Some question value of transmission lines By Jeff McDonald UNION-TRIBUNE STAFF WRITER April 1, 2001

Transmission lines have been upgraded. Poles are taller and sturdier. Electricity is shuttled farther and faster than ever before.

But like internal combustion engines or indoor plumbing, not much has changed over the past 100 years in the fundamental design of the distribution network that pushes power across North America.

The electric grid, a vast collection of wires and switches, has served millions of homes and businesses since the late 19th century. The grid has been expanded again and again, decade after decade.

Now, with Gov. Gray Davis negotiating to buy huge sections of the grid owned by three cash-hungry California utilities, questions are being raised about the long-term value of such a dated delivery system.

Is the web of power lines a key link in the supply chain whose worth will climb higher and higher as demand for electricity grows? Or will looming technology render the grid obsolete even before the state can pay off the bonds it issues to buy the system?

"The usefulness of the grid is still intact -- it does work," said Mark McLaughlin, a researcher with the Alternative Energy Institute, a Tahoe City-based group that promotes renewable power sources.

But "it will become less important over time -- 10, 15 years," he said. "As for being completely reliant on it, that is changing now and will continue to change at an ever-increasing pace."

Technological advances already are redefining traditional electricity delivery.

With blackouts crippling businesses across the state -- and additional outages forecast for this summer -- more and more companies are investing in so-called distributed generation, a broad term applied to any number of devices that can make power on-site.

Increasingly popular products such as microturbines, cogeneration plants, photovoltaic systems and residential fuel cells allow consumers to limit their reliance on utility companies such as San Diego Gas and Electric.

"This (power) crisis has generated a huge amount of interest in the product," said Mark Kuntz of Capstone, a San Fernando Valley-based company that markets 30-and 60-kilowatt microturbines.

"We're in the process of responding to that interest and turning it into orders."

The abundance of alternatives for businesses and homeowners has propelled a new debate: what to do with the surplus power produced by distributed generation systems.

Investors are banking that the electric grid will remain hugely valuable because it can move energy in any direction.

"We are building a company around our bullishness on the grid," said Fred Buckman, chairman of Trans-Elect Inc., a private Washington, D.C.-based company that plans to spend $15 billion acquiring transmission lines.

"The deployment of smaller distributed generation systems will reduce the rate at which we have to grow the transmission system, but we don't believe it will replace the grid."

Trans-Elect bid up to $5 billion for the lines owned by Southern California Edison, Pacific Gas and Electric, and SDG&E. But that offer was pushed aside by utility company executives when it became clear that Davis wanted the grid for the state of California.

More important to utilities, however, may be the eventual sales price.

Edison agreed in principle to sell its share of transmission lines to the state for $2.76 billion. But details of that proposed deal -- announced in February -- remain to be worked out.

In the meantime, lawmakers are growing anxious about continuing delays. Some legislators say Davis should rethink buying the grid and instead consider acquiring the utilities' hydroelectric networks.

The $2.76 billion price tag for the Edison lines is about 2.3 times the their book value -- the base worth used by regulators to set rates of return.

If PG&E and SDG&E reach similar deals with the governor, the cost of acquiring some 32,000 miles of transmission lines could reach $7.4 billion -- too much, some consumer advocates worry, to make the transaction a good deal for ratepayers.

Public ownership of the grid would give the state a powerful hand in dealing with federal energy regulators, who so far have refused to rein in power generators, consumer groups say.

The acquisition also would curtail unnecessary additions to the system, investments that provide guaranteed profits to the current owners, activists say.

"The state isn't looking to make money expanding the system," said Michael Shames of the Utility Consumers' Action Network. "The state can establish a policy that says no new grid will be built where distributed generation can substitute."

But many experts believe that even as microturbines, fuel cells, windmills, solar power and more cogeneration plants take root in coming years, the grid will be needed to deliver surplus power to other places that can use it.

Without having ways to move power from place to place, a major benefit of distributed generation would fall by the wayside.

"The only way small assets are useful is if they can be shared when some power isn't needed, and you can't do that without a grid," said Mark P. Mills, an energy consultant and co-editor of the Digital Power Report.

"The grid becomes more important the more you distribute things."

Nancy Floyd is a co-founder of Nth Power, a San Francisco venture capital group that seeks investment opportunities in utility innovations -- particularly the transmission and distribution of electricity.

Five years ago, the firm had $50 million to spend. By 1999, the investment pool had climbed to $350 million. Last year, the company portfolio soared to $1 billion.

"This is an area that's attracting a lot of capital, which means you're going to have a steady stream of new products and services," Floyd said. "That is the bright side of deregulation."

Pure Energy Corp. of Syracuse, N.Y., has operated the Iceoplex cogeneration plant in Escondido since 1994. It sells its 50 or so megawatts to SDG&E, which transmits the power over the grid for use by its customers.

The firm has been floating plans to double capacity at the plant just east of Interstate 15, but company executive Jack Wolf said a ruling by California regulators last week has him rethinking expansion plans.

Adding new turbines or cogeneration plants can rub neighbors the wrong way. Smokestacks billow out steam, which some residents say is unsightly even if the plume of white is only harmless water vapors.

Wolf said his company met several times with Escondido residents to iron out concerns about boosting capacity at the Iceoplex.

"If you're doing something like (expanding), you've got to meet with the communities, understand what their concerns are and work with them," Wolf said.

Taxpayer advocates, meanwhile, do not worry whether the grid will remain viable over the next decade or two. Instead, they fear the government takeover of an aging network of poles and wires.

"You're going to be socializing a massive infrastructure," said Jonathan Coupal, director of legal affairs for the Howard Jarvis Taxpayers Association.

"The state of California can't even maintain the damn roads," he said. "Now we're going to be taking on not only the purchase but the ongoing maintenance of a huge infrastructure?"

At the National Renewable Energy Laboratory in Golden, Colo., researchers work to improve the efficiency of alternative energy programs and promote their use among mainstream consumers.

But even as workplaces and neighborhoods across the country move toward supplying their own power, the transmission system will remain a vital part of the network that delivers electricity from place to place, experts say.

"Will the grid be obsolete in 20 years? Absolutely not. Things don't move that fast," said George Douglas of the National Renewable Energy Laboratory. "But we need to be forward-looking.

"If each office park and subdivision has its own power source, that doesn't mean you don't want them linked, because things do fail."

Stanford S. Penner, director of the UCSD Center for Energy Research, is convinced that the power grid will remain critical for decades to come. History has shown that implementing new technology takes far longer than inventing it, he said.

"The turnover by a new technology has usually taken 40 to 50 years," he said. "Twenty years from now, they will still be relying on the transmission lines. Forty years from now, they may be starting to phase them out."

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-- Tess (webwoman@iamit.com), April 04, 2001