Electricity Restructuring
2003 Blackout Identifies Crisis and Opportunity for the Electricity Sector Gao ID: GAO-04-204 November 18, 2003The August 14, 2003, electricity blackout--the largest in the nation's history--affected millions of people across eight northeastern and midwestern states as well as areas in Canada. The blackout intensified concerns about the overall status and security of the electricity industry at a time when the industry is undergoing major changes and Americans have a heightened awareness of threats to security. Because of these widespread concerns and the broad institutional interest of the Congress, we (1) highlighted information about the known causes and effects of the blackout, (2) summarized themes from prior GAO reports on electricity and security matters that provide a context for understanding the blackout, and (3) identified some of the potential options for resolving problems associated with these electricity and security matters.
While the root cause of the blackout has not yet been conclusively established, a recent DOE report describes a sequence of events that culminated with the outage. A series of power plants and transmission lines went offline beginning at about noon eastern daylight time because of instability in the transmission system in three states. The loss of these plants and transmission lines led to greater instability in the regional power transmission system, which--4 hours later--resulted in a rapid cascade of additional plant and transmission line outages and widespread power outages. The blackout affected as many as 50 million customers in the United States and Canada, as well as a wide range of vital services and commerce. Air and ground transportation systems shut down, trapping people far from home; drinking water systems and sewage processing plants stopped operating; manufacturing was disrupted; and some emergency communications systems stopped functioning. The lost productivity and revenue have been estimated in the billions of dollars. A joint U. S.-Canadian taskforce is seeking to identify the root cause of the failures and plans to issue an interim report in November 2003. Over the past several years, our work on the electricity sector has resulted in numerous findings, conclusions, observations, and recommendations. Based on this prior work, we highlight three themes on electricity and security matters in our briefing and lay out some of the potential options to consider in addressing problems in these areas. Electricity markets are developing, but significant challenges remain. Our work has shown that while the electricity sector is in transition to competitive markets, the full benefits of these markets will take time and effort to achieve. Oversight of markets and reliability needs more attention. The ongoing transition to competitive markets, or "restructuring" of electricity markets, has dramatically changed how the Federal Energy Regulatory Commission (FERC) needs to oversee these markets and the information it needs to do so. Security for critical infrastructure is of growing importance. Our work has shown that a reassessment of the security of the nation's physical infrastructure as well as that of related information technology and control systems should be undertaken.
GAO-04-204, Electricity Restructuring: 2003 Blackout Identifies Crisis and Opportunity for the Electricity Sector
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Report to the Chairman, Senate Committee on Governmental Affairs:
United States General Accounting Office:
GAO:
November 2003:
Electricity Restructuring:
2003 Blackout Identifies Crisis and Opportunity for the Electricity
Sector:
GAO-04-204:
Contents:
Letter:
Summary:
Appendix I: 2003 Blackout Identifies Crisis and Opportunity for the
Electricity Sector:
United States General Accounting Office:
Washington, DC 20548:
November 18, 2003:
The Honorable Susan M. Collins:
Chairman, Committee on Governmental Affairs:
United States Senate:
Dear Chairman Collins:
The August 14, 2003, electricity blackout--the largest in the nation's
history--affected millions of people across eight northeastern and
midwestern states as well as areas in Canada. In some areas, power was
restored in hours, while in others power was lost for several days. The
blackout intensified concerns about the overall status and security of
the electricity industry at a time when the industry is undergoing
major changes and Americans have a heightened awareness of threats to
security.
Because of these widespread concerns and the broad institutional
interest of the Congress, we (1) highlighted information about the
known causes and effects of the blackout, (2) summarized themes from
prior GAO reports on electricity and security matters that provide a
context for understanding the blackout, and (3) identified some of the
potential options for resolving problems associated with these
electricity and security matters.
Over the past several weeks, GAO staff briefed numerous congressional
staff on its observations. In response to your request, we prepared
this overview to accompany the slides used in these presentations.
Appendix I presents the latest briefing slides in their entirety. Our
briefing is based largely on reports we previously issued on a range of
electricity issues along with updated information obtained from the
Department of Energy (DOE), the North American Electric Reliability
Council, and operators of the transmission system in the blackout
region. The information presented is intended to place the electricity
blackout in the broader context of long-term issues affecting the
sector. The options presented do not encompass a complete set of all
possible options but do represent ideas that merit consideration as the
nation moves forward to address this important issue.
Summary:
While the root cause of the blackout has not yet been conclusively
established, a recent DOE report describes a sequence of events that
culminated with the outage. A series of power plants and transmission
lines went offline beginning at about noon eastern daylight time
because of instability in the transmission system in three states. The
loss of these plants and transmission lines led to greater instability
in the regional power transmission system, which--4 hours later--
resulted in a rapid cascade of additional plant and transmission line
outages and widespread power outages. The blackout affected as many as
50 million customers in the United States and Canada, as well as a wide
range of vital services and commerce. Air and ground transportation
systems shut down, trapping people far from home; drinking water
systems and sewage processing plants stopped operating; manufacturing
was disrupted; and some emergency communications systems stopped
functioning. The lost productivity and revenue have been estimated in
the billions of dollars. A joint U. S.-Canadian taskforce is seeking to
identify the root cause of the failures and plans to issue an interim
report in November 2003.
Over the past several years, our work on the electricity sector has
resulted in numerous findings, conclusions, observations, and
recommendations. Based on this prior work, we highlight three themes on
electricity and security matters in our briefing and lay out some of
the potential options to consider in addressing problems in these
areas.
Specifically:
* Electricity markets are developing, but significant challenges
remain. Our work has shown that while the electricity sector is in
transition to competitive markets, the full benefits of these markets
will take time and effort to achieve. For example, we found that the
separate development of wholesale and retail electricity markets, which
is occurring as part of the electricity industry shifts from regulated
to competitive markets, limits the industry's ability to achieve the
benefits of competition. The separate development of these markets
reduces or eliminates retail consumers' incentive or ability to respond
to market signals that supplies are tight. Consumers do not respond
because the retail prices they see are set by state regulators and do
not reflect actual market conditions. This lack of consumer response
becomes particularly important during periods of high demand for
electricity, such as hot summer afternoons, when total electricity use
approaches the total amount of available generation. Efforts to promote
various types of demand response, such as those that link customers'
electricity consumption with prices, may offer one option for improving
this situation. We are exploring this issue in more depth in response
to your request. Other issues raised by our work in this area are
presented in slides 14 through 18 of the briefing.
* Oversight of markets and reliability needs more attention. The
ongoing transition to competitive markets, or "restructuring" of
electricity markets, has dramatically changed how the Federal Energy
Regulatory Commission (FERC) needs to oversee these markets and the
information it needs to do so. In order to monitor current market
conditions to ensure fair competition, for example, FERC needs to
access market information on wholesale transactions and the operation
of electric generating plants, among other things. Our work shows that
FERC's oversight efforts are improving, but it continues to be hampered
by a number of challenges. In particular, we noted that FERC had
previously not clearly defined its role in monitoring the market, faced
gaps in information due to limitations in its jurisdictional authority,
relied on third-party data to perform regulatory functions, and had
limited enforcement authority. In addition, we pointed out that FERC
faced human capital challenges to acquire and develop the staff
knowledge and skill it needs to effectively regulate and oversee
today's electricity market. Because restructuring has changed the types
of information regulators need, we have previously recommended that
FERC demonstrate what additional information it needs, describe the
limitations it faces without such information, and ask the Congress for
authority to collect it. One option for congressional action in this
area includes providing FERC with authority to gain access to needed
data relating to reliability and markets. Other issues raised by our
work in this area are presented in slides 19 through 26 of the
briefing.
* Security for critical infrastructure is of growing importance. Our
work has shown that a reassessment of the security of the nation's
physical infrastructure as well as that of related information
technology and control systems should be undertaken. Often, security
measures have been added after the infrastructure is in place, which is
costly and creates potential conflicts between security and efficiency.
Therefore, it may be better to integrate sufficient security measures
for these critical systems, particularly in a post-September 11th
environment, into the planning for new construction or the upgrading of
existing infrastructure, rather than viewing them as later add-ons. Our
work has also raised concerns about the increasing reliance on
information technology and control systems, which are potentially
vulnerable to cyber attack, including the systems used in the
electricity sector. As part of our work, we have found that cyber
attacks against these systems could be used to cause damage or
complicate the response to a physical attack. One option to help
address this problem would be to increase the focus on research and
development and other related activities, including the use of
currently available technologies and vulnerability assessments, aimed
at enhancing national capabilities to respond to cyber-security issues.
Other aspects of our work in this area are presented in slides 27
through 29 of the briefing.
Whatever the ultimate cause of the blackout, our work has shown that a
number of significant challenges remain for the electricity sector. We
recognize that many issues surrounding the restructuring of the
electricity industry are complicated and that solutions involve complex
policy tradeoffs for the Congress that will undoubtedly take time to
fully resolve. GAO stands ready to provide any analytical assistance
the Congress may need in this important long-term endeavor.
We conducted our work in accordance with generally accepted government
auditing standards.
We are providing copies of this report to other appropriate
congressional committees as well as DOE and FERC. The report will be
available at no charge on the GAO Web site at http://www.gao.gov.
If you or your staff have any questions about this report, please
contact me at (202) 512-3841. Major contributors to this report
included Mary Acosta, Dennis Carroll, Dan Haas, Randy Jones, Mike
Kaufman, Jon Ludwigson, and Barbara Timmerman.
Sincerely yours,
Jim Wells:
Director, National Resources and Environment:
Signed by Jim Wells:
[End of section]
Appendix I: 2003 Blackout Identifies Crisis and Opportunity for the
Electricity Sector:
[See PDF for images]
[End of figure]
[End of section]
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