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U.S. Power Grid Faces Grim Summer by James Jelter Reuters, March 30, 2001

The electricity system supporting the world's biggest economy is old, tired, and in danger of falling apart.

While U.S. regulators, power companies and the public all share blame for the system's neglect, it has taken a major energy crisis in California — the high-tech darling of the U.S. economy — to drive home just how bad things have become.

Former Energy Secretary Bill Richardson summed it up last May, when strong demand and scant supplies triggered a tenfold explosion in Western wholesale power prices: "We are a superpower economically, but we've got a grid that's almost a Third World grid."

California's economically disruptive energy woes highlight a national shortcoming exposed by 11 percent growth in the nation's population this past decade, an explosion of electrical gadgets Americans use at home and the heavy demand for power from the Internet-driven New Economy.

And an expected increase of 15 percent or more in new generation won't come fully online for another two years, leaving much of the nation extremely vulnerable to outages in what promises to be a long — and costly — summer.

Beyond California, there is a growing threat of severe energy shortages across the Western half of the country this summer.

The populous Northeast, though facing less dire shortages than the West, is also grappling with thin supplies, prompting a rush to build new power plants in New York City.

Meanwhile, constraints on the transmission grid continue to hamper the flow of energy in parts of the South.

In California, severe energy shortages have dragged the state's 34 million residents through four days of rolling blackouts so far this year, and state officials warn there are more to come.

The California Independent System Operator, which manages most of the state's grid, predicts shortfalls this summer of up to 6,800 megawatts — enough to power 6.8 million homes — when air conditioning pushes power demand to its annual peak.

That translates into up to 200 hours — nearly three work weeks — of power outages statewide and possibly more if the Golden State suffers an unusually hot summer.

President Bush earlier this month told reporters "The energy crisis we're in is a supply-and-demand issue, and we need to reduce demand and increase supply."

Simply put: the United States has outgrown its power system.

The Energy Information Administration, the U.S. Department of Energy's statistical arm, estimates demand for electricity is growing nationwide at 2.1 percent a year.

But that growth rate is much higher in the West, South and parts of the Northeast, the regions experiencing the fastest population growth and hosting the strongest local economies.

Supporting those economies are a fleet of corporate and home computers and "server farms" — vast warehouses crammed with the computers that run the Internet.

The biggest of these farms use a whopping 120 megawatts around the clock, equal to the energy use of 120,000 homes and enough to merit a new mid-sized plant to serve each facility.

Also contributing to the surge in demand is the flood of electronic appliances filling American homes.

Central air conditioning, VCRs, microwave ovens, automatic garage door openers, programmable lighting and watering systems were novelties in most homes 25 years ago, if they existed at all. Many homeowners today cannot imagine life without them.

The Northwest Power Planning Council, an agency of the states of Idaho, Oregon, Montana and Washington, reported last month that the demand for electricity has grown 24 percent in the past decade while new generation has grown only 4 percent.

"When California is factored in, the gap between demand and supply is even greater," the report said.

Adding to the Northwest's energy worries is a severe drought, shrinking reservoirs behind some of the world's biggest hydroelectric dams to their lowest levels in 25 years and cutting deeply into available supplies.

During years with normal rainfall, hydro-power accounts for about 70 percent of Washington state's electricity.

Natural gas, used to generate about 20 percent of the nation's electricity — and up to 35 percent in California --is also in short supply, the result of several years of mild winters, low demand, and flagging drilling activity.

On top of these fuel shortages, the country is now coming to grips with its failure to build new power plants.

A decade ago, the United States enjoyed a healthy surplus of electricity, prompting a move toward deregulating the electric utility sector by introducing competition to produce a more efficient marketplace and, ultimately, cheaper energy prices.

But uncertainties tied to deregulation discouraged utilities from investing in new generating assets.

At the same time, few regulators could foresee the boom in energy demand unleashed by the technology-driven economy of the 1990s.

Add to this mix widespread public resistance to placing electrical gear anywhere near their neighborhood, and there were not many incentives left to spark power plant construction.

In the Western states, for example, it has been 10 years since a major power plant was brought on line.

Years of neglect also dog the nation's transmission grid, the 203,600-mile high voltage network linking power plants to neighborhood distribution lines.

The grid has seen few changes in 50 years. Designed to serve local utilities, deregulation has encouraged energy marketers to "wheel" their electrons ever greater distances to reach more lucrative markets.

This is putting a huge strain on the system, leading to bottlenecks that often create shortages rather than ease them.

Upgrades to the system have been slow in coming mainly because the transmission rates grid operators can charge are still tightly regulated, leaving them little financial incentive to invest in their aging lines.

Generators, on the other hand, are bombarded by price signals, with soaring wholesale prices screaming a clear, albeit belated, message to build more power plants.

Given the stream of cash being pumped into new power plants, the North American Electric Reliability Council (NERC) predicts between 109,000 and 193,000 megawatts of new generation will be in place by 2004.