Power grip
Arizona regulators consider tighter standards for maintaining electrical system

Max Jarman
The Arizona Republic
Nov. 21, 2004

Arizona is among a shrinking pool of states that never has taken steps to regulate the maintenance and reliability of its electricity providers.

In the aftermath of two Valley transformer fires in July, some Arizona Corporation Commission members say they are more determined to oversee those areas of the companies whose rates they regulate.

Proponents say the lack of such oversight can lead to more frequent and longer-lasting power outages. Utilities say that overly strict rules could lead to higher rates for consumers.

No federal maintenance or operating standards exist for utilities to follow, but across the country, states are stepping in to fill the void. Only Arizona and 10 other states have no reliability standards.

In California, regulators require power lines, poles and other equipment to be inspected once a year.

In Pennsylvania, utilities must meet reliability standards on the number and length of power outages and may be fined for falling short.

Other states require power providers to identify their worst-performing circuits each year and file corrective action plans.

Jack Davis, president of Arizona Public Service Co., has said that the company isn't opposed to additional regulation related to providing reliable service.

"We stack up well against anybody," Davis said at a commission hearing earlier this year. He added he would favor some standards if APS were reward- ed for exceeding them.

The Corporation Commission has focused almost exclusively on rates for APS, the state's largest electric provider; Tucson Electric Power Co.; and 15 smaller utilities. But after recent power outages, equipment failures and fires at APS-operated facilities, state regulators are considering holding utilities to minimum reliability standards.

Last week, in its second hearing about the transformer fires in July, some commissioners said they are more inclined to set down standards for maintenance and reliability after learning firewalls had not been installed between transformers at a main substation.

The firewalls had been recommended by an industry standards group more than a decade ago, but the substation's operator and co-owner, APS, did not propose the barriers until 2003. By the time of the fire, APS and other owners, including the Salt River Project, had not decided to install them. The Westwing substation fire destroyed several transformers and nearly caused rolling blackouts.
'Aggressive approach'
"We may need to take a much more aggressive approach to the maintenance and security of substations," Corporation Commissioner Kris Mayes said at the Monday hearing.

Before moving ahead, the five-member commission will wait for results of studies commissioned by APS to determine the cause of the Westwing fire and examine APS' maintenance practices. If the commission feels that more information is needed, it could order its own independent study.

"We don't want to change things unless it will be for the better," Commissioner Jeff Hatch-Millersaid.

If the commission takes action, it could roll down a couple of regulatory tracks.

One is maintenance and prevention, which could involve requiring periodic inspections and routine upkeep of equipment such as transformers. Some other states require construction standards at facilities such as substations.

In May the California Public Utilities Commission passed maintenance and operating standards for the state's electric utilities to make sure generating facilities are maintained properly and operated to ensure reliability.

The month before, the agency had fined Southern California Edison $656,000 for violations of existing safety standards.

Oregon has used a service quality measure to rate the reliability of its utilities since 1997. The measurement sets benchmarks for number and frequencies of outrages. The Public Utility Commission of Oregon also monitors the companies' maintenance programs and sets inspection standards.

At the federal level, uniform standards for maintaining power plants, transmission lines and transformers do not exist. The Federal Energy Regulatory Commission is seeking more authority over operation of the power grid, but now generally is restricted to approving wholesale electricity and transmission rates.
Voluntary compliance
The North American Electric Reliability Council, a private group that oversees the nation's power grid, does have rules for reliable operation of the nation's grid, but compliance is voluntary. In the West, many utilities, including APS and SRP, have agreed to abide by the standards.

The other regulatory track is reliability: How well a utility keeps the lights on for customers (average number of outages per customer) and how quickly it restores power after outages (in average minutes).

An estimated 39 states hold utilities to specific reliability standards, and more will add them, said Cheryl Warren, chairwoman of a working group on system design for the Institute of Electrical and Electronics Engineers.

Mayes said she thinks the agency should look at developing a reliability index that could be used to rate APS' performance.

While popular, the reliability measures do not cover all weaknesses in a power system. For example, the transformer fires in July did not lower the reliability measures APS keeps on its own. The reason: It persuaded customers to cut back on consumption, which helped avoid the consumer outages measured in reliability numbers.

In Idaho, the utilities commission holds Portland-based Pacificorp to strict reliability standards and monitors maintenance spending. Pacificorp provides electricity to customers in Idaho, Utah, Oregon, Washington, Wyoming and California. In all those states, the company's reliability and maintenance programs are regulated.

"When you require things to be reported and work to set targets and goals, sometimes that keeps the utility honest and on track," said Louann Westerfield, a public policy strategist with the Idaho Public Utilities Commission in Boise. "Without more oversight, it's easy for utilities to say, 'Our numbers are in line, so we must be OK.' "
Benchmarks set
She added the Idaho commission also looks at maintenance spending.

"Companies have been under pressure to cut spending, so we keep an eye on that," she said.

In Idaho, utilities are asked each year to identify their five worst-performing substations and develop a plan for improving them.

Pennsylvania sets benchmarks for each utility based on each one's operating history, geography and other factors. The companies are required to report quarterly reliability data such as number and duration of outrages. If utilities fall below their benchmarks, they are asked to develop a correction plan.

In some states, utilities not only face penalties if they fall below agreed-upon benchmarks but earn rewards if they exceed them, such as a higher guaranteed profit.
Rewards sought
APS President Davis said his company would be willing to file regular reliability indexes to the Corporation Commission and agree to penalties for missing benchmarks as long as it were rewarded for exceeding them.

Other states have shunned the rewards. Pennsylvania has cases pending against several utilities for falling below its standards, but it doesn't offer any rewards.

"Their reward is happy customers," said Eric Levis, a spokesman with the Pennsylvania Public Utility Commission.

"They (the utilities) are offered a guaranteed rate of return, and it's our responsibility to make sure they deliver an acceptable rate of service to their captured customers."

Reach the reporter at max.jarman@arizonarepublic.com or (602) 444-7351.