Executive Speeches

Remarks of Eugene W. Zeltmann, president & chief executive officer of the New York Power Authority, at the Municipal Analysts Group of New York, New York City, New York.

October 15, 2003 

A few years ago, “USA Today” asked its readers: “What is the greatest invention of all time?”  Overwhelmingly, they answered, “electricity”—probably because of all the inventions that electricity makes possible. 

More recently—in a somewhat similar vein—the National Academy of Engineering asked its members: “What is the greatest technological advance of the past 100 years?”  The answer: “North America's power grid”—the finely-wrought system that delivers the greatest invention of all time. 

The polls have spoken.  But the blackout this past August proved that even in America, the grid can suffer gridlock—and far worse.  The reason is clear once you realize that electricity is among the few commodities that is produced and consumed in the same instant.  That alone makes it very challenging to deliver—especially over long distances.

The North American grid that carries electrons to our computers and TV sets is, in essence, one huge electrical circuit. And if that circuit breaks at any point, the system must instantaneously reroute power—or other lines and power plants will fall like so many dominoes, causing massive blackouts.

The amazing balancing act performed every day by those who manage the grid is veiled by their success.  We take it for granted until things fall out of balance as they did on August 14.

The next-to-last big American blackout occurred almost exactly seven years before this most recent one.  Back in August of 1996, the lights went out along the Pacific Coast from Oregon to San Diego and into Mexico, with the outage doglegging east as far as Texas.  Power lines that failed in the Northwest affected four main arteries that sent the power south.

The reasons for the recent failure—and why some areas of the Northeast managed to escape it—are still unclear as various investigations continue.

But whatever the cause, the Blackout of 2003 was a defining moment for everyone in the electric power business.  A moment like those in 1996—and in 1965 and 1977, when major blackouts hit this part of the country.

There were many who told us—before Thursday, August 14—that this couldn’t happen again.  Some who warned that it might happen again.  And none with quick or easy answers when it did happen again.

I spent all that Thursday night, and the next day, in the Power Authority’s Albany office—receiving and analyzing reports on the painstaking process of restoring over the course of many hours a power system that had shut down in minutes—even seconds—in the wake of what apparently began as relatively localized problems in the Midwest.

Fortunately, the Power Authority’s Niagara and St. Lawrence-FDR hydroelectric projects stayed on line when the blackout struck—and were the only major power plants in New York State to keep operating.

In the early stages, Niagara and St. Lawrence were supplying about 60 percent of the electricity still flowing in the state—with much of the rest coming from Quebec on the Authority’s 765-kilovolt transmission line and from generation in Eastern Ontario.

Later, the two hydro projects—along with our Blenheim-Gilboa pumped storage project in Schoharie County—were the main electrical building blocks that enabled the statewide system to return to service.

In addition, a series of small, clean power plants that we installed in New York City in 2001—and our Poletti project in Queens—played key roles in bringing the lights back on in the city.  Four of the 10 small units were on line Thursday night and the others—along with Poletti—began operating at various times on Friday morning.

I should also note that the Central Park police station in Manhattan was completely unaffected because all its electricity comes from a 200-kilowatt Power Authority fuel cell on the site.

The Economist magazine observed, ironically, that thanks to the fuel cell, Central Park might have been the safest place to be in New York City during the blackout.

Although our projects—large and small—performed well, we did have to deal with seriously erroneous reports that attributed the blackout to a lightning strike at Niagara.  Here we had this project doing yeoman service—with no lightning within hundreds of miles—and it was being singled out by public officials and the news media as the source of the problem.

Now, as I mentioned before, the task of determining what actually happened—and why—is well under way.  We must learn all we can from what went so terribly wrong.  And we must use those lessons to take quick and effective corrective action.

A reliable power supply doesn’t happen by accident.  Indeed, it requires effective and concerted action in three areas—building clean new power plants, strengthening the transmission system and carrying out aggressive energy-efficiency measures.  Each of these areas is vital—and, ideally, efforts in each will complement the others.

Not surprisingly, though, much of the attention in Congress and elsewhere these days is focused on ways to strengthen the transmission system.  That’s a welcome development, because with the coming of competition to the power industry—and the need to send more power over longer distances—we’re placing unprecedented demands on a grid that wasn’t designed to meet them.

Clearly, we must provide the     investment incentives, the cost-recovery mechanisms and the efficient regional planning processes that will enable us to build new transmission when and where it’s required.

In addition, the blackout has underscored the need for a consistent set of mandatory national reliability standards for our industry.

In response to the blackout of 1965, the North American Electric Reliability Council—or NERC—was created to set standards and rules for planning and operating the bulk power system. But the rules are voluntary and are not always observed.

The absence of mandatory standards has produced a balkanized expanse of hundreds of power plants and thousands of miles of transmission lines, divided up into scores of different control areas, each run by different authorities.

You might be dismayed—as I was—to learn that electricity in the Balkans is far less balkanized than in the U.S.

The sixth largest power dam in the world—the first ever built on the Danube—serves the electricity needs of Yugoslavia, Bosnia and Herzegovina and parts of Bulgaria in a unified grid.  And since Italy had its own blackout just a little over two weeks ago, I’m sure there were plenty of Italians looking across the Adriatic in wonder that the lights were still on in the Balkans.

I’m pleased to report that New York not only has met NERC’s voluntary standards, but has gone beyond them with some of the strictest state electric system reliability rules in the nation.

But, with power transactions between states and regions continuing to increase, I think it’s essential for Congress—in this session—to pass an energy bill that includes mandatory national reliability standards.  And the legislation should enable individual states—such as New York—to impose still stricter rules as long as doing so doesn’t adversely affect other parts of the interconnected grid.

That would be a major step forward—but it would still leave us with the problem of inadequate investment in the transmission system.

In a report issued shortly after the recent blackout, EPRI, the power industry’s research arm, warned that investment in infrastructure—as a percentage of company revenues—had sharply declined over the years.  Almost incredibly, it found that the figure in the ’90s was less than half the historic minimum lows during the Depression.

As EPRI’s vice chairman, I can tell you that the report had been in the works for about a year and was actually completed just over a week before the blackout.  But what happened on August 14 did nothing to weaken its case for a dramatic increase in expenditures on the grid.

Now—more than ever—we must encourage investment in transmission by utilities, merchant companies and others in the private sector.  And the way to do this is to cut through the morass of conflicting state and federal regulations and develop clear rules and cost-recovery mechanisms for transmission owners and other potential investors.  This, in turn, will encourage them to finance upgrades to the grid when they’re needed for reliability or market efficiency purposes.

Governor Pataki said it well in testimony submitted to a Congressional committee shortly after the blackout: “Without clear incentive, there will be no investment.  Without investment, we cannot guarantee it will not happen again.”

As things now stand, there are simply too many uncertainties for investors.  And—because the power system transcends state borders—it will for the most part be up to the federal government, through Congress, to resolve them.

In a related matter, we face the continuing need to allocate transmission costs as fairly as possible at the retail level.

Keep in mind that there are two ways of recovering costs  from retail customers.  One is the traditional “socialized” approach of having all customers in a given system share the costs as part of the regulated rates.  The other—so-called “participant funding”—is to pass the costs on to only those customers that directly benefit from a new facility.

Our thinking at the Power Authority is that socialized costs would be appropriate if an independent system operator or regional transmission organization—having the proper authorization—directed a utility or transmission owner to build new transmission for reliability purposes.

But if a company, on its own, made a business decision to build a line to ease congestion in a particular area, chances are it would be competing against existing or proposed power plants.  In that case, the company should be responsible for recovering costs through the sale of transmission capacity to load-serving entities—or to those power producers that stand to benefit from the project.

The issue of market-based incentives for merchant companies is particularly difficult because there’s a real risk that a new generating plant could impact a transmission project’s value by reducing or eliminating congestion.

As we seek to bolster the system, we must also recognize that the success of competitive wholesale electricity markets depends at least in part on the capability of the transmission interconnections between multi-state regional transmission organizations or independent system operators.

The establishment or strengthening of such organizations is a cornerstone of the Federal Energy Regulatory Commission’s vision for the electric power industry.  And they will, in fact, have to take a large part in transmission planning and siting, especially since new facilities may well extend over long distances and multiple jurisdictions.

Here in New York, the ISO is working to establish comprehensive planning processes—both within the state and as part of a coordinated regional effort.

Progress in strengthening the state’s transmission system has been slow.  But there was recently an encouraging development when the state Senate passed legislation that Governor Pataki had proposed to facilitate upgrading of transmission lines in New York and provide financing for transmission and generating facilities through the state Energy Research and Development Authority.  The proposal would establish some sensible streamlining for transmission upgrades along existing rights-of-way, so I hope the Assembly will give it serious consideration.

As you may have heard, one new project—an underwater cable from Connecticut to Long Island—was completed last year, but was prevented from operating because of environmental concerns in Connecticut.

In response to a request from Governor Pataki and other New York officials, the Secretary of Energy has authorized emergency use of the cable—which can carry 330 megawatts of electricity—at least until issues concerning the blackout have been resolved.  But we may not have heard the last word since Connecticut has been granted a rehearing of the Secretary’s order and is also pursuing a separate court action.

No matter how this eventually plays out, the Sound Cable Saga will stand as a textbook case of how tough it is to site, build and operate a new transmission line.

Nevertheless, there has been some news lately concerning two potential projects.

The developers of the Empire Connection—a largely underground facility that would carry 2,000 megawatts from the Albany area to New York City—announced last month they had secured an initial commitment for $200 million in equity funding for the $700 million project.  That’s a major accomplishment in this day and age when financial backing for transmission—or generation—projects is so difficult to obtain.

Then—last week—a Toronto developer said it hopes to build a 500-kilovolt line from the Utica area, southwest to Binghamton and on to Northern New Jersey and New York City.  The line would carry between 2,400 and 3,000 megawatts from upstate and Canadian sources.

I should mention that these two projects—like the cable from Connecticut and a couple of proposed lines that would carry power from New Jersey to New York City and Long Island—would be direct-current facilities.  Flows on all of them would be easier to control than on conventional AC lines and less vulnerable to convulsions on other parts of the grid—such as those that occurred in August.

Those problems arose even though the grid was not particularly stressed at the time of the blackout as power plants were generating below their peak loads.

This fact has focused attention on an intriguing possible cause of the blackout—a phenomenon known as “reactive power.”

Reactive power—which is essential to maintaining system stability—can be produced by generating plants or by other types of electrical equipment.  But there is less financial incentive to produce it in today's deregulated markets because generators get paid more money to produce megawatts that can be sold to wholesale customers.

Maintaining a sufficient reactive power supply is a constant worry for electric-system operators.  If voltage levels begin to deteriorate through the loss of power lines, for instance, it becomes more difficult to provide the reactive power needed to keep the system stable.

This strengthens arguments for a dramatic increase in expenditures to create a “smarter grid.” 

Indeed, the EPRI report I mentioned earlier called for unleashing “the innovative technology” needed to create a power delivery network based on real-time digital controls rather than today’s relatively slow electromechanical switches.

Digital switch controls could route power over different lines and help to control power surges that might otherwise trigger blackouts.  Sensors and dedicated communications links would feed information about the state of the grid to energy control centers that would oversee the switches.

The Power Authority has installed a device at our Marcy Substation near Utica that achieves this kind of control.  It’s called a convertible static compensator—or CSC—and like an efficient railroad signalman, it can help both in avoiding disasters and in improving the efficiency of the transmission system.

When the CSC is fully operational later this year, it will be the world’s most advanced device for controlling transmission-line voltage and power flows—and will permit operators, for the first time anywhere, to instantly move power from a heavily-loaded line to one with spare capacity.

Conceivably—with enough of these devices installed at strategic points on the grid—we could significantly reduce the need for new transmission lines.  Just our single device at Marcy has boosted statewide transmission capacity by nearly 200 megawatts.

The Power Authority has invested $41 million in the CSC—and the remainder of the total cost of $54 million has come from about 30 electric utilities in the U.S. and abroad and several industry organizations.

We know it could be a long time before we recover our share through transmission revenues—and that there are no guarantees we ever will.  Nevertheless—as a public entity—we thought it was important for us to be out front in demonstrating this technological breakthrough.  Now the challenge is to convince transmission owners and others in the private sector to adapt this and other innovations to their own needs.

It’s hard to find anything positive in the events of August 14.  But if the blackout helps pave the way to the creation of a truly sophisticated power system—operating at maximum efficiency—it will have served a tremendously beneficial purpose.  And if we act now, I’m confident that in the future, the members of the National Academy of Engineering—and all who depend on electricity—will have even more compelling reasons to view the North American grid as a technological marvel.