We've been talking about the grid, which includes the network of the 300,000 to 450,000 miles of transmission lines, depending on who you ask. Whether it's the lower number or the higher number, if we stretched it end to end, that's a distance that is longer than it is from Earth to the moon. Which only about 250,000 mile incase you're wondering. That is a lot of wires, poles and equipment over a long distances of diverse terrain to maintain. Add to that, the grid also includes substations, transformers and distribution lines. And I'm sure you can appreciate the amount of expertise and effort it takes for our lives to stay on. And to pinpoint and fix a problem if one arises in all sorts of weather is really difficult. I've had the opportunity to go on a lot of ride alongs in my career, and something I've always found interesting is the fact that the linemen can always point out the older equipment. It's kind of like hanging out with a docent in a museum. That is from the 1950s, over there, that is from the 1920s. The fact is parts of the grid are getting old. It doesn't mean it's not valuable, it doesn't mean it's not reliable. It just means that we need to pay attention to continuing to invest in our grid and the policies that influence this process. It's kind of like your car while no one ever says, wow, I love what you did with your oil change. Or hey, those new struts are pretty sweet. We know it's important to maintain our car, so we don't end up on the side of the road. Well the electric system is the same way. As our country and the world have become much more dependent on electricity and the grid has expanded. It becomes even more important than ever to maintain and replace what we have, and this includes the older infrastructure. We can all have the slick and cool gadgets we want. But if you think about it, having a strong backbone is the key to providing reliable and save electricity. Utilities know stuff happens when it comes to reliability. Equipment can fail, cars unfortunately hit poles. And no kidding squirrels are super cute, but they have been known to take down entire neighbourhoods. And those aren't squirrels on steroids, they are just plain old squirrels. You've heard me compare the grid to a system of roads before. It's a good analogy to start us out, but electricity doesn't really work like trucks or cars on road. Vehicles follow specific route as you know which is the road, at least that's what we hope that everyone follows the rules of the road. Electricity though moves through the wires based on the laws of physics. If it's been awhile since you've taken physics, I'm talking about the path of least electrical resistance. Also at this point in time, power can't be stored cost effectively on a large scale. >> Operations of a power utility are more complex than they were many years ago. Today, we do wholesale trading on an hourly basis, as well as further ahead. We also operate our hydro facilities. We try to balance the reservoir balance against the load of our costumers and the market prices as they move. >> This moves that utilities are constantly monitoring and adjusting generation to make sure everything is operating as it should. If you ever had a chance to see a control room. It's really impressive with screen upon screen of real time data, and experts making sure our light are always on or responding to liabilities issues really quickly. This data is really important for system reliability and it is used to manage electricity, within a company service territory. And even more interestingly to coordinate electricity with other players. A lot of people compare this to a orchestra leader making sure all of the instruments play their parts at the right time. In the early 60s, a lot of utilities had already voluntarily started coordinating their generating plants and transmission systems. This really helped with strong reliability in keeping costs low. Then in the mid 60s a big blackout happened in the Northeast. When I say big, I mean big, an incredible number of people were out, 30 million were impacted. What's even more mind boggling was the cause. Reportedly a perfect storm originated from a failure of one piece of equipment at a hydroplant and things went south from there. Enter the North American Reliability Council or NERC which was created as a result of this incident to improve reliability by making sure utilities and transmission providers coordinate to avoid and minimize such big outages. While significant weather events like snow, rain, flooding and even wind can and due cause reliability problems, the increased coordination between electric companies has made big outages much more rare. Of course, when we're out in our house, it doesn't feel like that does it? It feels like a pretty big deal. The thing I find really interesting about NERC is that until 2005, the reliability standards were actually voluntary. Now keep in mind the utilities and transmission companies have a vested interest in keeping the grid up, which you know now requires a lot of science and know how. In 2003, there was another pretty significant blackout. 50 million people were impacted, you'll never believe what caused it. A downed transmission line that had brushed against overgrown trees. This is exactly why electric companies spend a significant amount of effort on vegetation management or as we know it, tree trimming. So the next time you witness a utility going about trimming the trees, you now know the reason behind it. And you know that a problem that occurs over there, can impact thousands or even millions of customers. NERC was renamed to the North American Reliability Corporation, from Council. And they were empowered to develop specific reliability and operational standards to make sure the power system is operating in a way that is reliable and safe. The FERC or Federal Energy Regulatory Commission actually does the enforcing of the standards that NERC develops. I bet I know your next question. So what happens if utility doesn't comply with the standards? Well it's a big deal, if a company fails an audit or if a violation is detected following an incident. There are significant financial penalties and sanctions associated with non-compliance. So on top of it not being desirable by the utility itself to have reliability issues, because their customers get pretty mad, they would also face some very tangible penalties. Many companies have developed specific job functions that deal solely with NERC compliance because it is just so important. This enforcement falls under FERC's bigger role of regulating bulk or big power systems that move electricity across state lines. And this includes the rates transmission owners charge for this transmission of high power electricity service. Texas, which is one of the grids I mentioned when we were talking earlier is a little bit different. Because it operates almost like and island and it's not connected to anyone else. FERC also oversees wholesale electricity sales. Most wholesale markets are actually competitive. So what FERC does is allows companies that are selling at wholesale markets the ability to sell power at whatever the market will pay. Like us as consumers in competitive markets like the cell phone industry, we can choose who to buy our service from. And because there are multiple players, they know that they have to keep costs there or they risk losing business to the competition. This is something that many people don't know about, and that's because we are retail purchasers of electricity not wholesale customers. In other words, electric providers aren't able to influence the prices in the market. So then the wholesale customers or the market are ultimately setting the rate. They do this by choosing to purchase from that provider or not. If you're getting flashbacks to price theory in economics, then you're on the right path. That being said, some companies actually do have the ability to influence rates and this is called market power. So for these companies, FERC sets up a maximum price they can charge. Like we heard in the rates lesson, in the absence of true competition, the rate or the price is regulated. Now we know FERC's role, but let's talk about what they can't do. Things the FERC cannot do is make transmission system owners build new lines. They also can't tell states that have ruled not to allow transmission that they need to allow it. Let me give you an example of this. A state might decide that they don't want transmission lines running through one of their state parks, and the FERC cannot readily force them to do this. This can get messy when we consider the transmission lines run across state boundaries. There may be a plan to run a transmission line across several states to connect a state to an affordable power source. But if just one state decides that it's not going to happen then they have the right to veto it. As I'm sure you can guess, states prioritize their own residents. So do they always place value on getting customers the best deal on electricity in a state over there, not necessarily. A big topic of discussion in the industry is not that there is a shortage of electricity generation. It's that there is congestion on the transmission grid. Where do we fall in this equation as customers? Often citizens and communities do not want transmission limes in their conceptual or real, if you're back into open space, back yard. This means, the delay of construction or even the outright cancellation of the transmission project. Which as you know might be a project that is being done to support economic growth, reliability or affordable electricity. The interesting thing is that there are state and federal mandates that call for large scale wind generation and solar power. And we know that this is not located in populated areas. Without the transmission to move the electricity this poses a problem as I'm sure you can imagine. Add to that the fact that wind in particular is very variable as is the sun. This means the electric utilities have to balance the power source back to those control rooms I told you about on an ongoing basis. Speaking of natural resources, we'll talk more about federal regulation and the environment in the next lesson.
