Experts Agree: Nation's Electric System Aging, Byzantine

November 17, 2003

Trying desperately to prevent a surge of electricity from blacking out his customers, an Ohio utility manager picks up the phone on Aug. 14 and asks for help from Don Hunter, the "reliability coordinator" for a group that oversees the flow of power in portions of 15 Midwestern states.

Hunter replies that he'll do what he can, but he can't make the individual utility at the source of the surge do anything. "I'm sure not in control of it," he says. "So it would be kind of a voluntary thing."

An hour and forty minutes later, the phone rings again in Hunter's office at the Midwest Independent System Operator in Carmel, Ind. Now, several Midwestern power plants and transmission lines are failing, threatening a large blackout.

Why? "We have no clue," a manager of another Ohio utility tells Hunter. "We don't even know the status of some of the stuff around us."

Hunter can only agree. "Overall," he says, "I can't get a big picture of what is going on."

In two more hours, the problems in the Midwest will spiral into a devastating outage that races from Cleveland to Montauk Point in fewer than three minutes, knocking out power to 50 million people and costing the U.S. economy an estimated $6.4 billion.

Days later, when Congress asks a top grid official why it happened, he still isn't sure. "I can't answer that question. I am embarrassed," says Michehl Gent, president of the North American Electric Reliability Council, a group that sets rules for how utilities use the grid, but can't enforce them. Instead, the council hands out what it calls "simulated penalties," pretend fines that are never collected.

Welcome to life on the nation's electric grid, a place where cooperation during a potential emergency is "kind of a voluntary thing," no one has the "big picture" and enforcement is "simulated."

It's a world where thousands of companies make, sell, buy or transport electric power over a fragile 200,000-mile grid of aging overhead lines, buried cables, substations and transformers. And it's a world that's only loosely supervised by a byzantine array of squabbling and weak public, semi-public and private groups and agencies with close ties to the industry and little public oversight.

Until Aug. 14, few paid much attention to the workings of what has been called the largest machine in the world. But in the wake of the biggest blackout in U.S. history, the electric grid has been placed under the spotlight as never before.

Many of the revelations have been embarrassing, especially the confused conversations of Hunter and other grid operators on the day of the blackout, conversations divulged in transcripts released by Congress. And more embarrassing revelations may come tomorrow, when an interim report on a federal probe into the blackout is expected to be released.

But while that report will probably draw even more attention to the chaos of Aug. 14, the reality is that the grid's problems run much deeper than the events of a single day. In the three months since the blackout, a team of Newsday reporters has found that the nation's electrical grid is acutely vulnerable to future outages because of a management structure that is rife with potentially disastrous contradictions:

The electric grid delivers a commodity that's almost as essential as water, but it was built haphazardly and is managed inconsistently from region to region by groups with strong ties to the industry and little accountability to the public.

It's as interconnected as the most intricate spider web, yet there's no single centralized system or authority that controls the massive amounts of electricity that surge along its wires.

And it's as interdependent as a house of cards - a failure in one sector can quickly cascade into a massive blackout - yet its rules are weak, inconsistent and often unenforced.

In truth, Newsday found, no one runs the nation's power grid. Management authority is divided among dozens of entities - including individual utilities in some parts of the country, and a balkanized mixture of single- and multi-state "system operators" with varying responsibilities and powers in other parts.

These "managers," in turn, are guided by a dizzying array of national, regional and local "reliability councils" that set rules - or voluntary guidelines, in some cases - under which the managers are supposed to operate. And on top of that, different pieces of the system are overseen by federal and state regulators with different policies and unresolved disagreements about exactly where the lines between their authority are drawn.

In a sense, the grid is a single, enormous machine that requires synchronicity, but its cogs and gears are governed by a series of self-managed fiefdoms - known by acronyms like NYISO, NERC and FERC - with no ultimate overseer in a position to make sure everything is synchronized.

Even some of the grid's key managers admit to being amazed at the laxity of a system that carries 40 percent of the energy used in the United States.

"It's actually inconceivable to me that in the United States of America, where electricity is such a vital, absolutely essential commodity - not just for safety, but from the standpoint of the economy - that there aren't any mandatory rules," said William Museler, president of the New York Independent System Operator, which operates the grid within New York.

The Changing Grid

Thomas Edison couldn't possibly have imagined the bewildering chaos of today's grid when he first dreamed up the idea of distributing electricity in neighborhoods in the early 1880s.

But Edison's vision of individual utilities operating their own small grids became obsolete when providers found they could avoid blackouts by sharing power during emergencies and by cooperating in times of peak demand.

In 1965, however, utilities learned a lesson about sharing that still haunts them: The linking of regional electric systems makes them vulnerable to cascading blackouts that spread via those interconnections. That November, a sudden failure in a key Canadian transmission line sent a massive surge of power into New York that eventually shut down most of the Northeast grid.

At the time, utilities responded to the threat by creating industry cooperatives called "power pools," management groups designed to ensure coordination of power flows on wires owned by their members. But even with these coordinators in place, utilities remained accountable to state regulators who made sure electric companies invested in appropriate infrastructure and charged reasonable rates.

In the mid-1990s, however, things changed once again.

That's when the Federal Energy Regulatory Commission (FERC) - an agency that until then had a relatively invisible role in the oversight of the nation's grid - suddenly pushed deregulation onto the national agenda. FERC required that all transmission companies allow open access to their lines, rather than using them solely as an extension of their monopoly power.

The goal: Reduce cost by allowing generators to sell their power competitively. The thought, said Richard Hirsh, a historian at Virginia Polytechnic Institute, was that "innovation would go up, and costs would go down."

It remains an open question as to whether consumers have benefited from FERC's bold move; experts disagree about how deregulation has affected electricity prices. But there's no dispute that it profoundly scrambled how the grid is managed, pushing many states to disassemble the old utility monopolies and replace them with more complex systems that were less accountable to the public.

In New York, for example, utilities kept ownership of their high-voltage transmission lines but were required to sell off their power plants to independent companies that weren't subject to state oversight. While states continued to regulate the rates charged by utilities, a key component of those rates - the cost of bulk power - was suddenly to be determined in the marketplace.

After more than a century of relatively light usage by a few large utilities, the grid became the vehicle for a freewheeling electricity market in which hundreds of companies of all sizes began cutting deals to move power over very long distances.

Three little-known groups - the independent system operators (or ISOs), FERC and the reliability councils - were given the daunting responsibility of trying to make sure the grid could handle the brave new world created by deregulation. They direct traffic on the electron superhighway, set rules of the road and administer the markets that set the cost of the tolls.

But a close-up examination of those groups also goes a long way toward explaining why, 38 years after the blackout of 1965, the grid remains alarmingly vulnerable.

The New Managers

Day-to-day management of a growing portion of the grid is controlled by independent system operators, established in the wake of deregulation.

But each ISO is shaped by forces within its own region. Each has its own unique operating rules and standards, and each is strongly influenced by the interests of its region's electric companies. As a result, there's no guarantee of coordination between regions, and no certainty that lax oversight in one part of the country won't cause problems for a better-run neighbor.

Though few know it exists, the New York Independent System Operator (NYISO) is responsible for managing the flow of power over 10,700 miles of transmission lines, and for running a market at which huge quantities of electricity are bought and sold.

Its president, former Long Island Lighting Co. vice president Museler, earns $700,000 a year, benefits and deferred compensation to manage 200-plus technocrats - some of whom keep their eyes fixed on the grid's control board 24-7, ready to react to emergencies, and others of which are responsible for designing and monitoring banks of computers that sort out offers to buy and sell electricity and quickly coordinate them with the capacities of transmission lines.

NYISO is well-regarded for its management of the state grid. But like other ISOs, it operates with little public accountability in the twilight between government and industry and with only limited authority to carry out its responsibilities.

Created in 1999 in response to FERC's revolutionary 1996 order forcing monopoly utilities to open up their transmission lines, NYISO replaced the state power pool, a group of utilities that banded together after the 1965 blackout to help coordinate the flow of power on the state grid. The thought at the time was that managing the grid would require an independent body that wouldn't favor the entrenched utilities over new players in a free and open market.

NYISO's broad policies were designed to be set by a board of directors who were not allowed to have ties to companies involved in the New York energy market. The board's original members were appointed by a committee consisting of the state's eight top utilities, the state itself, several independent power companies and public interest groups. Five of the board's current members have links to the energy industry outside New York, but its members also include an environmental attorney, a banker and an information technology consultant, among others.

But while state officials had a say in creating the original board, they have no control over the naming of new board members. The board is self-perpetuating - it selects its own new members.

Critics suggest that this means that NYISO is no longer accountable to the public in any significant way. And they say that while board members can't have ties to the local market, many of NYISO's key management and operating committees are dominated by market participants such as Con Edison, which owns transmission lines, and Mirant New York, a power-generating company.

"The three main benefactors to NYISO's existence are itself, power generators and utility companies," the New York Public Interest Research Group complained in a recent policy paper. "Bureaucrats and technicians are implementing policies that are heavily influenced by self-interested parties."

NYISO also lacks authority to execute changes that many observers say are needed to keep the state's grid running smoothly, even as the power running through it has increased. While NYISO controls the market that determines prices, it can't itself build a plant or generate a kilowatt of electricity. And while NYISO runs the grid, it doesn't own a single power line, and can't make an owner upgrade equipment or string new wires.

Instead, it can only recommend, and its recommendations can be - and frequently are - ignored, according to the organization's own leaders.

"The most useful thing you could do in the Northeast would be to build more transmission lines to connect the markets," Museler has said. "We absolutely have no power to make it happen ... Right now, no one has the authority to order anything to be built."

Additionally, NYISO has no sway over the reliability of the neighboring systems that constantly feed into and off of the state grid. Indeed, Museler laments that no one has that power, a problem he says is "just astounding."

Each ISO is, in fact, created independently by forces within its own region. They set their own rules, subject to FERC oversight, and some are much more advanced than others in supervising energy trades in their regions.

For instance, the grid sections directly east and south of New York are run by independent operators that are similar to New York's, helping to control both the market and flow of electricity. But the operator covering much of the Midwest - including the region where the Aug. 14 blackout originated - is still being formed and has yet to get its electricity market in place.

Additionally, ISOs cover only about 20 percent of the nation. Grids elsewhere are controlled by individual utilities that follow their own rules.

All told, there are 110 entities managing different parts of the grid in the United States and Canada, and experts agree there is no organized authority at any level of government mandating that the actions taken by any one operator be coordinated with the actions of its neighbors.

In other words, it's a fractured, piecemeal system that's strikingly unsuited to handling the stresses of burgeoning electric competition.

"You've opened up this wholesale market for people to do transactions on the grid, and then you have many, many locations within the same grid where people are trying to maintain control and prevent transactions from taking place," said William Hogan, research director of the Harvard Electricity Policy Group. "You've got people in Ohio trying to trade with people in New York, and they have to send the power through places that don't want to cooperate, essentially."

The Overseers

The new grid managers are supposed to answer to FERC, an agency whose bold efforts to reshape the industry created much of the turmoil now buffeting it. But while FERC oversees the routine actions of regional managers, its efforts to create a unified management structure with consistent rules have failed because of parochial concerns and political pressure.

Three years after its 1996 order opening up the nation's transmission lines to free-market competition, FERC took a belated step to try to ease the confusion its policies had fomented. The agency suggested that dozens of individual fiefdoms that control pieces of the grid be consolidated into four uber-agencies. As envisioned by FERC in 1999, the consolidation would lower electric prices in some areas, facilitate transmission line upgrades and reduce the chance of blackouts by centralizing control of transmission wires.

Four years later, the grid is as balkanized as ever, and FERC's plan has stalled indefinitely, a black mark for an agency that put more emphasis on opening up the grid to competition than in making sure power reaches consumers without interruption.

Established in 1977, FERC is run by five bipartisan commissioners who are appointed to five-year terms by the president and approved by the Senate. Its vast purview includes regulating the interstate transmission of natural gas, oil and electricity, and its decisions are not reviewable by Congress or the president.

Unsurprisingly, considering the scope of its responsibilities, FERC has been the subject of intense political fights in recent years. In 2001, for instance, now-disgraced Enron chief executive Kenneth Lay, a friend of President George W. Bush, had offered to support the renomination of then-FERC chairman Curt Hebert Jr. in exchange for Hebert's promotion of free-market competition in the electric industry.

When Hebert resigned to take a job with Entergy Corp., Bush gave the job to Pat Wood, a former Texas Public Utility Commission chairman who was on a list of FERC candidates recommended to the White House by Lay.

FERC's role in regulating the grid has its roots in a 1935 law that gave its predecessor agency, the Federal Power Commission, the authority to oversee interstate transmission of electricity. At the time, there were few interconnections between utilities and little energy trading.

Today, however, any electricity introduced into the system instantly becomes part of a vast pool that's constantly involved in interstate commerce. As a result, FERC has claimed authority over most wholesale transactions.

But FERC's efforts to usher the industry into a brave new age of competition has been a lot like herding cats, with many electric companies and states resisting agency efforts to set consistent rules and consolidate management.

Consider the agency's plan to consolidate grid management into four "regional transmission organizations," or RTOs. The RTOs would coordinate grid traffic and track sales between utilities, but over a much larger area than the existing ISOs.

In the Northeast, FERC ordered the ISOs serving nearly 60 million residents in New York, New England and the mid-Atlantic region to discuss a merger. But the shotgun wedding was called off after reams of legal briefs and a series of closed- door meetings in Washington bared a variety of parochial concerns - with grid managers in each of these areas jealously protecting their own bureaucracy's autonomy, government officials fretting about the impacts on the price of power and utility regulators looking out for the interests of local companies.

Connecticut officials, for example, complained that New York would siphon cheap power from New England. The state's attorney general, Richard Blumenthal, told a trade publication the RTO would be "an energy empire" that would lead to "higher prices for New England consumers with very uncertain benefits."

NYISO, meanwhile, questioned whether the software necessary to run such a system was technically possible, and said that the same end might be achieved by simply improving coordination between the existing ISOs.

The end result was that the RTO proposal withered, and four years after the proposal was first made, grid management remains as byzantine as ever.

"While the main objective of RTOs was to provide greater access to the market for competing entities, a very happy by-product of that approach is a more reliable system," said FERC spokesman Bryan Lee. "That belief of the commission is stronger in the wake of August 14."

The Rulemakers

The managers who ship power from place to place are working from a rulebook written by the electric industry, specifically by the North American Electric Reliability Council (NERC).

But the rulebook, which predates the cutthroat competition of deregulation, carries no enforceable penalties, a factor that many identify as a key problem.

Three years ago, for instance, NERC's general counsel, David Cook, delivered what now appears to be a prescient warning to a House subcommittee. He noted at the time that FERC was seeing an increasing number of "violations" of its security rules. "If these trends continue," he warned, "we face the increased likelihood of grid failure."

The trends did indeed continue. Last year, for instance, there were 444 such violations nationwide, including some that had the potential for causing huge power outages, according to a Sept. 2 letter from NERC president Gent to Rep. John Dingell (D-Mich.).

When Dingell asked what NERC had done in response, the question of enforcement became key once again. None of the infractions resulted in actual fines, Gent replied, just $9 million in "simulated penalties."

It was an ignominious moment for the group whose rules are supposed to make sure that hundreds of companies that transport power do so without knocking the fragile transmission system out of balance and triggering outages.

NERC was, in fact, created by the industry in the wake of one of those outages. The council was formed three years after the 1965 blackout, charged with creating a voluntary set of standards designed to help ensure reliability and train grid personnel and emphasize the sharing of information.

Gent, its president, has been with the council since 1980. Its board is made up mostly of experts from the energy industry, but also includes Donald Hodel, a former secretary of the U.S. Energy Department, and Charles Henry, a former president of the Chicago Board Options Exchange. Board members are selected from a committee that's dominated by industry representatives, but also includes five representatives of federal and state regulatory agencies.

Below the national group, 10 regional reliability councils tailor those standards to the idiosyncracies of each regions' high-voltage networks. New York, for example, has its own reliability council, which is a member of the Northeast Power Coordinating Council, one of the 10 regional councils under NERC.

When the reliability councils were first created, it was assumed that members of the industry who had cooperated in creating the grid would also work together voluntarily to ensure its reliability. The advent of deregulation, however, changed the culture: Instead of a clubby network shared by a few large utilities, the grid became a free-market free-for-all. Meanwhile, NERC remained trapped in the old culture, locked into a "voluntary" rule system and "simulated" penalties.

To be sure, not all of the regional councils are paper tigers. The Northeast Council's operating standards are mandatory by agreement of its members. Its chairman, Charles Durkin, said compliance has been excellent.

"I think it's always helpful if parties who have responsibilities know that adherence to criteria is being watched and action will be taken if they don't," Durkin said.

But the nature of the interconnected grid means that, no matter how strict the local rules are, a slip somewhere else can mean disaster in New York, too. And outside the Northeast, compliance has been spottier.

"The weakest part of the electric grid is generally where one system abuts another," NERC's Cook said in his 2001 testimony to Congress. "These systems were not designed to move large blocks of power from one part of the country to another, across multiple systems, as is happening today."

Fixing the Grid

James Thorp has heard it all before: all the talk about fixing the grid.

"In 1965, after the blackout, a lot of careers were launched because of all the things that were going to be done to improve the system," said Thorp, a professor of engineering at Cornell University. "But most of the things weren't done."

Fallible relay devices, and equally fallible human operators, are still the grid's overworked traffic cops, he said, explaining that "it's the same system, really. It hasn't changed in more than 35 years."

Will the grid's many problems really be fixed this time around, in the wake of August's outage, the worst ever in the United States?

Thorp and other experts say that will depend on whether politicians and electric companies are willing to reconsider some widely held assumptions about what should happen next.

Some experts say the most popular "solution" being advocated by many electric companies - building new transmission lines financed by consumers - won't do much to reduce the likelihood of blackouts, though it could lower power prices.

Instead, many people who have studied the grid for decades say the keys to building a more reliable system will be to spend money strategically on better protective devices and faster computers while drastically strengthening the tattered patchwork of government agencies and industry groups responsible for its management.

The problem is, there's no consensus on who should pay for the upgrade or how the money should be spent. Meanwhile, in Washington, political rivalries have complicated efforts to centralize operations and set mandatory standards for the hundreds of electric companies that own large pieces of the interconnected grid.

"We're in this transition. We're sort of halfway there, but we haven't put the institutions in place to manage the grid," said Hogan, the Harvard professor and an influential advocate of electric deregulation.

In the weeks since Aug. 14, the conventional view has been that the United States needs to spend billions of dollars easing transmission "bottlenecks" and "line congestion" on the grid.

On one level, that made sense because early analyses of the summer blackout suggest that it started with the cascading failure of overloaded transmission lines. But some experts suggest that a massive program to upgrade the grid's infrastructure is unrealistic because it ignores both the financial realities of the industry and the physical quirks of the grid.

For the nation's electric companies, the timing couldn't be worse for a major push to bulk up the grid. Many are deeply in debt and refuse to finance major transmission upgrades because, the companies say, the projects are simply not good investments. Instead, the companies say that government regulators don't allow them to sufficiently recoup their transmission spending from ratepayers.

And even if building new lines could be justified economically, they wouldn't necessarily improve the reliability of the grid, some experts say.

Here's why: Since companies only build new transmission lines when there's enough demand to make a profit, any new line that's built will probably quickly be filled to capacity, leaving no more space than before to cope with unexpected breakdowns.

"Let's suppose you build a new transmission line," said Daniel Kirschen, a professor at the University of Manchester in England. "People who have power to sell and people who want to buy that power are just going to say, 'Great, there's more capacity; I'm going to buy it.' Pretty soon this extra capacity is taken up."

Kirschen said the best way to improve reliability would be to invest in protection and monitoring technologies that would take the guesswork out of determining whether transmission lines are in danger of being overloaded.

His contention is backed by Thorp's studies of the New York grid, which suggest that a limited number of critical relays can be replaced at a reasonable cost, strongly benefiting reliability.

Edward Krapels, founder of ESAI, a Massachusetts-based consulting firm to the energy industry, makes a similar point. He estimates that a "few billion well-placed dollars will solve the reliability problem," but it will take "tens of billions of dollars to thoroughly modernize and optimize the grid."

Help may also come eventually from new technologies that allow much more electricity to flow over existing rights of way. High-temperature superconducting cables, and cables with composite instead of steel cores, are still being tested.

However, improved tower designs and more compact line configurations are already being used by many power companies to increase their transmission capacity without the companies having to find new places to build towers and lines.

But improving the mechanics of the grid is only half the battle.

Many experts say an even greater imperative is to strengthen the way the grid is managed by humans. And here, the key barrier has been even more daunting than money: it's politics.

The blackout created a new sense of urgency in Congress, experts say, but it remains unclear whether that will translate into action.

Democrats and Republicans agree that a reliability statute is needed to make NERC's operating standards mandatory. After weeks of delay in squabbling about nonelectricity provisions, House and Senate Republicans released a comprehensive energy bill during the weekend that includes federally enforceable reliability standards and financial penalties for rule violations.

Republicans want to bring the bill to a vote in the Senate and House this week. However, its fate remains uncertain because of filibuster threats by Senate Democrats.

Additionally, FERC's original vision of a few strong grid managers operating under consistent rules is already being diluted by political realities. The bill allows utilities to opt out of regional transmission organizations and would stall an effort by FERC to have those organizations standardize their rules on access and management of transmission lines.

Lawmakers and regulators in the Southeast and West, where electricity is cheaper, fear the new transmission groups will require that their low-cost power be shared with the higher-cost Midwest and Northeast.

This summer, Sen. Richard Shelby (R-Ala.), a staunch opponent of the proposed FERC rule, said he and Sen. Pete Domenici (R-N.M.), the lead Senate negotiator on the energy bill, had reached an agreement with Vice President Dick Cheney to delay "any implementation of standard market design and to prohibit mandatory participation in regional transmission organizations until Dec. 31, 2006."

The bill reflects that language and does not compel local power companies to join regional networks.

Even if Congress fails to act, experts say it is possible that federal and state regulators can come to an agreement on their own about the RTOs. But that could lead to an even more diluted plan, experts say, with FERC already announcing that it has modified its initial proposal to "allow greater regional flexibility than originally envisioned," said FERC spokesman Bryan Lee.

But even though FERC's new and more flexible approach "is pretty vague," according to Harvard's Hogan, he argued recently that it would be a "huge mistake" to continue to delay its implementation.

It's time, he said, for Congress and the states to allow grid management reforms to move ahead. "We are sort of halfway there," said Hogan.

"The notion that you can have an interconnected grid with all this interdependence, and then have one set of rules for one part and another set of rules for another part is courting trouble," he added. "And that's where we are today."

Power Politics

The North American power grid is a labyrinthine array of public, semipublic and private agencies with close ties to the industry but little public accountability. Different pieces of the system are supervised by different regulatory bodies, whose policies and unresolved disagreements hide where the lines of authority lie.

At the top of the grid lie the four interconnected networks (No. 1), the reliability councils (2) and the independent system operators (3), organizations that manage the power that ultimately reaches homeowners on Long Island and in New York City.

(map not in text database)

The Power to Choose

Twenty-three states and the District of Columbia have enacted legislation or issued regulatory orders allowing customers to choose their own energy suppliers. Under this type of restructuring, the local distribution company still continues to deliver energy services.

A state-by-state look at energy restructuring:

Currently Restructuring




District of Columbia






New Hampshire

New Jersey

New York




Rhode Island



Restructuring Delayed




New Mexico


Restructuring Suspended


Currently Not Restructuring

















North Carolina

North Dakota

South Carolina

South Dakota





West Virginia



SOURCE: U.S. Energy Information Administration

The Busiest Lines

According to a 2001 report issued by the Federal Energy Regulatory Commission, some of the most congested power lines run along the Eastern Regional grid, including two lines that run between New York and Pennsylvania. These "choke points'' can bottleneck the system and cause blackouts.

Percentage of time congested

80 percent and above

60 to 79 percent

40 to 59 percetn

20 to 39 percent

10 to 19 percent

(map showing the busiest lines not in text database)

SOURCES: : Federal Energy Regulatory Commission; The Associated Press

Rising Demand

According to energy experts, the growing use of computers, office equipment and other electrical appliances will only be partially offset by the improved efficiency of their operation. That's just one reason they expect a steady rise in electricity demand. Below is a look at U.S. electricity use from 2000 to 2002 with projections for the future.

All sectors Residential Commercial (in quadrillion BTUs)

2000 11.73 4.07 3.96

2003 12.04 4.37 4.26

2005 12.57 4.53 4.49

2015 15.29 5.59 5.25

2025 17.92 6.83 5.94

SOURCE: U.S. Energy Information Administration

Copyright © 2003, Newsday, Inc.