Modernizing the Grid: Regulating the Future
In our first look at the grid, we discussed the lines and the poles, and how they function much like an intricate system of interstates, highways, and local roads. Continuing with this grid series, and with the road analogy, we need to discuss the supreme courts, the department of transportation, police, and all the parties that make sure the roads are safe, accessible, and reliable.
This is going to involve some acronym soup, and a bit of creative license with the analogy; however, it is crucial to understanding why and how we need to modernize the grid.
It is very important to note that many, if not all, of these organizations are directly or indirectly influenced by politics. Whether it is the appointing of individuals to a position, or a regulator having to carry out a law passed by a federal or state legislature. This helps to explain the vastly different state outcomes on clean energy, and the compromises that are made on a federal level.
Supreme Courts and Department of Transportation
Starting with the highest law in the land, we have the supreme courts, both the US and state versions.
The Federal Energy Regulatory Commission (FERC) is much like SCOTUS, and state utility commissions or regulatory authorities are like state supreme courts. We will also look at a smaller organization that is akin to the department of transportation, but will be a crucial partner in the move to modernize the grid, the North American Reliability Council (NERC).
The grid is regulated at multiple levels by multiple organizations for a variety of concerns. This is a very high-level look at some of the most important players.
FERC is the federal entity that regulates transmission (the lines), the sale of wholesale electricity, and natural gas as it relates to interstate commerce. FERC also regulates all oil pipeline infrastructure and reviews natural gas pipelines so long as they cross state lines, which they almost always do.
If you want to build a pipeline, a transmission line, a hydro power facility, or change the way you buy or sell power across state lines, you must get approval from FERC before doing so. Like the US Supreme Court, FERC works on precedent to inform their decisions. FERC has five commissioners who are appointed by the sitting US president, and much like Supreme Court justices they must be approved by Congress.
In terms of grid modernization, FERC works in two ways.
It issues orders that buyers and sellers of wholesale electricity and gas must comply with, and they adjudicate those orders. One example is their recent order 2222. This order allows distributed resources, like solar panels on your rooftop, to aggregate and participate in wholesale markets.
Before this order, those distributed resources, often times overwhelming clean energy, were not allowed to make money in the wholesale markets. Upon issuing these orders, they give the market monitors (ISO/RTOs) and utilities time to figure out how they will comply with this order. The ISO/RTOs and utilities then file compliance plans with FERC, and FERC decides if they are sufficient.
FERC is the law of the land; however, they do not have jurisdiction over the sale of power within a state (State Utility Commissions), they do not monitor wholesale power markets (RTO/ISO), and they do not create reliability standards (NERC). Those are saved for other organizations.
NERC is the department of transportation. It sets the reliability and safety standards for the grid, so that power gets to from the generators to the users in a manner that is safe for each, and the entirety of the grid. From their own website:
“The North American Electric Reliability Corporation (NERC) is a not-for-profit international regulatory authority whose mission is to assure the effective and efficient reduction of risks to the reliability and security of the grid. NERC develops and enforces Reliability Standards; annually assesses seasonal and long‐term reliability; monitors the bulk power system through system awareness; and educates, trains, and certifies industry personnel. NERC’s area of responsibility spans the continental United States, Canada, and the northern portion of Baja California, Mexico. NERC is the Electric Reliability Organization (ERO) for North America, subject to oversight by the Federal Energy Regulatory Commission (FERC) and governmental authorities in Canada. NERC's jurisdiction includes users, owners, and operators of the bulk power system, which serves nearly 400 million people.”
Importantly, NERC is subject to oversight by FERC.
State Utility Commissions /State-Level Regulatory Authorities
Taking up the role of a state-level supreme court are state utility commissions.
These are sometimes called Public Utility Commissions (PUCs), but there are many acronyms and names for this entity across the states. These organizations vary in their missions, authority, the ways they are constructed, and their oversight from state to state, but they generally regulate electricity rates and services provided by a utility company within the state.
Utilities, public or private, must come to the PUC if they want to increase their rates or change the services they are providing. Rates are decided in highly contentious rate cases which involve lawyers from the utilities, the public staff (an organization which is paid for through tax dollars to argue on behalf of the public), developers, and environmental groups.
Ultimately, the PUC gets the final say on how much the utility can charge.
PUCs are key for gird modernization because they can prevent the utility from making imprudent investments in some areas (like building coal fired power plants) and incentivize them to place it in more prudent areas (like transmission-level build out or smart grid technologies).
However, this is not always so easy. Building smart grid technologies is vital, but it will come at an increase to rates. Rates going up disproportionally affect lower-income individuals because a greater proportion of their income must now be spent on electricity and gas bills.
That is the balance that must be struck by the PUCs. What is the acceptable amount of rate increase for grid modernization?
Including regional transmission organizations (RTO), independent system operators (ISO), and the Electric Reliability Council of Texas (ERCOT) as the FBI is a bit of a stretch – but they do provided oversight onto large swaths of the US not covered by states alone. These organizations are not regulatory bodies but are a vital player to grid modernization.
RTOs and ISOs coordinate, control, and monitor multi-state electrical grids at the transmission level. They run the wholesale electricity markets and provide reliability planning. There was an initial distinction between the two types of organizations, thus the RTO/ISO names. But that distinction has faded, and they are now functionally the same. Not all the country lives within an RTO/ISO; if you do not live within one, then you get your power from a monopoly utility.
ERCOT is a special Texas only entity. They do all the work of an RTO/ISO, but only within Texas’ borders. ERCOT does not import or export power, and thus, is not subject to FERC. However, they do comply with NERC. The consequences of Texas being closed off will be discussed in later blog posts.
These organizations were created out of compliance with FERC order 2000, which sought to promote economic efficiency, reliability, and non-discriminatory practices all while decreasing government oversight. For that reason, these organizations are quasi-private.
For grid modernization, these organizations, in the name of economic efficiency, can put forth policies that encourage behaviors by market participants. For instance, ERCOT built out transmission lines in a policy called Certified Renewable Energy Zones (CREZ). These transmission lines were then filled with thousands of megawatts of wind power, making Texas one of the largest generators of wind energy in the world.
Conversely, in PJM (a Northeast RTO), they introduced a rule called the Minimum Offer Price Rule (MOPR), which made clean energy more expensive. PJM stated that this rule was to even out the playing field since clean energy was receiving subsidies at the state level. This was disputed by various groups at FERC and is now no longer an in-place policy.
State and Local Police
Finally, we get down to the local level. Your utility – that is, whoever you pay your bill to each month – is the police and protector of the grid.
Utilities are the entities that literally own the lines and poles – RTOs/ISOs do not, FERC and NERC do not, and PUCs do not. For that reason, they are the forefront of grid modernization. Whatever decisions come out of FERC, ISO/RTOs, NERC, or PUCS must ultimately be carried out, in real life, by the utilities
Utilities provide services to individuals at the local level. They may be privately owned or publicly owned. You may have hundreds of utilities in a state; you may only have a couple. They are a heavily regulated industry, as it is a natural monopoly. The cost of building your own grid is so high that no one could realistically afford it. So we allow utilities to exist as monopolies, but we regulate how much they can earn. The amount they can earn is set by PUCs during the aforementioned rate cases.
Utilities monitor and control the grid at the distribution level, and if they are not in an RTO/ISO, they also monitor and control the grid at the transmission level. In all cases, monitoring and controlling means making sure from generation and transmission to distribution that the power is safe and reliable. Safe and reliable not only to the end user, but also to the grid itself.
In keeping with the car analogy, a sudden rush of cars to any road, or a sudden exit of cars off the road, can cause physical damage to the grid. Cars speeding, or going too slow, can cause damage; too many cars or too few cars at any given time can cause damage.
The utility manages all these issues and more in real time. We take for granted the flipping of a switch and the light coming on. What’s going on behind the scenes of that switch are incredibly complex.
The grid is complicated and because of that there are a number of organizations who have oversight. These organizations sometimes work together to ensure that all Americans have reliable, safe electricity.
Increasingly, clean power is becoming more relevant in the safe category.
There are numerous grid modernization efforts currently happening. From efficiency boosting software to physical pieces of infrastructure, we need a grid that is smart, flexible, and able to handle all the clean power we can give it.
The final blog in this series will cover those solutions, and how we can help implement them.
Take action today and tell Congress we need to go big on climate solutions – like modernizing our grid and making major investments in clean, renewable energy. While we still can.