Electric Utility Restructuring: Maintaining Bulk Power System Reliability

Publication Date: February 2005

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Energy

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Abstract:

In recent years, reliability of the U.S. bulk power system (electricity generation and high voltage transmission) has become a high priority. California's attempt at electric utility restructuring, the Enron bankruptcy, and the August 2003 blackout have increased the concern about maintaining reliability at a high level while trying to achieve the desired benefits of a market-oriented electric power system. Maintaining reliability is important because power interruptions result in economic losses costing over an estimated $100 billion per year in the United States.

Many attribute the utility industry problems as a loss in reliability brought on by electric utility restructuring. Restructuring advocates assert that functional changes in the electric utility industry resulting from restructuring are designed to add certainty and therefore improve reliability while providing lower prices to consumers. Functional changes such as improved planning and coordination, the ability to attract new market participants, increased redundancy, and the development of ancillary service markets all tend to lower risk and ultimately improve reliability. Restructuring opponents argue that resulting functional changes in the industry tend to increase uncertainty. These changes include added complexity, added risk for investors, unclear responsibilities for reliability, and the potential to manipulate markets in ways that may cause power supply instability.

Most experts conclude that industry changes from restructuring designed to improve reliability have not been realized while the factors tending to degrade reliability are having an effect. In general, the existing bulk power system was designed for operation by vertically integrated utilities with minimally required transmission connections between them. Restructuring of the electric utility industry requires that an ample set of suppliers and consumers negotiate transactions across a robust transmission system with high capacity. Therefore, the reliability of the existing bulk power system appears to be degrading because it was not designed to operate in a restructured environment and market procedures have not been developed to overcome these deficiencies.

This report will be updated as events warrant.