How We Got Here

Our power problems today largely stem from how we built the national grid in the first place. The American power grid wasn’t a planned network in the way we might think today of corporate networks. Much like the Internet, it was a patchwork of networks cobbled together over the course of a century.

Until 1996, utilities were vertically integrated entities that supplied all facets in the power chain, selling to the company that supplied the transmission lines and built the power plant or relied on exchanges with other utilities. The networks were built around generation stations located near the energy sources needed to drive them. Radiating out from the generating stations were high-voltage transmission lines and then lower-voltage distribution lines.

Over time, the utilities joined their networks together when they realized the potential reliability that could be achieved through interconnection and generation-sources diversification. Interconnection also enabled neighboring power systems to transfer power locally or regionally. Yet, the industry remained static and the networks limited. Despite these connections, the grids were never planned for national operation. They simply weren’t designed to transmit large quantities of power over long distances, such as from the Midwest to the Northeast.

In 1996, the Federal Energy Regulatory Commission (FERC) took the first step toward addressing those problems by opening the power grid to competition and eliminating vertical integrated entities. The landmark Orders 888 and 889 required utilities to allow non-utilities, or independent power producers, to access and use the utility’s transmission network. Thus, the wholesale energy market was born. From 1996 to 1999, wholesale power marketers increased sales by more than sixfold.

Even so, utilities were slow to upgrade or change the fundamentals of the transmission network. For one thing, the costs were daunting, ranging from $50 billion to $100 billion. And a confusing assortment of government regulations and deregulation policies discouraged utilities from upgrading their networks. Regulations also capped the ROI that utilities could realize on an investment, limiting their ability to recoup the costs of major structural changes.

In 2004, a U.S.-Canadian task force published the results of their research into the massive blackout of 2003. They called for reforms that effectively gave FERC greater power to enforce the standards, increased the role of regional reliability councils, and improved the data collection and cooperation of various regional utilities. But the lack of federal legislation for energy-related reform in 2004 meant the U.S. electricity grid continued to languish in essentially the same condition as it was in during the time of the 2003 blackout.

As late as 2007, pundits were sceptical that utilities would invest in building a smart grid. Utilities are “grossly risk-averse and grossly hesitant to adopt new technology,” Alison Silverstein, an energy industry consultant and a former regulator, said in 2007.

But that was then, and this is now. President Obama’s focus on grid modernization as a way to improve the economy and the environment energized the once-moribund process of grid evolution. The American Recovery and Reinvestment Act of 2009, better known as the “Stimulus Bill,” added the necessary money, allocating $4.5 billion toward grid efforts.

“The world has changed a lot in two years, and many utilities want more rate-based assets,” says Silverstein. “We have regulators who want more reliability and efficiency and public policy, and a public worried about greenhouse gasses and global warming. Customers also want more options, more control and moderated costs.”

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