The whole powerplay system is very badly thought out; I don't believe that they ever played it out properly past the first couple of cycles.
I think the problem may be that they did play it out (and probably for several more cycles than have currently happened) but with the wrong set of assumptions:
- expecting far more serious undermining/fortification and expansion/opposition fights, of the sort that's hit Hudson and Winters but no-one else, making a good fraction of expansions fail and CC surpluses being generally lower
- a closer balance of activity between factions, rather than it being "people whose name includes Duval" outsupporting everyone else combined
- less player interest in PowerPlay overall than there was (raising the fortify/undermine thresholds by 5x - and saying then they might well rise further - strongly suggests that they didn't expect anywhere near as many players to spend as much time on it as they have - for all the complaints about it on the forums, Cadoc's activity stats suggest that it has been genuinely popular with the wider player base)
- much more inter-power aggression in general rather than (the Feds aside) most powers' active player groups signing peace treaties, memorandums of understanding, etc. all over the place like a bunch of space hippies. Even if undermining and opposition by Imperials against each other is discouraged, I think they probably expected to see many more inter-Imperial prep fights wasting resources precisely because they were all starting so close together.
- less strong organisation within powers (yes, even less than now!) so that "merit farmers picking negative income systems because they were closest" was a serious threat for more competent players to fight, rather than a mild inconvenience leading to a few suboptimal expansions.
I'm not sure there's much Frontier could have done about this in advance: the beta test looked a lot more like those assumptions, had a different set of power popularities - e.g. Hudson being the most-pledged power - and inevitably nowhere near as many participants. But the overall result is that powers have expanded much faster and more successfully than anyone expected: Antal's last cycle - one expansion opposed and abandoned, one successful, and one basically ignored - might be more typical of how powers were "supposed" to progress.
Turmoil was I think supposed to first happen a couple of cycles back when one of the big powers got about 500CC of systems undermined all at once and didn't have the organisation to fortify. Hudson last cycle had 9 fortified without undermining ... and 2 undermined without fortification cancelled that and more - so a serious undermining attack at the current sort of thresholds could really ruin a power's day long before overheads started to bite, if they didn't have the numbers and organisation to fight back.
Overheads were I think supposed to be the emergency brake on a runaway success to slow them down a little while everyone else regrouped, and a way to make the larger starting positions of Hudson, ALD and Winters not be an insurmountable advantage over everyone else -- not the inevitable result of existence.
So what now? I suspect now they have data about how players actually interact with PowerPlay, Frontier can start carefully tweaking the rules. But I think they'll take that slowly - both because it'll take at least a few cycles to see how any change actually works out, and because drastic rule changes every Thursday will get everyone angry. In the meantime, the bigger powers are probably going to have a rough few weeks - and their temporary retreat is probably going to be necessary to allow rebalancing to take place.