Blackout Highlights Need to Focus Electricity Legislation on Reliability

August 28, 2003
Consumer Federation of America:
Mark Cooper (301) 807-1623
US Public Interest Research Group:
Elizabeth Hitchcock (202) 546-9707 x 316

Put the deregulation agenda on hold until you figure out how to run the
transmission grid.

(Washington, D.C.) In response to Representatives Billy Tauzin’s request for insight into the causes of the August 14th blackout – as well as suggestions on the necessary steps to prevent future problems – three leading national consumer groups and 33 local and state consumer groups representing 21 states across the country, today called on Congress to focus electricity legislation on reliability and to drop the dangerous deregulation measures contained in current House and Senate versions of the energy bill.
“Electricity is not an ordinary commodity and the transmission grid is a shared asset that must be operated in the public interest,” said Dr. Mark Cooper, Consumer Federation of America’s Director of Research. “It is more like a highway system than a private marketplace and needs to be maintained and managed in a manner that ensures reliable and affordable access to all consumers,” he said.
“Federal authorities failed to establish the conditions necessary to support the deregulated market they were creating and consumers are paying the price,” said Gene Kimmelman of Consumers Union. “But federal regulators still want to rush ahead with more deregulation by removing the vital consumer and investor protections of the Public Utility Holding Company Act and forcing all utilities to create spot markets for electricity and transmission services.”
“The local groups that have spoken out today represent restructured and non-restructured states from all parts of the country,” said Anna Aurilio, US Public Interest Research Group. “We recognize that our electric grid needs some modernization. But the emphasis should be energy efficiency and cleaner, local power options not more business as usual; building more power lines to link more large dirty power plants. And, we certainly do not want existing consumer and environmental protections steamrolled by the deregulation provisions in the Bush energy plan and House and Senate energy bills. National deregulation is not the answer. Congress should require the industry to meet mandatory reliability standards and ensure that those standards are not just created and enforced by the same industry that caused the problem while giving
consumers a voice, and providing a process for reconciling local and national interests.”
The groups that have signed on to the letter are from states that account for two-thirds of all electricity consumption in the country and represent three-fourths of all states that have already restructured their intrastate electricity markets.
CFA and CU released a study entitled How Electricity Deregulation Puts Pressure On The Transmission Network And Increases Its Cost, documenting the pressures that deregulation has placed on the transmission grid. The study concludes:
1) Deregulation increases the demands on an already overburdened transmission network by causing a dramatic increase in the number and complexity of transactions, which the system was not designed to support.
2) Deregulation makes coordination of generation, transmission and distribution increasingly difficult because competitive traders have no interest in cooperation, and system operators have difficulty gathering good information about the status of the system.
3) Deregulation reduces incentives for market participants to invest in long-term facility upgrades and pushes them to raise short-term profits by scrimping on maintenance and repairs.
4) Deregulation creates a need for larger generation reserves and more transmission facilities to prevent market manipulation and dampen price volatility.
5) Deregulation raises the cost of capital in the industry, making investment more expensive.
6) Deregulation does not account for the social and environmental barriers to building additional transmission capacity. It undermines the comprehensive planning process that is necessary to integrate alternative energy approaches, like energy efficiency and local, distributed generation.
The report concludes that pending energy legislation in Congress will only make matters worse because additional deregulatory measures in the legislation would put added pressures on the transmission system. Federal policymakers have failed to build an interstate electricity system capable of handling such pressure.
• There has not been a comprehensive survey of the facilities in the national grid in forty years. No effort to identify the critical bottlenecks and transmission paths that need to be strengthened has been made.
• In a decade of fiddling with the interstate transmission system, the Federal Energy Regulatory Commission has failed to create a transmission authority to plan the expansion and manage the operation of the grid. It has also failed to reconcile local, state and federal interests in siting transmission lines and to balance private incentives to invest in transmission facilities and public obligations to promote reliability.
• Voluntary industry self-regulation of reliability has been uneven and inadequate, but the mandatory industry self-regulation Congress proposes is just as inadequate. The transmission system needs effective public accountability. “Congress and the FERC should devote all of their energy to studying, strengthening and managing the interstate transmission system – to promote the public interest, not the profits of merchant generators and transmission owners,” CU’s Kimmelman concluded. “The two-thirds
of states that banded together to resist the FERC’s Standard Market Design last spring need to send an equally strong message that federal legislation must focus on the reliability problem and put failing experiments with electricity deregulation on hold.”
To obtain a copy of the complete study please visit:
For a copy of the letter sent to Congress click here.

The Consumer Federation of America is the nation’s largest consumer advocacy group, composed of over two hundred and eighty state and local affiliates representing consumer, senior, citizen, low-income, labor, farm, public
power and cooperative organizations, with more than fifty million individual members.
Consumers Union, publisher of Consumer Reports magazine, is an independent nonprofit testing, educational and information organization serving only the consumer. We are a comprehensive source of unbiased advice about
products and services, personal finance, health, nutrition and other consumer concerns. Since 1936, our mission has been to test products, inform the public and protect consumers
U.S. PIRG is the national advocacy office for the state Public Interest Research Groups. State PIRGs are non-profit,
non-partisan public interest advocacy organizations.

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