Executive Speeches

Remarks of Louis P. Ciminelli, chairman of the New York Power Authority, to the Conference Board of Canada, Toronto, Ontario, Canada.

January 29, 2004

Good afternoon.  It’s a pleasure to be here for this most timely and important conference.

I think it’s fair to say that ever since the Treaty of Ghent ended the War of 1812, our two countries—despite inevitable disagreements at times—have tended to look toward each other in friendship and mutual understanding. And nowhere is this more evident than in the realm of electricity.

I’m particularly pleased that my organization—the New York Power Authority—has had a marvelous working relationship with Canadian utilities for just about half a century. In fact, our first generating facility, on the St. Lawrence River, was a joint Canadian-American effort—and a truly exceptional one.

This vast hydroelectric project spans the international border and has 16 generating units on each side. It was completed virtually on the basis of a handshake between Robert Moses, the Power Authority’s chairman, and Robert Saunders, his counterpart at Ontario Hydro and a former mayor of Toronto. The costs and the work were shared—without formal written agreements.

The first electricity flowed in 1958, just four years after construction began—and the project was fully operational in five. That met the ambitious targets Moses and Saunders had set—and beat the requirement in the Power Authority’s federal license. When the work was finished, Chairman Moses said, “We have learned an ancient truth—that men of good will working together are unbeatable.”

That was demonstrated, too, through the construction by our two federal governments of the St. Lawrence Seaway in conjunction with the power project. Another extraordinary achievement—and one, by the way, that wouldn’t have been possible without the power development.

Even before any of this happened, Canada and the U.S. had signed a treaty in 1950 permitting increased diversion of water from Niagara Falls for power production while at the same time maintaining the beauty of the Falls. The treaty called for the additional water to be shared equally between our two countries.

At first, Ontario Hydro was able to use some of the U.S. water because it forged ahead and built new hydro generation while a lengthy debate raged over public vs. private development on our side. Eventually, though, the Power Authority was tapped to build the 2,400-megawatt Niagara Project—which began operation in 1961 as what was then the largest hydroelectric facility in the Western World. And, as envisioned by the treaty, we’ve been sharing the water ever since.

Our ongoing cooperative relationship with Canadian entities takes several other forms. These range from our daily work with Ontario Power Generation on matters concerning the hydroelectric projects on both sides of the border to our involvement in the activities of the International Joint Commission and its affiliated agencies with respect to water flows and related issues. Then, there are the more visible connections in the form of the 765-kilovolt transmission line that the Power Authority built from Quebec to Central New York in the 1970s and the five 345-kv and 230-kv transmission links between our hydro projects and Ontario.

Of course, the electrical ties between our countries span the continent.  It’s no wonder, then, that the U.S.-Canada trade relationship—the strongest in the world—has a significant electricity component. This suggests a high degree of integration between the wholesale electricity markets—and the power grids themselves—in our two countries.

Just how extensive that integration has become was vividly demonstrated late in the afternoon of last August 14.  Before that day’s blackout struck, Ontario had been importing a large—but not unusual—amount of electricity from the United States.  As the interim report of the U.S.-Canada Task Force on the blackout made clear, the power flows to Ontario were within acceptable operating limits and were not a cause of the ensuing debacle.

Without question, the problems began elsewhere—south of the border, in Ohio.

The story, by now, is familiar:  As transmission lines and power plants in the U.S. Midwest went down in a cascading failure, there was a huge rush of power from the Mid-Atlantic states, around Lake Erie and through New York and Ontario to serve loads in Michigan and Ohio.  The resulting strain on the interconnected system ultimately left about 50 million people here in Ontario and in eight states without electricity.

In New York State, the Power Authority’s St. Lawrence and Niagara hydroelectric projects were the only major power plants to keep operating throughout the blackout. Meanwhile, Ontario Power Generation’s Beck and Saunders hydro stations also stayed on line and remained connected to New York, along with some Ontario load. The four large hydro projects, together with our 765-kv line from Quebec and several other transmission facilities in New York, ended up as an electrical island of about 5,700 megawatts of demand that escaped the blackout. And—as the interim report noted—this island formed the basis for restoration of the systems in Ontario and New York.

Our success in keeping the lights on in even a relatively limited area during the cascade was due to a combination of luck and physics.  But in the period that immediately followed, it reflected the skilled coordination of power plants and transmission lines by operators on both sides of the border and the steadfast matching of generation and load to keep the electrical island in service and to help restore the areas that were blacked out.  And it showed the value of the physical connections—and of the longstanding cooperative relationship—between New York and Ontario.

In the blackout’s aftermath, we’ve also heard a good deal about the disadvantages of our electrical interdependence.  As the events of August 14 showed, problems and deficiencies in one country can quickly spread across the border.  With this in mind, there have been calls in Canada for increased emphasis on an east-west domestic grid as opposed to the north-south ties to the United States.

Such concerns are understandable. But we must not retreat into a form of protectionism in electricity trade that would run counter to both our history and our best interests. And we must not permit the blackout to provide a rationale for reversing efforts on both sides of the border to create competitive, restructured electricity markets.

It’s undeniably true that competition and deregulation have put increased strains on a power system that was not designed to carry large amounts of electricity over long distances.  However, the blackout was due not to deregulation—but to a combination of human error, computer and communication problems and, most important, the absence of mandatory and enforceable reliability standards.

Our response must be to acknowledge that deregulation and the greater flow of electricity between different areas have, in fact, created new reliability challenges—and that these challenges should have been anticipated. We must then move to address them by putting mandatory, enforceable standards in place on an international basis and assuring that those standards are met.

This is an imposing task.  But it is a task that we must aggressively undertake—and one for which we are already well positioned.

Since 1968, we have worked together through the North American Electric Reliability Council, or NERC—and its 10 regional councils—to promote a secure and dependable power supply.  NERC was established in response to the major blackout that hit the Northeastern United States and Canada in 1965.  Its creation was a significant achievement. For the first time, we would join to plan and control the flow of electricity both within and across our borders.

NERC and the regional councils establish standards for performance in such areas as operations, maintenance, planning and general policy. But the problem—as I indicated a moment ago—is that these standards are voluntary. And the only sanctions for violating them are so-called simulated monetary penalties.

That’s not good enough. In 2002 alone, there were 444 violations of NERC’s voluntary standards. And the interim Task Force report cited a total of six that contributed directly to last August’s blackout.

The Northeast Power Coordinating Council—the regional group that covers New York and the New England states, as well as Ontario, Quebec and the Maritime Provinces—has established standards that go beyond NERC’s and are the strictest of any regional council’s.  These standards are mandatory—and violations result in potentially embarrassing letters.

In New York, our State Reliability Council has set mandatory rules that in some cases are more stringent than even the NPCC’s. Market participants must meet the standards under tariffs that have been approved by FERC—the U.S. Federal Energy Regulatory Commission.  Again, there are no monetary penalties, but peer pressure has been effective.

I’m less concerned about the specific nature of the penalties than about the compelling need for mandatory standards.

The energy bill that has thus far failed to pass the U.S. Senate would take a big step in that direction by authorizing the federal commission to designate an organization—which could well be NERC—to establish and enforce national standards.

With the legislation tied up, FERC Chairman Pat Wood initially said the Commission planned to act on its own and to put mandatory standards in place by this summer.  Now, however, FERC is working with utility officials to try to develop a mutually-acceptable approach.  And the Chairman has stated that the best solution would be to clearly resolve the issue by passing the energy bill.

Once the situation is settled in the U.S., it should be feasible to devise a single set of standards that are truly international in scope.

Besides pushing for mandatory reliability standards in the United States, FERC wants to require—or, at the very least, strongly encourage—utilities to relinquish operational control of their transmission systems to regional or statewide organizations. The thought is that this will improve regional coordination of generation and transmission and lead to increased system reliability and lower prices.

It didn’t help matters during the blackout that the Midwest Independent System Operator is essentially just a monitor and doesn’t have operational authority. In fact, there are 37 separate control areas within the Midwest ISO’s territory—and about 140 throughout North America. In contrast, entities such as the New York Independent System Operator, ISO-New England, the Ontario Independent Electricity Market Operator and Trans-Energie in Quebec have full operational control over their areas. Establishing similar clearcut responsibilities for a limited number of organizations in the U.S. should strengthen system reliability and facilitate coordination with Canadian systems.

Nevertheless, the FERC vision of compulsory Regional Transmission Organization or Independent System Operator membership has sparked intense opposition in some parts of the U.S. and would effectively be rejected under the energy bill if the legislation gets through Congress.

Even with the bill in limbo, Chairman Wood has apparently recognized the political realities and said the Commission is prepared to offer incentives that would make a voluntary approach “very attractive.” He also maintains that FERC has the legal authority to go the compulsory route if it chooses to do so. So things could get interesting.

Regardless of what happens with RTOs—or reliability standards—it’s clear that the appropriate entities in our two countries need to work together to develop a coordinated planning process that will minimize the likelihood of future blackouts or less serious disruptions. This is imperative. But—surprisingly enough—calls for major investment in new transmission lines may be wide of the mark in at least some instances.

Contrary to what we often hear, simply building new transmission will not necessarily make the system more reliable. Indeed, it might make it less so. This is sort of our version of chaos theory. Increase the number of interconnections, and the risk of widespread catastrophic failure rises as problems spread more easily between systems.

The fact is, reliability isn’t just a result of how much transmission we’re able to put up. Indeed, it can often be achieved more effectively—and more economically—by building power plants closer to load centers, installing distributed generation or promoting energy efficiency.

System planners must choose the best solution—or combination of solutions—to reliability problems without foreclosing any options. Ideally, the markets should provide the right answer, but the electric utility industry is not yet a fully competitive marketplace.

As we head toward that goal, there may well be cases in which new transmission—whether or not needed to maintain reliable service—can reduce congestion and potentially carry lower-cost power to high-priced areas. In New York State, at least two—and possibly three—proposed lines would bring electricity from Canadian and upstate sources to the New York City area. One of them, a 500-kilovolt direct-current facility, is planned by a Toronto developer—Pegasus Power Systems. Of course, only time will tell whether the proposed lines will be licensed by the regulatory authorities and—if so—whether they’ll lower overall costs for consumers.

The increased attention to DC lines is particularly noteworthy in the wake of the blackout since—unlike AC facilities—they’re normally not affected by disturbances elsewhere on the interconnected system. Indeed, the U.S.-Canada Task Force report stated that Quebec was largely spared from the blackout’s effects because it’s linked to neighboring systems almost entirely with DC ties.

When we think about investment in the grid, though, we should focus not only on new lines, but also on new technologies that can give us a smarter, stronger, more fail-safe system.

In particular, the blackout showed that we need improved visualization and signaling within and between regions.

With a better picture of grid conditions—and new digital devices to help control power flows, voltages and surges—operators could respond to and possibly avoid problems that might trigger blackouts or other system disturbances.

I’m pleased to tell you that the Power Authority has essentially completed installation of such a device—the most advanced in the world. This “convertible static compensator” will for the first time demonstrate the capability to simultaneously control flows on two high-voltage lines and thus to potentially transfer power from heavily-loaded circuits to those with spare capacity.

While we’ve paid the bulk of the project cost of 54 million U.S. dollars, about 30 other utilities and power industry organizations—including BC Hydro and what was Ontario Hydro—have provided financial support. We think this is a sign that others recognize the technology’s future benefits to power systems in our countries and beyond.

Promising though they are, new technologies will bring maximum benefit to Canada and the United States only if we work together in their development and implementation. That’s even more true when it comes to reliability standards and coordination of planning and operations for a North American grid that functions without regard to international borders.

Fortunately, as I noted at the start, this spirit of cooperation is very much in keeping with the history and traditions of our two countries.  I’m reminded of this every time I visit the great hydro project on the St. Lawrence.

A monument at the center of the Moses-Saunders Power Dam—unveiled by Queen Elizabeth at the project’s dedication 45 years ago this coming June—carries the inscription: “This stone bears witness to the common purpose of two nations whose frontiers are the frontiers of friendship, whose ways are the ways of freedom, and whose works are the works of peace.”

These words celebrate a magnificent accomplishment in which an international border was transcended not only by a massive power dam, but by the dreams and aspirations of people on either side.  As, together, we face the challenges and opportunities of a vastly different power industry, these same words can provide guidance and inspiration. I hope—and trust—that we will take them to heart.

Thank you very much.