A discussion draft in the U.S. House of Representatives is a good toward ensuring energy and grid reliability, said Thomas A. Fanning, Chairman, President, and Chief Executive Officer of Southern Co. (NYSE: SO).
The Energy and Power Subcommittee of the House Committee on Energy and Commerce has released discussion draft language, to be included in the committee’s Architecture of Abundance energy legislation, which intends to ensure the security, resiliency, and reliability of the nation’s energy infrastructure. The subcommittee plans a May 19 hearing on that draft.
Fanning noted in his prepared testimony for the hearing that he is also a chair of the Electricity SubSector Coordinating Council (ESCC). The ESCC is the principal liaison between the electric sector and the federal government for coordinating efforts to prepare for, and respond to, cyber threats, physical terrorism and natural disasters that imperil critical infrastructure.
“While a chair of ESCC, I am speaking in my capacity as CEO of Southern Company,” Fanning added. “I am here today to talk primarily about the security, baseload protection, and reliability analysis provisions found, respectively, at Sections 1204, 1207, and 1202 in the Committee’s recently released discussion draft on Energy Reliability and Security, part of the Committee’s Architecture of Abundance energy legislation. The Committee is demonstrating leadership by proposing the discussion draft language to enhance system security and resiliency, retain the reliability and economic benefits provided by baseload generation, and protect electric reliability. I would like to respectfully offer a few items for the Committee’s consideration to further strengthen the effectiveness of this legislation.”
Section 1204 – Critical Electric Infrastructure Security
The electric sector is increasingly confronted by emerging and constantly evolving electronic and physical threats to the provision of reliable electric service, Fanning noted. Southern Co. takes these threats very seriously, just as it has in mitigating many other threats to the grid over the course of more than a century of providing secure, reliable electric service to the Southeast.
“Our risk mitigation strategy emphasizes a ‘defense-in-depth’ approach that focuses on preparation, prevention, response and recovery, with an emphasis on isolation of, and enhanced protections for, critical assets,” Fanning wrote.
“Due to the critical role electricity provides for the nation, protecting the grid is a shared responsibility between the industry and government. Partnering with industry peers and federal agencies allows for the rapid development of defenses to emerging threats and the detection of threats based on the intelligence and experience of peers and the federal intelligence community. The tremendous benefits afforded to security and reliability by such coordination and partnership are being significantly enhanced by the ESCC. As previously discussed, the ESCC is the principal liaison between leadership in the federal government and in the electric power sector, with the mission of coordinating efforts to prepare for national-level disasters or threats to critical infrastructure. The ESCC is the only council with CEO-level engagement and leadership, consisting of a 30-member body made up of utility CEOs and trade association leaders representing all segments of the electricity industry. The ESCC works with a parallel group of government counterparts who are also organized around these goals and are committed to aligning government and industry efforts to secure the grid.
Section 1207 – State Consideration of Resiliency and Advanced Energy Analytics
Families and businesses served by electric utilities in the U.S. depend on a reliable and affordable supply of electricity, which in turn is predicated upon baseload generation and its unmatched reliability and electricity price stabilization effects, Fanning said. “Baseload generation has served as the backbone of the electric system for many decades and must remain a key part of the electric system in the future if the U.S. is to continue to reap the economic and energy reliability benefits it currently enjoys,” he added. “Section 1207 of the discussion draft of the bill is supportive of baseload generation and is a reasonable, first step to promote efforts to ensure that baseload generation continues to serve the families and businesses of the U.S. for many decades to come.
“Baseload generation is vital to ensuring the continued supply of clean, safe, reliable and affordable electricity to families and businesses. Baseload generation provides twenty-four-hours-a-day, seven-days-a-week capability to support reliability, and it also helps ensure the affordability and stability of electricity prices. Baseload generation provides an ongoing, economic supply of energy to customers and not merely generation capability to serve peak load.
“Generation that is only used to serve peak load (peaking generation) is designed to operate relatively few hours out of the year while baseload generation is designed to operate essentially nonstop. While peaking generation typically has lower capital costs, it typically has higher fuel prices and greater price volatility, which has historically been acceptable because peaking generation is designed to operate relatively few hours during a year and the overall price effects of peaking generation have been muted when combined with the more stable fuel costs of baseload generation that operates around the clock.
“The importance of baseload generation to the vibrancy of the wholesale electric market in the Southeast should be recognized. Today, the Southeast has an active and abundant wholesale market that includes substantial amounts of baseload generation resources. The existing wholesale market, which is based upon competitive, market-based rates, provides price visibility for market participants and ensures all forms of capacity are offered in the most efficient manner possible, adding to the liquidity of those wholesale markets. The abundance, diversity, and economic value of baseload generation along with the liquidity and visibility of wholesale prices in the Southeast have ensured low and stable prices and high reliability to the benefit of not only retail but also wholesale customers across the Southeast.
“In addition to providing essential reliability services, baseload generation further enhances reliability because there is typically an on-site inventory of fuel at baseload generation facilities. Baseload generation needs are generally met by nuclear, coal or biomass generators. All three of these types of generators typically have many days’ worth of fuel inventory stored on-site. At a coal or biomass generating plant, this fuel inventory is typically stored in a fuel pile. For nuclear generation, the reactor core contains fuel rods that can power the reactor and produce electricity on an uninterrupted basis for months at a time. Typically, nuclear power plants shut down for refueling about every 18 to 24 months. However, even when fuel rods are replaced during a refueling at a nuclear power plant, only about one-third of the fuel rods are replaced. If a scheduled nuclear refueling needs to be delayed to ensure reliability of the electric system, a nuclear plant almost universally has more than sufficient fuel reserves to temporarily forego the refueling and continue to operate reliably for a considerable period of time. This fuel inventory at nuclear, coal and biomass generating plants helps to mitigate the possibility of fuel supply disruptions to the generators since they can continue to operate for extended periods of time in the event that their fuel deliveries are disrupted due to unplanned events. Generating units that do not have on-site fuel storage are at risk of fuel supply disruptions and can therefore pose risks to the overall reliability of the electric system.
“In recent years, the nation’s fleet of electric generation facilities have been impacted by new regulations promulgated by the U.S. Environmental Protection Agency (EPA) that have the potential to jeopardize the reliability of the bulk electric system on which customers depend for a constant and affordable supply of electricity. This regulatory development demonstrates that there is the very real potential that compliance with a specific rule, such as a new environmental rule, may result in jeopardizing the reliability of the electric system. Reliability might be jeopardized due to factors such as short lead times for compliance with a new rule or the inability to continue to operate one or more generating units during very infrequent and short duration periods of malfunction of required environmental controls. This potential for reliability problems is particularly pronounced should the affected generating unit be critical to maintaining the short-term reliability of the electric system.
“The EPA continues to promulgate rules to further lower the environmental impact of electricity generation. Their singular focus is on clean energy. However, utilities, along with their respective state regulators and FERC, are responsible for the more holistic balance of clean, safe, reliable and affordable electricity for all customers. The proposed Section 1202 would ensure that the reliability impacts of a proposed or new final rule are assessed in a timely manner by FERC, in coordination with the ERO/North American Electric Reliability Corporation (NERC). These organizations have both expertise and authority regarding electric system reliability and may properly be relied upon to provide a definitive and unbiased assessment of the reliability impacts of proposed and new final rules issued by another federal agency. The reliability analysis that would result from section 1202 would be made available to the public for review and any needed subsequent action. Section 1202’s proposed reliability assessments are greatly needed and takes a reasonable approach to addressing the current gap regarding the significant reliability impacts presented by either proposed or final federal rulemakings today.”
Section 1201 – Resolving Environmental and Grid Reliability Conflicts
Fanning continued” “We support including in the comprehensive bill the proposed Section 1201. If DOE uses its Section 202(c) emergency authority to require a power plant to operate to maintain electric reliability, the plant owner or operator should not be held liable if operating causes an environmental violation. That is not a fair result. If the government requires a utility to run a plant in order to keep the lights on, that utility should be provided an exemption from liability, as the Committee has recognized previously.
“I hope the Committee will consider improving the language in the bill in one respect. An emergency is an emergency, and Congress should not complicate DOE’s action by making it determine how an emergency order can be made consistent with federal, state and local environmental law and regulations ‘to the maximum extent practicable.’ That could cause delay and lawsuits. It would be more appropriate to require DOE to take ‘reasonable’ measures to minimize conflict with environmental requirements.”
Section 1205 – Strategic Transformer Reserve
“Southern Company supports the policy behind the proposed Strategic Transformer Reserve legislation and agrees that the industry should have an inventory of key equipment in the event of high impact but low probability events,” Fanning wrote. “In this regard, Southern Company and many others in the electric industry are strong supporters of existing [Edison Electric Institute] initiatives, such as the Spare Transformer Equipment Program (STEP) program as one example. STEP is a coordinated, industry-wide program designed to increase the electric industry’s inventory of spare transformers in order to ensure that the electric industry has sufficient capability to restore service in the event of coordinated, deliberate destruction of utility stations.
“In 2006, FERC approved the Spare Transformer Sharing Agreement. This Agreement provides the framework for participating signatories to maintain and acquire a certain number of transformers based upon specified criteria and to sell their spare transformers to another participating utility that suffers a triggering event. To date, more than forty entities have executed the Agreement.
“While supporting the policy behind the proposed Section 1205 to create a national inventory of large power transformers, we believe that the continued use and expansion of private industry approaches will prove more beneficial in the long run than a top-down, government solution. The industry is currently pursuing the development of a broader, voluntary program that could address a wider range of qualifying events than the terrorist-type attacks contemplated by STEP.”
Section 1206 – Cyber Sense
“In Section 1206, the creation of a Cyber Sense program will also support secure and reliable electricity,” Fanning said. “This innovative program is an approach long supported by Southern Company and the electricity sector at large. Similar to certification by organizations like United Labs, Cyber Sense accreditation would be effective in improving security, reliability and resiliency, as it is focused on the creators of technology rather than that technology’s users. As well, implementation of this program should take care not to discourage innovation or require excessive disclosures that would undermine security. Finally, the Cyber Sense program has the potential to play an even great role in the nation’s defense if it were expanded to be applicable to technologies provided to all critical infrastructure sectors and not just the electric sector.”
Cost Socialization Concerns with FERC Order No. 1000
“While beyond the scope of the discussion draft, FERC’s Order No. 1000 concerning Transmission Planning and Cost Allocation by Transmission Owning and Operating Public Utilities raises serious cost socialization concerns that would be appropriate to be addressed in legislation,” Fanning wrote. “Order No. 1000 would allow FERC to authorize a transmission developer to impose its transmission costs upon entities that are neither a customer nor have a contractual relationship with the developer and to otherwise broadly socialize the developer’s costs. Legislation would be appropriate to avoid such economic distortions and the basic unfairness that would result from such an approach.”