Op-ed: Electricity sector restructuring

M V Ramana

People around the world have paid a heavy price by letting government bureaucracies and politicians operate the electricity sector as they saw fit. The market is no more to be trusted to protect the public good

The electricity blackout that swept across much of the North Eastern United States and Canada on August 14 has come in for much analysis. While definitive answers to the many questions that have arisen would take a while, these analyses indicate that the structural factors that underlie the blackout stem from the deregulation of the electricity sector. Since many countries around the world, India and Pakistan included, are in the process of restructuring their electricity sectors, the impacts of deregulation in the US and their implications are very pertinent.

The main idea behind deregulation is to make electricity a commodity that can be traded like rice or computers, thereby generating profits for investors. Increased trade was supposed to result in lower prices because of improved efficiency. In practice, this idea meant unbundling state-owned integrated electric utilities, and allowing different players, including private ones, to control generation of electricity, its transmission and its distribution.

In the US, such restructuring has had several effects. One that is relevant to the August 14 blackout is that vast amounts of electricity now flow through the grid through great distances. For example, large industrial customers in the Eastern US routinely shop for power in the Midwest. Since the system was not originally designed to deal with these volumes, the grid has been under stress. Investment on transmission has only been a fraction of what is needed. Another effect has been that in order to maximise profits, utilities have cut their expenses by working with low power margins — i.e., minimal extra generating capacity that can be switched on at short notice if there is a sudden surge in demand.

Electricity cannot be stored very easily. Hence demand and supply have to be carefully matched at all times. The introduction of multiple players means that for a stable and reliable electric grid, different power generators, transmitters and users have to follow very strict rules. But given the anti-regulatory sentiment that accompanies the neo-liberal economic ideology that underlies restructuring, it should not be surprising that the agencies or institutions that could set and enforce such rules are relatively weak.

All of these changes resulting from deregulation have led to greater unreliability of the grid. North America has seen a number of grid collapses in recent years, including the one on August 14. For some years now several industry experts have issued warnings of a massive grid failure.

Despite those prognoses and the ‘I told you so’ character of the August 14 blackout, the event illustrates how complex, tightly coupled systems, like the electric grid, are prone to accidents. Small failures can quickly cascade. The time lag between the first transmission line being shut down in Ohio and the city of New York losing power was less than an hour. According to Energy Secretary Spencer Abraham, there were “10,000 individual events across 34,000 square miles of transmission lines and 290 transmission units that all took place over a 9-second period leading up to the blackouts”.

In common with several large accidents is the contribution from various small and often inexplicable failures. An alarm system at FirstEnergy Corporation, the utility which owned the transmission lines whose failure triggered the blackout, did not properly notify the utility of the failure of one of its major transmission lines. The malfunctioning of a computer prevented technicians at FirstEnergy from understanding why transmission lines were failing.

One elliptical inference from the August 14 blackout, therefore, is that excessive reliance on such complex systems is dangerous. In the case of the blackout the consequences were grave but this sort of massive failure in, say, a nuclear weapons command and control system could lead to catastrophic consequences.

These questions about reliability and the possibility of large-scale failure within the new restructured electricity sector does not imply returning to the older model. The older setup had definite problems, including unreliable supply. In India, for example, electricity supply has traditionally been punctuated by numerous planned and unplanned outages. The sector also featured financially non-performing state electricity boards and inefficiently running electric power plants.

But that does not automatically mean that the current privatised model propagated by multilateral funding agencies like the World Bank is the right one. Identification of symptoms does not always translate to either proper diagnosis or successful treatment. The first task, therefore, is a thorough examination of how restructured electricity sectors have performed and seeing if they have lived up to the promises that they came with. The record here seems to be spotty. While the overall efficiencies may have gone up, failures like the August 14 blackout and the 2001 crisis in California do derive from restructuring.

Restructuring of the electricity sector has taken place in a broader context, with markets and private capital being entrusted with various functions that were formerly under the purview of governments. Under this philosophy, the notion that people were entitled to cheap and reliable electricity supply (like clean water) came under attack. Hence, in the current restructuring schemes, availability to poor or otherwise disadvantaged customers has not been given high priority. Similarly environmental considerations also take a second place to profit.

These other considerations in electricity sector restructuring may affect a large number of people, especially in the long-term. So far these matters have largely been articulated by NGOs, such as Prayas in Pune, India, International Energy Initiative, and the World Resources Institute. This has to change.

For these considerations to play a role, the public must intervene and shape the restructuring process. People around the world have paid a heavy price by letting government bureaucracies and politicians operate the electricity sector as they saw fit. The market is no more to be trusted to protect the public good.

M V Ramana is a physicist and research staff member at Princeton University’s Program on Science and Global Security and co-editor of Prisoners of the Nuclear Dream

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