I M P L E M E N T I N G T H E N AT I O N A L S M A RT G R I D I N I T I AT I V E C O N C E P T PA P E R

AN ASYMMETRIC RISK TO SUSTAINABLE ECONOMIC GROWTH

The national grid, 164,000 miles of high-voltage transmission lines and 5,000 local
distribution networks is outdated, highly vulnerable to threats, inefficient, and
unsuitable for fluctuating renewable power sources.

The PV of annual transmission losses is $150 billion (at 3% discount rate).

The estimated ongoing operating and maintenance (O&M) costs and repair and
replacement (R&R) costs for the nation’s electricity distribution grid is $248 bil-
lion annually. 1 On an annual basis, the deferred O&M and R&R costs are ap-
proximately $126 billion. [Annual revenues from electricity sales is $300 billion.]

The size and ongoing nature of these deferred investments in adequate O&M
and R&R result in a highly vulnerable system that is prone to compromise and
partial system collapse for a variety of known and unknown factors.

Probabilistic annualized threat estimates of partial distribution grid system col-

lapse from system-related problems due to lack of O&M and R&R 40%; deliber-
ate attack of the national infrastructure exacerbated by insecure, outdated infra-
structure 30%; emergent causes (black swans) 20%2 and faults due to natural
causes 10%.

Threats to the grid follow a power distribution in number and severity of system
related threats over time (i.e. only a few threats will be severe and large scale).

Sources of threats to the national infrastructure are local, regional, national and
international and constitute a national security threat in their severity and cost to
the national economy, when they occur..

Even with adequate O&M for some portions of the national grid, some portions
of the grid are so out-of-date due to lack of timely R&R, that adequate security of
the national grid cannot be maintained. The fact that these outdated portions of
the grid are connected to the national grid creates a situation of heightened vul-
nerability for all other grid users.

There is a statistically higher probability for catastrophic damage to sectors of the

nation’s economy from grid failure/collapse due to inadvertent system failures
than in deliberate malicious attacks against the national grid infrastructure.

1 All numbers in this draft are placeholders, requiring additional analytical work for accuracy.

2 Emergent behavior is difficult to predict from an analysis of the system and its components.

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I M P L E M E N T I N G T H E N AT I O N A L S M A RT G R I D I N I T I AT I V E C O N C E P T PA P E R

The inherent vulnerabilities of the U.S. national electricity grid to withstand

powerful solar storms3 and EMP (electromagnetic pulse) attack4 disruption or
shutdown due to inherent system design limitations, as well as from human er-
ror introduces another significant level of risk. 5 There is an economic cost ripple
effect for inadequate O&M and R&R. For example, the national cyber system in-
frastructure relies on clean, dependable electricity sources to function at all.

Practically speaking, the network’s vulnerability is often determined by the low-

est common denominator of capabilities determined by out-of-date portions of
the grid.

Normal new technology adoption cycles are typically 15-30 years. For the grid,
this cycle is 50-60 years, or more. A great deal of additional security could be es-
tablished if these technology adoption cycles were reduced to 7-10 years for sys-
tem components of the national grid infrastructure.

What is immediately required for national security purposes is to implement the

National Unified Smart Grid Initiative. This will bring the U.S. electricity grid up to
standards necessary to withstand powerful solar storms and EMP (electromag-
netic pulse) attack disruption or shutdown, to reduce transmission losses, and to
enable lower EROI (energy return on investment) energy sources that reduce
GHG (greenhouse gas) emissions to be connected to the national grid.

A smart-grid could reduce electricity consumption by 6 percent and peak de-

mand by 27 percent and enable renewables to comprise 20% of electricity pro-
duction, as in other countries, in a few years.

The opportunity cost of not making the investment to re-engineer the existing
national electricity grid may result in an Incremental Capital Output Ratio
(ICOR) that equates to a loss of about $500 billion in GDP annually, on average.6

3The consequences of a future solar storm like the Carrington Event of August-September
1859 are extensive and involve a range of potential economic impacts not unlike a major Force
5 hurricane or tsunami that could cripple the present national electricity grid for an extended
period. See National Research Council, “Severe Space Weather Events--Understanding Societal
and Economic Impacts Workshop Report” (NASA, 2008).

4See Dr. William R. Graham, et. al., “Report of the Commission to Assess the Threat to the
United States from Electromagnetic Pulse (EMP) Attack, Volume 1: Executive Report (2004).”

5 The national grid, 164,000 miles of high-voltage transmission lines and 5,000 local distribu-
tion networks is outdated, highly vulnerable, inefficient, and unsuitable for fluctuating renew-
able power sources.

6A metric that measures the marginal amount of investment capital necessary for an im-
provement in the national economy’s level of production efficiency.

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I M P L E M E N T I N G T H E N AT I O N A L S M A RT G R I D I N I T I AT I V E C O N C E P T PA P E R

A PROPOSAL FOR A COMMONS-BASED SMART GRID PROJECT

Instead of the national grid being treated as private property, establish the grid as
a commons, for the purpose of making the public investments of capital neces-
sary to secure this poorly maintained and out-of-date private wasting asset of
vital national concern. Leaving this grid in private ownership makes about as
much sense as remaindering the Federal Highway system to private ownership.

Take the national grid from the present owners of this distribution system via
eminent domain. In return, the federal government will arrange for the invest-
ment capital necessary to upgrade this grid to national security standards, and
provide all O&M and R&R funds necessary to operate this grid. The anticipated
initial capital allocated to upgrade the grid to national security standards is $400
to $500 billion over the next seven years to twelve years.

The U.S. military shall be assigned the responsibility for managing the national
grid upgrade and for operating and maintaining the grid securely during the
grid upgrade.

During the operations of the grid as a commons, electricity producers shall pay a
fee to distribute electricity as follows: renewable sources (hydropower, wind, so-
lar, biomass) = $0.00; clean coal, natural gas = $X; conventional coal = $2X; nu-
clear (all forms: old/new), oil = $4X. 7

Once the grid is fully upgraded and operations secured, and fully paid for, the
appropriate portions of the grid will returned to its original owners as a limited-
access commons, subject to an negotiated service agreement and national secu-
rity review as to the private owner’s ability to operate the new Smart Grid se-
curely.

7 Depending on the form of electricity generation, the electricity produced has dra-
matically different life-cycle costs to the economy that have not been previously ac-
counted for under present-day utility cost calculations. For example, one of the ex-
ternalities presently unaccounted for is CO2 emissions. Even under the proposed
Waxman-Markey cap and trade climate change legislation, only a small portion of
the actual economic costs of Co2 emissions will be captured. Nuclear power is espe-
cially problematic is that the full cost of the nuclear fuel cycle is generally external-
ized from the cost calculations of the delivered cost/KWH of nuclear power when
deciding on a capital investment in this form of electricity generation.

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