What You Should Know about the Electricity Grid Followings Last Month's Power Outages (Hint: We Should Have Seen It Coming)

15 minute read

energy, power outage, political satire, regulation, affordability, renewable energy, LNBA, utility of the future

This article represents the views of the author only and does not represent the opinions, perspectives, or positions of organizations mentioned or cited within. All information and data shared is in the public domain.

Before diving into how last month’s power outage is emblematic of a much larger problem, let’s review events as they occurred just two weeks ago.

April 20th 6:25 PM Eastern Time: Relatively small, but unexplained outages are reported in suburbs and small towns across the country including Licking, Texas – a suburb of Houston

April 21st 7:20 AM ET: The first significant metropolitan outage of the day occurs in New York City, impacting the 7th Avenue and 59th Street subway stations and causing significant delays throughout the subway system.

12:00 PM ET: Smaller outages throughout the morning, across the country, pale in comparison to an electrical outage and associated fire in San Francisco which affected nearly 90,000 people. 

12:01 PM ET: With electrical outages in multiple metropolitan areas concerns of terrorism and cyberwarfare begin to arise.

12:01 PM ET - 1:10 PM ET: Over the course of 75 minutes the Dow Jones Industrial loses 0.36%. 

1:10 PM ET: Social media begins to roast Secretary of Energy Rick Perry (if you haven’t laughed today, pause and take a minute)

2:00 PM ET: Luckily for Perry, power in New York City is fully restored by conEdison

9:30 PM ET: Power is restored to nearly all customers in San Francisco by Pacific Gas and Electric

Over 24 hours, outages were reported in more than a dozen states, affecting millions in the United States. Note: A comprehensive accounting of international power outages has not yet occurred; some outages in the UK were reported earlier that week.

This many outages, in such a short period of time, are far beyond coincidence. However, with no immediately apparent explanation available and most utilities’ official investigations still ongoing, the story has fallen out of the 24 hour news cycle. Evidence from the National Oceanic and Atmospheric Administration (NOAA) suggests that the series of outages may have been the result of a geomagnetic storm, specifically an electron flux. Geomagnetic storms have been previously studied by NOAA, which has found that such events can have both immediate and long term impacts on electrical equipment.

Before panicking that our electric grid is vulnerable to a new and invisible threat, let’s take a step back and reflect.

• Geomagnetic events are somewhat predictable and utilities have recently updated standards to further protect against such events.
• Despite the scale of last week’s events, protective devices installed to prevent cascading outages, such as those in the Northeast in 2003, worked.
• Electricity is really, really reliable.

While reliability can be measured in several different ways, the 2015 (most recent data available) national utility average outage rate is less than 4 hours a year or 0.04%, with even better rates in urban areas. PG&E for example reported 96 minutes  of equipment failure outages during the same time period. That is nearly an hour better than Amazon Web Services,  and more than 5 times better than Microsoft Azure or Google Cloud, which had around 11 hours of down time over that period. That’s right – PG&E is more reliable than the country’s most innovative and well respected technology companies – including Google, Microsoft and Amazon. [TC1] 

Before diving deeper into the story surrounding this particular outage, let’s remind ourselves of the environment within which electric utilities operate. Most utilities are natural monopolies, and are therefore appropriately heavily regulated. This is a decision that governments around the world made in order to stabilize the electric industry, reduce costs, provide customer protection, and streamline government oversite.

Pratt, Kansas 1911. With no defined service territories and minimal regulations, providing electricity to businesses and residents was a wide open market, even in small town America

This regulatory control is a key consideration when trying to understand utility investment decisions. Most utilities and especially those that have revenues decoupled from electricity sales, must have all infrastructure expenditures approved by the appropriate regulator, or in some case regulators. In California, the largest such regulators are the California Public Utilities Commission Energy Division (CPUC-ED) and the California Independent System Operator (CAISO), just to name a few. Furthermore, regulatory interveners such as the Office of Ratepayer Advocates (ORA) or Solar Energy Industries Association (SEIA) advocate for specific interests such as customer affordability, renewable energy subsidies, environmental justice, etc.

One the interests that is rarely spoken for is the electric grid itself. The 2017 American Society of Civil Engineers (ASCE) rated the nation’s energy system a D+; this is primarily because most electrical equipment has surpassed its 50 year life expectancy without replacement. While frustrating, this should not be surprising, since the country has received a D grade in every ASCE report card since 1998. Like an athlete past their prime who has forgotten to stretch, we are just begging to get injured, or in our case have power outages.

In California, non-emergency utility infrastructure investment requests are made to the CPUC in 3 year cycles. In PG&E’s most recent application (2015) the utility specifically requested approval for “capital investments to replace aging infrastructure” like those graded by the American Society of Civil Engineers as a D+. These investments would have increased 2017 electric bills by less than $2 a month (2.23%) compared to 2015; a percentage change that was lower than inflation during the time period. Just to be absolutely clear, customers in PG&E’s low income assistance program, CARE, would not have received bill increases under the proposal.

So for less than the price of a drip coffee at Starbucks, and way less than the cost of a unicorn frappuccino, the CPUC decided to not sufficiently invest in California’s aging investment infrastructure, again.

This dichotomy of subsidizing billions of dollars of renewables onto a poorly funded electricity grid is not unique to California or even the United States, as outlined in this recent article in The Economist. The article goes as far as questioning the stability of the utility sector business model. Look for my next post, which will be on this topic.

If you trust in Silicon Valley, there is hope. Rather than invest in replacing the electricity grid outright, fuel cell and battery storage vendors, like STEM and Tesla, will attest that their products and services have Locational Net Benefits (LNBA), sometimes called locational value. The logic is to not make traditional lines and wires investments when a reliability issue is forecasted, but to instead reduce demand or adjust electrical frequency through energy storage. This idea is an extension to Targeted Demand Side Management (TDSM) programs previously, and successfully, pursued by utilities.

There are a few problems with this approach. To begin, electricity consumption is on the decline. So while the grid needs investment, the main benefit energy storage provides – load reduction during peak periods – may not be needed. Furthermore, as outlined by this MIT report entitled Utility of the Future, while LNBA sounds like a good sales pitch to venture capitalists, a positive LNBA rarely occurs in today’s ecosystem. The MIT report goes on to say that vast locational value for distributed renewables and batteries is not possible without significant changes to electricity price structures, or the creation of an unprecedented and extremely complex distribution electricity market.

Photo credit Robin Loznak

Solving for these two macro-economic issues, the problem remains that TDSM programs have already capitalized on nearly all low hanging fruit opportunities. This is similar to how the solar industry, which is going through its own series of bankruptcies, cannibalized the best energy storage customers.

To bring it all together:

• Last week’s power outages could have been the result of an electron flux, but more time is needed for a full investigation.
• Despite reliability rates higher than most other services, electricity is so critical to modern society that negative dominance affects memory, and our sense of reliability.
• America is playing with house money when it comes to reliability and our aging infrastructure. Despite their comparatively low costs, such investments are unlikely to be funded in the near future without proper advocacy.
•  State regulators, like the California Public Utilities Commission, hold the purse strings and control how much investment in infrastructure is made.
• Distributed energy resource vendors will likely use recent power outages as an opportunity to promote increased resilience and the idea of locational value, despite limited real world applicability or cost competitiveness. This recent Op-Ed in the San Francisco Chronicle dangles micro-grids in front of readers as a potential solution. The article fails to mention cost at all, or that or that industry forecasts predict a 2024 benefit-cost ratio of only 0.67.

As one of the most critical levers in the fight against climate change the utility industry, its regulators, and customers have difficult challenges ahead. In order to achieve our shared desires for a sustainable future, we must make investments in infrastructure today.