Ken Silverstein EnergyBiz Insider Editor-in-Chief

It's not an issue that gets much attention until the power goes out for an extended period. But when such things happen, the topic comes to light. The 2003 Blackout is the clearest example of that -- an occurrence that left 50 million in the dark in several states and in Canada. And, now, Entergy Corp. and Mississippi Power are still fighting to restore power within their territories. Needless-to-say, help is on the way. Sure, utilities have their field crews working round-the-clock. But U.S. lawmakers passed mandatory reliability standards that might make it easier to site transmission lines.

The need for a more vast and modern grid is widely recognized. But the chief obstacles to building them deter construction, principally resistance by neighborhood organizations and environmental groups. At the same time, utilities are pressed to make other investments -- ones that require less capital and have traditionally earned better and faster rates of return than those in transmission projects. Federal policymakers say that the goal now is to break down the barriers and to ensure the nation's grid is updated.

"We believe this is not an option, but a necessity, and on the basis that it is reasonable to argue that the next 10 years will see a substantial increase in transmission investment in North America," says a paper issued by the Edison Electric Institute called "Meeting U.S. Transmission Needs."

The group says that during the past 10 years, investment in transmission by all types of utilities averaged $3.6 billion per year. In 2003 and 2004, the number jumped to $5 billion each year. It says that such investment could average $7 billion a year over the next decade, or in a best-case scenario, $10 billion a year.

One of the reasons it says for the expected rise is the growth of regional transmission organizations, or RTOs, that are independent operators of transmission lines that have the authority to order upgrades and even construction in some instances. In other cases, it says that the efforts are being led by incumbent utilities that are not part of RTOs. Under any circumstance, the federal government will now have more power to enforce reliability standards and to try and license transmission lines if the states don't issue the needed permits within a one-year time frame.

Specifically, the 2005 energy law gives the U.S. Department of Energy the authority to identify "national interest electric corridors" while the Federal Energy Regulatory Commission can site the projects that fail to win state approval. Meantime, the law not only would include the North American Electric Reliability Council in the development of standards but allow it to enforce them as well -- all under the authority of a so-called Electric Reliability Organization. Such standards have been optional to this point.

Modern Transmission

While the recent hurricanes and the 2003 Blackout have enlightened the masses as to the serious need for new investment, those in the industry have been cautioning against complacency for some time. Certainly, the average age of assets along with a growing demand for power and limited capital have combined and sent warning shots across the bow of the American people and their elected representatives. The 2003 Blackout, for instance, cost untold millions in lost economic opportunities.

The wires business must evolve to meet the needs of a high tech society. The delivery system was designed a century ago and the technologies that run it are half as ancient. It's about increasing the capacity of wires, says the Electric Power Research Institute (EPRI). Progressive technologies exist. But transmission projects compete with other capital intensive projects for money.

What should the grid of the future look like? EPRI says that a modern transmission system would also lead to improved security and efficiency. Any intrusion, for example, could be isolated while the rest of the grid kept functioning. By promoting compatibility with future technologies, these tools for the design of systems have the potential to eliminate expensive upgrades later on.

It's all part of EPRI's intelligrid, which it says is doable in those areas where transmission expansion is coming and when aging assets need to be replaced. According to Wade Malcolm, vice president of power delivery and markets for the Palo Alto, Calif. Group, an investment rate of $7 billion annually in the transmission grid would be a welcome development. At that level, however, it's more realistic to make incremental upgrades to the grid, as opposed to wholesale changes.

"An idealistic end point would be $100 billion investment over 10 years," Malcolm says. "But within the $7 billion annually over 10 years framework, we will still see opportunity to apply new and emerging technologies. We want to make sure companies look at advanced technology when they invest in their systems."

Red Tape

To be sure, transmission developers are still likely to get entangled in red tape. On paper, the Energy Department now has the ability to say what pathways transmission lines should follow and the FERC can act as a backstop to ensure the infrastructure is built. The reality, however, may prove far different.

FERC, for example, has maintained the ability to step in to get interstate natural gas pipelines constructed. But that hasn't stopped opposition groups from throwing up roadblocks that cause delays, and even the total derailment of deals. In any event, FERC emphasizes that nothing in the law obviates the necessity for developers to lay the foundation for winning pipeline or transmission permits. That includes working with all the stakeholders to understand and address their concerns.

The permitting process will still be inclusive. But, to keep local disputes from impeding national economic interests, federal officials do have the authority to get the job done. Progress in the past has been done on a piecemeal basis that inhibits the flow of electrons and by extension economic growth. A more systematic approach that uses a common architecture would advance both the capacity and capabilities of the grid.

It's all about attracting new investment in transmission. And the changes in federal law now give utilities more incentive to reposition their capital -- all to build a modern 21st century electricity grid. In the end, the events surrounding the 2003 Blackout and the recent hurricanes could well fade to black.

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