It has only been six months since the massive power outage that left an estimated 50 million people in portions of the Northeast, Midwest and Canada without power for an extended period of time. Before that, much of the state of California was faced with rolling blackouts and brownouts, as well as skyrocketing price hikes.

Without a doubt, utilities — and electrical power especially — have become a “top-of-mind” concern for businesses throughout the country. This is particularly true for companies that are engaged in the site selection process.

While price has always been, and always will be, the primary concern, suddenly business customers have begun to worry about reliability as well, even in those parts of the country unaffected by the recent outages.

“While we can never guarantee such an event will not take place here, the modern generating and transmission infrastructure now in place across much of the South should reduce the chances for a similar event in our region,” said Kurt Brautigam, a spokesman for Mississippi Power. “Companies in our region have invested hundreds of millions of dollars in the past few years to upgrade transmission lines and build generating plants to mitigate the possibility of an energy shortage.”

Mississippi Power and other electric utilities in the South operate in a regulated environment that has been in place for decades, ensuring reliable service and rates lower than the national average. Other parts of the country, especially in the Northeast, have attempted to shift to a competitive, reregulated system that allows more options for customers to buy electricity. However, the trade off seems to be less overall accountability from those companies sharing the grid system.

In other words, it’s harder to pinpoint who is responsible — the power generating company or the transmission company or the service provider — when something goes wrong.

“Our customers know who to call when they have trouble with their service,” Brautigam said. “We’re responsible for meeting their electric needs — providing reliable service, and planning and building our system to ensure we can meet those needs now and in the future.”

Insufficient capacity is still a concern in some parts of the country. California, in particular, has been active in addressing its long-neglected energy production problem since the rolling blackouts. That’s a major step in the right direction.

Other utilities around the country have followed suit.

In a report filed with the Minnesota Public Utilities Commission in November, Xcel Energy announced its intention to seek authorization for a $100 million project to add two combustion turbines at its Blue Lake peaking plant in Shakopee, Minn., and for a $64 million project to add one turbine at its Angus Anson peaking plant in Sioux Falls, S.D.

Xcel Energy is a major U.S. electricity and natural gas company with regulated operations in 11 states in the West and Midwest.

Each of the three new turbines would be fired by clean-burning natural gas and would have a summer capacity of about 160 megawatts. Currently, the Blue Lake plant has four units fired by oil and has a capacity of 225 megawatts; the Angus Anson plant has two units that can be fired by either natural gas or oil and has a capacity of 223 megawatts.

Peaking plants are used when demand for electricity exceeds the capability of lower-cost baseload plants, such as the coal-fired Sherco plant and the Monticello and Prairie Island nuclear plants in Minnesota. Peaking plants routinely are used during times when electricity demand is the highest — which in Minnesota is in the summer when air conditioners are running — or when there is an unexpected outage at a baseload plant.

“The three new turbines are needed to ensure a reliable supply of power during peak demand periods in 2005 and thereafter,” said David Wilks, president of energy supply for Xcel Energy. “We want to ensure that the reliability of our power supply for our customers remains high.”

Clearly, at least in the short run, the major outages of the past several years seem to have created a broad national consensus to fix the problem of inadequate supply. Fixing the “antiquated” transmission grid will probably take much longer, in part because the convoluted mix of regulated and deregulated utilities throughout the country has stripped much of the profit incentive out of the transmission side.

The result is a situation not unlike rent control, where there is very little incentive for companies to invest a lot of money in modernizing and expanding the grid without a clear return on their investment.

How They Respond to Emergencies
Even though major catastrophic outages are relatively rare — smaller outages because of natural causes, usually weather-related, are not that unusual — how a utility responds to a crisis is an important factor to consider in the site selection process. In addition to gathering data on energy costs, it’s also a good idea to ask around to see how the utility has responded to past outages.

Last month, Duke Power was honored by the Edison Electric Institute (EEI) as the winner of its annual “Emergency Response Award” for Duke’s recovery efforts from a massive ice storm that wreaked havoc on its service territory in December 2002.

On Dec. 4, 2002, a 100-mile swath of ice blanketed Duke Power’s service area from Anderson, S.C., to Durham, N.C., leaving nearly 1.4 million customers without electricity at the peak of the storm, the worst ever to hit the company.

The greatest ice accumulation, damage and power outages occurred in North Carolina.

Duke Power quickly implemented its emergency response plan, mobilizing employees before the storm hit and requesting assistance from other electric companies. The first off-system field personnel arrived Dec. 5.

The company’s Emergency Operations Facility opened to manage and coordinate the logistics of service restoration, and nearly 8,500 field personnel were deployed, including 3,550 Duke Power crews.

The company also placed a high priority on communicating the progress of the restoration to the public. Duke Power also focused specifically on its priority customers, targeting hospitals, schools and other facilities for immediate restoration.

The EEI is the association of U.S. investor-owned electric utilities and industry affiliates and associates worldwide. Its domestic members generate about three-quarters of all the electricity generated by electric utilities in the country and serve about 70 percent of all ultimate customers in the nation.

Business Attraction and Retention
Utilities across the country are also hard at work trying to attract and retain commercial and industrial customers. Many, if not most, also are actively involved in their particular community’s business attraction and retention programs.

Typical of this would be a recently signed agreement between Alcoa, the world’s leading producer of primary aluminum, fabricated aluminum and alumina, and Santee Cooper, South Carolina’s state-owned electric and water utility. The two signed a long-term power-supply agreement last August providing for the state-owned electric and water utility to continue as the aluminum manufacturer’s source of electricity through 2015. Terms of the deal were not disclosed.

“Energy prices are critical to metals manufacturers, and Santee Cooper’s industrial electric rates are among the lowest in the Southeast,” said John Tiencken, president and CEO of Santee Cooper. “This helps us foster economic development by attracting and retaining good-paying jobs and good corporate citizens, such as Alcoa. Working together, we can keep critical manufacturing jobs in the U.S.”

Alcoa Mt. Holly, with a work force of about 630, is one of Santee Cooper’s 32 large industrial customers located around the state. The facility is Santee Cooper’s largest industrial customer, accounting for nearly 14 percent of the utility’s total annual energy sales.

“This contract provides Alcoa Mt. Holly with a reliable source of affordable power required in today’s global aluminum industry,” said Paul Campbell, president of Alcoa’s Southeast region. “We have a very positive relationship with Santee Cooper and it’s been that way since we began commercial operations in 1980.”

Alcoa Mt. Holly is capable of producing 212,000 metric tons of aluminum annually. The aluminum is produced continuously in reduction cells that require a stable and reliable energy source.

“It is important for any utility to continue serving its large customers and this agreement shows Alcoa has a tremendous amount of faith in Santee Cooper,” Tiencken said. “We will continue concentrating on producing low-cost electric power and delivering the level of customer service all our customers expect.”

The Bottom Line
While business customers have always worried about reliability, utility companies have, in a sense, become victims of their own success. After all, it had been so long since the United States had suffered such a major power outage — a couple of decades, at least — that everyone had come to assume that massive power outages were a thing of the past.

For now, those days are gone.

We can leave it up to the experts to figure out the ultimate solution to the supply and transmission problems but, as we’ve said on these pages before, they need to start by deciding, one way or the other, whether the production, distribution and delivery of electrical power is going to be fully regulated or fully deregulated. The status quo is like being a little bit pregnant.

Government leaders need to make up their minds about how they want to create the profit motive — either artificially through regulation or through market forces by deregulation — for all aspects of the production and delivery of electrical service, and then let the utilities do the rest.

Leaving the profit motive out of any piece of the overall puzzle is a prescription for failure.