Consumers may bear brunt of paying for better grid

Posted: Tuesday, September 09, 2003

COLUMBUS, Ohio Quick! How much of your monthly electric bill pays for firing up your coffee maker?

Generally, 25 percent of what Americans pay powers up sockets in homes and businesses. About 10 percent is used to send electricity along high-voltage transmission lines. The bulk 65 percent goes to building, maintaining and operating the hulking plants that generate power from coal, natural gas, nuclear fission or water.

Those utility bills may increase now that the nation's biggest blackout has fueled arguments that the creaky electrical maze needs a $50 billion to $60 billion fix.

''It's the old trickle-down theory,'' said Robert Tongren, president of the National Association of State Utility Consumer Advocates, who also is Ohio's chief consumer representative. ''Everything that we pay for is a result of the costs that are incurred in creating and delivering the good or service.''

No one knows yet if a better transmission system could have stymied the Aug. 14 outage that investigators suspect began in Ohio and spread from Michigan to New York and into Canada, affecting 50 million people. But power companies say the overburdened lines failed after electric surges exceeded emergency levels before the crash.

If more power lines are needed, utilities likely will charge consumers higher rates to offset expenses of modernizing the sprawling and antiquated grid, analysts say.

Opinions vary on the cost of making the increasingly interconnected grid that crisscrosses America more reliable. Many experts agree, though, that it will take more than the $3 billion a year utilities now pour into lines, towers and substations.

''We need to be spending $5 billion to $6 billion a year. If we were doing that, we would not have as much congestion on the system as we do today,'' said David Owens, the executive vice president of the Edison Electric Institute, an industry trade group.

A major power grid fix would take several years, meaning customers would see small bill increases over time rather than potentially big utility hikes that could come later if problems aren't addressed now, Owens said.

Demands to fix the grid have intensified since the blackout. The National Commission on Energy Policy urged the Federal Energy Regulatory Commission to add charges on consumers' bills to pay for transmission lines and for research aimed at better technology.

''Consumers will pay one way or another,'' said Jennifer Tripp, a transmission system analyst and the senior director of R.W. Beck, a Seattle-based engineering and management consulting firm.

She said the federal government could take the unpopular step of increasing taxes and mandating grid upgrades, but more likely consumers will pay with higher electric bills.

Electricity rates vary, depending on what state a consumer lives in, what company supplies them power and how their electricity is generated for example, by coal, which is cheap but dirty, or natural gas, which is pricey.

Power companies determine what to charge using a complicated formula that factors in what it costs them to generate, transmit and distribute electricity. State and federal regulators must approve any change in rates, a lengthy process because public hearings are required and legal challenges typically arise.

''We usually call for less of an increase than what the utility asks for,'' said Bob Fortney, an administrator with the Public Utilities Commission of Ohio.

The Ohio commission hasn't had a rate case in several years because electric rates have been frozen since Jan. 1, 2001, when the state's law deregulating the industry took effect. Rates will stay the same until each company's transition into a free market ends.

In the case of FirstEnergy Corp. the Akron-based company that owns the failed Ohio transmission lines at the center of a U.S.-Canadian blackout probe rates will stay steady at least through Dec. 31, 2007.

Although Ohio utilities can't charge customers more for the next few years, they can ask state and federal regulators to allow them to spend the amount they collect differently.

The companies must ask permission for rate changes even though the electric industry is considered deregulated in Ohio. The state continues to control rates for distribution into homes and businesses. Federal regulators do the same for transmission of electricity from plants to substations that break down the voltage so a less powerful current can be used for appliances and lights.

The only piece of the grid that's not regulated the creation of power makes utilities the most money because the market not regulators determines the price.

That's why utilities have spent a lot on power plants over the past few years but less on the wires, towers and substations for distribution and transmission systems. An energy bill stalled in Congress aims to give utilities more incentives to build transmission lines.

''Who should pay? It comes down to shareholders or ratepayers,'' said Jim Schretter, director of a McLean, Va.-based industry lobbying group called the Council for Competitive Transmission. ''There are probably some upgrades, such as the communications system, that shareholders should pay for, but the fact is everyone benefits from turning the lights on and having them come on.''

Tyson Slocum, the energy-research director at Public Citizen, a Washington-based consumer advocacy group, said the burden must be shared.

''Before we stick consumers with the whole bill, we should take a look at whether the companies should incur at least some of the costs of fixing the system,'' Slocum said. ''I have no problem with consumers paying for their fair share, but power companies have been off the hook for years when it comes to investing in transmission.''

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