The Economics of Electricity Reliability

On August 14, 2003, a midsized power plant owned by an Ohio electric utility (FirstEnergy) suffered an unplanned shutdown. Shortly thereafter several poorly-maintained large transmission lines failed. By late afternoon, voltage in its service territory had dropped to dangerous levels. The only way to restore stability would have been to interrupt service to a large portion of the Cleveland area, but no such service interruption was implemented. By 4:00 pM, uncontrolled outages began quickly cascading outward from Ohio, first to Detroit and Toronto, and then to Pennsylvania and New York. The outages eventually reached parts of nine US states and most of Ontario, which suffered intermittent blackouts for more than a week. All told, more than 50 million people were affected. Estimates of total costs were $4-$10 billion in the US and 0.7% of monthly GDP in Canada (US-Canada Power System Outage Task Force 2004).