Power Outage? State Regulators Are Seen as Lacking in Authority

By Lee Hawkins Jr.
879 words
22 August 2003
The Wall Street Journal
A2
English
(Copyright (c) 2003, Dow Jones & Company, Inc.)

COLUMBUS, Ohio -- On the afternoon of Aug. 14, Ohio Public Utility Commission Chairman Alan Schriber received a telephone call from a staffer saying, "The power's out all the way across the east to Cleveland."

Mr. Schriber is the state's chief utility regulator, but he said he had no power to do anything that could have prevented the outage from cascading further until it virtually paralyzed Ohio and seven other states and parts of Canada. That quandary has become one of the biggest issues being discussed in utility-industry circles. Some critics of the current regulatory regime in the electric-power industry say that regulators like Mr. Schriber need more authority to keep utility companies in line.

"We've got some real gaps here. It is not clear what the states can do in this area," says Lee Cullen, a Wisconsin attorney who specializes in energy issues. "Yet, it is the retail customers in the individual states that are carrying the freight." It's also state regulators who take the heat when things go wrong, he said.

Once central players in the nation's utility network, state regulators have been sidelined in some respects by expanding efforts to deregulate the electricity industry and separate such functions as generation and transmission of power. Today, the roles of public-utility commissions vary state by state. In Ohio, Mr. Schriber's agency's role is largely limited to oversight of pricing, maintenance and reliability of local power lines that distribute electricity to homes and businesses.

But pricing of electricity generation in Ohio is moving out of the domain of the state PUC under a multiyear, deregulation plan. Oversight of high-voltage transmission lines, which carry power over long distances, falls into two camps. The Federal Energy Regulatory Commission regulates pricing along these lines. Meanwhile, an industry association, the North American Electric Reliability Council, sets reliability standards for the transmission grid, but only in an advisory capacity.

Mr. Schriber's agency -- and state regulatory entities like his -- lack the broad enforcement powers needed to effectively monitor the performance of the aging and often congested interconnected generation and transmission system. But when problems such as last week's arise, Mr. Schriber and his counterparts are often among the first people queried for answers.

A special task force led by U.S. Energy Secretary Spencer Abraham and his Canadian counterpart is charged with investigating the cause of last week's massive blackout and prescribing solutions for averting such disasters in the future.

Mr. Schriber already has suggestions for change. Since his agency already has enforcement responsibilities for rules promulgated by federal agencies such as the Department of Transportation and the Federal Railroad Administration, it would make sense to broaden that authority into the electric-transmission domain, he said.

The agency's enforcement powers include overseeing federal standards on everything from railroads to natural-gas pipelines. "We don't regulate them," he said, referring to railroads and gas pipelines. "But we simply go out and enforce those standards for the federal agencies. It seems to me that this would be a good argument to give us the authority to enforce federal standards on transmission."

In Mr. Schriber's view, FERC has slowly but surely moved down a promising path. The agency has been pressuring utilities across the nation to join formally organized regional transmission groups. Such arrangements would open access to electricity providers on an equal access basis.

"We have been advocates in Congress for the things that FERC is attempting to do, and in some cases, are being slowed down, altered and delayed by Congress," Mr. Schriber said. "People from all different organizations with multiple causes will use this whole event as a platform to further their cause," he said. "I'm prepared to argue strenuously that this really was not a result of deregulation."

Opponents of deregulation have argued that part of the industry's problems stems from its eagerness to deregulate before building the infrastructure needed to support all-out competition.

Ohio regulators also plan to investigate the blackout. Among other issues, they plan to look into widely circulated claims that the outages likely originated in the territory of Akron-based FirstEnergy Corp.

Mr. Schriber has vowed to review the operation and maintenance histories of all the Ohio utilities, including FirstEnergy. But he said his own preliminary review showed that FirstEnergy is sound from a reliability standpoint.

Mr. Schriber would be expected to be a strong proponent of electricity deregulation, given his state's strong move in this direction. In preparation for full deregulation, Mr. Schriber's agency froze the electric rates of utilities until 2006, and could legally allow for all-out pricing competition after that.

Still, it isn't likely that the agency will completely relinquish its control over prices, Mr. Schriber said. "Given the fact that the wholesale market has not developed as we had originally hoped, my commission is avowed not to permit sticker shock to come into play" once prices are fully deregulated, he said.

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Journal Link: WSJ.com subscribers can participate in a discussion on what officials should do to ensure a major blackout doesn't happen again, at WSJ.com/Discussions.

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