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Business Impact

Static Electricity

From California to New York’s Long Island, power-grid innovation is at a near standstill.

Blame California. Deregulation of the electrical business in the Golden State in the late 1990s backfired so badly—contributing to massive price hikes, rolling blackouts, and eventually the ouster of Governor Gray Davis—that other efforts to restructure elec­tricity markets in the United States seem permanently stalled. For example, rules making it easier for wholesale power generators to swap power went into effect in some states and not in others, leaving regional regulatory bodies with the power to block projects that might make the grid as a whole more reliable. “California just screwed that up so badly that everybody else is afraid of it,” says Sally Hunt, a power-industry consultant who advised the United Kingdom on the successful privatization of its own power industry in the late 1980s.

So it took no small amount of courage for TransÉnergie U.S., a subsidiary of Hydro-Québec, to push forward with a 1999 plan to lay a new digitally controlled transmission cable under Long Island Sound. Connecting the New England electrical grid to power-hungry Long Island, which lacks the on-island generating capacity to keep up with population growth, would fill an obvious market need. And because the cable would be bracketed on both ends by advanced digital switches that precisely control the amount of power flowing through it, TransÉnergie would be able to stabilize regional power flows at peak times and bill utilities in Long Island or Connecticut for every kilowatt-hour of energy delivered, earning a quick return on its investment. (Metering power sent across the traditional power grid, which lacks such controls, is much more difficult.)

TransÉnergie obtained the necessary financing and permits, and by mid-2002 the cable was in place. But as contributing writer Peter Fairley explains in a case study, “TransÉnergie: Playing Two Power Games” (p. 32), that was only the beginning of the story. Politicians in Connecticut feared that the new Cross Sound Cable would damage oyster beds near New Haven and raise electricity prices across their state by draining cheap power to Long Island. Taking advantage of the state’s regulatory authority over infrastructure placement and a minor permit violation that arose during installation, Connecticut officials withheld the final permission to turn on the cable. If not for the catastrophic blackout of August 14, 2003—which left 50 million ­people in the dark across parts of the Midwest, Northeast, and Canada—supporters of the cable project, including Long Island utilities and federal energy regulators, might never have gathered the political ammunition necessary to force Connecticut’s hand and bring the cable into service.

This story is part of our April 2005 Issue
See the rest of the issue

The blackout was a lucky break for TransÉnergie, but the future of North American electrical grids shouldn’t be left to luck. Environmental concerns are one thing, but as long as individual states have the power to block construction or impose price controls willy-nilly, innovation will be squelched and the grid will remain a national embarrassment. Time-of-day pricing, for example, is an idea that can help distribute electrical loads across the grid more evenly by giving customers an incentive to buy power when transmission lines are less congested, but it can’t happen until state regulators allow utilities more freedom to vary their rates. And while TransÉnergie won its battle, the larger problem can’t be solved on a region-by-region basis. What’s needed is a top-down redesign of the nation’s power regu­lations. That would be scary and painful—but preferable to sitting in the dark.

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