New Kind of Electricity Market Strains Old Wires Beyond Limits

New Kind of Electricity Market Strains Old Wires Beyond Limits

By NEELA BANERJEE and DAVID FIRESTONE

With the lights back on after the biggest blackout in North American history, consumers have learned a difficult lesson about the electricity grid: it was an afterthought during the decade-long process of deregulating the power industry.

No single authority is in charge of the grid, and few have an incentive to invest the money needed to improve its reliability. Deregulation increased the vulnerability of the grid to failure, regulators and industry executives broadly concur.

Deregulation is actually a misnomer for the restructuring of the power industry, because only the generation of electricity was freed from strict government controls, beginning in 1992. Companies were allowed to charge market-based rates for generating electricity, creating the financial incentive to build more power plants.

But the transmission of electricity over high-voltage lines and the distribution into homes and buildings remained regulated. Power companies received only a relatively low, government-set return on their investment in the grid, so they allocated far less money to improving transmission reliability than to building power plants.