EXC Exelon Corp

By Rebecca Smith 

Large U.S. utilities are joining forces to stockpile critical pieces of electrical equipment that can be rushed to power companies if they are hit by terrorist attacks, earthquakes or other disasters that could cause extended blackouts.

Leading electricity companies including American Electric Power Co., Exelon Corp. and Southern Co. are helping fund the creation of a new Delaware company, Grid Assurance LLC. It will store circuit breakers, large transformers and other crucial parts at secure, unidentified locations, and sell them to participating utility companies who need them during emergencies.

Meanwhile, Congress is contemplating the creation of a national Strategic Transformer Reserve because it is also worried about electric industry vulnerabilities.

Grid Assurance hopes to begin selling subscriptions to its service this spring. The cost -- not yet determined -- will depend on how many utilities join and how much equipment is purchased. Participating utilities would buy equipment, at the original cost, following disasters.

The venture underscores the growing concern in the utility sector and government about coordinated attacks and natural disasters that could cripple parts of the country's electric grid.

In April 2013, unidentified gunmen stood outside an electrical substation near San Jose, Calif., and shot up 17 transformers funneling electricity to Silicon Valley. The transformers were damaged but not destroyed.

Nevertheless, the incident spread fear that attacks on multiple substations could unleash lengthy power outages that would cripple other services, such as water treatment and police and fire response.

"High voltage transformers are of particular concern because they are vulnerable to attack, both from within and from outside the substation where they are located," said a 2012 report on power grid vulnerabilities from the National Research Council, which advises Congress on scientific and technical matters.

"The industry has made some progress toward building an inventory of spares, but these efforts could be overwhelmed by a large attack," it concluded.

Currently, several dozen utilities share information with each other about spares they have on hand, but there is no federal requirement that they share equipment.

While all utilities keep replacement equipment, some parts, such as spare transformers, typically sit close to where they may be needed because they can weigh more than 500,000 pounds. That makes them vulnerable to being damaged alongside the equipment in use, in an attack or a natural disaster.

"The last thing we want is for someone to do a physical attack and wipe out our spares, too," said Scott Moore, vice president of transmission engineering for American Electric Power.

Many electric power components are hand-built, manufacturing capacity is limited, and ordering them anew requires waits of up to 18 months. While that is acceptable for routine replacement, since the gear often lasts 30 years or more, it is too slow for an emergency.

That is why participants in Grid Assurance, who also include Eversource Energy (formerly Northeast Utilities) and Edison Transmission LLC, a unit of Edison International, are trying to jointly stockpile needed parts.

The participants estimate they will need at least 100 transformers, often costing $2 million to $10 million each, so the venture will be expensive, but far less costly than a major blackout.

Ratepayer impacts are uncertain but likely will be minimal because utilities already spend billions of dollars a year on routine maintenance, the participants said. The utilities hope the service will be fully functional by January 2018.

The Federal Energy Regulatory Commission last month swept away some regulatory hurdles, allowing the program to proceed.

At the behest of Congress, the Energy Department is creating a plan for a national strategic transformer reserve. A provision tacked onto a major transportation bill, which passed in December, requires DOE to study the need, analyze supply-chain problems and develop a comprehensive plan by the end of the year.

David Ortiz, deputy assistant secretary for energy modeling and analysis at DOE, said federal planning "is going gangbusters." No money has been appropriated to buy equipment, though.

American Electric's Mr. Moore said he thinks industry and government efforts can complement each other and needn't be competing.

Grid Assurance backers say they are hard at work, too.

"We've been spending a lot of time developing the value proposition," said Steven Eisenberg, president of Edison Transmission. He said the greatest challenge may be persuading utilities to pay for a service that amounts to catastrophic insurance.

(END) Dow Jones Newswires

April 07, 2016 20:58 ET (00:58 GMT)

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