the Midwest ISO. Three of the more than 30 companies within our
reliability coordinator territory suffered outages in the black out--
Consumers Power Company, Detroit Edison Company and First Energy
Company.
What exactly caused the blackout will be forthcoming from the work
being done by the International Task Force formed by President Bush and
Prime Minister Chretien of Canada. As Secretary of Energy Abraham's
press release of last Wednesday states: ``It's a complex job we are
undertaking. It's going to take some time to compile all this
information, get it all synchronized and sequenced, and then determine
exactly what happened when--and how it's all interrelated.'' The
Midwest ISO only has a part of the data needed to reconstruct the
events and is not in a position to characterize the proximate cause of
the blackout. The Midwest ISO is cooperating with the Committee, the
International Task Force and the General Accounting Office's
investigations into the matter. Likewise the reason for the cascading
effect of the outages is unknown at this time.
The analysis that has been done to date in the Midwest seems to
indicate that there were a number of events in the Eastern
Interconnection on August 14th. Some are surely related to separations
and the substantial losses of load that occurred, and others are likely
unrelated. During the morning and into the afternoon, Midwest ISO
personnel were in contact with various control area operators and PJM,
the neighboring reliability coordinator about the events of the day,
which by the afternoon had included the outages of several high voltage
transmission lines. During the morning of August 14th, there was no
indication to the Midwest ISO of significant problems in our territory.
During the course of the hour preceding the cascading event, after the
loss of a large generating unit in northern Ohio had already occurred,
several transmission line outages also occurred in the Ohio area.
During this period the Midwest ISO operator was in contact with the
neighboring Reliability Coordinator at PJM as well as control operators
within our territory. At this point in time, the issues did not seem to
implicate a regional problem.
Things began to change at 4:09. By 4:10 Eastern Daylight Time
portions of the eastern interconnection were separating from one
another and the loss of significant load was only seconds or minutes
away. At 4:19 the Midwest ISO initiated the first NERC coordinating
call of the day among NERC and the regional Reliability Coordinators.
These calls were repeated every several hours thereafter and eventually
to a few times per day during the restoration. During that first call
the issues became ascertainment of system conditions and the
commencement of restoration activities.
During the restoration efforts, the Control Area operators
performed their responsibilities in linking returning generation with
load to be restored. The Midwest ISO, as a Reliability Coordinator,
played its part in analyzing the transfer capability into Michigan and
Ohio to safely deliver power into those areas. The Midwest ISO worked
with each area to ensure the individual area restorations would not
threaten even a small-scale repeat of Thursday afternoon's events. The
Midwest ISO was able to relay information to Michigan about power
available from Illinois that could safely be imported to hasten the
restoration of load. Finally, the Midwest ISO, in combination with the
IMO and others, determined when it was safe to reestablish the ties
between Michigan and Canada.
As only one of the companies contributing information to NERC and
DOE we do not have a picture of events across and adjoining the
footprint of affected systems. Events occurring across the eastern
interconnection including plant outages, voltage conditions and the
operation of protective relay schemes will have to be evaluated before
cause can be distinguished from effect. I am awaiting the results of
the International Task Force formed by President Bush and Prime
Minister Jean Chretien of Canada.
The question has been asked, what systems worked and what failed?
The full answers to the questions posed cannot be known until the work
of the DOE led investigation is complete. However, it seems there were
a number of items that did work as they were intended:
Equipment that was designed to protect transmission lines and
generators during cascading events operated successfully to
isolate equipment before there was permanent damage to the
equipment. This shortened the time period of the restoration
efforts because, had protection systems not operated to protect
individual components as designed, the power production and
delivery systems could have been severely hampered for many
months.
Automatic protection systems did keep the blackout from spreading
even further.
Considering the size of the area impacted, the restoration proceeded
in an orderly manner with much of the load restored within 48
hours of the initial disruption. The Control Areas have primary
responsibility to restore their systems while maintaining a
balance of resources and load. The ISO/RTOs assisted in the
restoration effort by ensuring equipment was not being put at
risk for furthering cascading as generators were being brought
back on-line and as load was being restored. The coordination
among the ISO/RTOs and their member systems worked to assure a
reliable restoration.
In my opinion, the restoration efforts would have been less
effective a year ago, because at that time our territory was smaller,
our regional view was not as developed and an additional reliability
coordinator would have been involved in the Midwest. The Midwest ISO
was able to assist in the regional coordination of the restoration of
power in a fashion that did not allow a repeat of August 14th's events.
Looking forward a year presents much the same difficulties as
looking back. Until we know the exact cause and effect of the various
incidents and how certain physical equipment expected to operate to
isolate outages earlier did perform, no one can give a conclusive
answer. Making a few presumptions, I believe the Midwest ISO will be in
a better position next August to lessen the likelihood of any
recurrence. We have before FERC a tariff that if accepted and
implemented will have the Midwest ISO running wholesale markets, much
like PJM, the New York ISO and ISO New England do today. That tariff
will put matters like a regional security constrained unit commitment
and real time generation dispatch in place. Each of these additions
should be of substantial benefit. That will give the Midwest ISO more
information about generation unit status than we have today and add an
ability to direct generator actions within the footprint. This market
will improve reliability. Indeed a strong, reliable system is the
necessary underpinning of a successful market. The two are not opposite
poles they are two halves of what is necessary for reliable service to
customers.
I think all the regional entities involved have an appreciation
today that communication between reliability coordinators and other
entities has to be raised to a higher level than has been required or
practiced in the past. At a basic level, that has already happened. The
use of the NERC coordinating call to apprise our industry counterparts
of the computer virus on August 20th is an example of that increased
communication. Mere telephone communication; however does not seem
adequate for the future. The Midwest ISO and PJM have a Joint Operating
Agreement under development that calls for substantial real time
automated data transfers between our systems. While the Joint Operating
Agreement is not yet finalized, the Midwest ISO and PJM have recently
established the physical communication network links to allow for the
types of data transfer called for by the Agreement. Once the software
is in place the enhanced data transfer can be made operational. We are
each reassessing the Agreement to determine what additional features it
should have in light of the events of August the 14th.
The Committee is also confronting the question of what can be done
to prevent a recurrence of the outages. While the definitive answer
cannot be given today, I believe that you will find agreement that
widespread adherence to strong reliability standards will be important.
Other matters will be crucial as well. In my opinion they include:
The development of more transmission infrastructure consistent with
regional plans;
A reassessment of the existing hierarchical control structure;
Increased, automated data sharing about system conditions over a
wider area; and
Review of protective relaying practices in the industry.
For the Midwest area as a whole we need the participation of all
major transmission systems in an RTO. This will end the prospect of the
risks posed by a Swiss cheese configuration of systems, some in an RTO
and others not. Finally, for the Midwest ISO in particular, acceptance
by FERC of our tariff filing to establish energy markets in our
territory is critical. This will bring added elements of region wide
action that are not present today--a security constrained generating
unit commitment program and a real-time security constrained economic
dispatch.
Of the eight items I mentioned, the first, mandatory reliability
standards is largely in your hands. As to the development of more
infrastructure in our region, the Midwest ISO issued its first
transmission expansion plan this June. It calls for construction of
$1.3 billion of already planned projects. It identifies another $ .5
billion of proposed reliability projects. Commitment of participating
transmission owners to pursue these projects is crucial for the future.
The cooperation of the states in allowing timely construction is also
important. I am pleased that within our region we have begun that
cooperation with the newly created Organization of MISO States. This
organization includes 14 states and the Canadian province in our
region.
The remaining six items will call for the strong interplay of
industry participants and the national government mediated through or
directed by the Department of Energy and the Federal Energy Regulatory
Commission.
This concludes my remarks and I would be pleased to answer
questions.
Mr. Barton. Thank you, Mr. Torgerson. We now want to hear
from Mr. David Goulding who is the CEO of the Independent
Market Operator of Ontario. You are recognized for 5 minutes.
STATEMENT OF DAVID GOULDING
Mr. Goulding. Thank you very much. Yes, I am David
Goulding. I am CEO of the Independent Electricity Market
Operator in Ontario, and I would like to thank the committee
for inviting me to come and speak to them on this particular
event.
With a population of about 11 million people, Ontario has
an electricity supply system which is roughly equal to that of
New England, with annual usage of about 150 terawatt hours. Our
electricity system has been fully integrated with neighboring
U.S. systems for many decades. The significant import and
export capability with the States of New York, Michigan and
Minnesota that can total about 2,700 megawatts. And in fact
this import and export capability has been used many times over
the years, first of all, for trade, the economic trade in
electricity, second, both ways in times of need when our
neighbors or ourselves may have had an issue with adequacy for
some period of time, and, third, in times of response to
contingencies on the power system when there has been immediate
flows across North if it was a problem in Ontario, south if it
was a problem in the United States. So this system has worked
extremely well.
We in Ontario and the IMO are participants and members of
the standard setting companies, such as NERC and the Northeast
Power Coordinating Council, and we are also members of the
recently formed Regional Transmission Organization Council of
all operating Regional Transmission Organizations and ISOs.
Electricity in Canada is predominantly a provincial
jurisdiction. The Federal involvement is mainly through the
National Energy Board exercising a role quite limited in terms
of export permits and international facility approvals. So the
regulator in Ontario will be the Ontario Energy Board, and we
at the IMO have certainly regulatory functions too. Although we
are not under the jurisdiction of FERC, the Commission in a
recent decision did find that the IMO operates electricity
markets that meet their criteria for providing non-
discriminatory access to U.S. entities as well as to Ontario
entities.
The IMO itself was created in 1999 as a part of the Ontario
restructuring of electricity and one or two key
accountabilities that I would like to mention that I think are
important. One is that our objects were assigned by the
provincial legislation to include participating in the
development of standards and criteria relating to the
reliability of transmission systems, as well as directing the
operation and reliability of IMO control grid. We have a
license from the Ontario Energy Board obliging us to enter into
agreements with transmitters to direct the operation of the
grid. We have an extensive set of market rules that go into
considerable detail related to reliability obligations,
authority monitoring and enforcement, and a copy of that has
been filed with FERC. And I think particularly important in the
context of what we are hearing during these 2 days is we do
have a full status-based authority for establishing, monitoring
and enforcing reliability standards. And in this regard, the
IMO has been an active participant in NERC and MPCC and has
adopted the standards developed through those organizations as
the basis for our standards in Ontario.
So we are both a control area operator for Ontario, we are
also the reliability coordinator for Ontario, and we have been
the subject of a NERC reliability coordination audit. In
respect to our ability to enforce compliance and impose various
types of penalties, a reliability compliance audit by the MPCC
concluded that our procedures and practices are exemplary in
discharging reliability authority function, and if I can quote,
``The Ontario Are Compliance Program is unique in that it is
directly tied to the established market rules and licensing
requirements. This structure makes compliance a binding
obligation and facilitates in the administration and
enforcement of compliance. The MPCC's Compliance Monitoring and
Assessment Subcommittee encourages other areas to consider such
a compliance model.''
So very briefly, in finishing off, we were unaware of any
events on the interconnected system until around 4:09, 4:10 on
August 14. Our system was operating normally within all limits,
voltage and transmission limits. We had the requisite operating
reserve available to us, and we, like some of our other
colleagues, were hit by power swings on the system which
developed over seconds, essentially, and shut down the whole
province of Ontario. So maybe I will leave at that. Thank you.
[The prepared statement of David Goulding follows:]
Prepared Statement of David Goulding, President and Chief Executive
Officer, The Independent Electricity Market Operator of Ontario
I would like to thank the Committee for inviting the Independent
Market Operator of Ontario to join this panel. My name is David
Goulding, and I am the President and CEO of the IMO since its inception
over four years ago.
There is strong tradition of cooperation and trade in electricity
between Ontario and its U.S. neighbours. Our interconnections have
yielded significant benefits to all parties over the years--benefits
that can and should be preserved as we move forward. I say this even
though Ontario was one of the jurisdictions hardest hit when this
disturbance cascaded across our borders.
Today, I'll provide a quick background on how Ontario fits into the
North American grid and markets, then proceed to address the six
questions that were in the chairman's letter of invitation.
1. ontario is fully integrated into the u.s. grids and markets
With a population of 11 million people, Ontario has an electricity
system roughly equal in size to New England's. Annual use is about 150
TWh, valued at over CAD $11--billion. The generation mix in Ontario is
made up of nuclear, coal, hydroelectric and natural gas. Trade with our
neighbouring jurisdictions is considerable, amounting to several
hundred million dollars/year. For example, in the last twelve months,
Ontario has traded the following volumes with its neighbouring states:
------------------------------------------------------------------------
EXPORTS
IMPORTS to from
Ontario GWh Ontario GWh
------------------------------------------------------------------------
New York...................................... 1,572 3,149
Michigan...................................... 5,436 132
Minnesota..................................... 364 23
TOTAL..................................... 7,372 3,304
------------------------------------------------------------------------
Ontario's electricity system has been fully integrated with
neighbouring U.S. systems for many decades. There is significant
import/export capability with the states of New York, Michigan and
Minnesota that can total up to 2700 MW. This can supply up to 10% of
Ontario's peak demand. We are active participants and members of
international standards setting and development organizations such as
North American Electric Reliability Council (NERC), Northeast Power
Coordinating Council (NPCC), and of the recently formed Regional
Transmission Organization (RTO) Council of all operating Regional
Transmission Organizations in North America.
Electricity is predominately under provincial jurisdiction in
Canada, with the federal National Energy Board (NEB) exercising a role
limited to export permits and international facility approvals. The
Ontario Energy Board (OEB) is the main regulatory agency for
electricity in Ontario, although substantial regulatory functions,
including reliability, are carried out by the IMO.
While Ontario utilities are not under the jurisdiction of FERC, the
Commission, in a recent decision, found that the IMO operates markets
that meet their criteria for providing non-discriminatory access to
U.S. entities as well as to Ontario entities.
2. background on the independent market operator in ontario (imo)
The IMO was created in 1999 as part of Ontario's restructuring of
its electricity sector, and is the functional equivalent of a U.S.
based ISO or RTO such as NYISO, PJM, or ISO-NE. The objectives of the
IMO are established by Ontario's Electricity Act, 1998. Our objectives
are:
(a) to exercise and perform the powers and duties assigned to the IMO
under this Act, the market rules and its licence;
(b) enter into agreements with transmitters giving the IMO authority to
direct the operations of their transmission systems;
(c) direct the operations and maintain the reliability of the IMO-
controlled grid;
(d) establish and operate the IMO-administered markets;
(e) collect, and provide to the public, information relating to the
current and future electricity needs of Ontario and the
capacity of the integrated power system to meet those needs;
(f) participate in the development by any standards authority of
standards and criteria relating to the reliability of
transmissions systems; and
(g) work with responsible authorities outside Ontario to coordinate the
IMO's activities with their activities.
Participation in and operation of the IMO-administered markets is
governed by a comprehensive set of Market Rules. A Board of Directors,
made up of independents as well as stakeholders, governs the IMO and
approves the Market Rules.
The IMO-administered markets have been in operation since May 1,
2002.
3. specific accountabilities regarding reliability
The IMO's objects assigned to it by Provincial legislation
include participating in the development of standards and criteria
relating to the reliability of transmissions systems, as well as
directing the operation and maintaining the reliability of the IMO-
controlled grid.
The IMO's licence, granted by the Ontario Energy Board (OEB),
obligates the IMO to enter into agreements with Transmitters for
purposes of directing the operation of the grid.
An extensive set of Market Rules goes into considerable detail
related to reliability obligations, authorities, monitoring and
enforcement. A copy of these Market Rules is on the IMO website
(www.theimo.com). A copy has been filed with FERC for information.
The IMO has full statute-based authority for establishing,
monitoring and enforcing reliability standards. In this regard, the IMO
has been an active participant in NERC and NPCC and has adopted the
standards developed through those organizations as the basis for
reliability standards in Ontario.
The IMO is Ontario's Control Area operator, and is party to the
Northeast Power Coordinating Council (NPCC) agreement.
The IMO is also the reliability coordinator for Ontario and was
subject of a NERC reliability coordination audit in October, 2002.
A 2002 reliability compliance audit by the NPCC concluded that
the IMO's procedures and practices are exemplary in discharging its
reliability authority functions. Its conclusion is that ``the Ontario
Area compliance program is unique in that it is directly tied to the
established market rules and licensing requirements. This structure
makes compliance a binding obligation and facilitates in the
administration and enforcement of compliance. NPCC's Compliance
Monitoring and Assessment Subcommittee (CMAS) encourages other Areas to
consider such a compliance program model''.
Question 1--What exactly were the specific factors and series of events
leading up and contributing to the blackouts of August 14?
The Committee will hear from NERC on September 3rd, the day prior
to this testimony.
The IMO, along with many other entities, is working with NERC to
put a complete picture of events together. Our technical experts and
our data are being made available for this purpose.
This testimony expands on the Ontario perspective on the
disturbance and how we worked with our neighbours to restore service to
customers.
Question 2a--At what time did your company first become aware that the
system was experiencing unscheduled, unplanned or
uncontrollable power flows or other abnormal conditions.
Answer to 2a. Subsequent analysis of data indicates that the
disturbance started at approximately 4:09 pm, and for the next several
minutes, the following sequence occurred:
The flow into Ontario from Michigan reversed, from a flow into
Ontario of about 486 MW to a flow out of Ontario which
increased over time, reaching over 2200 MW about 3 minutes into
the disturbance period.
Voltages across Southwestern Ontario declined.
Flow into Ontario from New York first increased by 700 MW and stayed
there for a minute or so and then increased further. Shortly
after, the flow reversed to be from Ontario out to New York,
settling at about 1,200 MW.
During this time, voltage instability occurred in Ontario, and
frequency declined causing automatic frequency protections to
operate in Ontario in an attempt to arrest the decline by
shedding load.
Various generating units and transmission lines started tripping off-
line to protect equipment.
Separation of Ontario from Michigan occurred at around 4:12 pm.
Ontario is largely blacked out by 4:12 pm.
Small pockets of Ontario remained connected to New York and in
Northwest Ontario to Minnesota and Manitoba.
Question 2b--What steps did you take to address the problem?
Answer to 2b. Steps taken to address the problem:
Confirmed extent of the disturbance
Activated the Ontario Power System Restoration Plan including:
--Communication with other Control Areas (CAs)
--Communication with Transmitters
--Communication with market participants in Ontario
In order to restore power reliability to customers throughout the
Province, the priorities of the restoration plan are:
--Restore Class IV AC power to all nuclear sites
--Restore power to critical transmission and generating station
service loads
--Restore critical utility owned telecom facilities
--Restore customer loads to the extent necessary to control
voltages and secure generating units
--Synchronize islands together and/or to adjacent power systems
Suspended Ontario's IMO-administered Markets at 4:20 pm
Activated the IMO's internal Emergency Response Team and our external
Crisis Management Support Team (within minutes):
--Focus on public health and safety
--Early notification to provincial and federal government regarding
scope and scale of the blackout
--Early notification to telecommunications service providers to
sustain critical telecom
--Identification of status of priority loads at several stages
through restoration (e.g.--hospitals, oil and gas
refineries, and water treatment plants)
Set up Decision Support and Communication Centre with Ontario
government officials, including working with industry and
government to assist in implementation of the Ontario
government's voluntary conservation/curtailment program over
the week following the disturbance.
Service was restored to all customers in Ontario by end of Friday,
August 15th, with the voluntary curtailment request from government
being lifted on Friday, August 22nd.
Question 2c--Were there any indications of system instability prior to
that time?
Answer to 2c. There were no indications of system instability prior
to that time.
Pre-disturbance conditions:
All reserve requirements were being met (1,580 MW)
Operating within all system limits
System voltages were within required ranges
No significant transmission outage
Actual Ontario demand--24,050 MW
Schedules: from Michigan--1, 074 MW, from New York--373 MW
Actual Flows: from Michigan--486 MW, from New York--1,089 MW
Question 3--Which systems operated as designed and which systems
failed?
Power System Protections. Protections intended to isolate equipment
from damage worked as designed. These protections provided a safe and
orderly shut down for generators, transformers, and transmission lines.
Emergency Power Supply to Control Centre. Back-up battery/diesel
systems worked seamlessly at the IMO's Control Centre, providing
electrical power to enable the IMO to direct the restoration of
Ontario's power system.
Public Telephone System. With the exception of cell phones that
were overloaded early in the event, the public telephone network was
generally available to the Control Centre. Subsequently, the heavy
traffic made arranging large conference calls difficult.
System Restoration and Crisis Management Processes.
Efficient and effective assignment of accountabilities within the
control room
Good cooperation from field staff of generators and transmitters
Good cooperation with neighbouring area operators
Successful restoration plan
Large-scale restoration is inherently complex, and our control room
staff adapted to changing circumstances as the restoration proceeded,
modifying approaches as necessary to achieve objectives. The overall
restoration and crisis management processes proceeded in an orderly
fashion and met their objectives.
IMO Help Centre. The IMO Help Centre was immediately able to expand
its operations from weekdays to 24x7, and successfully handled a 400%
increase in call volumes over the ensuing 8 days. As a result there was
always someone available to answer questions during the declared
emergency, and all questions were handled quickly.
The IMO Help Centre typically answers calls from IMO customers.
During this period significant volumes also came from large industrial
consumers, small businesses and the general public. The overriding
request was for information to help them ensure that they, as
electricity users, were ``doing the right thing,'' such as implementing
conservation measures.
The communication systems that the IMO Help Centre relies on to
receive and reply to inquiries (i.e. phone and e-mail) functioned
normally during the entire emergency.
Communication Centre/Provincial Decision Support. A Communications
Centre was set up to brief media on status of system restoration in
Ontario and to provide information as to how customers can assist in
the restoration effort. Press conferences, scheduled twice daily, were
coordinated with Provincial officials.
Provincial government officials were continuously briefed on power
restoration priorities to ensure coordination with other government
agencies.
Question 4a--If events similar to those that occurred on August 14,
2003 had happened a year ago, would the results have been the
same?
Answer to 4a. No comprehensive analysis of the initiating and
subsequent events is yet available. This question can only be answered
in a meaningful way once that analysis, now underway at NERC, is
complete.
Question 4b--If similar events occur a year from now, do you anticipate
having in place equipment and processes sufficient to prevent a
reoccurrence of the August 14 blackout?
Answer to 4b. Ontario's intent is to incorporate lessons learned
from this event, and to follow up on all recommendations designed to
avoid a re-occurrence. But Ontario's actions, and those in our
neighbouring jurisdictions, must be part of wider regional actions and
solutions. It will not be sufficient if even a few entities fail to
address the lessons learned. Actions must be taken by all
interconnected jurisdictions.
Question 5--What lessons were learned as a result of the blackouts?
It is too early to know all the lessons learned at this time. Only
by thoroughly studying the events of August 14th and getting to the
root cause of the events will the lessons become apparent. We can,
however, confirm the value of various plans and practices from
Ontario's perspective:
1. We confirmed that the devices that are in place to protect equipment
operated as planned.
2. We confirmed that maintaining a well-documented restoration plan,
supported by training and rehearsals involving the IMO, market
participants and government, was and will continue to be a key
investment.
3. We confirmed that close cooperation amongst the IMO, and Ontario
Transmitters, Generators, market participants and government is
essential to achieving an orderly restoration.
4. The significance of communication protocols between different
control areas and reliability coordinators became evident.
5. Maintaining a secure power system in a strongly interconnected
network is difficult when there is imperfect knowledge about
the extent of local disturbances that have the potential to
spread regionally. The extreme speed at which events can
cascade across the system increases the significance of timely
information.
Question 6--How can similar incidents in the future be prevented?
While additional lessons will be identified as the event analysis
proceeds, it is the submission of the IMO that the following principles
should be adopted by the Committee, and acted on at the earliest
possible date:
1. Maintain and enhance the integration of systems and markets: The
interconnections with our neighbours have yielded substantial
reliability and trading benefits for all parties over the
years. These benefits are significant and must be preserved.
2. Mandatory enforceable reliability standards should be put in place
where they do not exist:Reliability standards for the
interconnected North American grid should continue to be
developed through the NERC international processes and the
associated regional reliability councils but those standards
should no longer be voluntary, they should be mandatory.
--A well-defined statute-based mandate should be established in the
U.S. under which a responsible organization would have
clear enforcement, compliance and sanctioning authority for
reliability performance. This mandate should be compatible
with the corresponding Ontario mandate with respect to
Ontario entities.
--Ontario already has in place a statute-based authority to support
the development and enforcement of reliability standards.
Under Ontario law, the IMO establishes reliability
standards, and can and does enforce those standards.
Ontario standards established and enforced by the IMO meet
or exceed relevant NERC and NPCC guidelines and policies.
The IMO has all necessary authorities to impose sanctions
on asset owners for non-compliance.
--The U.S. reliability standards language in the current U.S. House
and Senate Bills allows for the creation of an
international organization that properly reflects the
multi-national nature of the grid.
3. The industry should continue to pursue the three part strategy of
prevention, containment and minimization of impact:
prevention: through good planning and operations, adequate
investments and putting in place mandatory enforceable
standards.
containment: through monitoring capabilities, communication
protocols, as well as equipment and processes that are set
to limit the scale of disturbances.
minimization of impact: through good restoration plans, practical
training, education and communications.
4. The industry should build on the strong institutional and regulatory
foundations already in place: It is our view that the framework
exists to provide for improvements and future prevention of
similar incidents. The strong and long tradition of
international cooperation has served North America well. The
institutions, agreements, and organizations already in place,
supplemented by well-defined authorities as necessary, are
fully sufficient, in our view, to take the industry forward.
This concludes my prepared remarks. I am prepared to answer
questions at this time.
Mr. Barton. Thank you, Mr. Goulding. We now want to hear
from Mr. Gordon van Welie, who is the CEO of the New England
Independent System Operator in Holyoke, Massachusetts. You are
recognized for 5 minutes.
STATEMENT OF GORDON VAN WELIE
Mr. van Welie. Thank you, Mr. Chairman and members of the
committee. My name is Gordon van Welie, and I am president and
CEO of ISO New England. Sitting directly behind me is Steve
Whitley who is senior vice president and chief operating
officer. Before making some policy recommendations, I would
like to briefly cover in a summary fashion the events on August
14 from the perspective of our New England region.
As you know, there is an intensive effort ongoing by the
Department of Energy aided by the North American Electric
Reliability Council to determine exactly what happened on
August 14. We are confident that the blackouts began outside of
New England, and we know that our system reacted as intended to
limit the spread of the disturbance into New England. Automated
protective mechanisms in our system open the ties
interconnecting our system with New York and separated most of
New England from the disturbance to the West. Power was lost in
limited areas near the border with New York and most notably in
southwest Connecticut where the transmission system is outdated
and the State of Connecticut just recently approved a
transmission upgrade. Our operators acted quickly to balance
the isolated system, preventing further disturbance and began
effective procedures to restore power where it was lost. They
did an outstanding job.
Moving on to the policy recommendations, it may be too
early to propose detailed solutions, but based on our
experience in New England as one of the most mature electricity
markets in the country, I would like to offer four policy
recommendations. Firstly, there must be a single entity with
clear operational responsibility for a regional area of
control. ISO New England fulfills this role in New England, we
do so through one control area. Creating a Regional
Transmission Organization in New England will further define
our responsibilities and our authorities. We believe that size
and operation responsibilities and authority are important
considerations for Regional Transmission Organizations.
It is difficult to determine what exactly the right size
is; there is no science to this. However, we believe this is a
balance and a tradeoff between regional vantage point and
having a sufficient depth in one's system to deal with a wide
range of contingencies, for instance, not making it too complex
for human operators to be able to control. As we have seen
under emergency conditions, computer systems fail, and in the
end we have to rely on human operators to make decisions in a
matter of seconds. In addition to science, clear operational
responsibilities and authorities must be defined. Lack of
clearly defined operational responsibilities between an RTO and
participating transmission entities can lead to confusion and
hesitancy of action, and those are dangerous situations in an
emergency situation.
Other speakers have emphasized the point that reliability
standards must become mandatory. Ms. Betsy Moler in a previous
panel had also mentioned that market rules need to be looked as
well, and I would like to second that. Particularly, there is a
dependency, particularly in the area of the way one schedules
transactions, and I think in looking at reliability standards
and ensuring that RTOs operate in a standardized way in the
scheduling of those transactions is a very important point as
well.
The third policy recommendation I would like to make is
that we need to have new transmission infrastructure, but we
can't do so on an ad hoc basis. It must be done pursuant to
systematic and thorough planning process such as one used in
New England and in a number of system operators elsewhere in
the country.
The final point that I would like to make is that a balance
must be struck between the interest of States to site
transmission facilities and the importance of such facilities
in the reliable operation of the regional electric system. A
State should have the first opportunity to act upon application
for siting approval. However, in instances of serious
transmission constraint or congestion, appropriate Federal
authorities should be empowered to issue permits for new
transmission facilities if the public interest requires such a
facility to relieve constraints and a State has failed to take
action in a reasonable amount of time. And those are my
comments. Thank you.
[The prepared statement of Gordon van Welie follows:]
Prepared Statement of Gordon van Welie, ISO New England Inc.
introduction and background
Good Morning, Mr. Chairman and Members of the Committee. My name is
Gordon van Welie, and I am the President and Chief Executive Officer of
ISO New England Inc., the independent system operator of the bulk power
grid that serves the six New England states. I am accompanied today by
Stephen G. Whitley, ISO New England's Senior Vice President and Chief
Operating Officer.
By way of background, I joined ISO New England in 2000 after
serving as Vice President and General Manager of the Power Systems
Control Division of Siemens Power Transmission & Distribution LLC,
where I worked closely with electric utilities on control systems
involving generation and power supply reliability. An electrical
engineer with a graduate business degree, I have twenty years of
experience in the electric power industry in both the United States and
South Africa.
Steve Whitley has been in charge of ISO New England's operations
since 2000. He was previously with the Tennessee Valley Authority
(``TVA'') for thirty years, starting as an electrical engineer and
progressing through a variety of positions which gave him
responsibility for control area operations, power supply, economic
dispatch, system protection, transmission security and services, and
dispatching for TVA's six-state service territory. He was also in
charge of the planning, design, and construction of the TVA
transmission system. He is currently Chairman of the Electric Power
Research Institute Grid Operations, Planning and Markets Working Group.
Steve is available for comment today regarding operational matters,
including the effect of the blackouts in our region and ISO New
England's response thereto.
iso new england's role as independent system operator
ISO New England, an independent, non-profit corporation, is
responsible for the reliable daily operation of New England's bulk
electric generation and transmission system, which supplies
approximately 14 million people. The system has an installed capacity
of more than 31,000 megawatts. There are more than 350 generators and
plants and over 8,000 miles of high voltage transmission lines in our
region, and we have 12 interconnections with neighboring systems in New
York and Canada. ISO New England's mission also includes fair and
efficient operation of the region's $4.5 billion wholesale electricity
marketplace, and it has been tasked by the Federal Energy Regulatory
Commission (``FERC'') since 2000 to assess and plan for the regional
system's short-term and long term reliability needs.
roles and responsibilities in the electric power system
Before addressing the Committee's specific questions, comment on
today's restructured electric industry might be helpful. Different
entities handle different functions in today's restructured electric
industry. In New England, which constitutes one of the most mature and
advanced electricity markets in the country, there are generators,
transmission and distribution companies, marketers and the independent
system operator. Generation is increasingly provided by unregulated
entities who compete to sell their power into the marketplace, hoping
to achieve satisfactory returns on their unregulated investments in
generating plants. Transmission and distribution companies distribute
electricity to customers on a regulated basis, using their own
transmission and distribution lines, including protective devices which
are designed to protect equipment in the event of power system
disturbances and keep disturbances from spreading. These utilities earn
an allowed return from rates which are a blend of transmission rates
set by FERC and distribution rates established by state regulators.
Marketers buy and sell generation to transmission and distribution
companies.
An independent system operator, sometimes operating through
satellite control centers with differing degrees of authority and
autonomy, administers the bulk transmission grid and dispatches power
from generators onto the grid in accordance with system demands and
reliability criteria. With several different players having replaced
yesterday's vertically integrated utility, the need for clear
delineations of responsibility and authority today is an increasingly
pressing matter.
the new england power system
Much of the bulk power system in New England was constructed on
sound engineering principles in the late 1960's, and while it was
constructed to accommodate future growth, the demand for power and the
demands placed on it by competitive markets have outstripped the
system's design.
The market structure we administer in New England has been
successful in attracting approximately 10,000 megawatts of new
generation to the region since 1999, representing almost a third of the
system load in peak season, and we believe the new standard market
design we have just recently implemented provides more accurate market
signals to incent the location of generation nearer to load centers.
The market signals provided by the standard market design also more
accurately value the availability of generation supply, such that in
times of scarcity, wholesale market prices rise, which in turn creates
an incentive for the building of new generation capacity. New
generating plants sited in New England over the past five years have
significantly increased regional generating capacity, but these plants
have typically been built in less populous areas far removed from areas
that are in the most need of generation. While this suggests the need
for added transmission capability to get surplus power to customers,
the increased investment in generation has not been matched by
investments to upgrade the transmission grid. Our major problem in New
England, and we are typical of many areas in the country, is therefore
in delivering the power from generators to customers. Surplus
generating capacity is not helpful if transmission cannot take it where
it is most needed, nor can the economic benefits of a competitive
market for electricity be fully realized if surplus generation cannot
be accessed due to transmission constraints.
Our ongoing planning efforts, which result in an annual planning
document known as the Regional Transmission Expansion Plan, have
identified three particular areas where major transmission improvements
are needed: Southwest Connecticut, Northwest Vermont and Greater
Boston. Nearly a billion dollars in new transmission projects are
underway or planned to meet the needs of these transmission-constrained
areas.
Experience tells us that efforts to improve the transmission grid
will run into problems. First, existing incentives for investment in
new transmission may be inadequate in terms of return, certainty of
recovery, and uncertainty of approval. Transmission investment must be
made more attractive and process barriers must be reduced. Second, the
regulatory approval process has become too long, too expensive and too
uncertain. Potential transmission applicants need greater assurance
that the approval process will be fair and efficient. Third,
reliability has become politicized, and state regulatory bodies who
must approve or deny applications for new transmission facilities and
other equipment installations come under tremendous pressure in dealing
with such applications. Politics should not be allowed to detrimentally
affect reliable service.
the transmission siting approval process
As the Committee has invited comment which might help to prevent
future disruptions, and as we believe siting and regulatory approval
processes are relevant to efforts to install new transmission
infrastructure needed for system reliability, we would like to offer
observations and suggestions based on recent and pending regulatory
proceedings in our region.
A. The Siting Approval Process Needs More Efficiency
In July, Connecticut regulators approved a 22-mile transmission
line crossing five towns, the first leg of a 345kV loop which will
relieve system inadequacies in Southwest Connecticut, the most affected
area in our region during the blackouts. Despite general
acknowledgement of the need to improve electric service in Southwest
Connecticut, the transmission application was not well received by
towns and residents along the proposed route when Northeast Utilities
began pre-application consultation activities with municipalities in
July, 2001. The result, after formal filing of the application in
October, 2001, was grass roots pressure on the siting process,
executive and legislative involvement in transmission siting issues, a
one year legislative moratorium on the proceeding, a task force to
review the siting of transmission facilities, and the passage of
legislation which will add considerable time, expense and uncertainty
to the transmission siting approval process in Connecticut. The line
was ultimately approved in July, 2003--almost three years after it was
filed. And this was after a hearing schedule which spanned several
months, consideration of more than twenty proposals, and eventual
consent by the applicant to use a less preferred underground cable
technology for a considerable portion of the route.
An approval proceeding involving the second leg of the 345kV loop,
a 52 mile line, lies ahead. The full 345kV loop serving Southwest
Connecticut will not be completed until 2008 at the earliest. In the
meantime, customers will continue to be exposed to the possibility of
service disruption and higher prices.
There is clearly a need for a speedier, more efficient process for
siting approval, especially as siting decisions in one state can affect
the operation of the electric grid in several other states--as should
be apparent from the events of August 14th. Since bulk transmission
facilities operate in interstate commerce, it is appropriate to provide
that if state regulators are unable to conclude siting proceedings
within a certain amount of time, federal authorities should take over
the process. States should certainly retain primacy in approving
transmission siting, but we favor federal backstop authority when
states cannot act in a timely manner.
B. Mandatory Reliability Standards Will Benefit Regulators by
Depoliticizing Reliability
ISO New England contributed to the siting approval proceeding for
the first leg of the 345kV loop in Connecticut by providing reliability
studies comparing the ability of different proposals to meet the need
for improved electric service in Southwest Connecticut. We used
national reliability standards adopted by the North American Electric
Reliability Council (``NERC'') and regional standards adopted by the
Northeast Power Coordinating Council (``NPCC''). Opponents of the
proposed transmission line included state officials and affected towns
who claimed that our reliability studies were flawed because our test
cases assumed, in their estimation, that too many generator or
transmission line outages could occur at the same time, thus subjecting
the various alternatives under study to too many contingencies and
overstressing them to unrealistic extremes. Even when opposing experts
conceded that it was appropriate to overstress the system for planning
purposes, they asserted that transmission lines should not be designed
to deal with the more severe multiple contingency scenarios envisioned
by planners.
In effect, Connecticut siting regulators were being urged by
governmental officials to approve a lower voltage transmission line
than necessary to meet reliability standards. I mention this not as
criticism of any particular party's right to present its views, but as
an indication of the need to adopt mandatory reliability standards in
order to fortify state siting officials against localized pressures to
do less than what is necessary to assure reliability. I applaud the
Connecticut Siting Council for reaching an appropriate decision in the
face of considerable opposition, but mandatory reliability standards
would have made their decision easier and should facilitate decision-
making in other areas of the country.
responses to committee questions
Q. What exactly were the specific factors and series of events
leading up and contributing to the blackouts of August 14?
As the blackouts began in other regions, it is difficult for me to
speculate on the specific factors which contributed to them. I assume
others are better able than I am to answer this question. As the
Committee undoubtedly knows, the Department of Energy and the North
American Electric Reliability Council (``NERC'') are engaged in an
intensive fact-gathering exercise to determine what happened, and I
will be interested in their conclusions.
Q. At what time did your company first become aware that the system
was experiencing unscheduled, unplanned or uncontrollable power flows
or other abnormal conditions and what steps did you take to address the
problem? Were there any indications of system instability prior to that
time?
ISO New England control room operators first became aware that the
system was experiencing a disturbance at 4:10 pm (EDT). There had been
no prior indications of problems on the New England system prior to
that time.
Q. Which systems operated as designed and which systems failed?
In the recent disturbance which affected much of the Northeast, we
were able to isolate most of the New England grid from the rest of the
power system. The New England system was designed and maintained
properly and worked as expected. Automatic protective relay devices on
the transmission lines opened as intended, interrupted the transmission
lines and opened the ties interconnecting our system with New York.
This mechanical action separated most of New England from the
disturbance to the west. While power was lost in limited areas, the
rest of the system was rebalanced and saved from a system-wide
collapse. Of the limited areas in our system which were affected, I
would suggest that Southwest Connecticut was hardest hit because its
transmission system is the weakest part of our New England system and
it could not withstand the disturbance. The 115kV transmission lines
serving Southwest Connecticut cannot carry as much load as the 345kV
lines serving the rest of Connecticut. Thanks to extensive training in
restoration and an annual system restoration procedure exercise, our
operators were well prepared to bring back power. Our operators adhered
to their training and used the tools available to them within clearly
established lines of authority, and we were able to restore power to
many customers in the limited areas in our system which were affected,
mainly in Southwest Connecticut, within approximately 12 hours. I
regret that any customer lost power, but I believe ISO New England did
an outstanding job under the circumstances of August 14. The
coordination within the Northeast Power Coordinating Council (``NPCC'')
was excellent throughout the disturbance and system restoration.
Q. If events similar to those which happened on August 14, 2003 had
happened a year ago, would the results have been the same? If similar
events occur a year from now, do you anticipate having in place
equipment and processes sufficient to prevent a recurrence of the
August 14 blackout?
Answering from the perspective of New England, being at the eastern
edge of the disturbance, I would have expected similar results in our
region if a similar set of events had occurred elsewhere a year ago.
The protective relays in our system were audited by NPCC approximately
a year ago and were in good condition, so I assume they would have
worked. However, Southwest Connecticut's dependence on a 115kV
transmission system would probably have made it similarly vulnerable.
We have been deeply concerned over the last few years that Southwest
Connecticut could experience significant outages because it is a major
load center served by a very constrained transmission system. We simply
cannot provide reliable service to a 3,500 megawatt load center with a
115kV transmission system.
Until 2008, five full years from now, when installation of the full
345kV transmission line will hopefully be completed in Southwest
Connecticut, we will continue to be concerned that this area could
experience significant outages. As load continues to grow, it is my
belief that events similar to those which occurred on August 14 could
have similar effects in our region: most of the system would separate
from adjacent systems, but Southwest Connecticut would remain
challenged by its weak transmission system. Southwest Connecticut's
growing demand for electricity has outpaced ISO New England's ability
to assure reliable service to the people who live and work there. We
have also identified Northwest Vermont and Greater Boston as areas of
concern.
I strongly support the regular maintenance program within New
England and administered by NPCC to assure that all protective
equipment is properly installed and in proper working order, and I
advocate the continued thorough review and standardization of operating
procedures and training so that both operators and equipment will be
prepared to respond in the event of a recurrence a year from now. As
noted, 345kV lines in certain areas of concern will not yet be in place
next year but will eventually help in the event of a recurrence. Please
see my comments below in response to the Committee's question regarding
prevention of similar incidents in the future.
Q. What lessons were learned as a result of the blackouts?
ISO New England and the rest of the electric power industry in the
Northeast are attempting to reconstruct exactly what happened, and the
Department of Energy and NERC are working together to determine the
causes of the blackout. We are still very much engaged in a learning
exercise, and it may be appropriate to revisit this question after all
the facts are established. In the meantime, we should probably all look
closely at the way we operate our systems, the territory they cover,
the decision-making structure and lines of authority, and applicable
operating procedures and reliability standards.
The operators at ISO New England know what the security limits are
on the transmission system--thermal, voltage and stability. This
knowledge is derived from both ``on-line'' and ``off-line'' software
tools which are run periodically, in order to determine the security
limits of the power system under a variety of operating conditions. The
operators are trained to proactively operate within those limits in
real time operation. They take immediate action when loading exceeds
those limits, even if this means curtailing demand in a local area. I
believe this operating posture was key to New England's ability to
minimize the August 14 disruption and stay balanced following
separation from the rest of the eastern power grid.
Q. How can similar incidents in the future be prevented?
The short answer is to increase the reliability of the electric
system and to operate the system in a secure and analyzed state. We
have several thoughts about how this objective should be accomplished.
Upgrading infrastructure is an obvious priority, but the answer goes
beyond that. We know that there are limits to public acceptance of
transmission facilities and other infrastructure necessary for a
reliable and uninterrupted supply of electricity. It is not realistic
to expect reliability enhancements without infrastructure upgrades or
improvement without investment, but aside from infrastructure issues we
have a duty to maximize our ability to operate whatever system we have
as reliably and cost effectively as we can. To this end, I would like
to offer four policy recommendations which I believe will greatly
improve the reliability of the bulk power grid.
policy recommendations
1. There must be a single entity with clear operational
responsibilities and authorities for the bulk power system in a region.
ISO New England operating as a single control area fulfills this need
for New England. Our area in New England is a manageable size, enabling
us to operate with only four satellite control centers, without the
need to yield operating autonomy to them. They provide information to
the operators in our main control center, and the operating decisions
are made by ISO New England. Creating a Regional Transmission
Organization in New England will further define our operational
responsibilities and authorities.
In other areas of the country, size and operational
responsibilities and authorities become very important considerations
in creating and defining Regional Transmission Organizations. While it
is difficult to describe what the ``right'' size of a regional area of
control should be, size is nonetheless a very important consideration
in creating Regional Transmission Organizations. A regional area of
control must be large enough to track regional flows and have
sufficient operational flexibility to be able to deal with a reasonably
wide range of contingencies. However, as we have recently experienced,
in an extreme emergency, operational control will rest on the shoulders
of one or more human operators and, therefore, the area to be
controlled cannot be too large. The accuracy of software tools supplied
to operators are dependent on complex mathematical models, which in
turn rely on accurate data being transmitted from the field. In
emergency situations, these data sources can be compromised, thus
further increasing the dependency on human interaction. In summary,
there is a trade-off between size (in terms of regional ``vantage
point'') and complexity, and achieving a reasonable balance between the
two is paramount.
In addition to size, clear operational responsibilities and
authorities must be well defined. There must be documented a clear
split of responsibilities between the Regional Transmission
Organization and the transmission entities (including satellite control
centers or control areas). Lack of clearly defined operational
responsibilities between the Regional Transmission Organization and the
participating transmission entities can be a major potential source of
operational risk, particularly under emergency conditions. Cascading
outages occur, as you have seen, in a matter of moments. There is no
time for questions of overlapping responsibility, confusion of roles,
or hesitant action. If you have only seconds to prevent voltage
collapse and cascading, decisions regarding the redispatch of
generation, reconfiguration and balancing of the system, and
curtailment of transactions and firm load cannot be scattered among the
system operator, satellite control centers, utilities and independent
transmission companies. The control of the transmission system must be
consolidated in one Reliability Authority which would not delegate its
duties to underlying authorities and thus could be held clearly
accountable for system operation. For this reason, we believe that
reliability would be enhanced through proper implementation of the
Regional Transmission Organization concept. The RTO, as an independent
transmission provider, would have clear operational control and
authority over the transmission grid in its region. The separation
between planning for system reliability and implementing system
reliability measures would be significantly narrowed, if not
eliminated.
2. Reliability standards must become mandatory and operating
procedures must be standardized. Adequate reliability standards do
exist today, but to ensure regional reliability they must have teeth.
Reliability standards must become enforceable, with penalties, to
assure that appropriate, modern equipment will be in place, that it
will be properly maintained by trained personnel, and that there will
be enough personnel to operate and maintain the system in accordance
with reliability standards.
Clear standards for transmission operation are also necessary, with
standardized grid management rules and operational procedures,
including adequate security limits, so that operators in every region
will be better positioned to coordinate actions with their counterparts
elsewhere in response to critical events. Right now we have procedural
seams between our regions, and standardized operating rules would help
eliminate them. I would be glad to volunteer the procedures utilized by
ISO New England as a detailed and well-proven model. A core principle
embodied in these procedures is to operate the power system in a secure
and analyzed state. To supplement the concept of seamless operating
procedures, I would also suggest an overview system whereby the status
of the entire grid, including actual voltages, power flows and
scheduled transactions could be monitored at the NERC and provided to
each RTO Reliability Coordinator in real time.
Referring again to the incredible speed with which voltage collapse
can cascade into widespread outages, the first line of defense
protecting one system from a disturbance in an adjoining system is
mechanical. Mandatory reliability standards will encourage Reliability
Coordinators and control areas to assure the readiness of their
security analysis and alarm systems at all times. Mandatory standards
will promote proper maintenance to assure that such important equipment
as protective relay devices will always respond to transmission trouble
and interrupt faulted lines before they cascade into other systems.
If automated protective mechanisms fail to contain a system
collapse, the second line of defense against cascading outages is
human, and the likelihood of appropriate human response will be greatly
increased by standardized operating procedures. Control room operators
must take immediate action to get and keep the system within safe
operating limits. This will prevent cascading blackouts. They must be
empowered to immediately adjust any or all generating and transmission
resources. They must also be empowered to immediately take load off the
system. Operators must have a reflexive mastery of these procedures and
must follow them in times of crisis with confidence in the knowledge
that their counterparts in adjacent systems are following the same
procedures.
3. We must have new infrastructure, which means that we must
provide new incentives for transmission owners to build new
infrastructure. Right now the task of gaining approval for new
transmission infrastructure is discouragingly costly, uncertain and
time-consuming, with no assurance of regulatory approval and cost
recovery, and clearly, the financial incentives for undertaking the
task may not currently match the risks involved. Ways must be found to
reduce process disincentives and assure appropriate investment
incentives, including tax credits, to make transmission investments
more attractive and to assure recovery of investment and an adequate
return. Finally, it must be clearly understood that there will be
significant costs for improving the reliability of the electric system,
and that the costs will have to be paid by someone, most probably the
customer who will ultimately benefit from both increased reliability
and access to competitively priced electricity in an expanded
marketplace. It is important to note that transmission infrastructure
cannot, and should not, occur on an ad-hoc basis. It should occur
pursuant to a deliberate evaluation of the overall adequacy of the bulk
power system in a region, taking into account inter-regional
dependencies. This can only be achieved with a systematic planning
process, such as that currently employed by ISO New England and a
number of other system operators. Such a planning process should also
be mandatory, since it becomes the basis for exposing power system
weaknesses on both a regional and national basis.
4. A balance must be struck between the interests of states to site
transmission facilities and the importance of such facilities in the
reliable operation of the regional electric system. A state should have
the first opportunity to act upon any application for siting approval.
However, in instances of serious transmission constraint or congestion,
appropriate federal authorities should be empowered to issue permits
for new transmission facilities if the public interest requires such a
facility to relieve constraints and a state has failed within a
reasonable time to act upon a permit application or has unreasonably
conditioned approval of the project.
Thank you for your consideration.
Mr. Barton. Thank you, sir. We now want to hear from Mr.
Phil Harris, who is the president of the PJM Interconnection,
which, as I understand it, is an RTO, and it has been approved
by the FERC; is that correct?
STATEMENT OF PHILLIP G. HARRIS
Mr. Harris. That is correct, Mr. Chairman.
Mr. Barton. Okay. Your statement is in the record, and you
are recognized for 5 minutes.
Mr. Harris. Thank you, Mr. Chairman. I think, first of all,
it is important to talk about what we are talking about with
the Eastern Interconnection. It is a single 600,000 megawatt
interconnected motor. The things travel at the speed of light.
There are 3,300 different companies involved in the generation,
transmission and distribution of power in the Eastern
Interconnection, two countries, 38 States and 129 control
areas. And if you do the combinations and permutations of the
math about who has ideas to do what, you can begin to see it is
an insurmountable problem. That means you have to have
coherence, you need cohesion, and you need direction to operate
this single synchronized motor in the most optimum way for the
best public good.
PJM is the largest control area in North America. It is
78,000 megawatts. We currently have other systems that we are
working with to join PJM: American Electric Power, Commonwealth
Edison, Dayton, Duquesne and Dominion Resources. We are moving
ahead, we have been operating competitive markets for a little
over 6 years now, and the reliability has improved within the
system, and the markets work and are stable.
On the particular day of August 14, we were going along
with business as usual. What is business as usual? Every 10
seconds we were looking at 16,000 bits of information coming in
from the system. This information will change. Any time there
is a status change it will change immediately. Every minute we
were looking at 2,000 different possible contingencies that
could be happening to the system. Every 30 seconds we had a
tool called the state estimator that was looking at the state
of the system to make sure the data was valid and being
communicated appropriately. In minutes, we were looking at the
transfer limits of the flows that were coming into and out of
the PJM system. Every 2 seconds we were looking at regulation
of the generation that was coming in and leaving. Every 10
seconds we were looking at the economic signals that we were
sending out to the generators to work in a competitive market,
and every 5 minutes we were looking at the security-constrained
dispatch to make sure that the dispatch that was set up at that
point in time could withstand the contingency on the system. As
we went into the day, we had noticed some anomalies happening
early on in the Midwestern part of the system, and we were in
communication to the areas and the control areas out in that
area about what was happening. This is normal course of
business because things do break in this electrical mechanical
system. It is designed to be able to withstand default and then
to be able to go on.
At exactly 4:10:48, as experienced with other systems,
everything basically went south on us. We then took--the
automatic actions took place to isolate the problem, and most
of PJM was isolated from the system. We then took immediate
action to analyze the condition of the system, because the next
thing is the triage to ensure that your system is stable and
would be able to withstand the next single fault that could
possibly occur. We initiated a mobilization plan where we
called for all generation to come online, we called for manning
of the substations, manning of the combustion turbines. We
began the preparation to support system restoration and provide
all the support to the areas that were affected as soon as
practicable.
I will add, Mr. Chairman, that we do analyze twice a year
and do complete restoration studies and analysis, and I do
think from a professional point of view it is quite outstanding
that New York was able to restore in a little less than 30
years. It was a tremendous engineering feat, management feat,
and the fact that they did it safely with large public support
is something that should not go unnoticed.
Looking at these events, the things happened and worked
within PJM, our market continued to work and function
appropriately. We do think that in looking at the lessons
learned, yes, you need reliability rules and they need to be
mandatory. You operate a system that operates at the speed of
light. It is impossible to be ahead of it so you have to
operate always planning for the worst thing to happen, and you
are only as strong as the weakest link, so everybody has to do
their part to make sure they can withstand that worst possible
event.
The other thing I would like to talk about is the
importance of regional planning. It was touched on oftentimes
in the earlier panel. PJM was blessed in the fact that our
States insisted in 1995 that before we began competitive
markets we set up regional planning protocols. Because we have
regional planning protocols, we have participant funding, we
have generation being built, we have over $700 million of
transmission being built, we have the capability to optimize
that for the public good. So if it is a distributed generated,
that could be the optimum choice, if it is economic demand
side, that could be the optimum choice. It is an allocation of
a resource, and regional planning that is transparent and done
by an independent entity gives you the wherewithal to allow the
public and those with a vested interest to optimize the right
choice for investment, whether it is transmission generation,
distributed generation or demand side. Thank you, Mr. Chairman.
[The prepared statement of Phillip G. Harris follows:]
Prepared Statement of Phillip G. Harris, President and CEO, PJM
Interconnection, L.L.C.
Mr. Chairman and Members of the Committee: The events of August 14,
2003 represent as much a crisis in confidence in this industry as it
does a failure of the electric power grid. As one who has worked in
this industry my whole life, I am vitally concerned that we restore the
public's confidence by establishing a clear road map to move this
industry forward. Of course, time needs to be taken to ensure careful
analysis and the development of solutions which can be tested and
retested prior to full scale implementation. And although thoughtful
reflection is needed, we simply cannot allow the events of August 14
(as significant as they were) to paralyze us from moving forward.
None of us can repeal the laws of physics which ultimately control
the behavior of this speed-of-light product. As a result, policymakers
need to drive rational public policy, market development and
infrastructure investment which free this industry from mountains of
red tape, constant political and legal battles over individual
proposals and never-ending regulatory proceedings over Regional
Transmission Organization (``RTO'') formation. These solutions also
need to meet the interstate and international nature of this speed of
light product. As a result, although I will spend part of my testimony
addressing the specific questions you raised concerning the August 14
event, I want to lead with what I think is the far more pressing issue:
How do we address the critical crossroads we find ourselves in today?
How does Congress, as our nation's policymaker, moves this industry
forward through clear and coherent policies and institutions? How do we
avoid the pitfall of unclear or internally contradictory policies
slowing industry growth and discouraging need investment?
To answer these questions, we can look at real facts and analyze
the positive as well as negative experiences faced by this industry.
The ``bottom line'' is that certain models of deregulation and
restructuring of the industry have worked and have developed real value
for the customer. It has been proven that restructuring and
deregulation can work to provide real benefit to customers in the form
of stable prices, increased generator efficiency and new demand side
options for consumers. Although not necessarily the answer to the
events of August 14, market rules and procedures can work to limit the
adverse impacts of transmission or generation outages triggering larger
events. And as a result of our transparent and independent regional
planning process, the PJM system was designed to withstand and did
withstand, for the most part, an outage of this magnitude. So as we
move the industry forward, we must not throw out the baby with the
bathwater or tie the hands of the regulator to move forward based on
the positive experiences that have occurred during this otherwise
troubled time.
Much of the mid-Atlantic region's ability in real time to withstand
the disturbance of August 14 was the result, not of human intervention,
but of hardware working as it should--hardware that was designed to
protect each of our systems from outside faults, voltage drops and
other system disturbances that threaten system stability. But in the
longer run, a transparent planning process undertaken by an independent
entity such as a regional transmission organization with a ``big
picture'' look at the entire grid, can ensure that the appropriate
hardware is in place and that reliability is maintained proactively and
at prudent cost to the consumer. And important market tools such as
ordering redispatch of generation between neighboring systems,
something which PJM and the Midwest ISO have put forward as a
reliability solution in the Midwest, and which PJM and the New York ISO
are piloting between their systems, can help alleviate the adverse
impacts of curtailments of individual transactions. Only independent
entities such as RTOs can undertake these solutions in a manner which
will not be seen by the marketplace as favoring one provider over
another or sacrificing one entity's ``native load'' at the expense of
another's ``native load''.
Just as Abraham Lincoln stated that ``a house divided cannot
stand'', neither can an industry continue to rely on unchanged 20th
century institutions and tools to police the new 21st century world
surrounding this speed of light product. Today we find ourselves
teetering somewhere in between a traditional and restructured
environment. This is a highly unsustainable state and cannot help to
either improve reliability or attract needed capital for investment.
Let me give an example.
The Energy Policy Act of 2003 provides for incentives for the
construction of vitally needed new transmission. Such investment is
extremely important and Congress should be applauded for taking this
bold step. However, in the same breath, there is discussion of adding
provisions which would limit or suspend FERC's ability, through
rulemakings, to create the very institutions needed to independently
and in an unbiased manner, plan the right location for this new
investment. Absent a rational planning process undertaken by an
independent entity such as an RTO, one that balances the need for
generation, transmission and demand side solutions simultaneously, we
risk building transmission in the wrong place and appropriating private
property for investments that don't necessarily solve (and in some
cases create new problems) for the regional grid. In short, if we are
not careful, without the proper tools in place, we run the risk of
creating tomorrow's stranded investment and simply throwing ratepayer
money at the problem. By contrast, regional planning processes
undertaken in an unbiased public process, allows the marketplace to
obtain the needed information to effectuate the wise choice between
transmission, generation and demand side solutions to meet our
reliability and economic needs. The states in the mid-Atlantic were
extremely wise during PJM's formation--they insisted that before any
markets are started that the RTO have in place a regional planning
protocol. They correctly noted that as we are talking of using a power,
which only the government can grant, to appropriate private property,
we ought to ensure that we are exercising this powerful government
authority both wisely and judiciously. An unbiased regional planning
protocol can do just that.
For all these reasons, we recommend that Congress undertake the
following steps:
i. Provide FERC with the authority it needs to ensure that regional
organizations can flourish to plan and manage the grid in a
coordinated manner;
ii. Do not discourage or strip FERC's authority to move forward in
those regions of the country that wish to move forward with the
development of competitive markets;
iii. Ensure that the laudable goal of protecting native load does not
work to repeal the anti-discriminatory provisions of the
Federal Power Act or to otherwise balkanize the grid. A clear
statement from Congress that native load should be protected
but flexibility in how that native load is protected would
ensure this proper balance;
iv. Whether federal or state siting is preferred, encourage regional
planning processes undertaken by independent RTOs with state
and stakeholder input before the power of eminent domain is
exercised to appropriate private property to build
transmission.
v. Reliability standards should be made mandatory, with their
development and enforcement overseen by a public body.
Deference should be provided to regional solutions that improve
reliability for the region and for neighboring systems.
With this overview in mind, I will proceed to address the questions
in your correspondence of August 22:
1. What exactly were the specific factors and series of events
leading up and contributing to the blackouts of August 14?
2. At what time did your company first become aware that the system
was experiencing unscheduled, unplanned or uncontrollable power flows
or other abnormal conditions and what steps did you take to address the
problem? Were there any indications of system instability prior to that
time?
3. Which systems operated as designed and which systems failed?
Answer. As noted above, the location, character and proximate cause
of the initial disruption in the transmission and supply of electricity
is the subject of an ongoing NERC/DOE investigation and PJM defers to
that investigation. As a result, PJM will limit its response to actions
it took on its own system both prior to and during the August 14
outage.
As to its own system, PJM first became aware of a disturbance on
the Eastern Interconnection at about 4:10 pm on August 14th. Prior to
that time, August 14th could be characterized as a typical
unexceptional summer day in the PJM control area, with a typical number
of lines out of service, and relatively few scheduled or unscheduled
outages. At noon on August 14th, NERC initiated a routine time
frequency correction across the Eastern Interconnection in accordance
with NERC operating policies, because the time frequency had exceeded
its margin for error. PJM was properly following the NERC standard
process, but it is mentioned in this context because it accounts for a
frequency fluctuation in PJM data at the time the correction was
implemented.
PJM became aware of significant impacts on its system from an
external disturbance at approximately 4:10pm. At the time of the
disturbance, PJM recordings of telemetered load and frequency revealed
an initial loss of more load than generation on the PJM system.
Subsequently system operators reduced generation output in order to
bring the system back into balance. PJM experienced a loss of load of
approximately 4,500 MW of its total load of approximately 61,200 MW at
the time of the disturbance. About 4,100 MW of PJM's lost load
manifested in northeastern New Jersey, while an additional 400 MW of
load was lost in northwestern Pennsylvania near Erie.
The disturbances noted by PJM at approximately 4:10pm resulted in
some individual units going off-line in PJM and in transmission lines
opening. The cascading effect of the outage caused PJM to lose
approximately seven percent of its load, but automatic relay devices
deployed throughout PJM in accordance with our design and planning
criteria isolated most of the PJM footprint from the power loss.
Automatic relay devices effectively isolated most of PJM from Ohio and
New York, which were subjected to prolonged outages. By 4:12pm., most
of the tripping of generating stations and transmission lines within
PJM had subsided. Thereafter, PJM system operators worked to rebalance
generation and load within the PJM system by reducing system frequency
to a normal range. In addition, PJM system operators initiated
procedures for more conservative operation of the system, to assure
that system restoration could proceed more effectively. The disturbance
itself played out over the course of mere seconds--with no real-time
human intervention possible--but system operators played a vital role
in system restoration.
In summary, the system worked as it was designed--through the
automatic operation of relays PJM was able to isolate problems which
effectively separated it from the outage and ``kept the lights on'' for
the overwhelming majority of its customers. Through swift operator
action, PJM was able to stabilize its system and also provide critical
support to the restoration efforts in Northern New Jersey and
Northwestern Pennsylvania, as well as the neighboring systems in the
New York, and Ohio.
4. If events similar to those that occurred on August 14, 2003 had
happened a year ago, would the results have been the same? If similar
events occur a year from now, do you anticipate having to place
equipment and processes sufficient to prevent a reoccurrence of the
August 14 blackout?
Answer. Prior to the August 14 outage, PJM and its Midwest
counterpart, the Midwest ISO had just reached agreement on an historic
Joint Operating Agreement and Reliability Plan that, if implemented,
would bring a new level of coordination and data sharing that would
clearly have avoided some of the communication and coordination
problems that arose in the context of the August 14 outage. The Joint
Operating Agreement and Reliability Plan provides for an unprecedented
level of coordination and data sharing among neighboring systems in the
Midwest. The Joint Operating Agreement detailed monitoring measures and
specific actions that each of the large RTOs would take to clear
congestion or reliability problems on the other's system. at key
designated flowgates. It would provide for actions that presently do
not occur systematically in the Midwest including:
day-ahead and real-time monitoring of each RTO's system;
detailed data exchange between the two RTOs;
emergency operations protocols;
joint planning protocols; and
mandatory redispatch of each other's generation in order to relieve
congestion on the other's system.
This Agreement, coupled with the fact that there would be just two
entities, both with planning responsibility and a large regional look
as opposed to multiple control areas with a more limited view of
neighboring systems, would provide for an increased level of
reliability in the Midwest and would reduce the coordination and
communication issues that exacerbated the problems which occurred on
August 14th. The Joint Operating Agreement and associated reliability
plan were undergoing stakeholder review at the time of the August 14th
outage. Subsequent to that time, both PJM and the Midwest ISO have
committed to reviewing the document in light of lessons learned from
the August 14th outage and providing appropriate enhancements. PJM
looks forward to review and comment by the respective stakeholders and
state commissions in the area.
That being said, PJM believes that should the Joint Operating
Agreement and Reliability plan be allowed to move forward it would
provide a model that has been sorely lacking in this nation relative to
coordination and communication between two large regional entities each
charged with the responsibility of ensuring reliability of the regional
transmission grid.
5. What lessons were learned as a result of the blackouts?
6. How can similar incidents in the future be prevented?
Answer. As the DOE investigation to the causes of the blackout is
first beginning, it is too soon to detail with specificity all of the
``lessons learned'' from the August 14 event. That being said, there
are some overarching lessons of August 14 which played out dramatically
in how different entities reacted:
We cannot continue to use 20th century solutions to solve 21st
century problems--In the last century, reliability was ensured through
a series of loosely described emergency support agreements among
neighboring utilities. No regional planning process existed and each
individual utility was charged with maintaining and planning for the
reliability of its individual portion of the grid. Although regional
reliability councils exist to coordinated regional efforts, such
entities were neither independent of the market participants nor
empowered to require solutions and order penalties. It is clear that
these loose agreements and institutions of the last century will not
work in the future. Rather, we need Congress to:
i. encourage the development of regional transmission organizations and
not strip or suspend FERC authority to undertake necessary
generic rulemakings;
ii. tie any transmission investments to the use of regional planning
processes undertaken with the states and interested
stakeholders to ensure that whatever transmission is incented
is the ``right'' transmission located at the key location
needed to ensure maximum benefit to reliability and economics
of grid operation;
iii. encourage and require native load protection but not tolerate
discriminatory conduct favoring one's own market position in
the name of protecting one's ``native load''; and
iv. finally, Congress should make reliability standards mandatory but
avoid codifying statutory deference to standard-setting and
enforcement in some regions but not others. Deference should be
provided to regional solutions, arrived at in open stakeholder
processes and with state concurrence, in all parts of the
country while any national organization review is limited to
ensuring that solutions arrived at on less than an
interconnection-wide basis, promote reliability in the larger
region. The negotiation of the Joint Operating Agreement and
reliability plan between PJM and the Midwest ISO, which will
soon be submitted for NERC review, is an example of the process
working at its best with NERC focusing on whether the plan
enhances reliability between regions while avoiding the
commercial infighting among member companies.
For grid operators themselves, it is clear that we have to ensure
that our relay hardware is appropriately sized, maintained and
programmed to protect systems in the event of cascading outages. RTOs
need to be more vigilant in defining their role vis-a-vis the local
transmission owner who still owns and maintains this critical
equipment. Agreements such as the MISO/PJM Joint Operating Agreement
should be a mandatory ``baseline'' of coordination between RTOs and
should provide appropriate and reciprocal support of adjacent systems
both between market areas and where market areas abut non-market areas.
And most of all, we need to move this industry forward with flexible
policies that are designed to meet and restore the public's confidence
in this critical industry so important to our nation's secure future.
I thank you for this opportunity to testify and look forward to
your questions.
Mr. Barton. Thank you, Mr. Harris. The Chair is going to
recognize himself for the first 5 minutes, and we don't have
too many more members come, we may be able to do two rounds of
questions. It is very complicated for the average congressman
and certainly for the average citizen to understand what an RTO
is and an ISO is. I could ask one question to explain the
differences and that would take my 5 minutes, so I am not going
to go down that trail, but I am going to ask Mr. Harris, who
represents and RTO that has been approved by the FERC, and Mr.
Torgerson, who represents an ISO who I think, I understand, is
in the process of being created, if you all both have the same
authority to operate your system. Do you have the authority
that Mr. Harris or his designee has, you or your designee, in
your system, in the Midwest ISO?
Mr. Torgerson. Mr. Chairman, the Midwest ISO is also an RTO
as determined by FERC. Now, our authority is different today in
that we act as a security coordinator for our entities. We do
not run the energy markets yet. We will be next March, which
means there are certain aspects of being an RTO that we are not
fulfilling yet today.
Mr. Barton. Now, my understanding is, and I do not claim to
be an expert on this, Mr. Harris or his operating designee can
order dispatch, can order load shifting, has what is called a
tight operating system, and I am told that the Midwest ISO does
not have that. In other words, you basically kind of take what
comes and try to make the best of it, but he can actually
manage preventively. Now, if I am wrong, explain how I am
wrong.
Mr. Torgerson. Mr. Chairman, I think that is pretty close.
We do not operate the transmission lines or the generation,
whereas Mr. Harris runs that control area and operates the
generation.
Mr. Barton. Now, if your ISO had the authority that Mr.
Harris' RTO has, would that have made a difference on August
14?
Mr. Torgerson. I think Betsy Moler gave probably the right
answer to that. We don't know all the things that happened. I
believe that once we have the market and we have all those
other authorities, I think it would certainly help.
Mr. Barton. You think it would--does anybody disagree with
that? In the pending energy bill that the House passed, that is
pending with the Senate, do we need to strengthen the RTO
provisions? And under the current House bill, we encourage the
creation of RTOs but we don't mandate it, we do have mandatory
reliability standards. Should the legislation that is pending
with the Senate should we go in and strengthen the provisions
for RTO creation? Mr. Harris?
Mr. Harris. Yes, Mr. Chairman. I just think it is time for
common sense to prevail. You have 33 different companies, 38
States and two countries involved. Common sense says that you
are dealing with a speed of light product. It is a giant
ecological system; one thing affects everything else. Common
sense would say you need large regional entities that can look
at all these vast volumes of data, coordinate between
themselves in order to handle this speed of light real-time
product. It can work and it just seems it makes common sense
that you need some institution. Now, whether you call it an RTO
or what, I don't know, but you need large regional
coordination----
Mr. Barton. Is that a yes?
Mr. Harris. Yes, sir.
Mr. Barton. I hate to be that blunt about it. Mr. van
Welie.
Mr. van Welie. Yes. I would like to jump in and just say
something with respect to your question, and that is this is
particularly important when one makes the decision to go to
wholesale markets. So in many ways we are going to stuck
halfway between the old world of vertically integrated
utilities and the new world where we started seeing
disaggregated entities operating in a wholesale market. A
wholesale market places very different demands on the
transmission system, and if one's intention is to go in that
direction, which I think this is the way we ought to head, I
think we ought to mandate that RTOs be set up.
Mr. Barton. Okay. Mr. Museler.
Mr. Museler. Mr. Chairman, I believe that the FERC, NPOR
and the subsequent White Paper outlines an RTO that--RTO
requirements that are correct and that are strong enough. I
think if RTOs are not mandated, my opinion is we will probably
get to the same place eventually but it will take much longer,
and potentially things like August 14 may happen in the
interim.
Mr. Barton. Okay. Mr. Torgerson, FirstEnergy is a
participant of your ISO; is that correct?
Mr. Torgerson. They are not yet a member of the Midwest
ISO. They are planning to be a member in about November. We
took over security coordination for them this last February. So
they are not a member.
Mr. Barton. On the day that the incident--the outages
occurred, August 14, I am told that they were operating their
own system and were not part of an ISO. They were independently
operating their system; is that correct?
Mr. Torgerson. That is correct.
Mr. Barton. Had they been part of your ISO, would that have
made a difference?
Mr. Torgerson. It is hard to say it would have made a
significant difference, because we still would have been
relying on them as the control area operator to do their
function, and we would have done our function as security
coordinator. We probably would have had a little more
visibility for them, so it may have helped.
Mr. Barton. Okay. My time has expired. The Chair would
recognize the senior gentleman from Michigan, Mr. Dingell.
Mr. Dingell. Mr. Chairman, I thank you for your courtesy. I
have been looking here, just to carry forward on what the
chairman's been inquiring of, I note that apparently
FirstEnergy is not a part of the system but that one of their
subsidiaries or transmission subsidiaries is; is that right?
Mr. Torgerson. That is correct, sir. It is the American
Transmission System, Incorporated and their subsidiary is the
one that would be joining the Midwest ISO in the future. They
are a non-transmission owning member today.
Mr. Dingell. What is the practical impact of that?
Mr. Torgerson. The practical impact is they haven't joined
the--they just haven't joined the RTO or the ISO at this point.
We monitor their--we are acting as their security coordinator
through a contract with ECAR today.
Mr. Dingell. Is that as efficient as having them be a
member and full participant?
Mr. Torgerson. No, it is not.
Mr. Dingell. It is not. And if you were to correct it, what
would be the practical result?
Mr. Torgerson. They intend to join. We would prefer they--
we would want them to join as soon as possible and become a
member, and then we can do all the functions that we are
supposed to do.
Mr. Dingell. All right. Now, I have some questions that
will follow along on the line of what we were asking earlier.
Mr. Museler, you were--on the 14th, were any part of your
service area or your constituent groups adversely affected by
the shutdown?
Mr. Museler. Yes, sir. We lost approximately 80 percent of
our load and the entire eastern and southeastern portion of our
transmission system, including all the load in New York City.
Mr. Dingell. Now, you were hurt badly or your constituent
service areas were very seriously hurt; is that right, Mr.----
Mr. Museler. Yes, that is correct.
Mr. Dingell. And, Mr. Torgerson, same thing with you?
Mr. Torgerson. Our areas would have been Michigan with the
Detroit consumers and then----
Mr. Dingell. And, of course, Mr. Goulding, I gather that
Ontario got it quite bad.
Mr. Goulding. Yes. Not quite the whole of the province was
shut down in fact but part of the northwest held together with
Manitoba and Minnesota, and there were a couple of pockets that
held together with New York but predominantly generation and
little demand in them.
Mr. Dingell. Mr. van Welie, your area and your consumers
were badly hit also, were they not?
Mr. van Welie. Actually, in comparison to some of our
neighbors, we were actually relatively fortunate. We lost about
2,400 megawatts of load down in southwest Connecticut, which is
a little----
Mr. Dingell. How about your area, Mr. Harris?
Mr. Harris. Our area was largely in tact. We lost a little
bit in Newark, New Jersey, which is next to New York City, got
caught up in that, and we lost a----
Mr. Dingell. Now, how is that you were able to separate
yourself whereas others were not?
Mr. Harris. I don't know as far as the others were not, but
our system operated as designed. It was to isolate itself from
the problem which it detected.
Mr. Dingell. Did you receive notice from anybody that the
shutdown was coming your way?
Mr. Harris. No. At 4:10:48 when everything happened, the
automatic relays and the protective equipment, which we train,
drill and rehearse on, actually worked and did as it was
expected to do.
Mr. Dingell. Now, gentlemen, with the rest of our
witnesses, would you tell us, gentlemen, whether you received
notice from any party, from FirstEnergy or anybody else, that
there were aberrations either in the frequency or aberrations
in the voltage levels or other circumstances which would cause
the shutdown of the system?
Mr. Goulding. Absolutely no.
Mr. Dingell. Do you want to start, Mr. Goulding?
Mr. Goulding. Absolutely not.
Mr. Dingell. I am sorry?
Mr. Goulding. No.
Mr. Dingell. No. How about you, Mr. van Welie?
Mr. van Welie. Also, not. We were only aware of the
disturbance around 4:09.
Mr. Dingell. Mr. Torgerson, did you receive any?
Mr. Torgerson. No. We were in conversation with FirstEnergy
regarding the lines that tripped out but not of an event that
was going to occur?
Mr. Dingell. Did you find any aberrations or anything like
that within the service areas that are under your jurisdiction?
Mr. Torgerson. We saw a couple lines that had tripped.
Those were the aberrations we saw.
Mr. Dingell. Did you see any curiosity in the frequencies
or any curiosities in the voltage levels?
Mr. Torgerson. Not till later, like at the 4:10 point.
Mr. Dingell. At the 4:10. Mr. Museler, what did you find?
Mr. Museler. No notice and no communication, sir.
Mr. Dingell. Would you each tell us, please quickly,
whether you found any violations of the voluntary rules which
you lay in place for the behavior of the energy deliverers
within your area, starting with you, if you please, Mr.
Museler?
Mr. Museler. No, sir. And we are still obviously providing
information to the International Commission, but thus far we
have found no violations of any of the reliability rules in New
York.
Mr. Dingell. How about you, Mr. Torgerson?
Mr. Torgerson. No, we haven't seen any. We are also waiting
for the results of the study.
Mr. Dingell. Mr. Goulding?
Mr. Goulding. Nothing at all.
Mr. Dingell. Mr. van Welie?
Mr. van Welie. No, sir, not.
Mr. Dingell. Mr. Harris?
Mr. Harris. No, sir; we have not.
Mr. Dingell. Mr. Chairman, I note that I am 16 seconds
over. I would ask unanimous consent that I be permitted to ask
just one more question, if you please? Gentlemen, this is
directed particularly at Mr. Torgerson, what energy generators
or transmission deliverers within your area are not full
participants in your program? I gather FirstEnergy is not.
Mr. Torgerson. FirstEnergy is not.
Mr. Dingell. Who else?
Mr. Torgerson. Northern Indiana Public Service Company is
not yet. Ameren, which is in St. Louis, is not yet. There are a
number that are further in the upper Midwest, Northwestern part
of the country that are not. Those would be the big ones. Then
there are Dayton Power & Light, AEP and ComEd have all
indicated they are going to be in PJM, which is adjacent to us.
Mr. Dingell. Same question to you, Mr. Museler.
Mr. Museler. Sir, all of the transmission and generation
entities in New York are members of the New York ISO.
Mr. Dingell. That is because you have certain mandatory
powers under State law; is that right?
Mr. Museler. The New York ISO was set up administratively
under the Public Service Commission, and in order to form the
ISO, it was a requirement that all of the entities within the
State participate, including the public entities, the State
entities and the municipal and cooperative power systems.
Mr. Dingell. Mr. Goulding, what do you want to tell us
about people within your service area--within the service area
under your jurisdiction?
Mr. Goulding. In order to be connected to the IMO control
grid in Ontario, each participant needs a license from the
regulatory, the Ontario Energy Board, and in that license it is
mandatory that they adhere to all of the market rules within
Ontario, so they are all members.
Mr. Dingell. Mr. van Welie?
Mr. van Welie. Similar situation. When our State regulators
and the FERC decided to set up the ISO back in 1996, there was
a requirement that market participants sign an agreement and
operational control of facilities are directly controlled from
the ISO.
Mr. Dingell. Mr. Harris?
Mr. Harris. We are currently in the process of Commonwealth
Edison, American Electric Power, Dayton Power & Light, Duquesne
and Dominion Resources joining the existing PJM area.
Mr. Dingell. Gentlemen, thank you. Mr. Chairman, I thank
you for your courtesy.
Mr. Bass [presiding]. Thank you very much, Mr. Dingell. The
Chair recognizes himself for 5 minutes. My first question for,
I would say, Mr. van Welie, Mr. Torgerson and Mr. Harris is the
issue of size of an RTO. Are there--and by the way, I asked
this question of the last panel and I can't remember who it was
who responded but the answer essentially was there is no limit
to--or issues with limits to sizes of RTOs because of the
technology involved. I don't want to paraphrase an answer, but
I am wondering what your perspectives are on the issue of size
of an RTO. Start with Mr. Harris.
Mr. Harris. We have seen through our analysis when you look
at the technology that is required that you certainly have the
technology to handle very large systems. I mean we are in an
age of information technology and you can do that.
Mr. Bass. You can do that.
Mr. Harris. Yes, sir. The limits seem to be more social and
political along the regional boundaries, the way people have
historically operated and so forth. You do have increased
sophistication. We put about $5 million extra a year into
operator training. We have tripled the size of the operators.
We are into advanced technologies, artificial intelligence. You
have much more sophistication that is necessary to handle the
size. But with that it certainly is doable and the efficiencies
are there. What that optimum is, it could be a big swing, but
you certainly can handle larger areas within the 600,000
megawatt Eastern Interconnection.
Mr. Bass. Mr. van Welie?
Mr. van Welie. I listened carefully to your question and
the answer in the previous panel, and I think the--perhaps it
was a little misconstrued. I think the transmission system
itself can be made as large as one likes, and from an operator
perspective, the more highly interconnected it is the better,
at least from a delivery point of view. I guess my opinion
would be that there is a tradeoff in terms of operating that
transmission system in terms of size. So the bigger one makes
it, and there are advantages to scope and size, the more one
increases complexity, as Mr. Harris has said. And as one
increases complexity, of course one becomes more dependent on
automated tools. At some point, there is a point when the
advantages of the size and the scope outweigh the disadvantages
of risk and complexity.
Mr. Bass. Mr. Torgerson?
Mr. Torgerson. I think, as Mr. Harris said, the technology
is there today to accomplish an RTO of significant size, and
you can do it safely. How you operate the system you may have
to have--we have 23 control--actually, 35 control areas we work
in; 23 are members. That probably needs to come down to a much
more smaller number, but you still can do it with the size of a
rather large----
Mr. Bass. Do all of you support mandatory reliability
standards? Is there anybody here who does not? Everybody
supports mandatory reliability standards. Are there specific
benefits that accrue to being an RTO versus an ISO. Mr. van
Welie, anybody else have any comments on that? Specific
benefits to that status.
Mr. van Welie. I would say at the moment, although there
are these two members at this table who have the RTO
designation and have different functional responsibilities, but
I would say, in general, not at the moment. So if you look at
ISO New England, for example, we have very similar functional
responsibilities to PJM and to New York. So there is no real
functional distinction at this point in time. I think FERC has
actually indicated that in the White Paper. I guess the issue
for me will be more what does the future hold? Is there some
distinction in the future?
Mr. Bass. Does anybody else have any comment on that? Okay.
One last question: Mr. Museler, your ISO lost 80 percent of its
power, you said, or something like that, and Mr. van Welie, you
lost 20 percent. In a layperson's terms, what has happened in
New England that was different in New York?
Mr. Museler. Mr. Chairman, I think the detailed answer to
that will come out of the International Commission, but maybe
one way to look at it in very, very broad terms, not electrical
engineering terms. Betsy Moler was asked why her system was not
affected or affected very little in terms of the Chicago area
was not affected by this, and her answer, I think, was accurate
in that she said, ``Well, we were far removed from the problem
and the closer the power surges, because of the lines that
tripped, flowed through PJM, through New York and through
Ontario.'' And if you think of it as a river that is necking
down, the speed or the velocity of the water in the wide part
of the river is fairly low. When it gets down to the neck of
the funnel, it tends to be very, very high velocity and
turbulent. That is a hydraulic analogy not an electrical
engineering analogy, but the bottom line is that the power
surges were concentrated in New York and Ontario and we were
isolated from the rest of the Eastern Interconnection.
Now, Mr. Harris correctly points out that his system
isolated itself from some of the high flows going through. That
left New York and Ontario to be the final conduit of these
power surges, so that is not a very elegant description, but it
does basically says that New York and Ontario were in the
direct path of the flow and then we lost the support of the
rest of the Eastern Interconnection. The detailed analysis will
tell us whether or not our systems performed the way they
should have performed under those circumstances, but this was
well beyond anything that our system was designed to survive,
and I think the same goes for----
Mr. Dingell. Mr. Chairman, would you yield and I would ask
unanimous consent you have 2 additional minutes.
Mr. Bass. Thank you. Without objection, Mr. Dingell.
Mr. Dingell. I think maybe Mr. Harris can--no, no, not Mr.
Harris but Mr. Torgerson and Mr. Museler but also Mr. Goulding
can give us some assistance on this. What happened with regard
to those who weren't shut down with the shutoff was that either
they got warning or their automatic system worked or they were
far enough away that somebody else between them and the trouble
shutdown. Isn't that what transpired? Wasn't that why Betsy
Moler's company didn't wind up getting shut down, they had
somebody between them and the trouble.
Mr. Harris. Well, that is close, Congressman. Basically,
because it is a speed-of-light system, the design criteria is
that you operate for what the worst thing that can happen to
you is. And so your protective equipment looks at the system to
say if there is a problem on one side, I need to isolate myself
to protect my equipment, and that is how you operate the
system, you are always looking for what can go wrong. And so
each system, large area, designs their relays and their
protective equipment to be able to--and in the PJM area, again,
one is the size, we are 78,000 megawatts, it is a single
coordinated area, so all the relays are coordinated, everything
is working together to make sure our area can isolate itself
from the problem. So when the problem happened instantaneously,
then these automatic devices begin to operate and they separate
us from where the problem areas were.
Mr. Dingell. Thank you, Mr. Chairman, you were gracious.
Mr. Bass. The Chair recognizes the gentleman from Michigan,
Mr. Stupak.
Mr. Stupak. Thank you. Thank you, Mr. Chairman. Mr.
Torgerson, I am looking at your testimony on the bottom of page
1 and going up on page 2. Earlier on, I asked a question from
FirstEnergy about their power flow up into Michigan through
ITC. I was asking them about who would be in control, who would
be responsible for the communications. They seemed to point to
you as the regional coordinator for them. Would that be a fair
statement?
Mr. Torgerson. We are the security coordinator for
FirstEnergy through a contract with ECAR.
Mr. Stupak. Okay. And on top of the second page it says,
``We perform this coordination function for the companies that
have transferred functional control of their transmission
systems to us,'' and then it goes on and says we do it through
a contract. By ``we do it,'' it being, again, the coordination
function for FirstEnergy?
Mr. Torgerson. Yes, that is correct.
Mr. Stupak. And then it goes on to say, and you testify in
the third page, first paragraph, it says, ``During the course
of the hour preceding the cascading event, after the loss of a
large generating unit in northern Ohio had already occurred,
several transmission line outages also occurred in the Ohio
area. During this period, the Midwest ISO operator was in
contact with neighboring reliability coordinator at PJM as well
as control operators within our territory. At this point in
time, the issues did not seem to implicate a regional problem
and then things began to change basically a minute later at
4:09 and 4:10.'' How were you in contact with people, just
through telephone or----
Mr. Torgerson. Primarily telephone, yes.
Mr. Stupak. Would these other coordinators, the reliability
coordinator at PJM and your control operators be seeing the
same data you would be seeing?
Mr. Torgerson. Some of them would. It depends how much of
the system you were looking at at the time. I can't say that
PJM would be looking at all of the same data we would be, just
like we don't necessarily see all of the data that FirstEnergy
or our control area would see. We monitor key facilities, and
those key facilities are ones they tell us that should be
monitored.
Mr. Stupak. So from FirstEnergy, you only get the
information they give you?
Mr. Torgerson. No. We get the information but then they
tell us which ones are important to monitor, which ones are
important to put alarms on and to flag.
Mr. Stupak. But as a safety coordinator or security
coordinator, wouldn't you really make those determinations?
Mr. Torgerson. We work with them on determining what they
are ahead of time. It is not done at the last minute. We do it
ahead of time before they even become part of the system.
Mr. Stupak. If you are working with, and I am sure you
were, the reliability coordinator at PJM and control operators,
no one anticipated this cascading event even after you knew all
these lines were down and things like this?
Mr. Torgerson. Not at that point. We were looking at it
working with FirstEnergy, as we work with other utilities and
control areas in our area when the same circumstances happen.
When a line would go out, we would work with them, determine
what the cause was and then work with them to figure out what
the resolution would be, whether you implement a TLR or do
something else. So at that point, we were working with
FirstEnergy.
Mr. Stupak. Is this a normal occurrence in August to have a
large generating unit out, several transmission line outages?
Is that normal?
Mr. Torgerson. I can't say it is really normal every day
but it does happen.
Mr. Barton. Will the gentleman just suspend? What is a TLR?
Mr. Torgerson. I am sorry. Transmission line loading relief
mechanism that is used by those who don't have markets to
unload the system when you have a constraint and you want to
back down for an overloaded situation.
Mr. Stupak. Part of FirstEnergy's system is under PJM,
right, the eastern part of their system?
Mr. Torgerson. Yes.
Mr. Stupak. And they didn't have any trouble on that
eastern part?
Mr. Torgerson. Not to my knowledge.
Mr. Stupak. Would Mr. Harris----
Mr. Harris. We had about 400 megawatts in the Northeast, a
small portion in the Erie area that went black.
Mr. Stupak. Why was the eastern part different from the
western part, let us say, or the part that is with the MISO?
Mr. Harris. I think, potentially, because this is the part
that was purchased general public utilities, and so in the
general public utilities area we had the data and information
real-time, as I was articulating earlier in my comments, that
we were monitoring real-time throughout the system. So we had
control of the critical points and we were watching it.
Mr. Stupak. You know, I did hear your comments about every
2 seconds and 5 seconds, you are looking at all this. Is that
the norm throughout an ISO in the Nation?
Mr. Harris. Well, certainly, I think for New England and
New York when you operate in the large markets, you run these
tools, you have to have thousands of bits of data that you are
looking at, you bring it in so you can maintain the control and
also manage the markets appropriately.
Mr. Goulding. I should mention that we also have similar
types of tools in Ontario.
Mr. Stupak. Okay. Mr. Torgerson, do they have more
monitoring capabilities than the MISO did?
Mr. Torgerson. Today, we do it on a 30-second interval. We
will be going to the quicker interval once we have the market
in place.
Mr. Stupak. If you had the quicker interval, would that
have helped prevent some of these problems?
Mr. Torgerson. I think we would have to wait and see the
analysis to determine that, but, as I said before, I think
going to the market where we are then doing the dispatch I
think could help.
Mr. Barton [presiding]. The gentleman's time has expired.
Mr. Stupak. Just if I may, the reason why I am asking these
questions is that you are all saying and giving us great
suggestions what we should do in the future, but we are stuck
with this system here for a while, and our concern is how do we
prevent it. If there are some things we can do simply before we
go to major policy changes, we would like to do that. Thank
you, Mr. Chairman.
Mr. Barton. The gentleman from Arizona is recognized for 5
minutes.
Mr. Shadegg. Thank you, Mr. Chairman. Mr. Museler, I want
to ask this question directly of you, and then maybe I will let
the others comment on it. Have you had a chance to review the
statement submitted by Governor Pataki?
Mr. Museler. No, sir, I have not.
Mr. Shadegg. Okay. At pages 5 and 6 of that statement and
going on over to page 7, he explains that one of the things
that was done in the course of this is that the New York Power
Authority and its counterpart in Ontario appealed to the
officials at Niagara Falls to divert more water through the
turbines and that by doing so, since they were able to turn
those on instantaneously, in his testimony he says roughly 1
million homes did not lose power, and because Niagara Falls'
hydroelectric generating capability was able to pick up that
load, it made it possible for other plants to come back online
more quickly than they would have otherwise and shortened the
duration of the entire outage. Would that be consistent with
your understanding of what happened?
Mr. Museler. Generally, yes, sir. Those generating units
stayed online so they did provide the power source, one of the
major power sources to restore the system. We also did appeal
on the New York Power Authority and its counterpart in Ontario,
also worked with the appropriate authorities to increase the
amount of capacity we could get out of those units. There are
what are called water restrictions that are used to both
control the flow over Niagara Falls as well as to optimize the
use of that energy, and there are some contractual
international contracts that govern that. What that allowed us
to do is to get more generation out of those units than would
have happened otherwise, and that clearly was very helpful in
terms of restoring power quicker in New York.
Mr. Shadegg. His statement makes it clear that as a matter
of fact so much additional water was diverted through those
hydroplants for that brief period of time that the tour boat,
the Maid of the Mist, was not able to go up the river as far as
it normally would and get underneath the falls as it might
otherwise because they were able to divert more water through
the turbines and less water was going over the falls. Given
that, there is language in the energy bill which we have sent
over to the Senate which does two things: It allows for the
addition of--for an economic incentive for the addition of new
generating equipment to dams which do not have generating
capacity currently, and it also provides an economic incentive
for installing more efficient turbines in dams where we already
have turbines there but they are older generation, less
efficient turbines. Would it be your testimony, and I guess I
will ask any of the others on the panel, that that kind of
incentive for making sure that where we have dams but not have
any turbine at all and the dam is susceptible to the
installation of turbines to generate power, or where we have
dams that have older turbines that are not efficient in them we
could, because of the instantaneous nature of hydropower,
benefit in a circumstance such as this outage?
Mr. Museler. I think the short answer to your question,
Congressman, is yes, and particularly with additionally, which
is basically a renewable resource it has some environmental
benefits. The only caveat I would add is that obviously there
are, particularly in dams that have no current hydrounits in
them, there are environmental considerations which I am sure
would be dealt with in the process.
Mr. Shadegg. Obviously, all of this would have to be done
in light of environmental restrictions that do apply and flow
restrictions and other concerns, but it seems to me if we have
the ability and we are already releasing water, it can be an
advantage, and this outage apparently proves that. Yes, sir,
Mr. Harris?
Mr. Harris. Thank you, Congressman. I think that that is
important as to one element, but we can't away from the fact
that the electrical grid is a giant ecological system. As we
saw in the blackout, one thing affects everything else, and so
in order to determine what is the right solution to the
electrical grid, it may be a demand response or distributed
generated or more transmission. You really need large regional
planning protocols so that you can look at all the data, and
certainly you should have this as a wherewithal that this is
the right solution, it is the one that should be engaged. But
there may be other solutions too, and the planning protocol is
what needs to be in place to enable the appropriate solutions
to the situation that we are facing.
Mr. Shadegg. Mr. Goulding or Mr. Torgerson, did you have a
comment to make?
Mr. Goulding. Yes. I was just going to add to Mr. Museler's
response. In terms of Niagara, first of all, clearly half of
the Niagara water is used in Ontario, and our generating
stations were still isolated and operating onto the New York
system. And that additional water that was made available was
very important to us as we used that anchor point, if you like,
as one of the main paths to move out and restore supplies
within our system. That was one of 3 or 4 places that we used
as an anchor, so that was very important.
Mr. Shadegg. Mr. Torgerson?
Mr. Torgerson. I really don't have anything to add. I agree
with what was said.
Mr. van Welie. I would say, in general, hydro resources are
an extremely valuable resource. They provide a lot of
flexibility to the system operator. I wish we had more of them.
But other than that, I don't have anything further.
Mr. Shadegg. Thank you very much. I yield back the balance
of my time, which is expired.
Mr. Barton. The gentleman from Maine is recognized for 5
minutes.
Mr. Allen. Thank you, Mr. Chairman. Mr. Torgerson, I want
to ask you some questions here and at least contrast with PJM,
Mr. Harris. Forgive me if some of these have been asked before.
But I understand, Mr. Torgerson, that the Midwest ISO does not
have the, what you might call, exclusive and centralized
control of the transmission grid in your region, at least as
compared to the kind of control that PJM has over its grid in
its region. Is that a fair statement?
Mr. Torgerson. That is fair. We don't do the dispatch of
generation yet at this point, which we intend to do in March.
Mr. Allen. Which you what?
Mr. Torgerson. We will--the plan is to be able to do that
in March.
Mr. Allen. Okay. Now, is that pursuant to existing
contracts or negotiations? What I really want to know is when
you have--what is the reason for the difference in authority
that you have as compared to PJM, and to what extent have you
sought the additional authority? To what extent have you been
resisted by either the utility companies or the State PUCs? Can
you talk about that a bit?
Mr. Torgerson. Certainly. The way the Midwest ISO was
started it was started voluntarily by utilities in the Midwest.
Initially, they wanted to set us up with the, I guess I would
call it, the minimum characteristics or minimum functions they
could have and then get FERC to approve it, which is what they
did. As we have moved through time, and we have only been
operational since February of 2002, so as we have moved
forward, FERC has said, ``You need to have an imbalanced
market, you need to have market-based congestion management.''
Our stakeholders then said in order to do things, the best way
to do it is to implement a market which would have the economic
dispatch of generation, the security constrained unit
commitment, those aspects which these other people already
have. And we are moving that direction. When we started up we
didn't have it, so that is why you see different layers of
control and authority between the Midwest ISO and the other
entities.
Mr. Allen. And does the blackout give you some, I guess I
would say, more determination to move ahead along those lines?
Mr. Torgerson. It certainly gives me more. You asked were
some people resistant to us taking on more and clearly there is
that aspect of it. Some people would prefer to keep their own
control, so we have seen that in some areas.
Mr. Allen. We see that in a lot of different areas. Do you
think it makes sense for MISO to consider reorganization as an
RTO?
Mr. Torgerson. Well, we are determined to be an RTO by
FERC.
Mr. Allen. Okay.
Mr. Torgerson. And FERC has said also we need to add these
other aspects.
Mr. Allen. The other aspects. Okay, fine. Let me also ask
if you are going--standard market design, do those issues
operate in any way to affect your desire to get more operating
authority over the transmission grid? Is there anything about
the standard market design issue? The administration has agreed
to delay the FERC's SMD until 2007 or later, I am told, and I
am just wondering whether you are then left in a situation
where you may not have the authority--you may not have the
power to get all you really need to make the MISO more
effective? Is there any connection between those two things?
Mr. Torgerson. I think what we have in front of FERC now, a
filing to allow us to implement a market tariff, if that is
approved, that will give us the authority we need outside of
even the standard market design, because the standard market
design looked at the entire country or Eastern Interconnect.
For our region, I think it will work fine, and then we have to
work with other RTOs, for example, we are working on a joint
operating agreement with Mr. Harris' company, we are going to
have similar agreements with others, so that we can coordinate
between those that are designated as RTOs.
Mr. Allen. Okay. Good. Thank you very much. I yield back.
Mr. Barton. Thank the gentleman from Maine. The gentleman
from Illinois wish to ask questions?
Mr. Shimkus. Yes, sir.
Mr. Barton. The gentleman is recognized for 5 minutes.
Mr. Shimkus. Seniority there. Sorry. Thank you. Thank you
all for coming.
Mr. Barton. Actually, it is order of appearance at the
first of the day, that is what it was.
Mr. Shimkus. Yesterday when we started these hearings?
Mr. Barton. Today.
Mr. Shimkus. Oh, okay. So I still beat you I think again.
They are crying. Thank you and I know it has been a long day,
but I have been on this subcommittee, this is the full
committee, but the subcommittee now 7 years, and I think we are
really getting close to having some exciting things happen, I
think positive. Some would disagree but I thin positive. And so
the transmission issue will, I think, help incentivize moving a
national energy plan. Let me ask this, and Mr. Harris, since
people are agreeing that the transmission grid has to be
improved, updated, investment has to come, tell me that could
investment in transmission pay for itself in terms of providing
access to cheaper generation of resources?
Mr. Harris. Well, the answer is most certainly it can. I
had been talking earlier about a regional plan. Well, we have
been doing regional transmission planning for a little over 6
years. We have $700 million of transmission that is being
built. The interesting thing, about 60 percent of that is
participant funding. Those that have caused are paying for it,
and generation is being built. About another 30 percent of that
is just upgrades, improving the substations equipment, not new
lines. So there is a lot that can be accomplished just by
having a way to look at the problem in a wholistic way.
Mr. Shimkus. Does anyone else want to mention that? Yes,
sir?
Mr. Museler. Yes, Congressman. New York, unfortunately, is
the poster child for transmission congestion. Literally,
hundreds of millions of dollars in higher energy costs are paid
by New York consumers because our system is pretty constrained.
The Secretary of Energy's Energy Advisory Board transmission
report pointed that out.
Mr. Shimkus. So if you expand the grid, you would hope to
see lower pressure on your consumers.
Mr. Museler. That is correct, sir. Now, that has to be done
in an integrated manner, as Mr. Harris pointed out earlier, but
the feedback, we have done some studies and provided that
information to the Public Service Commission and to our market
participants that show for a number of representative projects
paybacks of 5 to 10 to 1 in energy savings for the cost of the
ongoing transmission. So there is no question that if done
properly and in an coordinated planning process there are very
large potential benefits for consumers.
Mr. Shimkus. Yes. Let me--and I know some people want to
answer, but let me move to another question and you can
probably roll this in. There was a big movement when we talked
about energy a couple years ago for green power and people to
have choice in the type of power produced. Would it be easier
for people to make a choice to use green power if we expanded
the transmission grid? Mr. van----
Mr. van Welie. Van Welie.
Mr. Shimkus. [continuing] van Welie, sorry.
Mr. van Welie. Let me just--I will answer that from a New
England perspective. This is something that we have been
grappling with in New England, transmission, first of all, to
supply power to where there is an inadequate availability of
power, for example, southwest Connecticut. The other thing you
touched on is does it give one access to more efficient sources
of power, and the answer there is yes as well. And I think the
answer to your third question is also yes, which is to the
extent that people want to locate green power sources and one
has the transmission network to be able to distribute that in
the region, it facilitates that.
Mr. Shimkus. Yes, sir.
Mr. Torgerson. In our expansion plan, which just came out
in June, we identified $1.8 billion in programs that could be
done, should be done for reliability. Also, we identified
economic projects for transmission that could hook up wind
power up in the Dakotas. People are looking at putting in
10,000 megawatts of wind power, which would be obviously a
renewable resources there. There isn't the transmission system
to carry it to the markets today. Also, in Kansas, they are
looking at the same things with wind power. And, again, we
would need more of a transmission system to get that energy to
market.
Mr. Shimkus. You know, we have a coal generating facility
here that powers DC. We could probably use wind generation
facilities here. I know that has probably been said before, but
there is a lot of wind that we circulate up here that maybe if
we could connect that up to the grid, we could be very, very,
very successful. My time is running out. Go ahead, sir.
Mr. Goulding. Yes. I was just going to say, similarly,
Ontario, we have several thousand megawatts of green projects
on the books, as it were, many of them located away from the
grid, and we currently have a Conservation and Supply Task
Force, which has been initiated a couple of months ago; I am a
member of it. And one of the things we are looking at is the
appropriate mix of generation facilities that one should have
in the future, the appropriate mix along with conservation and
demand programs and what is the necessary transmission in order
to make those things happen.
Mr. Shimkus. So if you really want green power, you really
should be proposing expansion of the grid.
Mr. Goulding. I think green power is one of the things that
is required in order to help drive some of the expansion of the
grid.
Mr. Shimkus. My time is out. Thank you, Mr. Chairman.
Mr. Barton. Gentleman from Massachusetts, Mr. Markey.
Mr. Markey. Thank you, Mr. Chairman. Mr. van Welie, in your
testimony, you express concern over the vulnerability of
southeastern--southwestern, rather, Connecticut to future
outages. If there were to be such future outages, what is the
risk that Boston and eastern Massachusetts could be affected in
some subsequent event?
Mr. van Welie. The answer is really that it depends on the
size of the outage, but if there is a substantial outage, it
will have a ripple effect elsewhere within the system and can
very well have a reliability impact on Boston.
Mr. Markey. And what is a substantial outage?
Mr. van Welie. Well, if you were to lose several thousand
megawatts in an area as vulnerable as southwest Connecticut,
that would probably cause us a problem. And it also--let me
just say that it also depends on where in the network the
outage occurs.
Mr. Markey. So you have identified greater Boston as an
area of concern.
Mr. van Welie. Boston is an interesting case study because
if you go back several years, it was very vulnerable. In the
last several years, transmission upgrades have occurred and
some new generating facilities have been located and have
actually gone operational. So it is in a reasonable state at
this point. Our projections looking forward, and we will be
shortly releasing another version of our original expansion
plan, is that Boston--if the load growth continues as we are
projecting, it will become vulnerable again, and we will have
to strengthen the infrastructure around the Boston area.
Mr. Markey. What is the point at which it does become
vulnerable? What is the tripping point? How great does the load
have to be on these wires?
Mr. van Welie. Well, that is the function of this regional
plan that we do. So we have a planning department that runs
many different scenarios. They do a very detailed analysis and
they essentially are doing a ``what if'' analysis and trying to
predict under various circumstances what may occur. Those
studies are the things that lead us to identify vulnerabilities
in the system and therefore to put forward plans to correct
them.
Mr. Markey. So you are saying right now we are okay.
Mr. van Welie. I would say at the moment Boston has come
from a situation of being marginal and is certainly in a much
stronger position it was several years ago.
Mr. Markey. When would the word, ``marginal,'' have been
used appropriately?
Mr. van Welie. Well, what we use----
Mr. Markey. No. when was that? What year are we talking
about?
Mr. van Welie. I would say prior to that last 2 years, so
there are some recent transmission upgrades and generating
investment that has occurred within the last 2 years.
Mr. Markey. Okay. Now, when I look at the mismatch that
seems to exist between the duties and responsibilities of MISO
and PJM and the whole history of what happened with the
alliance RTO proposal that FERC rejected from the Midwest, it
seems to me that there may be a notion out there amongst some
transmission owners that they can shop around for the best deal
amongst RTOs regardless of whether that makes sense from the
standpoint of regional grid reliability. Do you agree with
that, Mr. van Welie, and if you do, how can this committee
prevent companies from gaming the system to the detriment of
the reliability of the overall system?
Mr. van Welie. Well, my view as a system operator and as an
engineer is that that is a bad thing. Basically, what it does
is it creates non-contiguous areas in terms of control areas,
and you end up with a swiss cheese arrangement that one has to
operate. To me, what that does is it really increases the
complexity of what the operator has to deal with, and you are
therefore increasing the risk.
Mr. Markey. So should we prohibit that in legislation?
Mr. van Welie. In my opinion, yes.
Mr. Markey. Okay. Thank you. Do you agree with the
testimony submitted by Mr. Makovich that the--and by the way,
thank you for sticking around all day, you will be up here
sometime before supper--who is on the next panel that the
Midwest network suffers a misalignment between organizations
and the underlying extent of the regional network? And if so,
what should we do to correct that situation, Mr. van Welie?
Mr. van Welie. I am sorry, could you repeat the question?
Mr. Markey. What he said in his testimony was that the
Midwest network suffers a misalignment between the
organizations and the underlying extent of the regional
network.
Mr. van Welie. I can only assume, and so let me preface it
with that, that what he is really referring to is the
functional responsibilities that the Midwest ISO might have in
the future versus the way the organization is structured and
the operational control they have over those facilities. But
further than that, I am hesitant to comment.
Mr. Markey. All right. I will pose the question.
Mr. Barton. The gentleman's time has expired. The gentleman
from Pennsylvania, Mr. Greenwood.
Mr. Greenwood. Thank you very much, Mr. Chairman. I would
like to address a couple of questions to Mr. Torgerson. The
information that I have is that on the day of the blackout,
beginning as early as perhaps 1:30 in the afternoon, at the
FirstEnergy service area, there were operators of plants who
were calling into the SCC, the control center for FirstEnergy
and indicating that things were going wrong, that there were
very big fluctuations in the frequency or the power, that there
were power plants that went offline at--I think one went
offline at 1:30, one went off a little after 4. Meanwhile, MISO
was also calling into the control center asking questions,
reporting things, and the folks at the control center seemed
unaware, based on looking at their computer screens, that these
things were happening, which suggests strongly that there was
something wrong with the computer system, that it was not
picking up the information that it was designed to pick up from
the system.
The question is, first off, if that is accurate or not
accurate, I would like to know what you think about that. And,
second, it seems to present a problem because when you have--it
seems to me that there should be some sort of standard
operating procedures so that when a control center for a
utility is receiving information from different sources, its
own operators in the field as well as MISO, whether they see it
on their computer screens or not, they ought to be able to
determine that the actual reports coming from elsewhere may be
more reliable than what they are looking at on their computer
screens. And then the secondary question is what does MISO--
what options do you have when you are calling into the control
center saying, ``Are you aware of this, are you aware of
that,'' and the guys in the control center are saying, ``No''?
You don't have, as I understand it--you have some
responsibility but you don't have any authority to start
telling people to do things.
Mr. Torgerson. Well, first off, on what we saw or what we
heard, I mean we did find out at about 1:30 their East Lake
plant one of their units went out. We did not know anything
about the conversations between their plant and their control
center. What we saw later, closer to the 4 hour, and if you saw
the transcript----
Mr. Greenwood. Let me just interrupt you for a second.
Mr. Torgerson. Yes.
Mr. Greenwood. When you saw that East Lake went out at
1:30, you reported it to the SCC, correct, or no?
Mr. Torgerson. No, they advised us that----
Mr. Greenwood. Oh, they advised you. The SCC advised you.
Mr. Torgerson. Right.
Mr. Greenwood. Okay.
Mr. Torgerson. That it was out. But that was a little later
in the day that they advised us. We know now that it went out
at 1:30; we weren't aware right at 1:30. Later----
Mr. Greenwood. So how much time elapsed between the time
when they knew it was out and you knew it was out?
Mr. Torgerson. About 40 minutes.
Mr. Barton. Would the gentleman suspend?
Mr. Greenwood. Certainly.
Mr. Barton. If the same thing had happened at PJM, wouldn't
you have been notified immediately as opposed to 30 or 40
minutes later?
Mr. Harris. Yes, sir. As I was advising earlier, we run
tools in the seconds. One of our tools is called a state
estimator. We run it every 30 seconds on all the equipment that
validates the data and those that stay with the system.
Mr. Greenwood. I am sorry. Finished, Mr. Chairman? Go
ahead.
Mr. Torgerson. Okay. Then we had conversations with
FirstEnergy. We had one around half an hour before the event.
We were asking them questions, because we were observing then a
line that went out, they called us back a little while later
and they still hadn't responded at that point. And that----
Mr. Greenwood. But were they essentially saying to you,
``We are not getting this data from our own equipment here.''
Weren't there SCADAS not reporting data to them?
Mr. Torgerson. We didn't know that at the time, and----
Mr. Greenwood. Do you know it now?
Mr. Torgerson. At about 4 when we had that conversation
with them was the first time it came to light that they were
having problems with their data and information. And then as
you look back, you can see what had transpired, but up and to
that point, we didn't. And as I said, we monitor key facilities
for them and it is not all of them right now. So, as Mr.----
Mr. Greenwood. What I am trying to get at is--to make a
parallel--if I am an air traffic controller and I am looking at
my screen and I am seeing one depiction of the world and, first
off, pilots start calling in and saying, ``By the way, we just
had a close call here, we just had a close call there,'' and
another entity was calling in and saying, ``Do you know you
have a problem here or you have a problem there,'' at some
point, as an air traffic controller, I have to start to think
maybe my screen is not giving me the right story here, and what
does this--and how is the system designed to handle that?
Mr. Torgerson. For the operator, if they are not seeing
what people are telling them, it would at least tell someone
that they ought to be looking elsewhere, looking to someone who
can see things for them, calling the operations, finding out
exactly what is going on and then----
Mr. Greenwood. Did that seem to happen in this case?
Mr. Torgerson. That I really don't know. I think this will
be all part of the investigation, but what FirstEnergy did and
who they communicated with other than us, I mean I know the
communications we had with them, I don't know what the
communications they had back----
Mr. Greenwood. I mean the picture I get here is----
Mr. Barton. If that is the gentleman's last comment.
Mr. Greenwood. Okay. The picture I get here is that the
guys in the SCC were flying blind. Others from MISO and from
the plants were telling them, ``The system is collapsing around
you,'' and they flew it blind right into the mountain. Is that
an exaggeration?
Mr. Torgerson. I don't know that I would go that far, but I
think we were calling and trying to find out what was going on,
because we were seeing some things and we were trying to
confirm it with them as to what was going on, and we weren't
getting the confirmation immediately.
Mr. Greenwood. Thank you, Mr. Chairman.
Mr. Barton. The gentleman wasn't here when I was asking
questions but Mr. Torgerson's ISO has much less authority than
Mr. Harris' RTO, and at least the chairman has the opinion that
that is a possible cause of what happened. The gentleman from
Pennsylvania, Mr. Doyle.
Mr. Doyle. Thank you, Mr. Chairman. Well, reliability is
certainly a hot topic right now, and I am just curious to get
your opinions on which entity you think is better suited for
managing and enforcing reliabilities, individual utilities or
RTOs, and why? Maybe Mr. Harris can start.
Mr. Harris. Well, I think the answer is all of the above.
As I mentioned, the Eastern Interconnection there is 3,300
different entities involved in the generation, transmission and
distribution of power. I think from the overall perspective of
the transmission grid, you have some entities that are
regulated by the FERC, some that are not. You have some that
are regulated by the States and not the FERC and some by the
Department of Energy, I guess. So having some coherent body
that is accountable to the Congress for the public policy
aspects of reliability I think is important, and that is
something that should be done.
As far as the actual practice of the reliability, there are
things down to maintenance and practices, O&M standards that
need to be done at the local level. When it comes to the real-
time operation of the grid, then you need large regional
entities that can deal with the speed-of-light product in an
appropriate way to ensure that the grid is stable and reliable
at any point in time. So I think all of those have to be
effectuated.
Mr. Doyle. Anyone else? Yes.
Mr. Goulding. Yes. I firmly believe that RTOs are the
appropriate organizations. If I can just quote my own
particular instance in Canada. First of all, we are independent
so we don't have any vested interest in the results in the
marketplace, and I think that is an important point. The second
one is that we can see a bigger picture than individual
utilities can see and coordinate across a broader area. The
third one is that in this particular context we can do the
scheduling, dispatching, all the good things that Mr. Harris,
Mr. Museler and Mr. van Welie can do on sort of an
interconnected basis, and I think that is very important. And
the fourth one, as I have mentioned earlier, is that having an
RTO and particularly having it with some mandatory capability
in terms of applying the standards, the processes and
procedures, which we have, is a very effective way in ensuring
that operations get carried out as appropriate and also in
setting out the necessary standards for others to follow in
terms of maintenance and operating technique. So I think, quite
clearly, an RTO for me is a far more appropriate body.
Mr. Doyle. Anybody else?
Mr. van Welie. Yes. I will comment on that as well. I think
I made an earlier statement that it really depends on where one
is headed, and I think in, let me call it, the old world, the
vertically integrated utility world, even in that world,
particularly in highly integrated networks type pools, type
power pools, the utilities felt that it was a good thing to
have somebody managing the system from a regional vantage
point. Going forward, however, as one moves into wholesale
power markets, you are putting a lot more stress on that
integrated system, and I then think it becomes a requirement to
have an organization such as this.
Mr. Doyle. Thank you. Finally, just one more question. I
have been a big proponent of distributed generation, and I just
wonder if you think increasing utilization of distributed
generation could help improve reliability, and would you all
support including standard, interconnection standards as part
of any energy bill we pass?
Mr. Harris. Absolutely. I was saying our regional planning
protocol distributed generation has an equal shot to meet the
electrical needs of the Mid-Atlantic region as well as a larger
generator or transmission line. So you need regional planning
protocols that allow them to play on an equal basis with any
other solution, but it provides a depth and a resource that I
think is definitely needed.
Mr. Doyle. Yes?
Mr. Torgerson. I would agree. I mean it is a way to make
sure you have reliable power. You need to know about it, and
you need to plan for it, though, too.
Mr. Doyle. And you support standardizing the
interconnection standards so that it is easier for DG to get on
the grid?
Mr. Torgerson. Yes.
Mr. van Welie. I would also comment which is to say that
the regional planning process that both I and Mr. Harris have
mentioned is very important in terms of identifying needs of
the marketplace so that the market can respond. And then given
that need being identified, I think it makes a lot of sense to
have standardized procedures for interconnection.
Mr. Doyle. Great. Thank you, Mr. Chairman. I yield back.
Mr. Barton. Thank the gentleman. The gentleman from
Michigan, Mr. Rogers.
Mr. Rogers. Thank you, Mr. Chairman. Mr. Torgerson, are you
familiar with the third entry point in Michigan that was
attempted a few years ago through Indiana? Do you have any
knowledge on that effort?
Mr. Torgerson. No, I do not.
Mr. Rogers. Okay. We had testimony from a gentleman who was
the CEO and president of ITC who said that loop flow problems,
or at least designed into the grid, may cost Michigan consumers
anywhere from $40 million to $50 million in uncompensated costs
that get laid back on the consumer which end up paying that in
their energy costs. Can you provide any insight for me on that?
Mr. Torgerson. Well, I know loop flows a phenomenon to the
system, I mean because the power flows along the path of least
resistance, so there will be loop flows and they are there all
the time. One of the reasons to set up RTOs was to manage the
loop flows within the RTOs. That was part of it. The cost that
it has to Michigan I am just not sure what it is. I mean I know
Mr. Welch, and he and I have had conversations about this
before. His concerns about not being compensated for it and
mechanisms to allow that we have talked to him and worked with
him on that in front of our stakeholders, as a matter of fact,
directly. So I am familiar with what he is talking about, I
just didn't know the magnitude.
Mr. Rogers. How do we fix it?
Mr. Torgerson. I am not sure how to fix it, because you are
talking about who--really, it is who pays? Which entity, if it
is coming from somewhere else, you are asking someone else to
pay for something they are not today. So that really becomes
the issue is who pays for it.
Mr. Rogers. Yes, sir?
Mr. Museler. I was going to say there are obviously
reliability issues associated with loop flow as well, but just
sticking, reinforcing what Jim said, essentially, the cost of
the consumers in the area where the loop flow is having an
impact is a free rider issue, and people are getting to use the
transmission system--use someone else's transmission system and
therefore are able to utilize their own system more, because
they are getting a free ride on the other person's transmission
system. And both the NOPR and the subsequent White Paper
reinforces not just the authority but the obligation of the
RTOs and the ISOs to resolve those loop flow issues, not just
within our individual territories but between our territories.
Mr. Rogers. And if I understand it--yes, sir; go ahead,
please.
Mr. Goulding. Yes. I just wanted to add a little bit. This
has been an issue for many years, and at one point in time
there was a lot of work done on what was erroneously called the
general agreement on parallel paths, which was an attempt to
identify that you should pay for the transmission that you use,
not the transmission that you pretend to schedule your
transaction over, because they never match. At the end of the
day, what that showed, and what we still see today, are there
are winners and losers by doing that, and so you never get an
agreement. But at the end of the day, I think what is necessary
really is if you can solve the financial problem to ensure that
if you are going to be making use of other transmission, you
actually pay for that transmission, I think that not only
provides compensation to the correct parties, but I think that
will also drive, quite frankly, more investment in
transmission, because it will be less of an incentive for
people to use other transmission paths. So I think that is a
key element in terms of investment in transmission.
Mr. Rogers. Is that a technology issue?
Mr. Goulding. Doesn't have to be a technology issue, no. It
can be simply that somebody doesn't want to build a
transmission in a particular place because it is not going to
get a lot of use or because they can carry out their
transactions at this point in time without additional
transmission on their own network. And that is what causes
these loop flows.
Mr. Rogers. Is leaning on the grid a contributor to loop
flow?
Mr. Goulding. Well, leaning on the grid is really something
a little bit different. Leaning on the grid is generally meant
to mean that somebody doesn't provide sufficient generation or
purchase power within their own area in order to satisfy their
demand in schedule. So they will be undergenerating, if you
like, and pulling power in from others. That can often be done
when power is there at a high price. The current rules of the
game call that inadvertent energy, and often what a party will
try to do is pay that inadvertent energy back so they look
honest over a period of time. But you pay it back in the middle
of the night when the prices are low. So that is more of an
issue of leaning on the grid.
Mr. Rogers. Interesting. I yield back my time, Mr.
Chairman.
Mr. Barton. The gentleman from Oregon, Mr. Walden, is
recognized for 5 minutes.
Mr. Walden. Thank you, Mr. Chairman. I just have a couple
of questions, I guess. One is an issue that came up yesterday
about rates of return needed to sustain the grid and to build
it out for capacity. From your experience, what is that magic
number? Is there one? How do you achieve it? We have heard
numbers of 10, 12, 13 percent rate of return. What do you find?
Mr. Torgerson. I think my experience is that if you are in
the 12, 13 percent range, that is a very good return on equity
today. I mean if you look at comparable markets, that seems to
be okay. The issues become more of when are you going to get
that rate of return, and when you are building transmission it
is over a very long period of time before it can get started
because of the siting and all the planning and right-of-ways,
all the things you have to go through. So it could be 7, 10
years before you start getting your return and you have put the
money out. That leads to a lot of the reluctance for people to
expend a lot of dollars on transmission today.
Mr. Walden. How much of that is related to the siting
delays?
Mr. Torgerson. Siting is a big issue, big part of it. You
will hear a number of the States, and we work with our States,
we have an organization of MISO States who are trying to start
working toward getting siting done on a more regionalized
basis, so the States are--commissions are actually working
together. But it can take one, two, 3 years for siting to
occur. And then you have to go through the--usually, the siting
happens pretty fast, but then you have the litigation
afterwards.
Mr. Walden. Right, the appeals. Anyone else want to comment
on this issue? Yes, sir?
Mr. Museler. Congressman, I think you heard from the
previous panel that the rate of return, 10 percent, 12 percent,
is not so much the issue as not only when they would actually
see that rate of return but if they actually would see that
rate of return at some point. The bundled rates where FERC may
set the wholesale rates but the States have authority to set
the bundled rate, which is what the utility really receives, is
a major issue for them. The utilities in our area are very
reluctant to propose projects because they really don't have
any assurance that they will actually see the rate of return
even if FERC grants it to them. Now, there are places where
that has been overcome, but in our State it has not been.
Mr. Walden. Because I think it was Mr. Markey or someone
yesterday talking about you have this guaranteed FERC rate of
return of upwards of 12, 13 percent; isn't that adequate and
all that? What you are saying is, yes, but that is what FERC
will authorize, it is the States that set the actual--so it is
sort of like we play here, we give you a big authorization and
a small appropriation, and you can't spend an authorization. Is
that what I am hearing?
Mr. Museler. Yes, sir, and the utility companies are the
ones to really give you their opinion on that, but I think you
heard that in the earlier panel.
Mr. Walden. Yes, sir?
Mr. Goulding. Yes. I would just like to add that I think
another factor is perhaps the design of the tariff, and I think
that is extremely important. It is not just the rate of return
on the investment or on equity but the tariff itself. If part
of a tariff, for example, means that you get paid for the
amount of usage of your transmission network, if you build
another line, then the use of your existing network might go
down. So there can be a bit of a hit there. So tariff design I
think is also extremely important.
Mr. Walden. Well, I think that is an issue that concerns me
as we move forward on developing RTOs is we do create
artificial chokepoints that cause price spikes? Who oversees
that? How do you keep from some sort of manipulation occurring
in that process? Nobody wants to tackle that one. How do you do
it now?
Mr. Torgerson. We all have independent--well, we have an
independent market monitor who looks at transactions that occur
on the system and looks to see if anybody is manipulating it
or----
Mr. Walden. But couldn't it be pretty soft manipulation in
the sense that a decision as to where to build the grid or
expand the grid for greater capacity so you end up with a
congestion that drives up the cost?
Mr. Torgerson. We do our planning process and we look and
evaluated all of the projects that are going to happen, and we
do then studies to see where it should be and will it create
additional congestion, what the impacts are going to be? So we
would at least have knowledge of that it someone is building
transmission. And we would go through that in our planning
analysis and our studies.
Mr. Walden. One final--oh, yes, Mr. Harris?
Mr. Harris. I just want to comment that in our area the
States insisted we had to have a regional planning protocol
that dealt with these issues, so everyone has a chance to look
at that regional data. So the transmission construction that is
being built the company is obligated to build and construct,
and it is approved by an independent entity, so you don't get
into that tangled sort of mess as to are you goldplating, is it
being abused and so forth? We have got an independent entity
approving the plant.
Mr. Walden. Thank you very much.
Mr. Barton. The gentleman from Michigan is recognized for 5
minutes.
Mr. Dingell. Gentlemen, I would like to get this answer on
the record, but I have very limited time. Would you each tell
me the respective authorities that your agency has with regard
to reliability, reporting, disclosure, information that you
might get with regard to impending problems, the power you have
over siting, the ability to require that the facilities be run
at certain speeds or certain ways? Indicate to us in each of
the cases what powers you have to assure reliability of several
members of your respective organizations. Would you do that for
us for the record, please? Please. Not right now but just
submit that to us. And would you now tell us what would be the
power that a well run RTO would need to address the problems of
reliability? And I guess I will ask you, Mr. Goulding, because
the Canadians seem to like government, over here we don't seem
to, and I would like to hear what an intelligent race would
have to tell us about how these things should be done.
Mr. Goulding. So what specific question would you like me
to respond to?
Mr. Dingell. Well, what would be the powers that a well run
RTO should have?
Mr. Goulding. I think a well run RTO should, first of all,
have access to all of the information that is required. I think
a well run RTO should have the ability to both run a
marketplace but to also recognize that reliability is paramount
and to instruct changes in dispatch and schedules and the
loading of lines in order to respect reliability within that
marketplace. I think a well run organization should have the
ability to carry out investigations, the ability to go and seek
additional information in terms of whether the rules are being
complied to or not. I think they should have, and I have
already said we do have, the ability to enforce penalties, be
they non-compliance letters, financial----
Mr. Dingell. You have that authority.
Mr. Goulding. I have that authority through statute,
absolutely, and have applied it and have also found that having
the stick is a better deterrent, quite frankly, that we haven't
had any major issues, although we have penalized some people.
And I think that is probably the key thing that is missing
today from most authorities, the ability to have the big stick,
to go in, to seek the information, to apply sanctions when
necessary and to demand and order corrective plans and approve
those corrective plans.
Mr. Dingell. And to receive information when you need it in
a timely fashion.
Mr. Barton. Would the gentleman----
Mr. Goulding. Receive information in a timely fashion,
exactly.
Mr. Barton. Would the gentleman yield on that, briefly?
Mr. Dingell. Of course.
Mr. Barton. When you say have that authority you mean in
real time, not go to a governance board and file an appeal and
3 months later, but you have the authority in Canada if you see
a utility or a plant doing something it is not supposed to do,
you can correct it immediately.
Mr. Goulding. We can correct it immediately, yes. In fact,
most events that we will come across don't need to be corrected
immediately but need further investigation. And there is a due
process and there is a dispute resolution panel that the
parties can go to to seek some sort of redress as well. But in
terms of particularly significant reliability events, we can
move immediately, yes.
Mr. Dingell. Now, Mr. Harris and Mr. Museler, and in fact
all, gentlemen, do any of you have the level of powers that has
been described by Mr. Goulding? You, Mr. Museler, do you have
authority to lay penalties in place for non-compliance?
Mr. Museler. Yes, sir, for specific failures to follow
instructions, particularly from a reliability standpoint,
failure to follow dispatch instructions, failure to provide
information. There are sanctions with monetary penalties that
we have. And that is a short-term situation. Longer than that,
and this does require going to the FERC, but longer than that
there is an ultimate sanction which is to remove market base
rate authority and remove people's ability to transact in the
market, which is----
Mr. Dingell. How about you, Mr. Harris, you don't have that
authority.
Mr. Harris. No, sir, we do not have that authority to do
that at all.
Mr. Dingell. Now, I sense that both you and Mr. Museler
would indicate to us that you have the capacity to address many
of the problems that we confronted on this situation on August
14; am I correct in that?
Mr. Harris. Yes, we do. We have the--we could certainly
direct the information. We have the authority to direct and
control the system. I think it also begins with the board of
the RTOs, and I think this is important. Our board has the
authority to ensure that we operate a safe and reliable system,
and as the fiduciary obligation of the independent board of
directors, they take that quite seriously and will do what is
necessary to ensure that we operate a safe and reliable system
in the area that we serve. We do not have the direct
sanctioning authority and the directive authority that Mr.
Goulding has described.
Mr. Dingell. I ask unanimous consent to proceed for 2
additional minutes, Mr. Chairman. Mr. Torgerson, I say this
with respect and affection, you have got a tough job, but I get
the impression that you don't have the authorities that Mr.
Museler was talking about, Mr. Goulding was talking about or
Mr. Harris was talking about; is that correct?
Mr. Torgerson. That is correct today, yes.
Mr. Dingell. You strike me as having been more of a
spectator in this matter and things were happening but nobody
was calling you and you were trying to find out what was going
on. It is pretty clear that you need the authority to address
those things; isn't that so?
Mr. Torgerson. I would agree.
Mr. Dingell. And I say this with respect because I happen
to know you are running a new operation and you have some
difficulties here. Can you tell us what of the authorities that
Mr. Goulding described that you have to address any of the
problems that you confronted?
Mr. Torgerson. The only one we have right now is if someone
does not do something for reliability purpose, we have the
ability to penalize a transmission-owning member if they don't
follow a specific direction. That is the only thing we have
right now.
Mr. Dingell. That is a penalty that has its own
counterproductive results.
Mr. Torgerson. Yes.
Mr. Dingell. Now, I would note here that we have a picture
of your area, and I note that it was--somebody was critical of
the idea that we had swiss cheeses, and it strikes me here we
do have a swiss cheese. I note you have one in the general area
of Chicago, you have areas in northern Michigan, you have areas
in, I guess it is, South Dakota and eastern, I guess it is,
Kansas where you have no authority to address those questions.
Fortunately, it didn't occur there, but August 14 could have
afflicted those people. And I find myself curious, you received
virtually no phone calls, you had virtually no electronic
communications through computers and so forth that would warn
you that this trouble was coming on; is that right?
Mr. Torgerson. We did communicate with FirstEnergy. We do
get data in but we don't get it at the same rate and speed as
the others do.
Mr. Dingell. Of course, data unevaluated is only data. Data
only becomes information when you have the ability to evaluate
it so that it becomes a workable tool for decisionmaking; isn't
that right?
Mr. Torgerson. I agree.
Mr. Dingell. And you did not have that.
Mr. Torgerson. We have some coming in, and we have the data
coming in, and we have specific things we look at. Like in the
case of FirstEnergy, as I said, we evaluate key facilities that
we work together to identify. Those are the ones we look at.
But the control area, and we are not a control area, the
control area is the one that has all the information, and they
are the ones that balance the generation and the load. We need
to move to that.
Mr. Dingell. Thank you. Mr. Chairman, I thank you.
Mr. Barton. Thank the gentleman. I am going to ask one
question, and then we are going to let this panel go. I want
each of you to tell me who hires you and who could fire you. We
will start with you, Mr. Museler?
Mr. Museler. My independent board of directors hires me,
and they can fire me.
Mr. Barton. And who makes up the independent board of
directors?
Mr. Museler. There are nine members on the independent
board of directors. They have no financial affiliation with any
of the customers or market participants. They were originally
selected by a panel of the market participants, the customers,
for the ISO. Going forward they can self-perpetuate themselves.
Mr. Barton. But they are not utility employees.
Mr. Museler. They are not utility employees. Three of them
are retired utility executives, but they have no affiliation
with any companies in New York.
Mr. Barton. Mr. Torgerson?
Mr. Torgerson. I am hired and then can be fired by the
independent board. There are seven members of our board that
are totally independent of market participants. They are
elected by the members, and they stand for--they are on 3-year
terms.
Mr. Barton. And the members are?
Mr. Torgerson. The members are anyone who joins the Midwest
ISO either as a transmission owning or non-transmission owning
member. A member could be someone like Reliant, Synergy,
marketers----
Mr. Barton. But they would be utilities, either investor-
owned or----
Mr. Torgerson. Well, we have----
Mr. Barton. A merchant plant operator.
Mr. Torgerson. Morgan Stanley is a member, so there are
financial houses that may be trading in the market when we have
the market going, but those types of people are also members.
Mr. Barton. Mr. Goulding?
Mr. Goulding. Yes. I was hired by the board and can be
fired by the board. My board is 17 people, including myself.
Seven of those members are independent. The other nine
represent stakeholders, so they would represent the generators,
transmitters, large distributors----
Mr. Barton. Is there a government representative on your
board?
Mr. Goulding. There is no government representative on my
board, no.
Mr. Barton. Okay. Mr. van Welie?
Mr. van Welie. We have a board of nine independent
directors. They both hire me and can fire me, but none of the
directors have any affiliation with any market participant.
Mr. Barton. And how are the directors appointed?
Mr. van Welie. This particular board was appointed by a
committee of the New England State regulators and I believe the
market participants back in the 1996 timeframe. And going
forward we are contemplating some changes to our governance
arrangements, which we hope will give our board even further
independence.
Mr. Barton. Okay. And last but not least, Mr. Harris.
Mr. Harris. Yes. We have a 10-member board, 9 independent
members and then myself. I serve at the pleasure of the board
and was hired by the board. We are organized as a limited
liability company, so our board is elected by the membership,
and every year one-third of the board is up for reelection by
the membership.
Mr. Barton. And who is the membership?
Mr. Harris. Everyone that participates in our market. We
have now currently about 250 some odd members. Anyone that
participates has to be a member of the LLC to participate----
Mr. Barton. So a member could be a distribution company?
Mr. Harris. Yes. We have distribution companies, marketers,
traders, Wall Street firms, anyone that is doing business in
the electrical business must be a member and must be able to
participate and abide by the rules.
Mr. Barton. And is it one member, one vote or----
Mr. Harris. One member, one vote by sector. We have five
sectors and it is one member, one vote, and it takes two-thirds
of that total vote in order to pass or to elect the board.
Mr. Barton. But none of you have boards that I would say
would be dominated by utilities; is that fair?
Mr. Harris. Our board has to be totally independent from
the marketplace.
Mr. Barton. Okay. Oh, I am told that the gentleman from New
Hampshire has one question. Mr. Bass.
Mr. Bass. Very quickly, Mr. Chairman, I appreciate that.
There is a--there might be a nexus between vantage point, i.e.
the single dispatch station and size. I was wondering if either
Mr. van Welie or Mr. Harris could comment. I think you two have
single dispatch stations. As the FERC goes forward with
regulations involving standard market designs, should they be
considering the relationship between size of the system and the
vantage point through the dispatch station issue?
Mr. Harris. Well, we actually operate out of two different
centers. We have one in the western area and then one in Valley
Forge, and these operate in tandem in a mutually supportive way
in order to cover that. You get into communications technology
and some fairly sophisticated tools to enable that, but that is
how you manage across that footprint.
Mr. van Welie. I think it is something that is very
difficult to give you a formula on. It is a matter of judgment.
I think what one has to look at is what is the state-of-the-
art, and it is possible for certain regions to grow, but it has
to be done in a really systematic way with careful analysis and
with support with technology and tools. So I think my concern
really would stem from leaping too quickly to a very large
system without having underlying infrastructure. Remember, I
also said that the other issue here is complexity. As one grows
in size, one increases in complexity and sophistication. I am a
proponent of software automation. I have spent 20 years of my
life developing automation systems, and we know that one cannot
place all one's reliance in software systems. At some point
they fail, and one has to rely on human operators in order to
manage the system. And so I think that is a very real
constraint as we look at what is the determining point in terms
of size.
Mr. Barton. Okay. We want to thank this panel. We
appreciate your attendance. There may be some follow-up
questions in writing, and we would hope that you would comply
with the answers expeditiously.
Let us now have our third panel come forward. We have Mr.
David Owens, who is the executive vice president of the Edison
Electric Institute; Mr. Larry Makovich, who is the senior
director for Cambridge Energy Research Associates; Mr. T.J.
Glauthier, the president and CEO of the Electricity Innovation
Institute; Mr. Sonny Popowsky, Consumer Advocate of
Pennsylvania; and Mr. Steve Fleishman, who is first vice
president for Merrill Lynch. If you gentlemen would come
forward, please.
Welcome, gentlemen. If everybody would find their seat.
Your statement is in the record in its entirety, but you all
are seated differently than you are on the witness list, so we
are going to go in order of seating. So we are going to start--
are you Mr.--the gentleman right here, what is your name?
Mr. Makovich. Makovich.
Mr. Barton. Makovich, okay. So we are going to go Makovich,
Fleishman, Popowsky, Glauthier and Owens. All your statements
are in the record in their entirety. Each of you will be given
5 minutes to summarize. We will start with Mr. Makovich.
STATEMENTS OF LAWRENCE J. MAKOVICH, SENIOR DIRECTOR, AMERICAS
RESEARCH, CAMBRIDGE ENERGY RESEARCH ASSOCIATES; STEVEN I.
FLEISHMAN, FIRST VICE PRESIDENT, MERRILL LYNCH; SONNY POPOWSKY,
CONSUMER ADVOCATE OF PENNSYLVANIA; T.J. GLAUTHIER, PRESIDENT
AND CEO, THE ELECTRICITY INNOVATION INSTITUTE; AND DAVID K.
OWENS, EXECUTIVE VICE PRESIDENT, EDISON ELECTRIC INSTITUTE
Mr. Makovich. Okay. Thank you, Congressman Barton. After
listening to all the testimony today and what passed yesterday,
it seems clear that it reinforces the conclusion that we had
come to as to what is gone on here. It looks like we had a
combination of very normal component failures within the
complex transmission network that has been subject to
deterioration from a lack of investment and that there was an
inability to respond and contain this problem at several levels
of control. And so as you look at the root cause here, it seems
to be a breakdown in the planning, coordination and
communication necessary to control these interconnected power
systems.
Now, other people have testified to what went right about
capturing data and restoring power, but it looks like on August
14 when the power system was not particularly stressed it was
not configured properly to withstand this series of normal
problems that were allowed then to cascade. And so the sequence
of events of this blackout caused parts of this power system to
act on their own rather than in a coordinated fashion, and
everyone was not in a position to act on their own and keep
everything up.
So as far as the recommendations go, properly defining the
mission here is important. There has been a lot of talk and
policy focus on doing things to create a seamless national grid
serving a standardized market structure, and whether that is or
is not desirable, I think we have to come to grips with the
fact that what we are dealing with here is a transmission
network that needs the coordination and planning and data
transfer that everybody has been talking about today. But it is
a natural monopoly, it has seams, it involves places where
markets are well developed, like PJM and other places where we
still have traditional regulation in place, where we have got
ownership spread between public power, both at the State and
Federal level, as well as investor-owned assets, and all of
this has to be coordinated. And so these organizations need to
line up with the underlying networks, and they need to span
these big differences that we have today.
We also all agree, it seems, on the necessity for mandatory
reliability standards, and with regard to transmission
investment, I think the point here is our analysis shows there
are many, many opportunities to make investment in the
transmission network with big benefits compared to the costs.
So there are big payoffs here. So if you provide for more
accelerated appreciation, greater rate of return, that
difference just increases, but it is still not getting done.
And the problem here really goes to that who pays problem, that
because we have got prices frozen, we can approve rates for
transmission. That is the good news. The bad news is we can't
pass them on to the people that need to pay them.
So the recommendation here is to unfreeze the prices that
need to be unfrozen and have a default position. You make an
investment, it is going to get spread across the entire
network, and then if proceedings need to happen to try to
rearrange the allocation, fine, but don't hold it up as you try
to resolve this very thorny question of who is going to pay.
Thank you.
[The prepared statement of Lawrence J. Makovich follows:]
Prepared Statement of Lawrence J. Makovich, CERA Senior Director,
Americas Gas and Power Research
A definitive analysis of the contributing events and causes of the
August 14, 2003, blackout will take months to complete. At this time,
Cambridge Energy Research Associates' (CERA's) analysis indicates that
a combination of normal component failures, transmission system
deterioration, and an inability to respond and contain the problem at
several levels of control caused the cascading blackout.
At this time, it appears that the greatest power failure in US
history began with normal component failures. For example, one failure
on August 14 was an unplanned outage of a unit at the East Lake power
plant that caused power flows to instantaneously reroute in the
transmission network. Such unplanned power plant outages occur
thousands of times each year and so too does the instantaneous
rerouting of power flows. Such normal component failures and dynamic
power flows are part of normal power system operations.
Transmission system operators plan for normal component failures.
To do this, they configure the electrical system--the real-time
balancing of sources of power and uses of power and the limits on
transmission line loadings in the system to withstand the effects of
normal component failures. At a minimum, proper transmission network
planning keeps the power system configured in such a way that it can
withstand the effect of the most critical component in the system
failing (first contingency planning). Automatic controls on generating
plants and transmission lines allow the power system to isolate
problems, protect equipment, and reconfigure itself to a stable
condition within seconds following a normal component failure.
As power system conditions change (supply, demand, weather, etc.),
power flows reroute at close to the speed of light. Thus, when a
generating unit and a transmission line trip and power reroutes,
several transmission lines carry more power and, as expected, begin to
sag. On August 14, one of these lines carrying more power near
Cleveland sagged close enough to a tree to short circuit. Proper
maintenance (tree trimming) should prevent such contact but, again,
transmission line failures of various types are something power system
operators also plan for. Nevertheless, when power rerouted along the
remaining lines, additional overloading occurred and automatic
protections for generating plants and transmission lines disconnected
additional power plants and lines in the network. At some point, the
multiple failures pushed the system past its limits to isolate and
restabilize. Consequently, the problem expanded over a larger area of
the power network as significant rerouting of power flows continued.
When a power system is not configured to contain a normal component
failure, the destabilization of a larger part of the power system
quickly follows. Power surges spread through some parts of the
network--Pennsylvania, New Jersey and Maryland, and AEP--that reacted
(both automatically and with discretion) to isolate themselves in order
to maintain stable system operations. However, such actions add to the
rerouting dynamics of the remaining power network and begin to
overwhelm the remaining parts such as eastern Michigan, Ontario, and
finally New York.
The root cause of the cascading blackout appears to be a breakdown
in the planning, coordination, and communication necessary to control
the interconnected power systems. The sequence of events in the
blackout caused parts of the power system to act on their own rather
than in a coordinated fashion. Such coordination has not gotten the
proper investments of time, money, and systems in the past several
years and this system deterioration--the cumulative effects of years of
underinvestment in the varied needs of transmission networks--is a root
cause of the blackout.
past efforts to prevent and minimize blackouts
The blackouts of 1965 and 1977 in the Northeast and in 1996 in the
West spurred efforts to prevent and minimize blackouts in the future.
The lesson from 1965 was that greater integration of regional power
systems created desirable day-to-day benefits from electric trade but
required an associated higher level of planning, coordination,
communication, and control to prevent cascading power outages. As a
result, the formation of the North American Electric Reliability
Council (NERC) and its regional reliability councils followed the 1965
blackout.
The lesson from the two blackouts of 1996 in the West was that a
breakdown in planning, coordination, communication, and control can
allow normal events--again, in one case, a power line sagging into a
tree--to cascade into a large regional system failure. In this case,
the cascading failure began with federally owned transmission assets
that were highly integrated with other publicly and privately owned
transmission infrastructure. Following the 1996 blackouts, the western
power system decreased the amount of power flowing on transmission
lines (forgoing savings from increased power trade) in order to
maintain the level of redundancy necessary to prevent a repeat of
cascading failures following normal component failures. A year or more
passed before the planning and coordination got to the point that these
power transfer limits could return to pre-blackout levels.
The blackouts of 1977 in New York and several years ago in Chicago
highlighted the problem of underinvestment in power delivery systems.
In Chicago the problem was underinvestment in distribution (the small
wires near homes) rather than in transmission (the large wires that
carry power long distances). Even the best planning and coordination to
properly manage a power system cannot offset the problems created by
continued underinvestment. Eventually the probability of multiple
component failures and the increasing constraints on systems operators
charged with configuring a reliable power system leads to a major
blackout. This underinvestment affects more than just transmission
lines and substations and includes computer systems, backup systems,
software, instrumentation, data, rules, and organizations.
what worked on august 14?
The conditions across the eastern power interconnection on August
14 were not highly stressful. The East was not in the throes of a
prolonged heat wave or suffering from an abnormally high level of
supply outages. Interregional power flows were providing benefits, as
areas with higher-cost generation were able to draw upon areas of
lower-cost generation. As the blackout cascaded through the Midwest,
Ontario, and New York the automatic protective devices for power lines
and power plants worked to prevent damage. Restoration of electric
service reflected a well-thought-out and rehearsed sequence of
procedures. The control centers of the electric systems appear to have
captured the real-time data necessary to reconstruct the details of the
cascading failure. The blackout exposed weakness in the US power grid
but did not provide evidence that the US has a third world transmission
infrastructure. Normal component failures should be expected even in a
state-of-the-art transmission network. Quite to the contrary--the high
degree of interconnection of the US grid exposed the need for better
planning, coordination, communication, and control.
needed improvements
Defining the Transmission Mission
Electric transmission is critical infrastructure in the US economy.
The transmission network is a natural monopoly that is in the middle of
an industry that is stuck halfway between regulation and the
marketplace. Transmission remains in the center of integrated regulated
power companies and public power entities as well as at center stage in
emerging power markets, where it governs the interactions between
consumers and producers. A properly structured transmission sector
requires that the institutions and rules meet the needs of both of
these existing industry structures. Transmission policy must adjust to
the reality that regional power systems in the United States will
operate for quite some time with very different structures--some
relying greatly on market mechanisms and others relying on
comprehensive regulation. Transmission institutions and rules must
accommodate the different power industry structures that are
interconnected and need to interface properly.
Transmission Organizations
Transmission organizations need to reflect the underlying reality
of the transmission infrastructure. We do not have a seamless, national
transmission grid and are not even close to having one. Instead, the US
power system consists of a dozen regional transmission networks within
three largely independent transmission interconnections, with varying
levels of power transfer capability between regional networks and with
networks in Canada. These networks cover multistate areas and need
organizations that align with the physical extent of the grids to
implement the necessary planning, coordination, communication, and
control.1Thus, the Federal Energy Regulatory Commission (FERC) should
not allow movement to the market in regions that do not have proper
alignment between the transmission organization and the network.
Currently, the US Midwest network has two transmission organizations in
formation and transition, rather than one, and suffers a misalignment
between the organizations and the underlying extent of the regional
network. On the other hand, if the FERC gains authority to order
regional transmission organization participation in regions moving to
the market, then it should also order proper alignment between
transmission organizations and networks.
Since these regional networks do have significant interconnections,
the need also exists for an umbrella organization to coordinate
operations and interdependencies within the interconnections. We want
sufficient overall control to avoid situations in which one regional
network protects itself by causing collapses in neighboring networks.
The current NERC comes close to the envisioned umbrella organization
but suffers from being a voluntary organization with limited
enforcement authority.
Mandatory Reliability Standards and Procedures
Mandatory electric reliability standards and procedures would help
address the breakdown in planning, coordination, and communication that
are at the foundation of power system control. A system of rules and
procedures is needed that provides real-time information flows such
that all system operators have a clear view of not just their local
power system but also the larger whole. Such standards and procedures
need to be enforced by an agency with authority over both publicly and
privately owned transmission assets in competitive as well as regulated
industry structures. International agreements are also necessary to
coordinate with Canadian power systems and, to a much smaller extent,
Mexican power systems.
An umbrella organization must ensure that contingency planning
evaluates the power system as a whole--and is not just an uncoordinated
set of regional contingency plans with a blind spot regarding their
interdependencies.
Resolving the Gridlock in Transmission Investment
More investment is needed in the US transmission network. Many
opportunities exist where the benefits of additional transmission
infrastructure investments far exceed the costs, and this result is
robust under a wide range of future conditions. The problem, as CERA
identified in its 1999 report entitled Gridlock--Transmission
Investment and Electric Restructuring, is that ``[c]urrently there is
no entity in the emerging industry structure--neither generators,
transmission owners, independent system operators, distribution
companies, traders, retail marketers, nor end users--facing the proper
incentives to invest.'' Our conclusion four years ago was that
``[s]ustained underinvestment in transmission may eventually threaten
the reliability of the bulk power system.''
Underinvestment in transmission and the gridlock in transmission
policy are longstanding problems. When I last testified before the
Senate in July 2002, CERA warned that a continued lack of investment
would lead to reliability problems: ``A gridlock plagues most
transmission investment decisions because incentives are misaligned.''
These investments ``were not being undertaken because no one faced the
full costs and benefits of AC network investments and was in a position
to pursue these opportunities profitably.'' Over a year ago, the
Department of Energy's National Transmission Grid Study provided a
similar warning. And in CERA's Special Report Energy Restructuring at a
Crossroads: Creating Workable Competitive Power Markets, 5 out of 12
recommendations on making power markets work involved transmission
issues. CERA's currently ongoing study Grounded in Reality: Bottlenecks
and Investment Needs in the North American Transmission System is
finding that significant transmission congestion exists both within and
between regions.
The solution goes beyond higher allowed regulated rates of return,
tax incentives, or accelerated depreciation. The payoffs already exist.
The problem is settling who pays. The current principle is that whoever
benefits ought to pay. However, implementation of this principle is
very difficult. Benefits are robust under a wide variety of conditions
but as conditions change, the incidence of those benefits can shift
dramatically. Transmission investment is stymied by the complex
arguments of who will benefit and thus who should pay. As a result,
adequate investment is not yet being made. Transmission investment
planning at the network level that guarantees cost recovery and
prevents investment indecision due to gridlock on cost allocation and
recovery mechanisms is sorely needed. One possibility is a policy that
allows economic transmission investment identified by analyses at the
network level to go forward with a default decision to spread the costs
across the entire network. Reallocations and true-ups can follow later
if necessary and substantiated.
Mr. Shimkus [presiding]. Thank you. A record for
testifying. Now I would like to recognize Mr. Fleishman.
STATEMENT OF STEVEN I. FLEISHMAN
Mr. Fleishman. Mr. Chairman and committee members, thank
you for the invitation to provide my views on--Mr. Chairman and
committee members, thank you for the invitation to provide my
views on issues surrounding the August 14 blackout. My name is
Steve Fleishman and I am an equity analyst covering the utility
industry for Merrill Lynch. My primary job is to observe and
study developments in the utility sector and specific companies
and then make investment recommendations to clients. As such, I
do not come here with any vested interest on the contentious
debate over future industry structure; instead I speak more as
an active observer of the industry and one importantly who
interacts daily with the retail and institutional investors who
ultimately will be asked to invest the capital that is
necessary to build a more reliable transmission network.
As of today, the exact chain of events that precipitated
the blackout is not determined nor the exact cause is known.
Whatever the ultimate cause, the blackout has served to
highlight many of the structural issues that the industry now
faces. While many call it a transitional problem, it might be
better called a long period of limbo. Some of the examples of
this limbo include the fact that approximately half the States
have deregulated their electric business, the other half have
not. In many regions, transmission is still owned by the
utilities but controlled by ISOs or RTOs. While this split of
ownership and control is difficult to work, it does require
rules that are very clear to make work.
Finally, as Larry mentioned, when a generator adds a power
plant, it is not clear in some regions who is responsible for
bearing the cost of the associated transmission additions. The
lack of clarity on these issues and others are some of the
examples of significant barriers to companies and investors as
they look to invest capital in the sector.
The blackout is also a wakeup call that there has been
underinvestment in the transmission grid. Underinvestment in
the grid is not a new story. According to the studies in the
past, we have seen significant reductions in the amount of
transmission investment relative to peak demand to the degree
of 17 percent during the decade of the 1990's and projected
another 12 percent in the coming decade. This structural
uncertainty in the transmission business we think is clearly
part of the reason of the underinvestment and then siting of
transmission probably even a greater impediment. FERC has
recognized these barriers to investment has recently been
supporting higher returns on equity for transmission investment
and has also supported incentives for potentially even greater
returns based on if that investment is made by independent
entities.
I commend FERC on these steps but also would consider other
forms of incentive regulations, such as sharing of cost savings
between shareholders and consumers, incentives tied to
transmission reliability and then finally, maybe most
importantly, incentives tied to reducing congestion costs in
the power markets. We do continue to see significant
inefficiency in these markets due to bottlenecks, and the
resulting congestion costs we think are in the many billions of
dollars, and that an incentive regulatory approach that would
allow for a sharing of congestion cost savings between
transmission builders and customers could be a win-win
solution.
Some may question whether incentive regulation is
necessary. My belief is that the recent investment climate for
utility investors makes this even more important. For example,
roughly half of the 37 utilities we track had to reduce or omit
their common dividends over the past 5 years. Balance sheets in
the industry have been stretched to, on average, about 60
percent debt to total capitalization. In 2002, Standard &
Poor's lowered utility credit ratings 10 times as many upgrades
that they did, and so far this year that number is 11. Given
these financial pressures, utilities are very focused on
reducing debt and living within their means.
As a result of this, we estimate capital spending for the
utilities we track will drop from $50 billion in 2002 down to
$35 billion in 2004, 34 percent reduction. This reduction is
crucial to many companies maintaining their current credit
ratings, and in order to avoid further credit pressure,
companies would need to make a clear case to the rating
agencies and Wall Street of the attraction of new transmission
investments.
The good news here is that public policymakers have taken
actions and can take further actions to entice new capital to
help resolve the infrastructure issues of the industry. One of
the actions already taken has been the reduction in taxes on
corporate dividends. We believe this will be an important
attraction for regulated utility investments and will also
increase equity and less debt in funding these investments. We
have talked also about incentive regulation, tax incentives for
transmission investment, and we think also repeal of the Public
Utility Holding Company Act would provide more certainty to
investors and also make it easier for non-traditional investors
such as financial or private equity investors to invest in the
industry and specifically in transmission.
Finally, we highlight that actions on siting will be really
critical in the near term as most of these incentives for new
investment in transmission will play out over a long period of
time. For there to be some near-term strides, siting is really
the critical issue, and we do support a process of determining
national interest transmission lines led by the Department of
Energy and regional State and utilities. And once these are
identified, the DOE would work with the States to streamline
the siting process, including looking at building these lines
on Federal lands.
Finally, I would like to thank the committee for the
opportunity to share my thoughts on potential actions to help
resolve issues raised by these blackouts. I would highlight
that certainty is critical for investors to commit to
investments, and I believe we do have an opportunity here in
the near term to provide much more certainty to investors.
Thank you.
[The prepared statement of Steven I. Fleishman follows:]
Prepared Statement of Steven I. Fleishman, First Vice President,
Merrill Lynch & Co., Inc.
Thank you, Mr. Chairman, for the invitation to provide my views
before your Committee on issues surrounding the blackout in the
Northeast, Midwest, and Canada on August 14. My name is Steve Fleishman
and I am an equity analyst covering the utility industry for Merrill
Lynch. My primary job is to observe and study developments in the
utility sector and of specific utility companies. I then make
investment recommendations to clients on stocks of utility sector
companies.
As such, my comments to the Committee do not come as an advocate of
a specific side of the table on the debate over future industry
structure. Instead, I speak as an active observer of the industry and,
more importantly, one who interacts daily with the institutional and
retail investors who will ultimately be asked to provide the new
capital necessary to build a more reliable transmission network.
I have called the blackout on August 14 a ``black eye'' for the
electric utility industry. This is an industry that prides itself on
safe and reliable electric service to customers. The blackout was
obviously a serious breach of this commitment.
Despite this breakdown, there are many aspects of the system that
did work. Utility workers performed admirably in returning electric
service to all customers within days after the blackout. Moreover, the
affected generation units and transmission lines are currently up and
running with little to no permanent damage caused by the blackout.
electric industry in structural ``limbo''
As of now, the exact chain of events that precipitated the blackout
is not determined, nor are the exact causes known. Whatever the
ultimate cause, the blackout has served to highlight many of the
structural problems that the industry now faces. While many call it a
``transitional'' problem, it might better be called a long period of
``limbo''. Following are just a few of many examples of the lack of
clarity that companies and investors face as they look to invest
capital into this sector:
1) Approximately half of the states have deregulated their electric
businesses and the other half have not.
2) In many regions, transmission is still owned by the utilities but
controlled by independent system operators (ISOs) or other
forms of regional transmission operators (RTOs). This split of
ownership and control is difficult to make work and can be an
impediment to new investment, unless there are very clear rules
in place.
3) When a generator adds a power plant, it is not clear in some regions
who is responsible for bearing the cost of the associated
transmission additions, the generator, or the local utility
(the participant funding issue).
As President Bush aptly stated, the blackout is ``a wake-up call''
to the American people, the utility industry, and public policy makers
that these and other structural issues need to be resolved.
need for transmission investment
The blackout is also ``a wake-up call'' that there has been
underinvestment in the transmission network during this period of
structural uncertainty and that this trend must change quickly. It is
not certain that a lack of transmission investment will prove to be the
direct cause of the blackout. However, I suspect that more transmission
capacity and better information technology on the grid could have
helped to at least limit the scope of the blackout.
Underinvestment in the transmission grid is not a new story. This
has been an issue discussed within the industry for some time.
According to a 2001 Edison Electric Institute (EEI) study, transmission
investment grew by only 0.5% annually during the 1990s well below the
2.5%+ annual growth in peak demand. Transmission capacity relative to
peak demand dropped by 17% during the decade and is projected to fall
by another 12% based on projections for the next decade. In order to
simply maintain transmission capacity relative to peak demand at 2000
levels, $56B of investment would be needed in the current decade, well
above current expected expenditures of $35B.
I believe the greatest impediment to transmission investment has
been siting. While a power plant can often be located in a barren area
or in an industrial zone, transmission lines in high-usage regions
often need to be sited close to the population raising NIMBY concerns.
A second issue has been the structural uncertainty of transmission.
Will a utility control the transmission it builds? Will it need to be
spun-off in a few years to a new company? With these questions
overhanging the business, it has been difficult to commit significant
funds, in my view.
incentive regulation
The FERC has recognized these barriers to investment in
transmission and has recently been supporting higher returns for
transmission investment (A Midwest utility was recently allowed a
12.88% return on equity). FERC has also supported incentives for even
higher returns if the investor is independent from the regional
generation or distribution companies. I commend FERC on these positive
steps, though I believe that other forms of incentive regulation should
also be considered. For example, sharing of cost efficiencies above a
baseline return on equity would incentivize actions by transmission
owners to increase efficiency. Incentives based on transmission
reliability and safety would provide a balance to cost cutting.
Finally, I would also encourage incentives tied to reducing
congestion costs in the power markets. There remains significant
inefficiency in the power markets as a result of transmission
bottlenecks that limit customers' ability to access the lowest-cost
supply. The resulting congestion costs are estimated in the billions of
dollars. I believe that an incentive regulatory approach that would
allow for a sharing of congestion cost savings between transmission
builders and customers could be a win/win solution. This would also
stimulate investment in transmission projects that would have the
greatest economic benefit to customers. Moreover, since congested areas
are also ones that are typically subject to more reliability risks, it
would likely enhance system reliability.
challenges facing utility investment
Some may question whether incentive regulation is necessary to
encourage transmission investment. My belief is that the recent
investment climate for utility investors makes this even more
important. The last few years have been very difficult for many utility
stockholders and bondholders.
During the past five years, roughly half of the thirty-seven
utilities we track had to reduce or omit their common
dividends.
Balance sheets have been stretched to an average of nearly 60% debt
to total capitalization.
The result has been a dampening in credit ratings for the sector. In
2002, Standard & Poors lowered ratings ten times for every
upgrade. This trend has continued in 2003 with eleven
downgrades for every upgrade. Given these financial pressures,
utilities are very focused on reducing debt and living within
their means.
We estimate capital spending for the utilities we track will drop to
approximately $35B in 2004, down from $50B in 2002, a 34%
decline. This reduction in spending is crucial to many
companies maintaining their current credit ratings. In order to
avoid further credit pressure, companies would need to make a
clear case to the rating agencies and Wall Street of the
attraction of new transmission investments.
public policy actions are on the table
The good news is that public policy makers have taken actions and
can take further actions to entice new capital to help resolve the
infrastructure issues the industry faces. These include:
1. The reduction in taxes on corporate dividends. I believe this will
be an important attraction for regulated utility investments
and will also encourage more use of equity and less debt.
2. Incentive regulation to encourage new transmission investment. This
has already been adopted to some degree by FERC and is also
supported in the House Energy Bill (H.R. 6).
3. Tax incentives for transmission investment. Proposals in the House
Energy Bill to accelerate depreciation of transmission assets
for tax purposes (to 15 years from 20 years) would provide
another incentive for transmission investment. Further,
proposals to eliminate the tax liability for those selling or
contributing transmission assets to independent buyers would
help to accelerate the move to stand-alone transmission
companies.
4. National Interest Transmission Lines. Even with the right
incentives, near-term development of new transmission lines is
constrained by siting difficulties. To address threats to
reliability in the near-term, I support the process of
determining National Interest Transmission Lines that would be
identified through a joint process by the Department of Energy
and regional states and utilities. Once identified, the DOE
would work with the states and other federal agencies to
streamline the siting process including determining whether
part of such projects could be built on federal lands.
Investment in these lines could be accelerated by support from
DOE or appropriate incentive regulation by FERC. This process
should only be followed for critical reliability projects. For
the long term, the gas pipeline model for siting and regulatory
approvals would be an appropriate one for electric transmission
investment. This proposal would be similar to the siting
provisions already contained in the House Energy Bill.
5. Mandatory reliability standards for transmission. This is already
proposed in the House and Senate Energy Bills and would help to
ensure that no parties fall behind on their transmission
spending and operations.
6. Repeal of the Public Utility Holding Company Act. I believe that
PUHCA repeal would provide more certainty to investors and
reduce some barriers to investment by utilities. More
significantly, it could make it easier for non-traditional
utility investors, such as financial investors or private
equity, to acquire and invest in utility assets such as
transmission. Financial buyers have targeted billions of
capital to the utility sector and will be an important source
of capital in the future.
summary
I would like to thank the Committee for the opportunity to share my
thoughts on potential actions to help resolve issues raised by the
recent blackout. While the blackout was a ``wake-up call'', the good
news is that many of the constructive public policy initiatives that
would enhance electricity reliability and promote new investment are
already on the table in the proposed Energy Bill. Certainty is a
critical driver for investment and I believe that it is an important
time to increase certainty in the electricity business to encourage
investment.
Mr. Shimkus. Thank you, and we appreciate it. I think this
is the first time testifying before the committee and you are
with a panel that has all been before us before, so you did
well. Thank you. And now I would like to yield to Mr. Popowsky
for his testimony.
STATEMENT OF SONNY POPOWSKY
Mr. Popowsky. Thank you, Mr. Chairman and members of the
committee. My name is Sonny Popowski. I am the State consumer
advocate for the Commonwealth of Pennsylvania. Consumers
require, and I believe they are willing to pay for, a robust,
reliable electric transmission system. Ask any consumer who has
had to dispose of a refrigerator full of spoiled food after a
long outage, and they will tell you that they understand the
costs of failures in our electric network.
But simply charging ratepayers more money for higher
profits on transmission lines I don't think is necessarily the
solution to the problems that caused the blackout of August 14.
If it turns out that the events that gave rise to the August 14
blackout were operating or communications failures, then simply
building more power lines or increasing profit levels is not
necessarily the correct solution.
Fortunately, one immediately constructive response is
already contained in legislation that has been endorsed by this
committee, and that is the establishment of mandatory
reliability rules for the interstate power grid. I believe that
voluntary reliability rules will no longer work in today's more
competitive wholesale bulk power market. We don't have
voluntary speed limits on our interstate highways, and we can
no longer rely on voluntary reliability standards for operation
of our interstate electric grid. Another area where the need
for improvement seems clear is in the area of communications
systems and coordination between system operators within
regions and between regions.
As a representative of Pennsylvania consumers, I feel
fortunate that most of our electric utilities have long been
members of the original PJM interconnection. The utilities of
the original PJM have operated on an integrated basis for
decades, and for the reliability purposes, the entire original
PJM system is operated out of the PJM control center as a
single control area. PJM has now evolved to the point where the
system operators are independent of the utilities whose
transmission facilities comprise the physical backbone of the
PJM interconnection. What that means is that PJM can plan and
operate the system in a manner that serves the reliability of
the grid as a whole and not the potentially conflicting
financial interests of particular owners or users of the grid.
As shown by the experience of August 14, however, the mere
presence of an independent system operator cannot prevent a
failure from one part of the Eastern Interconnection from
cascading into another area of that interconnection. This
clearly points to the need for better communication systems and
coordination among regional grid operators. I do not agree,
however, that the events of August 14 demonstrate that America
is served by an antiquated or Third World transmission grid.
Again, referring to PJM, our utilities committed to more than
$700 million in transmission improvements in 2001 and 2002,
pursuant to the PJM regional transmission expansion plan, which
is a regional planning process that identifies potential
reliability problems and develops cost effective regional
solutions to address those concerns.
I am not suggesting that we do not need significant
continuing transmission improvements at PJM or around the
Nation. Clearly, we do. I also agree that transmission owners
ought to recover the costs of needed facilities, including a
fair rate of return. I think it is a mistake, though, to assume
that the current levels of return authorized by the FERC or,
for that matter, by our State commissions, are inadequate in
some way. Transmission investments certainly are less risky
than many of our utilities' ill-fated investments in
competitive generation, trading and foreign subsidiaries.
To the extent the August 14 outage was the result of
operational failures or non-compliance with NERC standards or
to the extent that NERC standards failed to provide adequate
guidance for this particular series of events, the answer is
not necessarily increased incentives. Consumers should expect
to pay the cost of a reliable transmission network, but
consumers should also expect that the network will be operated
in the public interest and within the rules that have been put
in place to ensure that the system is safe and reliable.
There is no such thing as a perfectly reliable electric
system, and even if there were, it would be infinitely
expensive. But the North American electric is designed and is
supposed to be operated so that a failure in one part of the
system does not grow into an uncontrolled cascading outage like
the one experienced on August 14.
To conclude, I believe that the investigators from NERC,
DOE and the affected system operators will get to the bottom of
what happened from a physical and technological standpoint on
August 14. America's consumers will then look to you and other
State and Federal policymakers to use the results of that
investigation to take steps to ensure that this type of event
does not happen again and that all Americans continue to
receive reliable and reasonably priced electricity service.
Thank you for letting me testify. I would be happy to answer
any questions at the end of the panel.
[The prepared statement of Sonny Popowsky follows:]
Prepared Statement of Sonny Popowsky, Consumer Advocate of Pennsylvania
Chairman Tauzin, Chairman Dingell and Members of the House Energy
and Commerce Committee: Thank you for inviting me to testify on this
matter of extraordinary importance to electricity consumers across the
Nation. My name is Sonny Popowsky. I am the Consumer Advocate of
Pennsylvania. I am a state official and I have spent the last 24 years
representing the consumers of Pennsylvania on matters involving their
utility service.
I have served as the President of the National Association of State
Utility Consumer Advocates (NASUCA) and I currently serve on the
Executive Committee of that organization, whose members are state-
designated consumer representatives in 40 states and the District of
Columbia. In 1997, I was elected to serve as the first representative
of residential electricity consumers on the Board of the North American
Electric Reliability Council (NERC). I served on the NERC Board until
2001, when the governance of NERC was transferred to an independent
non-stakeholder board. Since that time, I have continued to serve as a
consumer representative on the NERC Stakeholders Committee.
As an advocate for electricity consumers and as a participant at
NERC, I received two shocks as a result of the events of August 14,
2003.
The first shock was that this massive cascading outage could have
happened in the first place. This is precisely the type of event that
NERC standards were designed to prevent. Indeed, this is the very type
of event that NERC itself was established to prevent. In other words,
unless someone was operating outside of NERC reliability standards, or
unless there is a serious gap in NERC standards that we didn't know
about, this catastrophic event simply should not have occurred.
My second shock was when I read on Monday August 18 that Secretary
of Energy Abraham had stated on a Sunday morning news show that
consumers will have to pay up to $50 billion in higher electric bills
to modernize the Nation's transmission system. As stated by Secretary
Abraham: ``Ratepayers, obviously, will pay the bill because they're the
ones who benefit.'' I agree that consumers will ultimately pay the
costs of any necessary improvements to the transmission network. I also
agree that consumers are, or at least ought to be, the primary
beneficiaries of a reliable transmission system. Ask any consumer who
has had to dispose of a refrigerator or freezer full of spoiled food
after a long outage, and they will tell you that they are more than
happy to pay their fair share of the costs of a reliable electric
system.
I don't think, though, that it should simply be assumed that
spending $50 billion of ratepayer money on new transmission facilities
(or higher equity returns on new and existing facilities) will solve
the problems that caused the blackout. If the events that gave rise to
the August 14 catastrophe were operating failures and communications
failures, then building more power lines or increasing utility profit
levels is not the solution.
Fortunately, one possible immediately constructive response is
already before the members of this Committee and Congress, and that is
the establishment of mandatory reliability rules that has been proposed
in legislation that is supported by NERC and by a wide range of
organizations including NASUCA and the Edison Electric Institute (EEI).
I would venture to say that this may be the only provision of the
Electricity Title in either the House or Senate Energy Bills upon which
NASUCA and EEI agree. I think that is because nearly everyone in the
industry recognizes that voluntary reliability rules that were enforced
in the past by peer pressure and mutual self-interest will simply not
work in today's more competitive wholesale bulk power market. The
people who operate the transmission grid must understand the rules as
well as the consequences for violating the rules. We don't have
voluntary speed limits and traffic rules on our interstate highways,
and we can no longer rely on voluntary reliability standards for
operation of our interstate electric grid.
Another area where the need for improvement seems clear is in the
area of communications and coordination between system operators within
regions and between regions. As a representative of Pennsylvania
consumers, I feel fortunate that most of our electric utilities are
members of the PJM Interconnection and indeed became members of PJM
many years before the acronyms ISO and RTO were ever invented. The
utilities of the original PJM have operated on an integrated basis for
decades and, for reliability purposes, the entire original PJM system
was operated as a single control area. What that means is that if
something goes wrong anywhere on the PJM system, the information
appears immediately in the PJM control center, where the problem can be
evaluated and corrective actions taken in order to protect the overall
reliability of the system. PJM is in a position to operate every part
of the system in a way that maximizes the reliability and economic
benefits of the entire system. Significantly, in recent years, PJM has
evolved to the point where the system operators and management of the
organization are truly independent of the individual utilities whose
transmission facilities comprise the physical backbone of the PJM
Interconnection. What that means is that PJM's employees can design and
operate the system in a manner that serves the grid as a whole, and not
the potentially conflicting financial interests of a particular owner
or user of the grid. Whatever one thinks about the market design of PJM
and the use of PJM as a model for a standard market design across the
Nation, I think a great deal can be learned from the way the original
PJM has operated (along with the Mid Atlantic Area Reliability Council,
whose boundaries also coincide with the traditional PJM control area)
as a framework for reliable regional operation, particularly in the
highly interconnected Eastern grid.
As shown by the experience of August 14 in the New York ISO,
however, and even in parts of PJM in Northern New Jersey and
Northwestern Pennsylvania, the mere presence of an independent system
operator cannot prevent a failure from one part of the Eastern
Interconnection from cascading into another area of that
Interconnection. This clearly points to the need for better
communications and coordination between and among regional operators.
This communication must occur in the hours leading up to a potentially
catastrophic failure, not just in the few seconds it takes for such a
failure to spread across a wide swath of the Nation.
I do not agree, however, that the events of August 14 demonstrate
that America is served by an antiquated or ``third world'' transmission
grid. NERC has stated on countless occasions that the North American
bulk electric system is ``the most reliable system in the world.''
Again referring to PJM, our utilities committed to more than $700
million in transmission improvements in 2001 and 2002 pursuant to the
PJM Regional Transmission Expansion Plan, which is a regional planning
process that identifies potential reliability problems in the PJM
region and develops cost-effective solutions to address those concerns.
The PJM transmission planning process is now being expanded to include
projects that are necessary to resolve economic transmission
bottlenecks as well as reliability concerns.
I am not trying to say that we do not need significant continuing
transmission improvements, either in PJM or around the Nation. We do.
There are many areas that require additional investments to ensure that
we have a robust, reliable transmission network. I also agree that
transmission owners ought to recover the costs of needed facilities,
including a fair rate of return on their investment that is
commensurate with the risk of those investments. I think it is a
mistake, though, to assume that the current level of returns authorized
by the Federal Energy Regulatory Commission--such as the 12.88% return
authorized by FERC to transmission owners in the Midwest ISO--is
somehow inadequate to attract sufficient capital. Though not risk-free,
transmission facilities are a relatively safe investment, certainly
much less risky than many of our utilities' ill-fated investments in
competitive generation, trading, and foreign subsidiaries. It is those
unregulated investments, not investments in regulated transmission and
distribution facilities, that have led some of those companies up to
and over the brink of bankruptcy. As members of the Transmission Access
Policy Study (TAPS) group have pointed out, ``there is no lack of
capital available to fund transmission construction that will provide a
solid year-in and year-out 12% return on equity with very small risk.
Ask anyone with an IRA.''
I also believe it is important to find out what went wrong on
August 14 before we can determine where to make the investments that
will ultimately be supported by ratepayers. To the extent the
widespread outage was a result of operational failures or non-
compliance with NERC standards, or to the extent the NERC standards
failed to provide appropriate guidance for this particular series of
events, I would say again that the answer is not necessarily massive
construction of new power lines. Consumers should expect to pay the
costs of a reliable transmission network, and the cost of that network
may be substantial. But consumers should also expect that the network
will be operated in the public interest and within the rules that have
been put in place to ensure that the system is safe and reliable.
It has been widely reported that the potential for significant
transmission problems in parts of the Midwest was identified in a
Report by NERC that was issued in May 2003. What that Report actually
stated was that ``As long as transmission limitations are identified
and available operating procedures are implemented when required, no
cascading events are anticipated.'' The corollary to that comment,
however, is that if transmission limitations were not identified, or if
available operating procedures were not implemented when required, then
the events of August 14 could indeed occur.
Accidents will happen. Tree limbs will fall on power lines. Ice
storms will wreak havoc in certain locations. There is no such thing as
a perfectly reliable electric system and, even if there were, it would
be infinitely expensive. But the North American electric system is
designed and is supposed to be operated so that a failure in one part
of the system does not grow into an uncontrolled cascading outage like
the one experienced on August 14.
I believe that the investigators from NERC, DOE and the affected
system operators will get to the bottom of what happened from a
physical and technological standpoint on August 14. America's consumers
will then look to the members of this Committee and other state and
federal policy-makers to use the results of that investigation to take
steps to ensure that this type of event does not happen again, and that
all Americans continue to receive reliable, and reasonably-priced
electricity service.
Thank you again for permitting me to testify at this hearing. I
would be happy to answer any questions you may have at this time.
Mr. Shimkus. Thank you very much. Now we would like to
recognize Mr. Glauthier for 5 minutes. Welcome.
STATEMENT OF T.J. GLAUTHIER
Mr. Glauthier. Thank you, Mr. Chairman, Mr. Dingell and
members of the committee. We believe that technology can be an
important part of the solution to these problems and that the
focus of that technology will be the self-healing smart grid
based on 21st century electronics. I will summarize my
testimony. I am T.J. Glauthier, president and CEO of the
Electricity Innovation Institute, an affiliate of EPRI, the
Electric Power Research Institute, and I am here today
representing both organizations.
EPRI is a non-profit research institute sponsoring R&D in
the public interest in electricity-related technologies. EPRI
has more than 1,000 members in the utility industry which
produce and deliver more than 90 percent of our Nation's
electricity. The Electricity Innovation Institute was formed 2
years ago by the EPRI Board of Directors as a separate but
affiliated organization. It is also a non-profit research
institute, and its focus is to sponsor longer term strategic
R&D programs through public-private partnerships. Its board of
directors is primarily composed of independent and bipartisan
public representatives.
With respect to the official outage investigation, EPRI is
actively supporting the binational U.S.-Canada Joint Task Force
working with DOE and NERC. EPRI has staff in the region now and
is lending its experience and expertise to the overall effort
to learn exactly what did happen on August 14 and what the root
causes were for that event.
On a broader front, last week, EPRI released a report on
the current challenges facing the electricity sector in the
U.S. That report, the ``The Electricity Sector Framework for
the Future,'' was completed prior to the August 14 outage and
had been developed over the past year under the leadership of
the EPRI Board of Directors. EPRI engaged more than 100
organizations and held a series of regional workshops,
including customers, suppliers, elected officials,
environmentalists and others. The report calls upon Congress to
take action in a number of areas, such as establishing
mandatory reliability standards, clarifying regulatory
jurisdictions and helping to restore investor confidence in the
electricity sector so that needed investments can be made. We
have submitted a copy of the full report to the committee as
part of the record for this hearing.
EPRI and EII are also already active in modernizing the
electricity grid. Eighteen months ago, we began a public-
private R&D partnership to design and develop the technologies
enabling a self-healing smart grid. This partnership involves a
number of public and private utility companies, the Department
of Energy, several States and the high-tech industry. We have
issued a multimillion dollar contract to a team that includes
GE, Lucent Technologies and others to design an open
architecture for the smart grid, and 2 days ago we issued an
RFP for another multimillion dollar project on fast simulation
and modeling.
You have heard many references to a smart grid from
witnesses, members and groups like the Bipartisan Energy Future
Coalition, but what is it? It is a fully computerized system
with real-time sensors, integrated communication and digital
age electronic controls. It will manage the system, both
transmission and distribution systems, in real time as a
network integrating, distributed and renewable energy resources
and enabling whole new applications for customers. In the event
of a disruption from either natural or man-made causes, it will
be self-healing by automatically isolating affected areas and
rerouting power to keep the rest of the system up and running.
This represents a fundamental upgrade of the current system,
the first one in the last 50 years.
And it will yield significant benefits. It will spur a new
phase of entrepreneurial innovation and will reduce the costs
of the power disturbances which we estimate to be at least $100
billion a year--that is 1 percent of GDP. Because of that,
building the smart grid could yield at least 5 to 1 return on
investment.
To conclude, we offer four recommendations for the energy
bill. First, establish the smart grid as a national priority.
Second, authorize increased funding for R&D and demonstrations
of the smart grid in key DOE programs. We estimate that this
will require increased Federal funding for R&D on the scale of
approximately $1 billion over the next 5 years, with the
private sector contributing a significant amount of matching
funding. Third, recognize the importance of carrying this out
in partnership with the private sector. The government cannot
do this alone. It is the industry that will be ultimately
responsible for building, maintaining and operating the
electricity system to keep the lights on and the computers
humming. Finally, develop an approach to the long-term funding
for deployment. A national approach is needed to fund the full-
scale deployment of a smart grid that will be effective, fair
and equitable. We estimate it will require an investment of
$100 billion over a decade. We urge the Congress to include
language in the energy bill to direct the administration to
work with industry, the States, customers and others to develop
a recommendation and report back to the Congress 1 year after
enactment. Thank you.
[The prepared statement of T.J. Glauthier follows:]
Prepared Statement of T.J. Glauthier, President and CEO, Electricity
Innovation Institute
Mr. Chairman, Members of the Committee, I am happy to be here today
as you examine what happened in the electricity blackout on August 14,
2003, and most importantly, what to do to strengthen the nation's power
grid in the future. We believe there is an answer for the future, and
that answer is a self-healing, ``smart grid'' based on 21st century
technologies.
I am T.J. Glauthier, President & CEO of the Electricity Innovation
Institute, an affiliate of EPRI, the Electric Power Research Institute.
I am here today representing both organizations.
EPRI is a non-profit research institute sponsoring R&D in the
public interest in technologies and systems related to the generation,
delivery, and use of electricity in our society. EPRI was created 30
years ago, in the aftermath of the 1965 Northeast power blackout. EPRI
was formed with the support and legislative approval of the Congress,
and with the support of the States and their regulatory commissions.
EPRI has more than 1,000 members in the electric utility industry,
including investor-owned companies, public power organizations, coops,
federal power systems and others. Its members produce and deliver more
than 90% of our nation's electricity.
The Electricity Innovation Institute (E2I) was formed two years ago
by the EPRI Board of Directors as a separate, but affiliated
organization. It is also a non-profit, 501 (c)(3), public-benefit
research institute, and its focus is to sponsor longer-term, strategic
R&D programs through public-private partnerships. E2I's Board of
Directors, is primarily composed of independent, bi-partisan public
representatives.
E2I is already active in modernizing the electricity grid. For
example, with technical support from EPRI, it began 18 months ago a
public-private R&D partnership to design and develop the system of
technologies enabling a self-healing, ``smart grid.'' This partnership
involves a number of public and private utility companies, the
Department of Energy, several states, and the high tech industry. It
has one multi-million dollar contract underway with a team that
includes GE, Lucent Technologies and others, to design an ``open
architecture'' for the smart grid.
EPRI and E2I actively support the dialogue on national energy
legislation by providing objective information and knowledge on energy
technology, the electricity system and related R&D issues.
support of the august 14th outage investigations
EPRI is actively supporting the bi-national US-Canada Joint Task
Force on the Power Outage of August 14th, working with DOE and NERC.
EPRI has staff in the region now, and is lending its experience and
expertise to the overall effort to learn exactly what did happen on
August 14th, and what the root causes were for that event. EPRI will
work through that team, and does not expect to issue any independent
evaluation of the outage events or its causes.
report: electricity sector framework for the future
Last week, EPRI released a report on the current challenges facing
the electricity sector in the U.S., outlining a Framework for Action.
The report, the Electricity Sector Framework for the Future (ESFF), was
completed prior to the August 14th outage, and had been developed over
the past year, under the leadership and direction of the EPRI Board of
Directors.
EPRI engaged more than 100 organizations, and held a series of
regional workshops, including a diverse group of stakeholders--
customers, suppliers, elected officials, environmentalists, and others.
That dialogue has provided valuable insights into the causes of
problems, such as the disincentives for investment and modernization in
transmission facilities, which have become much more widely recognized
since the August outage.
The ESFF report lays out a coherent vision of future risks and
opportunities, and of a number of the issues that must be dealt with in
order to reach that future. It is also notable that this report
reflects viewpoints widely shared by the broad electricity stakeholder
community who contributed to its development. That future will be based
on a transformed electricity infrastructure that is secure, reliable,
environmentally friendly, and imbued with the flexibility and
resilience that will come from modern digital electronics,
communications, and advanced computing.
To arrive at that future, many parties must take action. The report
calls upon Congress to take action in a number of areas, such as
establishing mandatory reliability standards, clarifying regulatory
jurisdictions, and helping to restore investor confidence in the
electricity sector so that needed investments can be made.
We are submitting a copy of the full report to the Committee, as
part of the record for this hearing. We have already sent announcements
and electronic links to the report to all the Members of this
Committee, to your staffs, and to the Members of other, relevant
committees in the Congress. We hope the report will be helpful to you
as you deal with the various dimensions of these issues in the final
energy bill--and we are happy to offer our assistance in whatever ways
will be most helpful.
the 21st century transformation of the electricity grid
The August 14th outage served to again remind us of the absolutely
essential nature of electricity service. It is the lifeblood of our
nation's economy and quality of life. As such, the modernization of the
electricity system is an essential investment in our nation's continued
prosperity. This investment is particularly urgent in the face of
today's rising security and societal demands on the nation.
The modernization of the electricity infrastructure described in
the report is toward a ``smart grid''--a self-healing, intelligent and
digital electricity delivery system to meet the social and economic
needs of the 21st century. This represents a fundamental upgrade of the
current system--the first one in at least 50 years--comparable to the
creation of an interstate highway system 50 years ago. Increasingly,
leaders are becoming aware of the urgency of this need. For example,
the bi-partisan Energy Future Coalition made the smart grid one of its
six areas of principal emphasis in its June, 2003 report.
This smart grid, which encompasses both the long distance
transmission system and the local distribution systems, must
incorporate ubiquitous sensors throughout the entire delivery system
and facilities, employ instant communications and computing power, and
use solid-state power electronics to sense and, where needed, control
power flows and mitigate disturbances instantly.
The upgraded system will have the ability to read and diagnose
problems, and in the event of a disruption from either natural or man-
made causes, it will be ``self-healing'' by automatically isolating
affected areas and re-routing power to keep the rest of the system up
and running. It will be alert to problems as they unfold, and able to
respond at the speed of light.
Another advantage of the smart grid is that it will be able to
support a more diverse and complex network of energy technologies.
Specifically, it will be able to seamlessly integrate an array of
locally installed, distributed power sources, such as fuel cells, solar
power, and combined heat and power systems, with traditional central-
station power generation. This will give the system greater resilience,
enhance security and improve reliability. It will also provide a
network to support new, more energy efficient appliances and machinery,
and offer intelligent energy management systems in homes and
businesses.
The enhanced security, quality, reliability, availability, and
efficiency of electric power from such a smart grid will yield
significant benefits. It will strengthen the essential infrastructure
that sustains our homeland security. Moreover, it will reduce the cost
of power disturbances to the economy, which have been estimated by EPRI
to be at least $100 billion per year--and that's in a normal year, not
including extreme events, such as the recent outage. Further, by being
better able to support the digital technology of business and industry,
the smart grid will also enable a new phase of entrepreneurial
innovation, which will in turn accelerate energy efficiency,
productivity and economic growth for the nation.
The economic benefits of the smart grid are difficult to predict in
advance, but they will consist of two parts: (1) stemming the losses to
the U.S. economy from power disturbances of all kinds, which are now on
the order of 1% of U.S. GDP, and (2) taking the brake off of economic
growth that can be imposed by an aging infrastructure. The first part
alone could yield a five-to-one return on the investment required to
build and implement the smart grid.
recommended congressional action
The current legislation contains some good provisions in support of
technology development, but the national transformation of the grid is
so important that it requires stronger action and support from the
Congress in the energy bill. There are four key areas of technology
policy that the energy legislation should address, as described below:
1. Establish the ``Smart Grid'' as a national priority
First, the Congress can provide real leadership for the country by
establishing the ``smart grid'' as national policy and as a national
priority in the legislation. By articulating this as national policy
and offering a compelling vision for the country, Congress can increase
the pace and level of commitment to the modernization of the
electricity grid.
That action itself will help to focus the attention of the federal
and state agencies and the utility industry and others in the private
sector. By making the smart grid a national priority, Congress will be
sending a clear message that this modernization is critically important
in all sectors and in all regions of the country, and that deployment
should be undertaken rapidly.
2. Authorize increased funding for R&D and demonstrations of the
``Smart Grid''
To carry through with the priority of the smart grid, the
legislation should include significantly increased development funding.
In particular, it should contain authorization for significant
appropriations over the next five years for programs managed by the
Department of Energy, working in partnership with the private sector.
The Administration has taken some steps in this direction in its
earlier budgets, but this demands even stronger, more targeted action
by the Congress. Support is needed in two areas. One is more extensive
R&D in the relevant technologies, needed to provide all the components
of the smart grid. The other area is to support an aggressive program
of technology demonstration and early deployment projects with the
states and the industry, to prove out these components, and to refine
the systems engineering which integrates all these technologies in
real-world settings.
EPRI estimates that this research and demonstration program will
require increased federal funding for R&D on the scale of approximately
$1 billion, spread out over five years, with the private sector
contributing a significant amount of matching funding. These R&D and
demonstration funds represent an investment that will stimulate
deployment expenditures in the range of $100 billion from the owners
and operators of the smart grid, spread out over a decade.
3. Recognize a public/private institutional role for the R&D
It is vitally important that the legislation recognize that this
R&D and demonstration program should be carried out in partnership with
the private sector. The government can sponsor excellent technical
research. However, it is the industry that will ultimately be
responsible for building, maintaining and operating the electricity
system to keep the lights on and the computers humming. And as we've
just seen, there is little tolerance for error--it has to work all the
time--so this is more than a ``research'' program, it is an engineering
and operations program on which the country will rely.
DOE is the lead agency for the federal government in this area, and
its new Office of Electricity Transmission and Distribution should have
the lead responsibility on behalf of the federal government for
directing the program. To succeed, DOE needs a partner that can
effectuate the involvement of the private sector and other stakeholders
in carrying out this program. This should be an organization that can
work collaboratively with DOE on the management of the program, and
that can receive and manage matching funds from both the public and
private organizations. Congress should formally recognize the
importance of this type of public/private partnership in the energy
bill.
One potential vehicle for this role is the Electricity Innovation
Institute. It was with these strategic goals in mind, that the EPRI
Board of Directors sponsored the creation of this new organization in
2001, with the strong support of its Advisory Council composed of state
utility regulators, academics, and representatives of business and
public interest organizations.
4. Develop an approach to the long-term funding for deployment
A national approach is needed to fund the full-scale deployment of
the smart grid throughout the country. The scale of deploying the
technology, and doing the detailed systems engineering to make it work
as a seamless network, will require significant levels of investment,
estimated at $100 billion over a decade.
These implementation costs for the smart grid will be an investment
in the infrastructure of the economy. This investment will pay back
quickly in terms of reduced costs of power disturbances and increased
rates of economic growth.
Nevertheless, this is a substantial challenge for an industry that
is already under financial strain, and is lacking investment incentives
for the grid. It's a challenge, too, because this investment must be
new and additional to what the industry and its customers are already
providing to keep the current systems operating. A business-as-usual
approach will not be sufficient.
We need a national financing approach or mechanism that will be
effective, fair, and equitable to all parts of society. This will
require agreement among the industry, state regulatory commissions,
customers and other stakeholders as to how that should be carried out.
The answer to this will undoubtedly take extended discussions with
the various stakeholder groups. Rather than rush to judgment on one or
another specific approach, we urge that Congress include language in
the energy bill to direct the Administration to develop an appropriate
recommendation. The Administration should work with the industry, the
states, customers, and other to develop its recommendation and report
back to Congress at a specific time, no later than one year after
enactment.
As noted earlier, the cost of developing and deploying the smart
grid for the country should be thought of as an investment in the
future--in a secure, reliable, and entrepreneurial future--that will
pay back handsomely over many decades to come as the energy backbone of
the 21st century.
Thank you.
Mr. Shimkus. Thank you, and I want to commend the panel for
really being close on time. It has been very, very helpful.
Mr. Owens. Do I get a chance?
Mr. Shimkus. Yes. That is why I said it. I knew it was
coming.
So you are recognized, Mr. Owens, for 5 minutes. Welcome.
STATEMENT OF DAVID K. OWENS
Mr. Owens. Thank you, Congressman. Good afternoon, Mr.
Chairman and members of the committee. I am David Owens,
executive vice president of the Edison Electric Institute. We
appreciate the opportunity to appear before this committee this
afternoon. I will focus my testimony on the policies, issues
raised by the recent power outages, especially those addressed
in pending energy legislation.
The fact is that competition in electricity markets exists,
and we cannot retreat from those markets. Instead, we must
focus on making the markets work. For any model of electricity
markets to work, there must be adequate transmission in place
and appropriate rules for reliable operation. Without
sufficient transmission, none of the models will work reliably.
While utilities are investing roughly $3 billion a year in
transmission, most of the new transmission being built is to
help serve local load and connect generation to the grid. In my
opinion, more emphasis is needed on removing disincentives to
investment and long distance, high voltage transmission wires
necessary to strengthen regional markets. We believe that
Congress can help strengthen our Nation's transmission
infrastructure by including a number of provisions in the final
version of the energy legislation.
We strongly support provisions in both the House and the
Senate energy bills that would create an electric reliability
organization with FERC oversight. In fact, I think that is the
consensus you have heard all day. This organization would be
responsible for developing and enforcing mandatory reliability
rules and standards that are binding on all electric companies
and market participants. We also support a provision in the
House energy bill to grant FERC limited backstop siting
authority to help site transmission lines in DOE-designated
interstate congestion areas if States have been unable to agree
to move forward.
Now, FERC has 55 years of experience in siting natural gas
pipelines. FERC also has the ability to consider the regional
needs and benefits of new transmission lines. The House energy
bill contains provisions to reform and simplify the
transmission permitting process on Federal lands, and we
strongly urge their inclusion in the final energy bill. As you
know, these provisions would designate DOE as the lead agency
to coordinate and set deadlines for the Federal environmental
and permitting processes. The House bill also would set
deadlines for the designation of transmission corridors across
Federal lands.
We also believe that repealing PUHCA, the Public Utility
Holding Company Act, would help attract the billions of dollars
of new capital needed to increase investments in our
transmission infrastructure. PUHCA is a substantial impediment
to investment and energy infrastructure. Now, both versions of
the energy legislation include provisions to repeal PUHCA and
to transfer consumer protections to FERC and the States.
We also believe that FERC and the States should utilize
innovative transmission pricing incentives--you heard all the
members of the panel make reference to that--including
performance-based rates and higher rates of return to attract
capital for investments and transmission. By reducing
transmission congestion and increasing the grid's efficiency,
investments in new and existing transmission will allow greater
economic dispatch of lower-cost generation. The net benefits to
the consumer overall could be a lowering of electric bills. The
House version of the pending energy legislation includes FERC
pricing provisions.
Now, I know this committee does not have jurisdiction over
tax issues, but EII believes that the U.S. tax code should be
amended to provide enhanced, accelerated depreciation for
transmission assets similar to the tax treatment that is
provided to other major capital investments. We support, for
example, reducing the depreciable lives of transmission
facilities from 20 years to 15 years. In addition, we believe
that it is appropriate for Congress to ensure that electric
companies that sell or dispose of their transmission facilities
through a FERC-approved RTO or through some form of an
independent transmission company do not suffer substantial tax
penalties because of such actions. Accelerated depreciation
provisions are included in the House version of the pending
energy legislation. Both the House and Senate bills also
address transmission asset sales or dispositions.
In conclusion, adequate transmission infrastructure
governed by mandatory reliability rules is essential regardless
of how electricity markets evolve. Our challenge is to work
together to make sure the transmission system can provide
consumers with affordable, reliable electric service no matter
what industry structure model exists. We look forward to
working with Congress on the pending energy bill to meet that
challenge. Thank you for this opportunity and I look forward to
your questions.
[The prepared statement of David K. Owens follows:]
Prepared Statement of David K. Owens, on Behalf of The Edison Electric
Institute
Mr. Chairman and Members of the Committee: My name is David K.
Owens, and I am Executive Vice President of the Edison Electric
Institute (EEI). EEI is the association of U.S. shareholder-owned
electric utilities and industry affiliates and associates worldwide. We
appreciate the opportunity to testify on the electric power outages
that affected regions in the Eastern Interconnection for several days
in August.
The Committee has requested information on the specific factors and
events leading up to and contributing to the blackout. While there has
been a great deal of speculation about the sequence of events that
caused the blackout, we believe that the international investigative
effort being led for the United States by the Department of Energy
(DOE), with technical expertise from the North American Electric
Reliability Council (NERC), the regional reliability councils and the
affected regional transmission organizations (RTOs) and individual
utilities, will provide answers to those questions.
Our testimony will focus on the policy issues that have been raised
by the recent power outages, especially those addressed in the pending
comprehensive energy bill, and what we believe Congress can do to help
prevent similar incidents in the future.
electricity competition and the infrastructure
The question of whether electricity competition caused the blackout
has been repeatedly asked and argued about. We believe that is not the
relevant question. Competition in wholesale and a number of retail
electricity markets exists, and we cannot retreat from these markets.
We must work together to make competitive markets work.Electrons follow
the laws of physics. No matter what utility structure model exists--
competitive, a mixed model or fully integrated--there must be adequate
infrastructure in place and appropriate rules for reliable operation.
Sufficient transmission capacity is a critical building block in all of
the models. Without adequate transmission, none of the models will
work.
The recent blackout, whatever its causes, reveals that the current
system faces many stresses. Fortunately, Congress can help to relieve
those stresses with a number of provisions that are included in the
pending energy legislation.
ensure reliability standards are mandatory and enforceable
NERC was formed in the aftermath of the 1965 power outages in the
Northeast, and for more than thirty years, NERC has set voluntary
reliability rules and standards. This system has generally worked well
in the past, but today's electricity market requires a mandatory
reliability system, with enforcement mechanisms. The number of market
participants has increased dramatically, as have the number and
complexity of electricity transactions being transmitted.
Since early 1999, a broad group of stakeholders, including EEI and
many of its individual member companies, have supported legislation
that would create an electric reliability organization, with Federal
Energy Regulatory Commission (FERC) oversight, to develop and enforce
mandatory reliability rules and standards that are binding on all
electric companies and market participants. Reliability provisions
supported by these stakeholders are included in both the House and
Senate versions of the pending energy legislation. We strongly urge
inclusion of these reliability provisions in a final energy bill.
remove roadblocks to transmission investment
The level of investment in the long-distance, high-voltage wires
has not kept pace with the growing demands being imposed on the system
because of greater electricity use, competition in wholesale markets
and related factors. Thus, it is not surprising that the transmission
grid is becoming increasingly congested:
According to NERC, the volume of actual transmission transactions has
increased by 400 percent in the last four years. Transactions
that could not be completed because of congestion on
transmission lines increased five-fold to almost 1,500 in 2002,
compared with 300 uncompleted transactions in 1998.
Congestion in the Mid-Atlantic region, where the highly respected PJM
RTO controls transmission, has quintupled between 1999 and 2001
to $271 million, before increasing to $430 million with the
additional of PJM West.
Billions of dollars are being spent annually on new transmission
facilities, but the bulk of the new transmission being built is to help
serve local load and connect new generation to the grid. More emphasis
is needed on removing disincentives to investment in the long-distance,
high-voltage wires needed to strengthen regional electricity markets,
such as siting delays, regulatory barriers and tax policies.
In the early 1970s, the annual growth rate in lower voltage line-
miles that support localized grid operations and interconnections was
1.9 percent, while the annual growth rate for high-voltage line-miles
was 3.2 percent. By the latter half of the 1990s, this relationship had
reversed: the higher voltage line-miles were growing at only 0.3
percent, while lower voltage line-miles were growing at 3.5 percent.
According to the Energy Information Administration (EIA), consumer
demand for electricity is going to increase by roughly 50 percent over
the next two decades. To meet this increase in demand, capital
investments in upgrades and new transmission lines must increase from
the current level of $3 billion annually to roughly $5.5 billion
annually over the next ten years.
A number of critical disincentives actually discourage investment
in transmission, including:
Local opposition to siting new facilities,
Inability to recover planning and related costs when facilities are
delayed or ultimately rejected by siting authorities,
State retail rate caps that may prevent utilities from recovering
their investments in transmission,
Uncertainty over transmission ownership and control policies, and
Uncertainty as to whether beneficiaries will pay for new
transmission.
grant ferc backstop siting authority
While traditional state siting processes will be adequate for most
local upgrades to existing transmission systems, limited FERC backstop
siting authority to help site new transmission lines in interstate
congested areas would be a critical aid in developing the more
significant transmission infrastructure needed to support regional
wholesale electricity markets.
Before states will grant utilities siting permits, utilities
typically must prove that the new facilities are needed. The
determination of ``need'' often focuses on service to in-state
consumers and not to consumers across an entire region. In fact, many
state siting laws do not allow for the consideration of regional, or
out of state, benefits of new transmission lines. If states consider
only intrastate benefits and not regional benefits, they may have
little choice under state law but to reject the proposed line, even if
the benefits to the region are significant.
As competitive wholesale electricity markets continue to develop,
multi-state RTOs will increasingly gain operational control of utility
transmission lines. But, most state siting laws do not recognize the
role new entities such as RTOs or independent transmission companies
will play in transmission planning and siting. It is not clear that
these new entities would even be considered utilities under state laws.
Regional electricity markets require a siting process that has the
ability to consider regional and even national needs. FERC has
jurisdiction over wholesale electricity markets, but, unlike its
authority to site natural gas pipelines, it currently does not have any
authority over transmission siting to help ensure that there is
sufficient transmission capacity to support those markets.
The House version of the pending energy legislation gives FERC very
limited backstop transmission siting authority. This authority extends
only to helping site transmission lines in ``interstate congestion
areas'' designated by DOE and only if states have been unable to agree
or act within a year. We strongly urge its inclusion in the final
version of the energy bill.
FERC has decades of experience in siting energy facilities. Since
1948, interstate natural gas pipelines have gone to FERC for
certificates that grant them eminent domain authority. FERC has
permitted hydroelectric facilities since 1920.
Protection of the environment is a top consideration in FERC's
processing of natural gas pipeline certificates. Under the National
Environmental Policy Act (NEPA), FERC is required to perform a
comprehensive environmental analysis of all gas pipeline construction
proposals. The House transmission siting provision would require the
same environmental protection process for any transmission line
construction proposal.
reform the federal lands permitting process
The unnecessarily complicated, time-consuming and difficult multi-
jurisdictional federal permitting process to site energy facilities,
including authorizations for siting across federal lands, is another
major impediment to building new transmission. In some areas of the
country, this is the principal impediment.
Problems with the federal permitting process include (1) a severely
fragmented process, where each federal agency with potential
jurisdiction has its own set of rules, timelines for action and
processes for permitting; (2) the tendency by federal agencies to
require multiple and duplicative environmental reviews; (3) a failure
to coordinate with any state siting process; and (4) a lack of
harmonized permit terms from one agency to the next.
The federal transmission permitting process needs to be
coordinated, simplified and made to work with any state siting process.
The House-passed energy bill accomplishes this objective by designating
DOE as the lead agency to coordinate and set deadlines for the federal
environmental and permitting process. In addition, DOE would be
responsible for coordinating the federal process with any state and
tribal process. A state where a transmission facility would be located
could appeal to DOE when a federal decision deadline has been missed or
a federal authorization has been denied. To further facilitate siting,
the House version of the energy bill sets deadlines for the designation
of transmission corridors across federal lands. We strongly support
inclusion of these provisions, with some technical modifications, in
the final energy bill.
repeal the public utility holding company act (puhca)
We also believe that repealing PUHCA will help attract significant
amounts of new investment capital in the industry. By imposing
limitations on investments in the regulated energy industry, PUHCA acts
as a substantial impediment to new investment in energy infrastructure,
keeping billions of dollars of new capital out of the industry. As a
result, we believe that PUHCA has contributed to the failure of the
electricity infrastructure to keep pace with growing electricity demand
and the development of regional wholesale markets.
We also believe that repealing PUHCA will help expedite the
formation of interstate transmission companies (ITCs). ITCs can play an
important role in planning and building new transmission
infrastructure. However, interstate transmission companies could be
required to become registered holding companies and subject to PUHCA's
restrictions and additional regulation, making it more difficult to
raise financing.
Both House and Senate versions of the pending energy bill contain
provisions that would repeal PUHCA and transfer consumer protections to
FERC and the states. These provisions should be included in the final
energy bill.
reform ferc transmission rate policies
We believe that FERC and the states should utilize innovative
transmission pricing incentives, including performance-based rates and
higher rates of return, to attract the capital necessary to fund needed
investment in transmission. In addition, transmission users must pay
their fair share of the system's costs. We support the FERC pricing and
transmission technologies provisions in the House version of the
pending energy bill. Likewise, we encourage the states to assure that
utilities can recover their costs for investments for transmission
under state regulation, with a reasonable rate of return.
According to a December 2001 FERC ``Electric Transmission
Constraint Study,'' transmission costs make up only 6 percent of the
current average monthly electric bill for retail consumers. On the
other hand, generation costs make up 74 percent of the average bill. By
reducing transmission congestion, investments in new transmission will
allow greater economic dispatch of lower cost generation.
FERC estimates that a $12.6 billion increase in transmission
investment would add only 87 cents to an electric customer's average
monthly bill. But, since increased transmission investment will help
reduce congestion and enable lower cost power to reach consumers more
easily, FERC anticipates that the net benefits to overall electric
bills could be potentially quite large.
For example, FERC estimates that if the reduced transmission
congestion resulted in just a 5 percent savings in generation costs,
consumers would see more than a $1.50 decrease in their average monthly
bills. If the generation savings from reduced congestion were 10
percent, the average monthly bill for consumers would drop by $4.00.
So, a small increase in transmission investment can reap a much more
significant benefit in lower generation costs.
In addition to investments to relieve congestion, investments in
new technology to help improve the control and use of existing
transmission lines is critically important.
revise the tax code to encourage transmission investment
While we appreciate that the tax provisions in the energy bills
originated in other committees, we want to call your attention to
several critical tax provisions that will help increase investment in
our transmission infrastructure.
The U.S. tax code should be amended to provide enhanced accelerated
depreciation (from 20 to 15 years) for electric transmission assets,
similar to the tax treatment governing other major capital assets.
Currently, transmission assets receive less favorable tax treatment
than other critical infrastructure and technologies. In addition,
Congress should ensure that electric companies that sell or otherwise
dispose of their transmission assets into a FERC-approved RTO or ITC do
not suffer tax penalties. Accelerated depreciation provisions are
included in the House version of the pending energy legislation; both
the House and Senate versions of the bill address transmission sales or
dispositions. We strongly urge inclusion of both of these provisions in
the final version of the energy bill.
conclusion
As I stated earlier, an adequate transmission infrastructure,
governed by mandatory reliability rules, is essential regardless of
whether wholesale competition or retail competition exists or whether
electric companies are vertically integrated or disaggregated. Our
challenge is to work together to make sure the transmission system is
robust enough to keep the lights on and provide consumers with
affordable, reliable electric service no matter what industry structure
model exists. The utility industry is currently investing billions of
dollars a year in upgrading our transmission infrastructure. But,
clearly more needs to be done. We urge Congress to adopt badly needed
reforms to our federal electricity laws to help facilitate reliability
and investment in, and construction of, our energy infrastructure.
Mr. Shimkus. Excellent, excellent, excellent. My
appreciation for the panel and your long suffering for waiting
all day for this time to come. I would now like to recognize
the chairman of the Energy and Air Quality Subcommittee, Mr.
Barton.
Mr. Barton. Thank you. Thank you, Mr. Chairman. Mr. Owens,
you represent the investor-owned utilities, I believe; isn't
that correct?
Mr. Owens. That is correct.
Mr. Barton. I have heard your answer to this, but I want to
hear it again just to put it on the record. We have had a lot
of discussion in previous panels about RTOs and the
inclusiveness that is needed for RTOs and the operational
management that is needed. I just want to make--does EII
support in a given area if you are going to have an RTO that
everybody in that area should be a part of the RTO regardless
of the ownership or the type of transmission or generator that
is in that area?
Mr. Owens. We are strongly supportive of Regional
Transmission Organizations. I might amplify my answer and say,
however, we do not support mandatory Regional Transmission
Organizations.
Mr. Barton. But you do support, if you are going to have
one, that the coops be in it and the munis be in it.
Mr. Owens. We support all participants: Investor-owned
utilities, municipal companies, cooperatives, government-owned
entities, such as the Bonneville Power Administration.
Mr. Barton. Okay. Thank you. Mr. Glauthier, I didn't really
read your testimony in detail but you talked about the smart
grid. Does that include more R&D for super conducting
transmission wire, that you might not have to build additional
lines, you could just upgrade existing lines so that they could
more current with less resistance?
Mr. Glauthier. Yes, Mr. Chairman. That would be a feature
on key inner ties or areas that are key congestion points.
Mr. Barton. And if you were to do that, you wouldn't have
some of the siting issues. We could use existing right-of-ways.
It would be easier to upgrade the system and to get more
capacity out of it.
Mr. Glauthier. Super conductivity can do that and so can
some other current technologies that could come into place even
more promptly.
Mr. Barton. Okay. Now, Mr. Makovich and Mr. Fleishman, it
appears that the problem, and we don't have a definitive answer
on exactly what caused the problem, but it appears that this
issue of the Lake Erie loop going down and then a backflow in
the Lake Erie loop is a part of it. Has there been adequate
additional transmission, long-line transmission built in that
area? And if not, is that a State siting issue, is it an equity
issue of the affected utilities? If in fact they need
additional transmission capability in that area, why haven't
they done it in the past?
Mr. Makovich. Well, if you look at the date on transmission
investment, it has been declining now for over 5 years. I think
we reached a 10-year low a year ago. In July of 2002, I
testified in the Senate and I said that a gridlock plagues most
transmission investment decisions because incentives are
misaligned, and we are not able to undertake the cost-benefit
analyses and nobody is in the position to confront all those
costs and benefits to get this investment job done. So we have
had a longstanding set of transmission investments that are
highly economic and they are just not getting done.
Mr. Barton. Mr. Fleishman?
Mr. Fleishman. Yes. I would just also highlight that most
of the utilities in those regions, Ohio, Michigan, have been
under rate freezes that have been in place and continue in
place for some period of time. And that obviously is another
issue that has been mentioned in the past as being a potential
impediment to committing to large transmission investments.
Mr. Barton. Okay. Mr. Owens, and then I want Mr. Glauthier
to answer this one too since you were in your prior life the
Deputy Secretary at--Under Secretary at Energy, so you have got
a broader portfolio than you are admitting to in your testimony
today. Mr. Dingell and myself asked the prior panel, the ISO
CEOs, the amount of authority they had in terms of operational
control and dispatch authority. They all agreed that the more
control an ISO would have in that area, the better able they
would be to manage the problem and perhaps prevent it. Mr.
Owens, how strongly does EII feel about a tight RTO? And, Mr.
Glauthier, just in kind of the general good public policy, what
do you think about having a tight RTO?
Mr. Owens. If I might put it in a context. A tight RTO
would be an RTO much like PJM, the New York ISO and the New
England ISO. We all recall that the PJM ISO really evolved from
a tight power pool, was started in 1927. Tight RTO would be one
that would run the energy market and would keep the reliability
of the grid operational. We support tight RTOs but we also
believe it is important to recognize there has to be a
transition to move from a current state to one where the RTO
would run the energy market. As I understand it, MISO is
scheduled to be up and running the energy market by next March.
It does not, however, suggest to me that MISO will have the
level of efficiency or operational flexibility that PJM has--a
system that was started in 1927.
Mr. Barton. Mr. Glauthier, and I know my time has expired
so----
Mr. Glauthier. Yes. Just briefly, it seems to me that what
we need to do is recognize there are going to be regional
differences, that there isn't going to be one size that will
fit all solutions. And we need to have management that will be
appropriated in every region. That management needs to include
all the sources, it needs to be able to be effective, but it
can be implemented with different kinds of ownership
structures, different regulatory structures.
Mr. Barton. Okay. Thank you, Mr. Chairman.
Mr. Shimkus. I would like to recognize the gentleman from
Massachusetts, Mr. Markey, for 5 minutes.
Mr. Markey. Thank you. Is there any reason why Texas isn't
part of the Eastern Interconnect? Would any of you want to
defend----
Mr. Owens. It is not in the East.
Mr. Markey. Would any of you----
Mr. Owens. We will defer to the Chair.
Mr. Markey. See, I mean it kind of makes sense to have an
Eastern Interconnect and a Western Interconnect if the Rocky
Mountains are the big obstacle there, plugging the two into
each other, but wouldn't it have really helped if Ohio had some
of that Texas power that was surging up there? Is there any
reason, in other words, logistically, for Texas not to be tied
into the Eastern Interconnect? Mr. Makovich?
Mr. Makovich. Well, there is actually a lot of history
behind this, but Texas--there are parts of Texas----
Mr. Markey. Yes. Dan Abraham was chairman of this
committee.
Mr. Makovich. There are parts of Texas that are in the
Eastern Interconnect, but there is a transmission network
inside of Texas that does align with ERCOT, the Electric
Reliability Council of Texas. That part of the Texas grid for a
variety of reasons, including not being subject to FERC
regulation historically, created an organization that was
separate and interconnections not synchronized with the Eastern
Interconnect or the Western Interconnect, but with these
questions of size it certainly is large enough that it can
operate reliably. And in fact because there is good alignment
with the organization and the underlying network, it is, along
with PJM, one of the few places where we are seeing some
significant transmission investment.
Mr. Markey. Is New England large enough to operate alone?
Mr. Makovich. Yes. There doesn't seem to be a current ISO
that looks to be too small.
Mr. Markey. So if we fought becoming part of the Eastern
Interconnect for all these new ideas, that would--we would be
able to be self-sufficient.
Mr. Makovich. I am sorry, would you repeat that?
Mr. Markey. New England would be able to be as self-
sufficient as Texas is in terms of its electricity----
Mr. Makovich. Well, you must recognize, though, that there
are an awful lot of benefits that New England gains by being--
--
Mr. Markey. I understand that, but I am saying if we
decided----
Mr. Makovich. It could. It could, yes.
Mr. Markey. Because Texas forgoes those benefits as well.
Mr. Makovich. And in fact the fact that it was able to
unplug and stay up shows that it does have a degree of self-
sufficiency, yes.
Mr. Markey. Let me read you this from a Standard & Poor's
July 2003 report. It is entitled, ``The Credit Quality for U.S.
Utilities Continues Negative Trend,'' S&P July 2003. Quote,
``The downward slope in the power industry's credit picture can
be traced to higher debt levels and overall deterioration in
financial profiles, constrained access to capital markets as a
result of investor skepticism over accounting practices and
disclosure, liquidity problems, financial insolvency and
investments outside the traditional regulated utility
business.'' So would you agree that it is not PUHCA but other
factors, such as the failed diversifications, that lead
utilities not to invest in upgrade in transmission? Mr.
Makovich?
Mr. Makovich. Oh. Well, most of the financial distress that
we are finding in the merchant power plant area, the people
that built all those gas-fired power plants since 2000, are not
typically the people that own these transmission assets. Most
of the transmission assets, and many of the people that spoke
today, Exelon and AEP and others, own very large portions of
the transmission network, are financially healthy and could
make the investments but as Exelon said, it took the
deterioration of the system, the embarrassment of a blackout
and the problems they had to go through there defending
themselves that caused them to finally make billions of dollars
of investments, some of which they still can't even recover.
That is not a healthy environment for investors.
Mr. Popowsky. Yes, I agree. That is the point.
Mr. Markey. Are you related to Eddie Popowski who was the
base coach for the Red Sox?
Mr. Popowsky. No. His name was spelled with an I. I know he
was a third base coach for the Red Sox----
Mr. Markey. Yes.
Mr. Popowsky. [continuing] but----
Mr. Markey. No? No relation?
Mr. Popowsky. [continuing] I can't claim any relation. That
is exactly the point. The companies that have had problems,
including some of our regulated utilities who have gotten into
unregulated businesses, they haven't lost money on the
transmission and distribution, they have lost money on their
unregulated generation, telecommunications, water utilities,
foreign subsidiaries. So I don't think the place where they are
losing money and the financial distress is coming from is from
there.
Mr. Markey. Let me go to Mr. Fleishman because my time is
going to run out. Mr. Fleishman, could you--you know, it has
been alleged the PUHCA is preventing investment from going into
transmission. Wasn't most of the transmission system
constructed under PUHCA? And in your opinion, looking at this
whole pattern of diversification that many of these utilities
engaged in, do you think the repeal of PUHCA is central to our
ability to build the transmission system of the 21st century?
Mr. Fleishman. I would say repeal of PUHCA is one piece of
the puzzle. There are certainly a number of other reasons for
the underinvestment in transmission. What I would say is that
because of the condition that the industry is in today, which,
as you noted, is due to many different reasons, but because of
the weak financial condition that the industry is in today,
there is a need for more non-traditional outside capital than
we have typically had in the past and that that is one of the
reasons where PUHCA is more of an impediment than it has been
in the past.
Mr. Markey. PUHCA companies tend to have much higher
ratings, bond ratings, than non-PUHCA companies. Why is that?
Mr. Fleishman. Well, I am not sure the ratings are that
much different. Clearly, the unregulated----
Mr. Markey. No. I have the fixed ratings right here for--
oh, what is the date on this--September 2, and they are much
higher right across the whole board.
Mr. Fleishman. I think a lot of the non-PUHCA companies are
the merchant energy companies, the pure play companies that
were purely invested in the unregulated area.
Mr. Markey. But PUHCA prohibits diversification and by
doing so their bond ratings are higher than the----
Mr. Fleishman. Well, PUHCA companies have diversified.
Mr. Markey. Right. But----
Mr. Shimkus. The man from Massachusetts knows I have great
admiration for him, but my patience is wearing thin. Thank you.
But I will jump into this debate a little bit in that, yes,
transmission was expanded under PUHCA but that was under a
regional monopoly system in which return was set by the--it was
a whole different world than what we have evolved to now with
merchant plants and a competitive market, wholesaling of power
and the like.
Mr. Owens. Mr. Chair, could I respond to that, just amplify
on the----
Mr. Shimkus. Sure.
Mr. Owens. [continuing] answer that Mr. Fleishman gave? He
made----
Mr. Shimkus. Mr. Owens, I think your microphone----
Mr. Owens. He made a point about investment alternatives,
and one of the things that we want to preserve is the
opportunity to have interstate transmission companies created.
What PUHCA does it really retards the attraction for investors
to create multi-State transmission companies. It retards the
ability of investors to put their money in these companies and
at the same time recognize that they are in other businesses.
It is my view that if we are seeking to expand our transmission
system, that we need to have all the options available, and the
Public Utility Holding Company Act certainly takes away that
option.
Mr. Shimkus. Does it not impede capital? In this
environment today, what we need is capital to flow, and PUHCA
impedes the ability for capital to flow.
Mr. Owens. It would suggest to an entity that were seeking
to make investment in the transmission system that they would
be subject to a whole series of complex regulatory laws, and it
would be a disincentive for them making that investment in a
transmission system.
Mr. Shimkus. Okay. I want to go to--and I have limited time
even though I do have the gavel, and I want to move on to a
couple other questions. Mr. Glauthier, I want to go back to
this loop flow debate since you are an expert in research and
development, and we were talking as members over there as the
question was if your State is a net exporter of power, if you
generate more electricity than is consumed and you are
exporting, are you subject to the loop flow problem or is that
a problem--is it a problem because you are, in essence, a--you
are leaning on the grid, as the terminology was used earlier?
Mr. Glauthier. I am not a technical expert, but I believe
it can be a problem still. The loop flows are a problem in many
parts of the country.
Mr. Shimkus. So it is not whether you are a net exporter or
a net importer of power in a region.
Mr. Glauthier. That is my understanding.
Mr. Shimkus. Okay. Good. I think a lot of us have learned a
lot.
Mr. Owens. If I might amplify on that. He is absolutely
right, it is not whether you are an exporter or importer of
power, but it has a lot to do with the physical configuration
of the system. So, for example, to the degree that you do not
have sufficient transmission capacity, it could result in
electrons flowing over paths that were not originally designed
to flow over. So it is a function of the physical design of the
system, the availability of transmission and capacity of
generating resources.
Mr. Shimkus. And what I would also like to do is I am
still, as people now probably know if they have listened the
last 2 days, a proponent of the standard market design. Based
upon your distinct positions across the board, where do you
individually stand, or your organization, on the standard
market design? And we will start with Mr. Makovich.
Mr. Makovich. Yes. In general, the standard market design
makes a lot of sense. There is a right way and a wrong to set
up power markets, and I think what standard market design did
was it tried to take the lessons from power markets that worked
and said, ``Here are the things you need to do to get power
markets to work properly.'' But I would caution that
particularly going forward I think we are confronted with the
reality that we have got half the business that is moving that
direction and half the power system that is not, and we have
got to tackle this reliability question and regional
coordination and planning with this kind of hybrid.
Mr. Shimkus. Mr. Fleishman?
Mr. Fleishman. Yes. I would generally agree with Mr.
Makovich's comments in that we think the concept of standard
market design is something that was a good concept to try. I
think clearly the regional differences in these markets and
their state of deregulation requires a good amount of
flexibility in actual implementation of these markets and that
it is critical that is considered. The other thing I would
highlight is that it is going to be very important that there
is a buy-in of the States and local entities into the ultimate
design in a region, and if there is not a buy-in and a good
Federal-State partnership in working this through, then I worry
that the markets will not work.
Mr. Shimkus. Mr. Popowsky?
Mr. Popowsky. Yes. Being from a PJM State, I, like you,
think the standard market design works pretty well in our
region and in our type of region, but I can certainly
understand the principal objections of people in the Pacific
Northwest or the Desert Southwest that say, no, their systems
are very much different from the kind of systems that we have
in our region of the country.
Mr. Shimkus. Thank you. Mr. Glauthier?
Mr. Glauthier. Yes. The organizations I am representing are
focused on technologies to help make the system work reliably
and securely in whatever political and ownership environment
there is. So rather than take a position on standard market
design, we are trying to work with all of these different
settings and make sure that the technology is available and
will work well.
Mr. Shimkus. And Mr. Owens?
Mr. Owens. For any market design to work you need an
adequate infrastructure, and some of the challenges with
respect to a standard market design are that you have to
recognize regional differences. We have got to also recognize
that we have different forms of ownership in our industry. We
have got to recognize as well that the States for the most part
have the responsibility on planning and siting of resources,
and for any design to be successful, it is going to require the
States and the FERC working together. The States have to
recognize removing of regional markets, FERC has to recognize
that the States have a very powerful voice in the siting and
the development of the overall infrastructure.
Mr. Shimkus. Thank you very much, and now I would like to
recognize Ms. McCarthy from the Show Me State for 5 minutes.
Ms. McCarthy. Thank you, Mr. Chairman. I want to thank all
the panelists for their expert testimony here today, and I am
very much intrigued by this public-private R&D partnership, Mr.
Glauthier, that you are advancing. And I wonder, Mr. Makovich,
you put some very thoughtful words together on what the problem
is, on settling who pays in your testimony, and I understand
the concerns that you raise about where to spread the costs.
But if we look to a model such as Mr. Glauthier is describing
of public-private effort, would that in fact address the
concerns that you very rightly raise in your research and
testimony about these complex arguments about who will benefit
and who should pay and all the things that seem to keep us from
getting where we need to be? I wonder, Mr. Makovich, if you
would just expand on your thoughts on transmission investment
planning at the network level and the guarantee of cost
recovery prevents investment? If we found this public-private
partnership, could we then move forward?
Mr. Makovich. Well, at Sierra, we started a study in
January, it is called, ``Grounded in Reality,'' to try to put
some numbers on how much investment opportunity exists in the
transmission network. And it is not just new power lines and
substations, a lot of this new technology that we are talking
about here has very, very strong payback. And so a lot of this
solid State technology would provide for greater control, could
limit some of this loop flow problem and so forth, but, again,
it costs money to implement this, and the argument who pays--
the benefit of this new technology is very robust, but its
conditions change. The people that get that benefit can shift
dramatically. So if you hold this up until you get everybody to
agree how much of it they are willing to pay for, what we are
seeing is we are just not getting the investment done.
Ms. McCarthy. So based on that last sentence, does someone
like the Federal authority have to step in and resolve that?
How best to get over that hump that is a very real issue and
contentious----
Mr. Makovich. Right.
Ms. McCarthy. [continuing] especially given the 50 States
and the regional grids----
Mr. Makovich. Right.
Ms. McCarthy. [continuing] and the territorial instincts of
all of that.
Mr. Makovich. The recommendation here is when the network
planning happens and they identify what should be done, those
investments should go forward and the costs should be spread
across the network. Now, there is a good example. People have
talked about southwestern Connecticut. There is a portion of
that line that the people there insisted should go underground
because they didn't want to look at. Now, there is quite a
legitimate objection from people in the State of Maine or Rhode
Island, why should they have to pay for the undergrounding
costs? So if we spread all these costs and allow the investment
to go forward but then allow for a process that we can go back
and spread some allocation and then true up through time for
people that have paid too much or too little, that would stop
us from stymieing all this investment over this wrangling about
who is going to pay.
Ms. McCarthy. I thank you for sharing those thoughts. And,
Mr. Glauthier, would you like to weigh in on this concept and
how we can get there?
Mr. Glauthier. Yes. Thank you, Congresswoman. I think we
need to move to another level of thinking about the advancement
of technology and upgrading the system. This is a national
need. We need to move into the 21st century, we need to develop
a system that is robust, that will support renewable
technologies and distributed generation and whole new
applications. So rather than just focus on how we deal with
today's problems, we need to set our sights on a transformation
of the system that is not unlike what was done in the country
50 years ago when the super highway system was developed for
the country. It was a national priority, it was done on a
national basis, done with the strong cooperation of the States.
We need to address that, we need to look into this with full
participation of customers, of the political entities, the
State commissions, the Governors and others, and I think
Congress needs to show leadership in that, in directing that
and trying to come to some resolution that is fair and
equitable and effective.
Ms. McCarthy. When you bring Congress into this what has
been traditionally--I was a former State legislator, so what
was traditionally a States' rights concept, how do you perceive
that legislatively so that Congress doesn't look like it is
trampling all over States' rights?
Mr. Glauthier. The proposal we are making is that the
Congress direct the administration to undertake a process of
engaging the States and the customers and the industry and come
back with some kind of a recommendation. And in the end, it may
be a recommendation that is actually adopted by the States. It
may not necessarily be some sort of a Federal system of funding
and the like, but I think some uniform approach to it is going
to be important, and some way of engaging all these people that
is a leadership that the Federal Government can really
exercise.
Ms. McCarthy. I thank you, and I am giving you back some
time, Mr. Chairman.
Mr. Shimkus. Well, I appreciate that. Thank you very much,
Madam. And now I would like to recognize Mr. Walden from
Oregon.
Mr. Walden. Thank you, Mr. Chairman. I would like to follow
up on this issue of the standard market design, because I think
some of you have touched upon one of the concerns those of us
who represent Pacific Northwestern districts and States have,
and that is the one size doesn't fit all, what you may have in
PJM and how we deal with different things. When 62 percent of
our region is hydro-based and our 82 percent of our grid is
under Bonneville, it is a little different process, and so I am
just wondering if you were in our shoes here, do you think SMD
would actually work in the Northwest, the same set of rules
work there that work in Ohio or Texas?
Mr. Owens. Well, I certainly don't think the same set of
rules work, and I don't think you can have a one size fits all,
so I am in agreement with you. The Eastern Interconnection is
very different than the Western Interconnection, you correctly
point out. The Eastern Interconnection is a thermally based
interconnection, the western is a hydroly based.
Mr. Walden. Right.
Mr. Owens. The Eastern Interconnection does not have the
ownership diversity that the Western Interconnection does.
Pacific Northwest, as you correctly point out, 70 percent of
the ownership of the transmission system is in the hands of the
Bonneville Power Administration, so certainly one size doesn't
fit all. I think, however, it is appropriate to recognize
regional differences. The FERC came out with a White Paper,
which, in my opinion, is a bold attempt to try to deal with
some of these regional differences, to try to recognize that
some States may like some elements of a wholesale market
platform and will be able to implement those. Some elements
they may reject. It is a step in the right direction, but
certainly I don't think we could have a national design that
would represent a one size fits all.
Mr. Walden. Ye, sir?
Mr. Makovich. It is true that the Pacific Northwest is
different from PJM, but PJM also has hydro and there is a well
thought out way in which the hydro is dispatched and then the
thermal dispatch occurs afterwards. I think one of the things
that we have observed is one of the things that went terribly
wrong in California was that they couldn't all agree on the
market design, and they made a lot of compromises that added
flaws. So when you open the door to say, as the FERC White
Paper has, that we will be flexible, you open the door to the
kind of compromise that led to big flaws in the market design
in California. So this is a very difficult area to work in, but
by and large, with some minor modifications, standard market
design ought to work, but, of course, Bonneville doesn't have
to play if they don't want to, and that is not standard market
design, but----
Mr. Walden. Well, but they could have been put under FERC--
--
Mr. Makovich. Right.
Mr. Walden. [continuing] jurisdiction, and FERC writing the
rules could have, in effect, dictated to Bonneville what it is
they could or couldn't do.
Mr. Makovich. Right, but that is outside really of the
standard market design questions.
Mr. Walden. Yes, but our concern was the way it was written
they could have been dragged under that, and so all of the work
that was being done on a regional basis could have been voided,
in effect, by FERC's decision on what should or shouldn't occur
there. And some of our concerns, I asked Pat Wood directly,
what is it we are not doing you think we ought to do out there,
and there is really not much they come back with. And yet I
don't necessarily believe that everybody in this operation has
a clear understanding of how the hydro system works, our
requirement for fish and the water flows, what happens in a
drought. I mean it is a whole different deal. I am glad in
Niagara and wherever they could flow more water whenever they
needed to. It is a little different out there. You would have a
suit in a heartbeat over the Endangered Species Act issues.
Yes, Mr. Owens?
Mr. Owens. If I could just add, and I agree with the
premise of your question, and, as I said, I think there are
differences. I think, though, you can distinguish the standard
market design from the mandatory reliability rules, which I
believe----
Mr. Walden. I agree.
Mr. Owens. [continuing] are supported by the folks in the
Western Coordinating Council and even----
Mr. Walden. And Bonneville.
Mr. Owens. [continuing] and in Canada. So I think there is
an agreement that we can have some mandatory reliability
principles that would be in effect nationwide.
Mr. Walden. See, I think that is very true, and I know
Bonneville would support that, and I think we in the Northwest
would support that as well. And in fact the disturbing part of
some of the testimony yesterday I think from Mr. Gent from NERC
was that they have got these voluntary standards and no big
stick; there is no way to enforce them. And he told us there
are some companies that just sort of say, well, tough, and
there is not much that can be done, even with peer pressure. So
I think you are right, I think that there are some mandatory
reliability standards that could be put in place. My time has
expired anyway. Thank you.
Mr. Shimkus. The gentleman's time has expired. We are going
to end this but we have agreed to allow our colleague from
Massachusetts--we were asking him whether it is a Markey minute
or a regular synchronized minute, and we are going to find out
right now. The gentleman is recognized for 1 minute.
Mr. Markey. Yes. I just wanted to put in a good word for
PUHCA just so people can understand what PUHCA does and doesn't
do. There is nothing in PUHCA that prevents utilities from
going to Wall Street and issuing additional stock or going to
Wall Street and issuing bonds to pay for investment in new
transmission infrastructure. What PUHCA does do is to prevent
registered holding companies from diversifying into virtually
any business. It limits diversification to out-of-region
generation, foreign utilities and telecommunications.
PUHCA also prevents huge conglomerates, like Warren
Buffet's Berkshire Hathaway, from owning and controlling
registered holding companies. He can be a passive investor and
buy and hold their stocks and bonds, but he can't control the
company. And we know from the rating agencies, from S&P and
Fitch that PUHCA companies tend to have higher bond and hence a
lower cost of capital than the exempts that diversify into
risky unregulated businesses. Where registereds have gotten
into trouble it has tended to be from the unregulated
businesses. The core regulated utility businesses seem to
remain rather profitable, and it still is difficult to
understand why 11 or 12 percent guaranteed return isn't
sufficient for many of these companies to ensure they upgrade
their transmission. Thank you.
Mr. Shimkus. And the question is----
Mr. Markey. No question.
Mr. Shimkus. No question. Now I would like to recognize the
chairman of the Energy and Air Quality Subcommittee, Chairman
Barton, for 1\1/2\ minutes.
Mr. Barton. I want a Markey minute, which is a minute and
42 seconds. That is what was put on the clock. I just want to
say a few good things about ERCOT since it was disparaged a
little bit. You have got 77,000 megawatt capacity, generation
capacity. You have got, I am told, around 30 percent reserve
margin in terms of transmission, you have a reliability
standard that by any measure is as good as any in the country,
you have sufficient natural resources that if you needed to
increase your generation or transmission, you could do it
intrastate, and you serve a territory that is totally within
one State. So I would like to know what is wrong with ERCOT if
it is all done within the State, it has sufficient reserve
margins, both for generation and for transmission, and it has
an excellent reliability standard, and since it is within the
State it doesn't need FERC jurisdiction for interconnection and
interstate commerce. Mr. Makovich, is there anything wrong with
that?
Mr. Makovich. No. There is nothing wrong with ERCOT as a
stand-alone electric system. It certainly is big enough, and,
as you say, the record is clear. The only thing I would add is
ERCOT could benefit with some additional interconnection and it
is typically DC lines that are put in because it is not
synchronous. They have got a lot of bottled up generation right
now, they have got a big surplus, and in the years ahead, not
right now, but in the years ahead that could come in handy to
some neighboring regions.
Mr. Barton. Right. But in terms of serving any other State
that had the natural resources and wanted to use them to build
generation and had a State public utility commission and State
law that allowed for transmission lines to be built in a fair
fashion and expedition, they could do the same thing.
Mr. Makovich. That is right. They have actually gotten more
done because of that focus and alignment.
Mr. Barton. So there is nothing----
Mr. Shimkus. Mr. Chairman, I am going to be challenged by
this side now. You have now reached Markey time.
Mr. Barton. All right. Then I am going to yield back.
Mr. Shimkus. The gentleman yields back. We want to thank
the panel actually for staying for the entire day. We do
appreciate that. And the hearing is adjourned.
[Whereupon, at 5:23 p.m., the committee was adjourned.]
[Additional material submitted for the record follows:]
September 22, 2003
The Honorable John D. Dingell
United States House of Representatives
2328 Rayburn House Office Building
Washington, D.C. 20515-2215
Re: House Energy and Commerce Committee September 4, 2003 Hearing
Inquiry Regarding the Ontario Independent Electricity Market
Operator's Authority to Maintain Reliability
Dear Representative Dingell: This letter is in response to your
inquiry, posed to members of Panel II during the House Energy and
Commerce Committee's September 4, 2003 hearings, concerning the
reliability authorities of the respective ISO/RTOs.
We understand your inquiry to be as follows: ``Would you each tell
me the respective authorities that your agency has with regard to
reliability . . . reporting disclosure; information you might get about
impending problems; powers you have over siting; the ability you have
to require that facilities be run at certain speeds or certain ways.
Indicate to us in each of the cases what powers you have to assure
reliability?''
As Mr. Dave Goulding, President and Chief Executive Officer of the
Independent Electricity Market Operator (IMO) stated in his oral
testimony, the IMO currently has ``the powers a well run RTO would need
to address the problems of reliability,'' including:
1) having access to all the information that is required;
2) having to both run a market-place but also recognizing that
reliability is paramount;
3) instructing changes in dispatch, schedules and loading of lines in
order to respect reliability within that market-place;
4) carrying out investigations; seeking additional information in terms
of whether rules are being complied with or not;
5) enforcing penalties--applying sanctions if necessary; and
6) demanding and ordering corrective plans, and approving those plans.
In his written testimony, Mr. Goulding provided the basis of these
reliability authorities. In particular, the IMO has been granted the
authority for establishing, monitoring and enforcing reliability
standards in its constating statute. As a result, the IMO has been an
active participant in NERC and Northeast Power Coordinating Council
(NPCC) and has adopted the standards developed through those
organizations as the basis for reliability standards in Ontario.
The IMO draws its authorities for reliability from the following
sources:
The IMO's objects assigned to it in its constating statute include
participating in the development of standards and criteria
relating to the reliability of transmissions systems, as well
as directing the operation and maintaining the reliability of
the IMO-controlled grid.
The IMO's licence, granted by the Ontario Energy Board (OEB), enables
the IMO to enter into agreements with Transmitters for purposes
of directing the operation of the grid.
An extensive set of Market Rules that go into considerable detail
related to reliability obligations, authorities, monitoring and
enforcement. A copy of these Market Rules is on the IMO web
site (www.theimo.com). A copy has been filed with FERC for
information.
The IMO is Ontario's Control Area Operator, and is party to the NPCC
agreement.
The IMO is the reliability coordinator for Ontario.
The following responds to your other questions:
Pursuant to the Market Rules, Market Participants are responsible for
reporting and disclosure to the IMO. These requirements are
judged adequate for the purpose of maintaining reliability.
Market Participants are also responsible for providing the IMO with
information regarding impending problems. Specifically, they
must promptly inform the IMO of any change or anticipated
change in the capability of their facilities or the status of
their equipment or facilities. These requirements are also
specified in the Market Rules and operating agreements.
Corrective and preventive actions arising from impending
problems in one control area that may impact another control
area are addressed in operating agreements between the IMO and
its counterpart organization.
While the IMO has no direct authority over siting, the IMO can issue
an RFP for upgrades of existing or investments in new
transmission facilities if the IMO determines that reliability
criteria are at risk in the absence of these investments. The
IMO is also responsible for conducting connection assessments
to determine if proposed facility modifications or expansions
meet established reliability criteria. Interested parties refer
their proposed solutions to the OEB for approval. The IMO's
assessment may have an impact on the siting decision.
The IMO's authorities regarding the control of transmission and
generation facilities to maintain reliability are specified in
the Market Rules and in the operating agreements between the
IMO and transmitters in the province. These rules and
agreements are judged adequate for this purpose.
We trust this is the information you require. We would be pleased
upon request to provide clarification or additional information.
Respectfully submitted,
Amir Shalaby
Manager, Regulatory Affairs, The IMO
______
National Grid
September 9, 2003
The Honorable W.J. Tauzin
Chairman
Committee on Energy and Commerce
U.S. House of Representatives
Washington, DC 20515-6115
Dear Chairman Tauzin: Thank you for the opportunity to testify
before your Committee on September 4 regarding the power outages on
August 14.
During your hearing you inquired about the role and investment
perspectives of independent transmission companies. I would like to
provide further explanation so that you and the members of your
Committee may better understand our role and the nature of our
business.
National Grid USA is an energy delivery company. We are not in the
power generation business. We purchase and manage transmission assets
because through the efficient management of and investment in assets,
we believe that we will be able to make a reasonable return on our
investment. Our clear management focus ensures that our efforts are
concentrated on transmission investment and the benefits to customers
that it can provide.
Our latest venture located within the Midwest ISO is GridAmerica,
an independent transmission company. GridAmerica, subject to obtaining
regulatory approvals, will undertake responsibilities for the
management and planning of the transmission assets of three major
electric utilities in the Midwest.
The independent transmission company business model offers
significant potential benefits to the nation's electricity system,
Independent transmission companies operate, manage and sometimes own
electric trannsmission facilities and are focused solely on the secure
and economic delivery of electricity. Independent transmission
companies will therefore invest in and install transmission facilities
where it is in the public interest. As companies cam returns for their
investors by managing and investing in transmission assets, independent
transmission companies will be, motivated to make those investments, as
long as the regulatory regime affords an opportunity to earn reasonable
returns on them.
In addition to investing in new transmission lines, National Grid
also has experience in maximizing the capability of existing delivery
facilities and rights of way. Building new lines on new rights of way
is almost always more difficult, more expensive, and takes longer than
updating existing facilities. Where additional capacity can be most
easily created by reconfiguring existing facilities, independent
transmission companies can be similarly incentivized through rate
structures that allow them to retain a portion of the savings created
by their efficiency.
I would like to clarify one other point that arose at the hearing
on September 5. One witness implied that New York utilities are
reluctant to invest in transmission because of the potential rate
impacts. National Grid, including its subsidiary in New York, Niagara
Mohawk Power Corporation, already has a capital budget that provides
for a level of investment in excess of the national average. We had
begun discussions with the New York Public Service Commission prior to
the blackout regarding the potential benefits of further upgrades.
National Grid is committed to make the investments in our New York
system that we and the Public Service Commission conclude are in the
public interest. We are confident that working with the Commission we
will be able to manage the impact on rates from those investments.
We would be honored to answer any further questions you may have.
Respectfully submitted,
Nicholas P. Winser
Group Director Transmission,
National Grid Transco plc
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