The Impact of Deregulation on Electrical Transmission

There are a number of consequences beyond those already discussed — declining investment and overuse between utilities. Some of these include:

1. More rapid deterioration

After deregulation, to maximize profits by selling electrical power from the plant that can produce it most cheaply, there is much more cycling on and off of power plants and the structures involved in transmission. As a result, metal is heated and cooled far more frequently, accelerating deterioration.

2. Unplanned additions to grid: Renewables

According to NERC (North American Electric Reliability Corporation (Footnote 2),
http://www.nerc.com/page.php?cid=4|53|60),

Nearly 30 states over 4 provinces have Renewable Portfolio Standards in place in one form or another. Wind and solar are added to the grid, with the expectation that the grid will accommodate them.

There are a number of unplanned additions to the grid. States are mandating increased generation from renewables — but many of the abundant renewable resources are far away from load centers. So, as more alternative generation sources come on line, just to keep the grid performing at the same level, additional lines must be built to bring wind, solar and geothermal energies to market. But that investment is not planned.

Note that, without including the true cost of getting alternative power to the ultimate customer, prior to the decision to mandate use of the new technologies, the size of the implicit subsidy is obscured.

3. Other unplanned additions to the grid

“Merchant” (investor owned) natural gas power plants are also added to the grid, sometimes without adequate consideration as to whether sufficient grid capacity exists to accommodate the additional production.

4. Difficulty in assigning costs back

Since the industry is more fragmented, if any transmission lines are added, the cost must somehow be allocated back to the many participants who will benefit. Ultimately, the cost must be paid by a consumer. Depending on the area involved, and therefore the state public utilities commission with jurisdiction, these consumer rates may in fact be capped, so it may be difficult to recover the additional cost.

5. Little incentive to add generating capacity

Deregulation not only makes managing the grid much more complex. It also makes utilities wary of investing in new plants. As long as electricity can be bought and sold, utilities defer starting up major projects.

6. Aging workforce

The “aging workforce” and its impending impact on reliability has been a recurring theme in NERC’s recent Long-Term Reliability Assessments. (See Footnote 2.) Quoting NERC, a corporation now solely responsible for creating and enforcing reliability standards in the U.S. and Canada:

In 2007, NERC reported that, according to a recent Hay Group study, about 40 percent of senior electrical engineers and shift supervisors in the electricity industry will be eligible to retire in 2009. This loss of expertise, exacerbated by the lack of new recruits entering the field, is one of the more severe challenges facing reliability today.

A 2007 study by NERC confirmed industry concern on the issue, ranking the aging workforce as both highly likely to occur and of having a severe impact on the reliability of the bulk power system. It’s no wonder; KEMA (http://www.kema.com/about/Default.aspx) says that one in three U.S. workers was age 50 or older in 2010. Meanwhile, the demand for workers is increasing. A 25 percent increase in demand for industry workers is anticipated by 2015.

Exacerbating the problem of a declining workforce is a simultaneous decline in the number of potential recruits from colleges and universities, as well as vocational schools. During the past two decades, reduced demand for industry workers has led to the decline and closure of many electric power engineering programs at colleges and universities.

7. Future Adequacy & Capacity Margins

(http://www.nerc.com/page.php?cid=4|53|57)

According to NERC,

…projected increases in peak demands continue to exceed projected committed resources beyond the first few years of the ten-year planning horizon.

8. Natural gas dependency

Natural gas has become the fuel of choice for new-build generation as gas-fired plants are typically easy to construct, require little lead time, emit less CO2, and are generally cheaper to construct than their coal and oil counterparts. Certain states have placed a moratorium on building new coal plants, citing environmental and emissions concerns as justification. These trends are expected to continue over the next several years, further increasing the number of new-build natural gas plants in areas with already high dependence.

19% of the U.S. electric industry’s generation is powered by natural gas — and is expect to rise to 22% in ten years. But Canadian imports recently peaked.

This supply gap is expected to be filled by new supplies of Liquefied Natural Gas (LNG) from overseas, which will require siting and construction of LNG Terminals throughout North America. However, this terminal infrastructure is facing delays in most locations where it has been proposed.

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