Practical Risk Management: Risk Of Another Major Electric Blackout In The U.S.

With the news constantly streaming about various crises – the credit crisis, confidence crisis, mortgage crisis, and housing crisis, to name a few – it seems that people are forgetting about a looming risk that is just budding its head right now. That risk is the failing electric grid system in the U.S.

The potential is the need to replace the aging electric grid system in the U.S., which is so antiquated that another “cascade” failure leading to a blackout, a la 2003, is a high probability. This issue is not something new. In fact, New York Times wrote an article in August 2003 about the dangers of serious failure if the electric grid system did not receive substantial upgrade to keep up with demands.

Since 2003, our electric uses have gone up while the electric grid system has been just barely maintained. According to Energy Information Administration (EIA), our electric consumption has gone up from 3,662,029,012 KwH in 2003 to 3,891,705,491 KwH in 2007, a 6.3% increase (EIA table 8-1).

We are not slowing down in our demand for electricity. In fact, with the renewed interest in alternative fuel source, many people are turning to electric vehicles. This includes major auto manufacturers. As more electric-gas hybrid cars are sold and used, the electric consumption will trend higher than the EIA projection of 4.97 billion KwH of electricity used by 2030.
Here is an assessment from the U.S. Department of Energy’s Office of Electricity Delivery and Energy Reliability (I too am surprised that this office actually exists) on the current state of the electric grid system (as of 2005-2006 period):

“America operates about 157,000 miles of high voltage (>230kV) electric transmission lines. While electricity demand increased by about 25% since 1990, construction of transmission facilities decreased about 30%. In fact, annual investment in new transmission facilities has declined over the last 25 years. The result is grid congestion, which can mean higher electricity costs because customers cannot get access to lower-cost electricity supplies, and because of higher line losses. Transmission and distribution losses are related to how heavily the system is loaded. U.S.-wide transmission and distribution losses were about 5% in 1970, and grew to 9.5% in 2001, due to heavier utilization and more frequent congestion. Congested transmission paths, or "bottlenecks," now affect many parts of the grid across the country. In addition, it is estimated that power outages and power quality disturbances cost the economy from $25 to $180 billion annually. These costs could soar if outages or disturbances become more frequent or longer in duration. There are also operational problems in maintaining voltage levels.

America's electric transmission problems are also affected by the new structure of the increasingly competitive bulk power market. Based on a sample of the nation's transmission grid, the number of transactions have been increasing substantially recently. For example, annual transactions on the Tennessee Valley Authority's transmission system numbered less than 20,000 in 1996. They exceed 250,000 today, a volume the system was not originally designed to handle.” (Click here to view a PDF fact sheet, as of February 2006, of the electricity delivery system in North America.)

What is really shocking (excuse the pun) is that the U.S. government has not put a lot of effort into rectifying this problem. Just the fact that the Department of Energy’s most recent study of the electric transmission and delivery system is dated from February 2006 should be cause for concern. (By the way, the URL http://www.electricity.doe.gov/ at the bottom of the fact sheet is a dead link, another sign that there isn’t a lot of effort or emphasis placed on this risk issue.)

What this means is that the risk of another catastrophic blackout can be expected in the very near future. With most people’s attention diverted by the dying “swan dance” of the financial market and the SNAFU situation in the Middle East, the real risk close to home is ignored.

Unfortunately, this is one case where ignorance is not bliss.

Regards,
Ed Kim
Practical Risk Manager