Government Blackout Report Misses the Root Cause: Deregulation

Nov. 19, 2003

Government Blackout Report Misses the Root Cause: Deregulation


Statement of Joan Claybrook, President of Public Citizen


The U.S. Department of Energy’s (DOE) report on the August blackout identifies some of the events that led to the power failure but fails to acknowledge the underlying cause: deregulation. Over the past decade, partial repeals of the Public Utility Holding Company Act (PUHCA) encouraged the construction of hundreds of unregulated power plants that have no obligation to prioritize system reliability over profit. These new unregulated power plants undermine the cooperative model of localized, monopoly utilities that worked with one another to ensure their legal obligation to serve all consumers affordably and reliably – a model that existed for a century.

The August blackout was caused not by inadequate transmission line capacity but by poor management of power across plentiful lines – a problem associated with deregulation. But the pending energy bill endorsed by the White House ignores the failures of these deregulation policies. Instead, the bill accelerates deregulation by repealing PUHCA (a consumer protection act that prohibits utility holding companies from investing ratepayer money in areas that will not directly contribute to low bills and reliable service); allows owners of transmission lines to charge consumers more for the privilege of having a monopoly; overturns a nearly century-old policy of leaving the siting of new transmission lines up to state and local governments; and endorses the concept of Regional Transmission Organizations (RTOs), which will limit the ability of states and local governments to ensure reliability.

Contrary to public statements made by the Bush administration and some members of Congress, enactment of RTOs would worsen reliability standards. Under RTOs, utilities would have to turn over all transmission to an independent transmission corporation, and state regulators would lose their ability to protect consumers. Utilities with obligations to serve households would be forced to compete for access to transmission lines with power marketers seeking to move electricity over long distances in pursuit of higher profits.

The DOE report notes that areas affected by the blackout were connected by transmission lines that had plenty of excess capacity. But the Bush administration and U.S. Rep. Billy Tauzin (R-La.) claim that the energy bill will be a great “jobs” program because it provides huge new financial and regulatory incentives to build billions of dollars in new transmission lines and power plants. Those incentives have nothing to do with enhancing reliability but everything to do with subsidizing the power marketer-driven model of deregulation.

Only one section of the 1,400-page energy bill effectively addresses some of the root causes of the August power blackouts that affected the Midwest and Northeast. Section 1211 establishes electric reliability organizations that enforce reliability standards that are overseen by the Federal Energy Regulatory Commission. These standards would develop the equivalent of improved communication standards between major participants (operators of power plants, transmission lines, etc.). These enforceable standards would go a long way to address the communication breakdown that the DOE report identified between FirstEnergy Corp. and the independent operators of the power grid. However, this provision should be passed separately from the energy bill, which is laden with corporate giveaways and does little to advance the use of renewable energy or ensure energy conservation.

Much needs to be done to ensure another blackout of such a great magnitude doesn’t occur. However, the DOE’s analysis is inadequate, and the underlying cause of August’s blackout deserves much more scrutiny.