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Clearing Up / Bearing Down

[May 5, 2017 / No. 1798]

Western Energy Systems Are Too Fragmented, Uncoordinated

Editor's Note: We are excited to introduce a new guest columnist: Phil Jones, a former Washington UTC commissioner (2005-2017), past president of the National Association of Regulatory Utility Commissioners (2012-2013) and longtime key electric-industry figure. He will be providing regular commentary in Clearing Up.

I am pleased to be able to offer some thoughts in the weeks and months ahead in Clearing Up. Although I am a Commissioner Emeritus (a NARUC term), I feel like I have attended enough meetings and given enough speeches and panel discussions over the years to qualify for this guest column.

I truly believe we need to think differently about how to address the challenges of an increasingly stressed grid, the utility structure, and the proper regulatory model.

The overall challenge in the Pacific Northwest and the Western states, as I see it, is that our energy systems are too fragmented and uncoordinated. As a former basketball player and football quarterback from Spokane, I grew up understanding the importance of a "coach" coordinating through leadership. In those days, I knew we had a solid system with Washington Water Power and the Bonneville Power Administration, backed up by Grand Coulee Dam -- it was simple to understand, and the electric power was cheap.

Unfortunately, we have little such "coordinated coaching" in the Northwest and Western states today, in the entire Western Interconnection, and in our increasingly linked electricity and natural gas assets and operations. It is not just the 39 balancing authorities, or BAs, which take on the solemn and important duty of balancing load and generation in their service territories, subject to WECC and NERC compliance rules. This jigsaw puzzle has too many disparate pieces lying on the table, with too much dissonance and silos, lacking rational coordination and efficiency among the key players.

We have little 'coordinated coaching' in the Northwest and Western states today

I am not pretending to be a FERC commissioner like Pat Wood, riding into the Western states with a poorly considered, top-down system like Standard Market Design. No; instead I am talking about a pot coming close to boil with all sorts of separate ingredients being thrown into it:

  • RPS statutes driving the build-out of renewable energy in most of the states, where legislators, governors or citizen-activists pick a number out of a hat -- like, say, 50 percent by 2030 -- and expect our industry to respond quickly and cost-effectively.
  • Technologies and technology innovators expecting to enter this market, meeting few obstacles or regulatory impediments, arguing they have already accelerated innovation in the telecommunications and IT industries.
  • Environmental advocates and state environmental agencies who understand well the imperatives and jargon of clean-air statutes, but again, expect utilities and energy regulators to respond quickly to their needs.
  • Utilities and transmission owners who have developed significant silos within their organizations that don't communicate well with each other, and don't necessarily share sufficient information with neighboring utilities, regulators and broader regional organizations responsible for planning and reliability. Commissioners and their staffs face the same challenges as well.

Many of us have witnessed drivers of change over the past decade, including some of the following:

  • Environmental pressures: During the last eight years, this was perhaps the paramount driver. Some said former EPA Administrator Gina McCarthy was really the Secretary of Energy Policy during the Obama administration, with important rulemakings on mercury, air toxics, coal-ash disposal and the landmark Clean Power Plan (CPP). While it's too early to tell what policies on GHG reductions and carbon pricing, if any, the Trump administration and key agencies (DOE, EPA and FERC) will pursue, it's clear to me the Western states will continue to lead and innovate.
  • Distributed energy resources (DER): The technology, business models, financing and lower costs have been truly amazing in the past decade; no longer the days of President Jimmy Carter putting solar-photovoltaic panels on the White House roof, or Amory Lovins self-generating with a zero-net-energy home in the Colorado Rockies. This is distributed on an industrial scale (albeit with a nice assist from the generous investment tax credit), with companies wanting to push the system further toward their dream of two-way flows of energy and local markets for trading -- or transactive energy. And a shout-out to our own Travis Kavulla of the Montana PSC, my colleague as a former NARUC president, who showed leadership to develop and produce a NARUC DER manual last year focusing on rate-design issues.
  • Customer engagement: Customers want more choice, and are trending toward "cleaner energy" solutions. They also want technological solutions to help them manage their energy use, although I think the jury is still out on how much time they really want to spend saving perhaps pennies on a monthly bill. But new, innovative technology companies, with a strong emphasis on software and big-data analytics, are making it easier for consumers to both save energy and more than pennies. Most progressive utilities are engaging with their customers more proactively and assessing new technologies and methods.
  • Corporate social responsibility: Microsoft's decision to manage its own wholesale power purchases (CUNo.1795 [13]), with a goal of 100-percent renewables, while relegating Puget Sound Energy to the status of a "retail wheeler," is happening all over the West, and will likely continue. Many large commercial and industrial customers want to manage their own wholesale purchases and shape their perception as good corporate citizens. Nevada will likely be ground zero in the next few years, as casino/hotel complexes threaten to leave the system.
  • Cyber- and physical security: Some of you know me as "Mr. Cybersecurity," which was the theme Iemphasized as NARUC president in 2012-2013. We in the energy sector have made progress in identifying and mitigating the risks over the past five years. But the threats continue to grow, are more dynamic, and become cheaper for anyone to purchase on the darkweb and propagate through the public internet. Meanwhile, many smaller Pacific Northwest utilities cannot afford to hire a cybersecurity specialist.

We -- utilities, policymakers and commissions -- have been responding to the above challenges, and some of the progress has been impressive. I will explore these more in future columns; but for now, examples include smart-grid investments (federal and utility); state programs such as Washington's Clean Energy Fund; and innovative ratemaking structures, such as decoupling and policy guidance on some technologies and topics.

Yet, overall, these policies are insufficient and inadequate. We are coming fairly close to placing one of the engineering and industrial marvels of the 20th century -- the electric grid and the provision of affordable and reliable electricity -- at risk to all who use it today.

Here is a brief list of weaknesses and vulnerabilities of our approach, which, if not corrected, may result in consequences such as less reliability (more outages and unscheduled curtailments), higher costs and less affordability, less resilience and security, and more customer dissatisfaction.

First, we are introducing much more complexity into the distribution grid, with less one-way centralized generation and more distributed generation, along with many more suppliers and service providers. We are doing this without thinking through the consequences, including the possibility of unforeseen consequences and building adequate contingencies into our planning. I do not oppose technology and innovation, nor its manifestations in the electric sector, but no one is sufficiently assessing and planning the overall electric and gas systems in this evolution.

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Second, our system in the Western states is still too balkanized and fragmented, and there is an overall lack of coordination and wide-area situational awareness. Beyond the 39 BA's, this also applies to the number and variety of utilities -- investor-owned, publics and now community choice aggregators in California -- throughout our system. And while we do have many forums for coordination, in my view, we are still inadequately addressing the overall, systemwide needs of the grid and utilities in this rapidly changing environment. Finally, we have not made sufficient progress in developing broader Western markets, like a regional ISO using the California ISO platform, that can ease the integration of wind and solar and also improve our overall coordination and situational awareness.

Third, our overall system remains vulnerable to cybersecurity and physical threats to both the IT and SCADA assets, as well as the physical assets like critical substations and transmission lines. We have made some progress over the past five years on federal efforts to coordinate with utilities and state agencies, and NERC and WECC have stepped up their games too. But the challenge is that the ability of "bad guys" to obtain malware to do mischief continues to improve, and everything on the darkweb gets cheaper and easier to buy.

Finally, we need to summon the will to act decisively, and in a coordinated way. In my 12 years as a state utility commissioner, I met so many people dedicated to "keeping the lights on" and operating this amazing machine of an interconnected grid in the West. The challenge is that our existing institutions are too fragmented and we have too many people operating in silos who don't talk effectively to each other.

Technological solutions exist to solve many of these issues, and we need to find better ways to allow technology, and especially software using big data, to help in this transition. But we need to think more creatively about the future of the grid and distribution system, and the structure of the utility. Inaction, or business as usual, is no longer an option. [Phil Jones]

Bearing Down is excerpted from Energy NewsData's Clearing Up publication. If you aren't a current subscriber, see for yourself how NewsData reporters put events in an accurate and meaningful context -- request a sample of Clearing Up.

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