The Pew Charitable Trusts

An unintended consequence of electric utility deregulation, embraced by 23 states, has been more power outages and other reliability problems within the nation’s electricity grid, a new study says.

Power companies are to blame for this rise in unreliability, as are the state and federal governments, according to a team of U.S. Department of Energy investigators responsible for the study.

They concentrated on power outages and disturbances that hit New York, New Jersey, Delaware, Maryland, Virginia, Mississippi, Arkansas, Texas, Louisiana, Illinois last summer, as well as mid-Atlantic and New England states.

"In anticipation of competitive markets, some utilities have adopted a strategy of cost cutting that involves reduced spending on reliability," the DOE study concludes. ". . . in many cases, state and federal regulatory policies are not providing adequate incentives for utilities to maintain and upgrade facilities to provide an acceptable level of reliability."

That doesn't bode well for the nation's electricity consumers, given that nine states deregulated in 1999 and more are expected to come on board this year. Just last week, Michigan legislators debated whether to make their state the 24th to adopt the policy.

The DOE's paper provides additional ammunition to deregulation foes such as Nebraska Gov. Mike Johanns. In May he testified before a U.S. House of Representative panel that deregulation, also known as restructuring, would bring higher power costs to his state.

Johanns' view is disputed by Arkansas, Delaware, Maryland, New Jersey, New Mexico, Ohio, Oregon, Texas and Virginia, which committed to deregulation in 1999. Those states joined Arizona, California, Connecticut, Illinois, Massachusetts, New Hampshire, Nevada, New York, Maine, Michigan, Montana, Oklahoma, Pennsylvania and Rhode Island.

As it stands now, states swap and trade electricity over a grid more akin to "a two-lane or four-lane road than a superhighway," says Jim Owen of the Edison Electric Institute, an association of shareholder-owned utilities supplying 75 percent of the nation's power.

Furthermore, deregulation has transformed what used to be a fairly genteel high-voltage interstate into a more rough-and-tumble passageway, says Gene Gorzelnik, with the North American Electric Reliability Council (NERC), located in New Jersey.

When NERC was formed in 1968, in response to a massive blackout that blindsided New York City in 1965, "peer pressure" was enough to keep power companies in line. Now that old-line utilities and independent power suppliers are fighting for business, "people are not following the rules of the road that have been established for operating the electrical system," Gorzelnik says.

He favors making NERC something of a power grid policeman, a proposal the electric industry has tried to sell to some states.

U.S. Secretary of Energy Bill Richardson has said passage of the administration's deregulation bill would lead to greater reliability. Meanwhile, the Federal Energy Regulatory Commission has proposed creating regional transmission organizations to help address the problem.

The DOE's study on electricity reliable was an interim version. A final report is expected in March.