Report to the Chairman, Senate 

Committee on Governmental Affairs 

United States General Accounting Office 

GAO 

November 2003 ELECTRICITY 

RESTRUCTURING 

2003 Blackout 

Identifies Crisis and 

Opportunity for the 

Electricity Sector 

GAO-04-204 
Page i GAO-04-204 Crisis and Opportunity for the Electricity Sector 

Letter 1

Summary 1

Appendix I 2003 Blackout Identifies Crisis and Opportunity for 

the Electricity Sector 5 

Contents 

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. It may be reproduced and distributed in its entirety without further 

permission from GAO. However, because this work may contain copyrighted images or 

other material, permission from the copyright holder may be necessary if you wish to 

reproduce this material separately. 
Page 1 GAO-04-204 Crisis and Opportunity for the Electricity Sector 

November 18, 2003 

The Honorable Susan M. Collins 

Chairman, Committee on Governmental Affairs 

United States Senate 

Dear Chairman Collins: 

The August 14, 2003, electricity blackout—the largest in the nation’s 

history—affected millions of people across eight northeastern and 

midwestern states as well as areas in Canada. In some areas, power was 

restored in hours, while in others power was lost for several days. The 

blackout intensified concerns about the overall status and security of the 

electricity industry at a time when the industry is undergoing major 

changes and Americans have a heightened awareness of threats to 

security. 

Because of these widespread concerns and the broad institutional interest 

of the Congress, we (1) highlighted information about the known causes 

and effects of the blackout, (2) summarized themes from prior GAO 

reports on electricity and security matters that provide a context for 

understanding the blackout, and (3) identified some of the potential 

options for resolving problems associated with these electricity and 

security matters. 

Over the past several weeks, GAO staff briefed numerous congressional 

staff on its observations. In response to your request, we prepared this 

overview to accompany the slides used in these presentations. Appendix I 

presents the latest briefing slides in their entirety. Our briefing is based 

largely on reports we previously issued on a range of electricity issues 

along with updated information obtained from the Department of Energy 

(DOE), the North American Electric Reliability Council, and operators of 

the transmission system in the blackout region. The information presented 

is intended to place the electricity blackout in the broader context of longterm issues affecting the sector. The options presented do not encompass 

a complete set of all possible options but do represent ideas that merit 

consideration as the nation moves forward to address this important issue. 

While the root cause of the blackout has not yet been conclusively 

established, a recent DOE report describes a sequence of events that 

United States General Accounting Office

Washington, DC 20548 

Summary 
Page 2 GAO-04-204 Crisis and Opportunity for the Electricity Sector 

culminated with the outage. A series of power plants and transmission 

lines went offline beginning at about noon eastern daylight time because 

of instability in the transmission system in three states. The loss of these 

plants and transmission lines led to greater instability in the regional 

power transmission system, which—4 hours later—resulted in a rapid 

cascade of additional plant and transmission line outages and widespread 

power outages. The blackout affected as many as 50 million customers in 

the United States and Canada, as well as a wide range of vital services and 

commerce. Air and ground transportation systems shut down, trapping 

people far from home; drinking water systems and sewage processing 

plants stopped operating; manufacturing was disrupted; and some 

emergency communications systems stopped functioning. The lost 

productivity and revenue have been estimated in the billions of dollars. A 

joint U. S.-Canadian taskforce is seeking to identify the root cause of the 

failures and plans to issue an interim report in November 2003. 

Over the past several years, our work on the electricity sector has resulted 

in numerous findings, conclusions, observations, and recommendations. 

Based on this prior work, we highlight three themes on electricity and 

security matters in our briefing and lay out some of the potential options 

to consider in addressing problems in these areas. 

Specifically: 

• Electricity markets are developing, but significant challenges remain. 

Our work has shown that while the electricity sector is in transition to 

competitive markets, the full benefits of these markets will take time 

and effort to achieve. For example, we found that the separate 

development of wholesale and retail electricity markets, which is 

occurring as part of the electricity industry shifts from regulated to 

competitive markets, limits the industry’s ability to achieve the benefits 

of competition. The separate development of these markets reduces or 

eliminates retail consumers’ incentive or ability to respond to market 

signals that supplies are tight. Consumers do not respond because the 

retail prices they see are set by state regulators and do not reflect 

actual market conditions. This lack of consumer response becomes 

particularly important during periods of high demand for electricity, 

such as hot summer afternoons, when total electricity use approaches 

the total amount of available generation. Efforts to promote various 

types of demand response, such as those that link customers’ 

electricity consumption with prices, may offer one option for 

improving this situation. We are exploring this issue in more depth in 
Page 3 GAO-04-204 Crisis and Opportunity for the Electricity Sector 

response to your request. Other issues raised by our work in this area 

are presented in slides 14 through 18 of the briefing. 

• Oversight of markets and reliability needs more attention. The ongoing 

transition to competitive markets, or “restructuring” of electricity 

markets, has dramatically changed how the Federal Energy Regulatory 

Commission (FERC) needs to oversee these markets and the 

information it needs to do so. In order to monitor current market 

conditions to ensure fair competition, for example, FERC needs to 

access market information on wholesale transactions and the operation 

of electric generating plants, among other things. Our work shows that 

FERC’s oversight efforts are improving, but it continues to be 

hampered by a number of challenges. In particular, we noted that 

FERC had previously not clearly defined its role in monitoring the 

market, faced gaps in information due to limitations in its jurisdictional 

authority, relied on third-party data to perform regulatory functions, 

and had limited enforcement authority. In addition, we pointed out that 

FERC faced human capital challenges to acquire and develop the staff 

knowledge and skill it needs to effectively regulate and oversee today’s 

electricity market. Because restructuring has changed the types of 

information regulators need, we have previously recommended that 

FERC demonstrate what additional information it needs, describe the 

limitations it faces without such information, and ask the Congress for 

authority to collect it. One option for congressional action in this area 

includes providing FERC with authority to gain access to needed data 

relating to reliability and markets. Other issues raised by our work in 

this area are presented in slides 19 through 26 of the briefing. 

• Security for critical infrastructure is of growing importance. Our work 

has shown that a reassessment of the security of the nation’s physical 

infrastructure as well as that of related information technology and 

control systems should be undertaken. Often, security measures have 

been added after the infrastructure is in place, which is costly and 

creates potential conflicts between security and efficiency. Therefore, 

it may be better to integrate sufficient security measures for these 

critical systems, particularly in a post-September 11th environment, 

into the planning for new construction or the upgrading of existing 

infrastructure, rather than viewing them as later add-ons. Our work has 

also raised concerns about the increasing reliance on information 

technology and control systems, which are potentially vulnerable to 

cyber attack, including the systems used in the electricity sector. As 

part of our work, we have found that cyber attacks against these 

systems could be used to cause damage or complicate the response to 

a physical attack. One option to help address this problem would be to 

increase the focus on research and development and other related 
Page 4 GAO-04-204 Crisis and Opportunity for the Electricity Sector 

activities, including the use of currently available technologies and 

vulnerability assessments, aimed at enhancing national capabilities to 

respond to cyber-security issues. Other aspects of our work in this area 

are presented in slides 27 through 29 of the briefing. 

Whatever the ultimate cause of the blackout, our work has shown that a 

number of significant challenges remain for the electricity sector. We 

recognize that many issues surrounding the restructuring of the electricity 

industry are complicated and that solutions involve complex policy 

tradeoffs for the Congress that will undoubtedly take time to fully resolve. 

GAO stands ready to provide any analytical assistance the Congress may 

need in this important long-term endeavor. 

We conducted our work in accordance with generally accepted 

government auditing standards. 

We are providing copies of this report to other appropriate congressional 

committees as well as DOE and FERC. The report will be available at no 

charge on the GAO Web site at http://www.gao.gov. 

If you or your staff have any questions about this report, please contact me 

at (202) 512-3841. Major contributors to this report included Mary Acosta, 

Dennis Carroll, Dan Haas, Randy Jones, Mike Kaufman, Jon Ludwigson, 

and Barbara Timmerman. 

Sincerely yours, 

Jim Wells 

Director, National Resources and Environment 
Appendix I: 2003 Blackout Identifies Crisis 

and Opportunity for the Electricity Sector 

Page 5 GAO-04-204 Crisis and Opportunity for the Electricity Sector 

Appendix I: 2003 Blackout Identifies Crisis 

and Opportunity for the Electricity Sector 

1

2003 Blackout

Crisis and Opportunity for the 

Electricity Sector
Appendix I: 2003 Blackout Identifies Crisis 

and Opportunity for the Electricity Sector 

Page 6 GAO-04-204 Crisis and Opportunity for the Electricity Sector 

2

Contents

Information on the Blackout

Background on Electricity and Electricity Restructuring 

Themes from Prior GAO Work 

Potential Options 
Appendix I: 2003 Blackout Identifies Crisis 

and Opportunity for the Electricity Sector 

Page 7 GAO-04-204 Crisis and Opportunity for the Electricity Sector 

3

What We Considered in Developing the 

Briefing

Examined information from NERC, FERC, DOE, several ISOs

Examined prior relevant GAO work (reports, testimony, and briefings) 

covering a range of areas

• Development of energy markets 

• Regulatory oversight of energy sector 

• Homeland security and physical security of critical infrastructure

• Information technology and cyber security
Appendix I: 2003 Blackout Identifies Crisis 

and Opportunity for the Electricity Sector 

Page 8 GAO-04-204 Crisis and Opportunity for the Electricity Sector 

4

Information on the Blackout

Events Preceding the Blackout

Root cause not known, evaluation ongoing

Current analysis points to a series of line 

and plant outages (times in Eastern Daylight 

Time)

• Midday, 3 large power plants go down (Michigan, mid-Ohio, Cleveland)

• 2-3 PM 4 large (345 KV) transmission lines tripped

• Power swings noted in Canada and Eastern United States

• 4:10 many power plants and large transmission lines trip, mostly in Michigan 

and Ohio

• 4:11 cascade of trips sever New York east and west, PJM and New England separate 

Grid operator (Midwest Independent System 

Operator) experienced significant 

communication problems during event

Note: Color coded dots depict approximate power line and power plant outage locations.

Source: GAO analysis of data provided by the Department of Energy and Platt’s PowerMAP.
Appendix I: 2003 Blackout Identifies Crisis 

and Opportunity for the Electricity Sector 

Page 9 GAO-04-204 Crisis and Opportunity for the Electricity Sector 

5

Information on the Blackout

Largest Blackout in U.S. History

Significant electricity outage

• 8 states and 2 Canadian provinces

• 61,800 MW of demand

• 50 million customers (estimated)

• About 102 plants (22 nuclear plants)

Wide-ranging impacts 

• Water systems shut down 

• Raw sewage dumped

• Air and ground transportation halted

• Gas stations and refineries closed

• Cellular networks interrupted 

• 911 communications interrupted

• Manufacturers shut down 

Investigations underway

• US-Canadian team

• U.S. House—Energy and Commerce

• U.S. House—Homeland Security

• State government investigations

Note: Locations and boundaries are approximate.

Source: GAO analysis of information provided by the Department of Energy.
Appendix I: 2003 Blackout Identifies Crisis 

and Opportunity for the Electricity Sector 

Page 10 GAO-04-204 Crisis and Opportunity for the Electricity Sector 

6

Background

Electricity Sector

Vast infrastructure 

• 3 major U.S. systems (East, West, and Texas) 

• Vast network (~2,100 large power plants, ~150,000 miles of electricity lines)

• 4 key functions (generation, transmission, distribution, system operations) 

Integrated and coordinated system

• Electricity must be produced and consumed at almost the same time 

• A change in one area of the grid can affect other areas, almost instantaneously 

• Infrastructure (such as power plants and transmission grid) has limited capacity

• Local and regional supply and demand must be balanced to avoid blackouts

• Overall demand increases about 2-3% per year, but can vary widely by region

Regulated sector

• Federally at FERC (wholesale sales, interstate transmission for “public utilities”, generally excludes Alaska, Hawaii, and most of Texas)

• States through state commissions (retail sales, intrastate transmission)

• Some entities largely unregulated (cooperative, municipal, and other owner- serving entities)
Appendix I: 2003 Blackout Identifies Crisis 

and Opportunity for the Electricity Sector 

Page 11 GAO-04-204 Crisis and Opportunity for the Electricity Sector 

7

Background

Local Networks Became 3 Synchronized U.S. Systems

Western Interconnect

Eastern Interconnect

Source: North American Electric Reliability Council.

Texas Interconnect
Appendix I: 2003 Blackout Identifies Crisis 

and Opportunity for the Electricity Sector 

Page 12 GAO-04-204 Crisis and Opportunity for the Electricity Sector 

8

Background

Vast Network of Electricity Lines and Plants

Source: GAO Analysis of Data Provided by Platt’s.
Appendix I: 2003 Blackout Identifies Crisis 

and Opportunity for the Electricity Sector 

Page 13 GAO-04-204 Crisis and Opportunity for the Electricity Sector 

9

Background

Electricity Sector Has 4 Distinct Functions
Appendix I: 2003 Blackout Identifies Crisis 

and Opportunity for the Electricity Sector 

Page 14 GAO-04-204 Crisis and Opportunity for the Electricity Sector 

10

Background

System Must be Balanced Throughout Day

Source: GAO.
Appendix I: 2003 Blackout Identifies Crisis 

and Opportunity for the Electricity Sector 

Page 15 GAO-04-204 Crisis and Opportunity for the Electricity Sector 

11

Background

Restructuring Goal: Competition Leading to Benefits

Increase competition

• Increase numbers of buyers and sellers

• Provide information to enable consumers to make choices

• Enable sellers to enter and exit market in response to information

Provide benefits to consumers

• Lower prices

• Access to new services

• Increased efficiency

• More innovation

Maintain or enhance reliability
Appendix I: 2003 Blackout Identifies Crisis 

and Opportunity for the Electricity Sector 

Page 16 GAO-04-204 Crisis and Opportunity for the Electricity Sector 

12

Background

Electricity Restructuring Is Changing the Sector

Businesses shifted from emphasizing regulation to emphasizing markets 

• Opened generation to competition, 3 other functions remain regulated

• Companies now bear risks previously borne by ratepayers

Physically, opened access to transmission lines to utilities and new entrants

• As a result, multiple entities now interact to perform the key functions needed to deliver electricity to consumers

Regulators shift away from planning system and setting rates

• FERC is shifting from setting rates (reactive) to designing and monitoring 

markets in real-time (proactive)

• States are moving away from central role in planning and rate setting to leaving private entities to determine what to build and what to charge
Appendix I: 2003 Blackout Identifies Crisis 

and Opportunity for the Electricity Sector 

Page 17 GAO-04-204 Crisis and Opportunity for the Electricity Sector 

13

Themes from Prior GAO Work

GAO Work Focused Around Three Key Areas 

Electricity markets developing, but challenges remain 

Regulatory oversight needs more attention 

Security of critical infrastructure increasingly important 
Appendix I: 2003 Blackout Identifies Crisis 

and Opportunity for the Electricity Sector 

Page 18 GAO-04-204 Crisis and Opportunity for the Electricity Sector 

14

Themes from Prior GAO Work

Electricity Markets Developing, but Challenges Remain

Adequate infrastructure essential for reliability and competitive prices 

Grid becoming more regional, but key authorities remain with states and 

localities 

Little understanding of options during market events or emergencies 

Uncertainties limit investment in new infrastructure 
Appendix I: 2003 Blackout Identifies Crisis 

and Opportunity for the Electricity Sector 

Page 19 GAO-04-204 Crisis and Opportunity for the Electricity Sector 

15

Themes from Prior GAO Work

Electricity Markets Developing, but Challenges Remain

Adequate infrastructure essential for 

reliability and competitive prices

• Growing electricity demand 

places pressure on grid and 

supply sources

• Restructuring increases use of the 

grid

• Numerous parts of U.S. 

witnessing increasing congestion 

of transmission system

Note: Arrows in this illustration show the location and direction of current transmission congestion.

Source: North American Electric Reliability Council.

Western Interconnect

Texas Interconnect

Eastern Interconnect
Appendix I: 2003 Blackout Identifies Crisis 

and Opportunity for the Electricity Sector 

Page 20 GAO-04-204 Crisis and Opportunity for the Electricity Sector 

16

Themes from Prior GAO Work

Electricity Markets Developing, but Challenges Remain

Grid becoming more regional, but authorities remain with states and localities 

• Infrastructure serves regional needs

• Increasingly, problems in one state affect neighboring states 

• Authority to add new infrastructure remains with states

State A State C State B

Source: GAO.
Appendix I: 2003 Blackout Identifies Crisis 

and Opportunity for the Electricity Sector 

Page 21 GAO-04-204 Crisis and Opportunity for the Electricity Sector 

17

Themes from Prior GAO Work

Electricity Markets Developing, but Challenges Remain

Little understanding of options 

during times of shortage or crisis

• Highest levels of demand only 

reached during a small 

percentage of the hours of the 

year

• For example, the New York ISO 

exceeds 25,000 MW during <5% 

of hours

• Consumer response to scarcity, 

such as when wholesale prices 

rise, is missing due to lack of 

information and incentives

• Backup generation not 

inventoried, limits on use

• Use of emergency power 

generally involves environmental 

Source: GAO analysis of New York Independent System Operator data. and other challenges

2002 Load Duration Curve, NYISO

10,000

15,000

20,000

25,000

30,000

35,000

0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000

Cumulative Number of Hours per Year

Hourly NYISO Demand

389
Appendix I: 2003 Blackout Identifies Crisis 

and Opportunity for the Electricity Sector 

Page 22 GAO-04-204 Crisis and Opportunity for the Electricity Sector 

18

Themes from Prior GAO Work

Electricity Markets Developing, but Challenges Remain

Risk

Profit

•Market

•Business

•Environmental regulation

•9/11, terrorism

•Enron, investment

•Federal regulation

•State regulation

•Market prices v. costs

•Higher cost of capital

•Shorter recovery periods

Attracting private investment requires balancing risk and profits

Source: GAO.
Appendix I: 2003 Blackout Identifies Crisis 

and Opportunity for the Electricity Sector 

Page 23 GAO-04-204 Crisis and Opportunity for the Electricity Sector 

19

Themes from Prior GAO Work

Regulatory Oversight Needs More Attention

Monitoring of reliability inadequate 

Limited jurisdiction and varied rules hinder market development 

FERC faces challenges in market oversight 
Appendix I: 2003 Blackout Identifies Crisis 

and Opportunity for the Electricity Sector 

Page 24 GAO-04-204 Crisis and Opportunity for the Electricity Sector 

20

Themes from Prior GAO Work

Regulatory Oversight Needs More Attention

None

(Voluntary 

Membership)

Distribution

Retail Markets

Transmission

Wholesale 

Markets

Monitoring 

Authority

Nationally

(Voluntary 

Compliance)

Varies (23 of 40 

states*) None Reliability 

Monitoring

FERC States NERC

*National Regulatory Research Institute

Source: GAO.

Monitoring of reliability inadequate
Appendix I: 2003 Blackout Identifies Crisis 

and Opportunity for the Electricity Sector 

Page 25 GAO-04-204 Crisis and Opportunity for the Electricity Sector 

21

Themes from Prior GAO Work

Regulatory Oversight Needs More Attention

Limited jurisdiction and varied rules hinder market development

• FERC lacks jurisdiction over some entities resulting in patchwork of restructured and regulated wholesale markets 

• Varied wholesale market rules may limit development of a competitive market 

• Limited implementation of retail restructuring may limit development of wholesale markets 

• FERC protects consumers through its oversight of wholesale markets and through its oversight of fair access to transmission lines
Appendix I: 2003 Blackout Identifies Crisis 

and Opportunity for the Electricity Sector 

Page 26 GAO-04-204 Crisis and Opportunity for the Electricity Sector 

22

Divided Jurisdiction

FERC Lacks Jurisdiction Over Some Entities
Appendix I: 2003 Blackout Identifies Crisis 

and Opportunity for the Electricity Sector 

Page 27 GAO-04-204 Crisis and Opportunity for the Electricity Sector 

23

Divided Jurisdiction

FERC Lacks Jurisdiction Over Some Entities (cont.)

Notes: Data for transmission lines reflect primary ownership--some lines have multiple owners.

Federal entities include the Bonneville Power Administration, the Tennessee Valley Authority, the Western Area 

Power Administration, and others."
Appendix I: 2003 Blackout Identifies Crisis 

and Opportunity for the Electricity Sector 

Page 28 GAO-04-204 Crisis and Opportunity for the Electricity Sector 

24

Divided Jurisdiction

Varied Wholesale Market Rules
Appendix I: 2003 Blackout Identifies Crisis 

and Opportunity for the Electricity Sector 

Page 29 GAO-04-204 Crisis and Opportunity for the Electricity Sector 

25

Divided Jurisdiction

Limited Implementation of Retail Restructuring

Source: GAO Analysis of Energy Information Administration data.
Appendix I: 2003 Blackout Identifies Crisis 

and Opportunity for the Electricity Sector 

Page 30 GAO-04-204 Crisis and Opportunity for the Electricity Sector 

26

Themes from Prior GAO Work

Regulatory Oversight Needs More Attention

FERC faces market oversight challenges

Effective

Oversight

Role

3rd Party Data

Information Gaps

Enforcement

Human Capital

Source: GAO.
Appendix I: 2003 Blackout Identifies Crisis 

and Opportunity for the Electricity Sector 

Page 31 GAO-04-204 Crisis and Opportunity for the Electricity Sector 

27

Themes from Prior GAO Work

Security of Critical Infrastructure Increasingly Important

Embedding homeland security principles as integral part of investment 

in infrastructure and business processes is important 

Increasing reliance on information technology requires attention to 

cyber-security 
Appendix I: 2003 Blackout Identifies Crisis 

and Opportunity for the Electricity Sector 

Page 32 GAO-04-204 Crisis and Opportunity for the Electricity Sector 

28

Themes from Prior GAO Work

Security of Critical Infrastructure Increasingly Important

Embedding homeland security principles as integral part of investment in 

infrastructure and business processes is important

• Designing it in up-front [most cost-effective]

• Not bolting it on afterwards [potential conflicts between security and efficiency]

Operational

Systems

Homeland Security

Business 

Process Infrastructure

Source: GAO.
Appendix I: 2003 Blackout Identifies Crisis 

and Opportunity for the Electricity Sector 

Page 33 GAO-04-204 Crisis and Opportunity for the Electricity Sector 

29

Themes from Prior GAO Work

Security of Critical Infrastructure Increasingly Important

Increasing reliance on information 

technology requires attention to 

cyber-security

• SCADA/control systems perform 

vital functions in electric power 

and other industries 

• SCADA/control systems and 

networks are potentially 

vulnerable to attack, by terrorists 

or others

• Electricity sector making progress 

in implementing critical 

infrastructure protection (CIP) 

measures

Source: White House.
Appendix I: 2003 Blackout Identifies Crisis 

and Opportunity for the Electricity Sector 

Page 34 GAO-04-204 Crisis and Opportunity for the Electricity Sector 

30

Potential Options

Issues Needing Resolution and Options to Address Them

Energy markets developing, but challenges remain

• Minimal consumer responsiveness to market 

• Lack of “backstop authority” for transmission siting 

• Divided regulatory authority

• Lack of uniformity in market rules 

• Uncertainty about future of restructuring

• Uncertainty over how to pay for transmission upgrades 

Oversight and monitoring needs more attention

• Lack of enforceable reliability rules (NERC or federal reliability organization) 

• Limited access to needed reliability and market data for regulators

Security of increasing importance

• Limited incentives for participation in federal critical infrastructure protection 

activities 

• Homeland security concerns not fully considered 

• Weaknesses in cybersecurity 
Appendix I: 2003 Blackout Identifies Crisis 

and Opportunity for the Electricity Sector 

Page 35 GAO-04-204 Crisis and Opportunity for the Electricity Sector 

31

Potential Options for Improving 

Consumer Responsiveness to Market

Issue—Minimal consumer responsiveness limits the development of markets 

and reduces reliability

• Infrastructure limited, resulting in scarcity during periods of high demand

• Consumers generally do not respond to this scarcity

• Lack of response increases costs, raises price volatility, and reduces reliability 

What FERC has done

• In its standard market design, FERC has proposed to introduce one type of demand response

What GAO has done

• Identified that the lack of demand response limits the benefits of restructuring

• Examining the issue of demand response, release expected 2004

Options for congressional action

• Encourage the use of demand response tools in retail markets

• Promote the development of metering needed to implement demand response

• Educate utilities and consumers about the benefits of demand response
Appendix I: 2003 Blackout Identifies Crisis 

and Opportunity for the Electricity Sector 

Page 36 GAO-04-204 Crisis and Opportunity for the Electricity Sector 

32

Potential Options for Providing 

“Backstop Authority”

Issue—Transmission serves regional needs and is essential to reliability, but 

varied approaches present challenges for upgrading system

• Reliability and markets depend on adequate infrastructure

• States and localities have regulatory authority over siting plants and lines

• Varied approaches to siting can result in contentious, uncertain, and time- consuming efforts to add infrastructure

• Uncertainty and delays may reduce investment in new infrastructure

What GAO has done

• Described FERC authorities for natural gas pipelines 

• Described Colorado backstop statute for transmission lines

Options for congressional action

• Consider empowering regional entity to resolve disputes

• Consider FERC backstop authority (ability to grant eminent domain) if companies and states cannot reach agreement
Appendix I: 2003 Blackout Identifies Crisis 

and Opportunity for the Electricity Sector 

Page 37 GAO-04-204 Crisis and Opportunity for the Electricity Sector 

33

Potential Options Addressing Divided 

Regulatory Authority

Issue—Divided regulatory authority limits development of market and 

reliability of the system

• Entire network interconnected—points on grid separated by milliseconds

• Lack of coordination between the development of wholesale and retail markets 

limits the potential benefits 

• A patchwork of rules now governs electricity markets

• Only about 75% of the wholesale market subject to FERC’s authority 

• Varied state approaches to regulating/restructuring retail markets 

• Lack of consistency limits trade and slows development of competition

What FERC has done

• FERC seeking consensus through outreach with states and regions

Options for congressional action

• Clarify FERC’s authority over all wholesale markets and transmission lines

• Determine if FERC should oversee some aspects of retail markets

• Explore how to better link wholesale and retail markets
Appendix I: 2003 Blackout Identifies Crisis 

and Opportunity for the Electricity Sector 

Page 38 GAO-04-204 Crisis and Opportunity for the Electricity Sector 

34

Potential Options for Enhancing 

Uniformity of Market Rules

Issue—Lack of uniformity in market rules limits development of market and 

places reliability at risk

• FERC has approved different sets of market rules for different areas 

• Presence of different rules limits trade, and the development of competition

• Presence of different rules makes investment in new infrastructure more risky

What FERC has done

• In 2002, FERC proposed standard market design that would make all FERC 

jurisdictional wholesale markets operate under a single set of rules

Option for congressional action

• Make market rules regional and move toward standardization—markets cannot 

solve this problem
Appendix I: 2003 Blackout Identifies Crisis 

and Opportunity for the Electricity Sector 

Page 39 GAO-04-204 Crisis and Opportunity for the Electricity Sector 

35

Potential Options for Reducing 

Uncertainty About Restructuring

Issue—Lingering uncertainty over the future of restructuring is limiting needed 

investment and raises costs to consumers/investors

• Long-standing federal debate over future of restructuring creates uncertainty

• Actions on state restructuring of retail markets vary and the future is uncertain

• Uncertainty limits and/or delays investment and raises costs

What FERC has done

• Issued orders restructuring wholesale markets and proposals outlining plans

What GAO has recommended 

• FERC should report on the performance of restructured electricity markets, 

collecting data needed to evaluate both wholesale and retail elements

• FERC should report annually to Congress to identify emerging issues and 

impediments to reaching goal of achieving competitive wholesale markets

Options for congressional action

• Reduce uncertainty about restructuring’s future—identify milestones or timeline

• Increase incentives for investment
Appendix I: 2003 Blackout Identifies Crisis 

and Opportunity for the Electricity Sector 

Page 40 GAO-04-204 Crisis and Opportunity for the Electricity Sector 

36

Potential Options for Determining How 

to Pay for Transmission Upgrades

Issue—Transmission upgrades vital for reliability and market development, 

but determining who should pay is difficult

• Transmission serves regional needs and promotes reliability

• Electricity often crosses jurisdictions and travels varied paths

• Determining who benefits and who should pay for additions is difficult

• New lines needed; infrastructure old and congestion increasing

• Private investment faces significant hurdles 

What GAO has recommended

• FERC should standardize interconnection agreements to reduce uncertainty

• FERC should clarify how costs of transmission upgrades associated with interconnection should be allocated

Options for congressional action

• Increase regulated rate of return for investments in transmission

• Consider providing additional incentives, such as direct tax incentives or accelerated depreciation
Appendix I: 2003 Blackout Identifies Crisis 

and Opportunity for the Electricity Sector 

Page 41 GAO-04-204 Crisis and Opportunity for the Electricity Sector 

37

Potential Options for Enhancing 

Reliability Rules

Issue—Voluntary nature of NERC membership and provision of data leaves

gaps in information and threatens reliability

• Many new electricity producers not members in NERC and do not provide 

comprehensive operations data to it

• Nonmembers are not required to follow NERC guidelines for maintaining 

reliability

Options for congressional action

• Require mandatory compliance with NERC reliability guidelines

• Consider the creation of a new federal reliability organization
Appendix I: 2003 Blackout Identifies Crisis 

and Opportunity for the Electricity Sector 

Page 42 GAO-04-204 Crisis and Opportunity for the Electricity Sector 

38

Potential Options for Improving 

Regulator Access to Needed Data

Issue—Restructuring changes what types of information regulators need

• FERC has shifted from approving cost-based rates to monitoring market 

performance

• FERC needs greater access to real-time market data to assess market 

performance and to identify abuses of market power

• FERC needs data on the operation of power plants to monitor reliability as well 

as assess performance of markets

What GAO has recommended 

• FERC should demonstrate what additional information it needs

• FERC should describe the limitations it faces without having adequate 

information

• FERC should ask the Congress for authority to collect the information that it 

needs

Options for congressional action

• Give FERC authority to collect, or have access to, needed market data

• Give FERC access to reliability data
Appendix I: 2003 Blackout Identifies Crisis 

and Opportunity for the Electricity Sector 

Page 43 GAO-04-204 Crisis and Opportunity for the Electricity Sector 

39

Previous GAO Recommendations 

Related to CIP Participation Incentives

Issue—Participation in federal CIP efforts critical

• Federal policy encouraged voluntary industry participation in critical 

infrastructure protection (CIP) activities, including operation of industry 

information sharing and analysis centers (ISAC’s) and tasked lead agencies to 

assess the need for incentives for industry participation

What has been done

• Industry progress reported in fulfilling suggested ISAC activities

• Establishing baseline statistics and patterns 

• Serving as clearinghouse within/among various sectors 

• Providing a library of historical data for private sector and government

What GAO has recommended

• DOE to assess the need for public policy tools (e.g., regulation, grants, tax 

incentives) to encourage increased industry CIP activities

• Identify additional actions needed to improve the quality and quantity of 

information being provided by the ISACs,
Appendix I: 2003 Blackout Identifies Crisis 

and Opportunity for the Electricity Sector 

Page 44 GAO-04-204 Crisis and Opportunity for the Electricity Sector 

40

Potential Options for Addressing 

Homeland Security Concerns

Issue—Changing security threat

• Post-9/11 

• Who’s in charge and who pays?

• Measures to improve resiliency, redundancy, remote monitoring, fail-safe 

and restoration capabilities promote both greater efficiency as well as 

security

Options for congressional action

• Consider homeland security as integral and compatible to improving safety 

and reliability of systems when making investment decisions and designing 

improvements

• Consider distributed power sources, diversity in energy sources, improved 

conservation measures and remote sensing as ways to enhance both

system safety as well as counter terrorist threats
Appendix I: 2003 Blackout Identifies Crisis 

and Opportunity for the Electricity Sector 

Page 45 GAO-04-204 Crisis and Opportunity for the Electricity Sector 

41

Potential Option for Addressing

Cybersecurity Weaknesses

Issue—Electricity sector faces increasing cyber threats

• Supervisory control and data acquisition (SCADA)/ control systems, critical to the electric industry, may not have adequate security 

• Cyber attacks against these systems could be used to cause damage or complicate the response to a physical attack

What has been done

• A number of federal and private-sector efforts are underway to study cybersecurity issues 

• Including developing standards and performing research and development

Options for congressional action

• Increase focus on research and development and related efforts to address cybersecurity issues
Appendix I: 2003 Blackout Identifies Crisis 

and Opportunity for the Electricity Sector 

Page 46 GAO-04-204 Crisis and Opportunity for the Electricity Sector (360412) 

42

Prior Relevant GAO Work

Natural Resources and Environment Team

• Bonneville Power Administration: Long-Term Fiscal Challenges, GAO-03-918R

• Energy Markets: Additional Actions Would Help Ensure That FERC's Oversight and Enforcement Capability 

Is Comprehensive and Systematic. GAO-03-845

• Electricity Markets: FERC’s Role in Protecting Consumers, GAO-03-726R

• Electricity Restructuring: Action Needed to Address Emerging Gaps in Federal Information Collection, GAO03-586

• Lessons Learned From Electricity Restructuring:Transition To Competitive Markets Underway, but Full 

Benefits Will Take Time and Effort To Achieve, GAO-03-271 

• Restructured Electricity Markets: California Market Design Enabled Exercise of Market Power, GAO-02-828

• Energy Markets: Concerted Actions Needed by FERC to Confront Challenges That Impede Effective 

Oversight, GAO-02-656 

• Restructured Electricity Markets: Three States' Experiences in Adding Generating Capacity, GAO-02-427 

• California Electricity Market Options for 2001: Military Generation and Private Backup Possibilities, GAO-01-

865R

• Energy Markets: Results of Studies Assessing High Electricity Prices in California, GAO-01-857

Information Technology Team

• Critical Infrastructure Protection: Challenges for Selected Agencies and Industry Sectors, GAO-03-233

• Information Security: Progress Made, But Challenges Remain to Protect Federal Systems and the Nation's 

Critical Infrastructures. GAO-03-564T

• High Risk Series: Protecting Information Systems Supporting the Federal Government and the Nation’s 

Critical Infrastructures, GAO-03-121

• Combating Terrorism: Selected Challenges and Related Recommendations, GAO-01-822
The General Accounting Office, the audit, evaluation and investigative arm of 

Congress, exists to support Congress in meeting its constitutional responsibilities 

and to help improve the performance and accountability of the federal 

government for the American people. GAO examines the use of public funds; 

evaluates federal programs and policies; and provides analyses, 

recommendations, and other assistance to help Congress make informed 

oversight, policy, and funding decisions. GAO’s commitment to good government 

is reflected in its core values of accountability, integrity, and reliability. 

The fastest and easiest way to obtain copies of GAO documents at no cost is 

through the Internet. GAO’s Web site (www.gao.gov) contains abstracts and fulltext files of current reports and testimony and an expanding archive of older 

products. The Web site features a search engine to help you locate documents 

using key words and phrases. You can print these documents in their entirety, 

including charts and other graphics. 

Each day, GAO issues a list of newly released reports, testimony, and 

correspondence. GAO posts this list, known as “Today’s Reports,” on its Web site 

daily. The list contains links to the full-text document files. To have GAO e-mail 

this list to you every afternoon, go to www.gao.gov and select “Subscribe to e-mail 

alerts” under the “Order GAO Products” heading. 

The first copy of each printed report is free. Additional copies are $2 each. A 

check or money order should be made out to the Superintendent of Documents. 

GAO also accepts VISA and Mastercard. Orders for 100 or more copies mailed to a 

single address are discounted 25 percent. Orders should be sent to: 

U.S. General Accounting Office 

441 G Street NW, Room LM 

Washington, D.C. 20548 

To order by Phone: Voice: (202) 512-6000 

TDD: (202) 512-2537 

Fax: (202) 512-6061 

Contact: 

Web site: www.gao.gov/fraudnet/fraudnet.htm 

E-mail: fraudnet@gao.gov

Automated answering system: (800) 424-5454 or (202) 512-7470 

Jeff Nelligan, Managing Director, NelliganJ@gao.gov (202) 512-4800 

U.S. General Accounting Office, 441 G Street NW, Room 7149 

Washington, D.C. 20548 

GAO’s Mission 

Obtaining Copies of 

GAO Reports and 

Testimony 

Order by Mail or Phone 

To Report Fraud, 

Waste, and Abuse in 

Federal Programs 

Public Affairs