No Network is an Island

The National Association of Regulatory Utility Commissioners (NARUC) issued a report entitled Regulatory Considerations for Utility Investments in Defense Energy Resilience.?The report is available via the Internet here: https://pubs.naruc.org/pub/9931AF59-1866-DAAC-99FB-17BF932AECF5?ct=t(EMAIL_CAMPAIGN_2_17_2022_15_58) .?The purpose of the report is to shine some light on the direct and expanding relationship between electric grid and other critical network reliability/resilience capabilities and our ability to meet national security objectives.

The executive summary of the report includes the following statement:

The U.S. Department of Defense (DoD) is heavily dependent on the commercial electricity grid, and DoD’s globally networked force relies on secure, reliable communications from domestic installations. Power outages at U.S. bases can significantly impact critical missions around the world. In 2020, DoD experienced hundreds of power outages lasting 8 hours or longer including at installations with missions that cannot tolerate interruptions.

The complexity of “keeping the lights on” and vulnerability of the electric grid are on the rise for a number of reasons some of which I mention below.?

Technology advances and stimulative subsidies have increased opportunities for customers to install customer-sited electricity production and storage devices, some with weather dependent performance characteristics, that increase the challenges for grid operators who must maintain supply/demand balance in real time.

The law of physics tells us that electricity is inherently in interstate and international commerce in North America yet our legacy regulatory construct and legal framework is oriented towards the view that each state and nation is a physical island.?This insular perspective and behavior also dominates the business model tendencies of investor owned utilities, municipal utilities, cooperatives, the federal power authorities and the various regional transmission organizations (RTOs).?The Federal Energy Regulatory Commission, has the authority to work jointly with states to address issues through its “joint board” powers but this authority has seldom been used.

The deployment of “smart” devices throughout the grid system on both sides of the customers’ billing meter open more doors to cyber-attacks prompting more expenditures to manage the inherent risks.

The movement towards increased electrification as a means to reduce greenhouse gas emissions is being layered on a legacy physical system that was not designed to accommodate this objective resulting in massive and uncoordinated investment in legacy systems to conform their capabilities to expectations.?The traditional ratemaking formula used to set rates/prices for grid services tends to encourage excess investment to grow earnings and cause intergenerational wealth transfers.

The per unit production cost of the reforming and replacing the legacy grid system is significantly higher than the per unit embedded cost of the legacy system and this is causing rapid increases in the rates/prices for network services in accordance with the regulatory ratemaking formula.?These increases are ratcheting up the politics that are common to utility rate cases. Investment in infrastructure is promoted without a hint of how the investment will impact utility bills leaving customers to discover the impact after the bill shows up.

Public policy at the state and federal level have stimulated the interconnection of utility scale (large) “renewable” and weather-dependent electricity producers that also create grid system balancing challenges.?Other policies are increasingly threatening reliance on domestic fossil fuels to fill the production gaps created by the weather-dependent resources.?Domestic fossil fuel producers are increasingly turning to export markets. Until recently, public policy has also tended towards accelerated retirement of safe nuclear electric generating plants and this short-sighted trend continues in places like California.

Most of what is happening is occurring without the cross-function and cross-border planning and operational coordination required to effectively and efficiently serve the reliability/resilience command objective. Hydro-Quebec wants to sell hydroelectric production to Massachusetts utilities to help Massachusetts meet it decarbonization and reliability objectives. But Maine voters voted to block construction of the needed electric transmission line. You can't meet electric grid reliability and resilience objectives when every link in the chain has a veto.

NARUC’s report available at the above link is focused on the reliability/resilience needs of the U.S. Department of Defense (DOD) which acknowledges (in Chapter 6 of the report) that it does not have the funding required to pay for the needed grid facilities and equipment.?If DOD does not have adequate funding, then who does?

Reliability/resilience needs are not unique to the DOD; hospitals, emergency shelters, fire and police stations, paramedic response teams, jails, nursing homes, water supply and treatment systems, food producers, food transporters and food distributors cannot function without adequate network systems (electric, natural gas, communications and so on) reliability/resilience. ?The performance of each of these network systems is dynamically interconnected to and interrelated with the performance of other networks.

To effectively and efficiently meet the networks reliability/resilience needs, we need to start with a comprehensive and rolling engineering analysis driven by a specific reliability/resilience objectives mindful of the physical interconnectedness and interdependence of each network as part of a larger system.?The work that has already been done by the North American Reliability Corporation (NERC) provides a geographical guide to locations where electric grid reliability/resilience is not where it needs to be.?But more is needed; the evaluation needs to proactively identify planning and operating remedies.?It is hardly sufficient for NERC to sound an alarm that blackouts are coming!

I hesitate in pushing out my coordination message because experience tells me that it will be seized upon as a foundation for this or that stakeholder to compel that their pet demand or supply side technology be chosen or mandated by some "central plan". To guard against this prevalent tendency, the reliability/resilience analysis needs to objectively identify the physical performance required at a given point in the network and then, on a technology neutral basis and with no advantage given to an incumbent, solicit proposals to satisfy the physical performance need. The winning bidder must accept responsibility for providing the performance subject to penalties for non-performance.

The physical coordination needed must be aligned with the commercial system or "market". The growing backlog in the RTOs' transmission interconnection request queue is a revealing symptom of the consequence of a disconnect between commercial system design and the physical performance imperatives. Indeed, the RTOs commercial systems tend to reward scarcity that pushes prices higher while degrading reliability. This tendency has been exacerbated by the force of government mandates and subsidies that are disconnected from reliability/resilience. For example, wind farms receive a federal tax benefit for intermittent production of kilowatt hours notwithstanding the fact that reliability/resilience requires more than intermittently produced kilowatt hours. The amount of kilowatt hours produced in real time must match demand to keep the lights on.

In some cases, like that of the DOD’s perhaps, it may be more efficient and effective to deploy on-site strategies to meet DOD’s more unique reliability/resilience objectives.?The cost of meeting national security objectives should be a taxpayer burden not a ratepayer or (as I prefer) utility customer burden.?(Utility rates are a notoriously regressive means of funding public interest programs meaning they impact the most economically vulnerable customers the hardest. And, incumbent service providers will eagerly pick up a national security claim to compliment their inwardly focused business model.)?In any event, the on-site strategies need to be coordinated and aligned with the larger planning and operating design effort; customer sited capabilities (including demand response, energy intensity improvements, reactive power support and more) can be and are being harvested today to help keep the lights on.?Negative intervention by grid operators -- other wise known as curtailment or "blackouts" -- are the last-resort means of balancing the grid. Yes, customers are ultimately responsible for providing network reliability and resilience. But, too often, investor owned, municipal and cooperative utilities have business models that disfavor customer-cited reliability/resilience options even when they are physically superior and less expensive. ?(Never underestimate the desire of an incumbent business to control what happens next particularly if it affects cash flow or earnings.)

The competitiveness of economy depends significantly on continuous improvement of our productivity.?Continuously improving productivity, in turn, depends on continuous improvement of our interconnected networks to meet demand in real time and in the future.?

NARUC’s DOD-focused report promotes an insular approach to challenges that are made more difficult by an insular approach.