L. Neil Smith's
THE LIBERTARIAN ENTERPRISE
Number 235, August 24, 2003

The Dominoes Fell

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The Real Energy Blackout Culprit
by Todd Andrew Barnett
libertarianman@comcast.net

Special to TLE

In case anyone hasn't noticed, so many members of the media, public interest firms, pro-regulatory groups, pundits, federal and state regulators, and politicians—not to mention so many Americans—by now have finger pointed "free enterprise" and "deregulation" as the primary sources of the recent East Coast power outage. The blackout, which took hold on over 30 million people from New York to Ontario, Canada, to the Southeastern region of Michigan at approximately 4:10 p.m. on August 14th, 2003 and ended for most people on August 15th, 2003, has also re-ignited the public demand for more federal encroachment on and involvement in the power industry—an industry which has become quasi-public due to the burdensome and cumbersome amount of federal and state energy and environmental regulations. While there are those who are expressing their outrage at the power companies and assigning blame to them by claiming that "market failure" is the culprit behind this mess, should those of us as free-thinking, independent individuals be shocked by all of this?

Let's take a stab at what exactly transpired, shall we?

It all started at 2 p.m. when FirstEnergy Corporation's Eastlake Unit 5, which happens to be a 680-megawatt coal generation plant in Eastlake, Ohio, went offline. "On a hot summer afternoon, that wasn't a unique event in and of itself," said Ralph DiNicola, a spokesman for the Akron, Ohio-based company. "We had some transmission lines out of service and the Eastlake system tripped out of service, but we didn't have any outages related to those events."

Then at 3:06 p.m., its Chamberline-Harding power transmission line -- a 345-kilovolt power line in the northeastern region of Ohio—was cut off. At this time the company reported no cause, but the outage immediately caused a strain on its Hanna-Juniper line, a 345-kilovolt line which, at 3:32 p.m., experienced a power surge coursing through it, resulting in a heating of its wires and then causing them to sag into a tree and short out.

By 3:41 p.m., the company's Star-South Canton 345-kilovolt line experienced a power overload, inducing a crash of a breaker at the Star switching station. This system, of course, allows the grid to interconnect with the American Electric Power Co.'s own neighbor grid located in northeastern Ohio. Then at 3:46 p.m. AEP's 345-kilovolt Tidd-Canton Control transmission line cut off its connection with FirstEnergy's grid, located at AEP's connection station in Canton, Ohio.

Around 4:06 p.m., FirstEnergy's Sammis-Star 345-kilovolt line, also in northeastern Ohio, failed then reconnected. Then at precisely 4:08 p.m., power utilities in Canada and the United States began to witness "wild power swings." Sean O'Leary, a chief executive of the company Genscape that monitors electric transmissions, confirmed the event. "It was a hopscotch event, not a big cascading domino effect," he said.

At 4:09 p.m. in Cleveland Ohio, the city's low power levels, which were inadequately juicing up customers of the city-owned Cleveland Public Power utility, dropped to zero. Jim Majer, one of the commissioners of Cleveland Public Power, was noted as saying, "It was like taking a light switch and turning it off. It was like a heart attack. It went straight down from 300 megawatts to zero."

At 4:10 p.m. the Campbell No. 3 coal-fired power plant, located near Grand Haven, Michigan, experienced power failure. At the same time two 345-kilovolt lines—one labeled Hampton-Thetford in upper New York State and Vermont and the other called Oneida-Majestic in upstate New York—also failed.

Within seven minutes, states like New York, Ohio, New Jersey, and Michigan experienced severe power loss. Before everyone knew it, the dominoes fell from there. The next event took place at precisely 4:17 p.m. near Detroit where the Enrico Fermi nuclear plant shut down automatically after it lost power. Between 4:17 and 4:21, numerous transmission lines in Michigan were out of commission. Finally, at 4:25 p.m. in Buchanan, New York, Indian Point nuclear power plants 2 and 3 lost power immediately, automatically closing them down.

In a nutshell, the East Coast power grid collapsed, leaving nearly 30 million people in the dark for almost 24 hours.

Of course sometime after the blackout begin, Canadian Prime Minister Jean Chretien publicly purported that a lightning bolt took out a nuclear power plant in Niagra Falls, New York. (He was also the one who, a few hours later, claimed that fire was the cause of the outage.) But the National Weather Bureau Service reported no severe thunderstorm activity near the plant at the time the outage took place. Moreover, even the Niagra Falls Fire Department was not called on duty to put out the "fire" at the plant—one that turned out to be a bogus report on Chretien's part. Even Maria Smith, a spokeswoman for the Pennsylvania Emergency Management Agency, refuted Chretian's claims. "That is absolutely not true," she said. "It's bizarre. We have a direct line to each of our five (nuclear) power plants and they are all running at 100 percent ... There's not even a trash can fire, we would know." Fortunately, those bogus assertions made by the Canadian prime minister were discarded within hours.

While no one knows for certain what ignited the blackout, it is apparent that the entire power grid system has become gravely vulnerable. President Bush says that this incident serves as a "wake-up call." He's right, but not for the reasons he likes to stipulate.

And here's why: the power grid system, which hasn't been upgraded for decades, is claimed to be owned by private power companies. However, this is a contention, which has no foundation whatsoever. How can an antiquated system be under the auspices and control of the "free enterprise system" when it is regulated by the Federal Energy Regulatory Commission, the Environmental Protection Agency, and a handful of federal and state agencies?

The truth is that the system has never been privately owned; instead, it is a publicly-owned entity. The entire power industry is overregulated, meaning that it is under the command and control of the federal government (this was started at the request of industry insiders who largely favored and desired their own status as state- protected "monopolies") by finding itself saturated with exorbitant amounts of regulations. This state-conferred enterprise gives the power industry a unique advantage: to have direct control of the power systems by placing them in the hands of a centralized authority and limiting the amount of power plants constructed to generate the desired amounts of power. Another advantageous benefit is that, with assistance from the state, power transmission companies have an exclusive legal monopoly on how the transmission and distribution of power should be directed and to where it should be sent.

The other truth is that the entire industry has never been truly deregulated. Many Americans, pundits, politicians, and pro-regulatory state groups are now targeting deregulation, which is the elimination of government restrictions and rules on an industry, for the abrupt darkness, but their assertions don't stand up to logic. Even though it is true that regulations of retail sales and energy production were scaled back throughout most of the 1990s, regulations of energy transmission and distribution increased significantly. In other words, the state switched the old energy rules for new rules. After all, this has become so commonplace in this business, in spite of the fact that very few industries are more overregulated and protected than the utilities industry.

The lack of investment in the grid was initially blamed for the problems. It is true that there has not been much investment in the maintenance of the grid system for years. But there is a reason for this. The state takes up the responsibility of considering, approving, and financing transmission programs, the benefits reaching and entering state lines notwithstanding. At the same time, federal and state officials and legislators avoid seeking to use subsidies to finance investments that would furnish enormous benefits for out-of-state consumers. Adding insult to injury, many incumbent utilities and state lawmakers, acting out of their own self-interest, do not wish to improve the grid, simply because such improvements would result in said politically-favored companies (the ones who own and control the generating plants, transmission lines, and distribution systems within a given service location) losing their customers to other competitors that provide updated transmission networks.

Another reason for the deterioration of the grid is that regulations discourage profit-seeking companies from investing in transmission equipment. As a result, utilities capitalize on other services that bear no relation to the transmission interconnections. Moreover, investors find themselves in a regulatory quandary with the state, all because of the fact that rules make it completely difficult for entrepreneurs to resolve their regulatory differences with officials. Ergo all of this evokes the unnecessary delay in the risky investment on the grid.

In summation of the problems here, it is not free-market capitalism but rather government bureaucracy and regulations that have stifled innovative progress for the energy producers. If any blame is to be directed at any enterprise, it ought to be aimed directly at the federal and state leviathans for these problems—not at the free market.

What can be rectified to solve these problems? It's simple: try true deregulation of the entire grid—that is, throwing out all the federal and state rules—and allow the market to work in favor of its consumer base. Jettison all price subsidies and controls, which force all rate of returns on transmission to be unprofitable. Purge all state controls that shield transmission producers from competition. Remove the never-ending political conflict that has engulfed the business—conflict over the organization and management of transmission and feed of energy. Allow grid owners to assume responsible roles as entrepreneurs, so that they can serve their fiduciary roles as market agents and figure out efficient, market-based solutions that will energize their business— solutions that entrepreneurs are better at exercising than legislators and regulators. Moreover, it is time for the market to construct more grids that will drastically reduce the stress on the power systems.

And finally it's time to privatize the entire industry, so that producers can rely on accurate price signals and deliver quality services for their consumers. By forcing the real energy blackout culprit—that is, the state—out of the energy business, consumers will be charged for services for which they are actually willing to pay. It is time for a separation of business and state -- and that includes the energy business.



copyright © 2003 by Todd Andrew Barnett. All Rights Reserved. Permission to reprint any portion of or the entire article is hereby granted, provided that the author's name and credentials are included.


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