Our Next Energy System
A Suggested Framework for Modernizing our Energy System
This is the final essay in Civic Way’s series on Texas’ recent energy debacle. Our initial essays addressed the storm’s aftermath, chronicled our energy system history and offered some strategies for Texas. This essay introduces some thoughts for the entire nation. The author, Bob Melville, is the founder of Civic Way, a nonprofit dedicated to good government, and a management consultant with over 45 years of experience improving governmental agencies across the US.
Highlights:
America would not be the world’s most powerful nation without a modern energy system, but that system is decaying and could become the vessel of our decline.
We need a new hybrid regulatory model that embraces deregulation, spurs short-term competition and long-term investment and finds the intersection of affordability and reliability.
We should build a modern national super-grid, including regional modules, upgraded generation, transmission and distribution components, advanced microgrids and big storage capabilities.
We should redouble our commitment to making our energy system more efficient and more dependent on cleaner renewable energy sources.
Our new energy management model can ensure greater resiliency with stronger capacity markets and funding mechanisms that encourage investments in protecting grid components from external threats.
To succeed, our new energy system must be more resistant to security threats and more interconnected with and accountable to its consumers.
Introduction
Two months have passed since Winter Storm Uri and Texas’ energy meltdown. Power is now restored. Some energy firms are declaring bankruptcy while others are plotting their survival. People are mourning their losses and rebuilding their lives. Politicians are blaming everyone but themselves.
The media has framed the tragedy as a political issue. The right-leaning media warn us about the dangers of renewable energy and onerous regulation. The left-leaning media issue solemn denouncements of fossil fuels, corporate greed and unfettered deregulation. Such hyperbole may be good for their bottom line, but it is decidedly unhelpful. Our energy system is far more complicated, and the landscape far more diverse than this binary debate would have us believe.
The recent headlines should not cloud the big picture. What happened this year in Texas and a year earlier in California should shake us all from our slumber. Power outages are occurring in more places, more often and for longer durations. They foreshadow an even more chilling scenario, an entire energy system—and nation—brought to its knees by cybersecurity attacks.
We face many issues as a nation—jobs, equity, racism, health, environment, education, safety, infrastructure and debt. While the list seems overwhelming, energy may be the most vital issue. We could not have become the world’s most powerful nation without a modern energy system. In lieu of bold investments and a new regulatory model, our decaying energy system could very well become the vessel of our decline.
The Shifting Energy Landscape
The American energy industry does not operate in isolation. It is shaped by external trends, developments and events. Some of those externalities are summarized below. We can ignore them, but only at our peril.
Energy market – The energy market, while still dominated by Investor-Owned Utilities (IOUs), is changing dramatically, everywhere, not just in Texas. More competition and players. Shifting roles. As energy becomes more distributed (e.g., rooftop solar panels), customers become producers. As new products (like electric vehicles) emerge, consumer demands evolve. As fiscal pressures mount, consumers become less passive about the energy they buy and consume.
Climate change – The climate change debate has become a side show (albeit a tragic one). Climate change—and the extreme weather it triggers—affects everything, especially our energy system. Extreme weather events bring more power outages and test the fragility of our aging power system.
Power diversity – As traditional energy sources (e.g., coal) intensify climate change, renewable sources (e.g., solar and wind) is becoming a more appealing power source. Thanks to deregulation, new access technologies and costs, our dependence on old energy sources is declining. In 2017, for example, renewables accounted for 95 percent of our net new power capacity.
Power decentralization – Our one-way energy distribution system is giving way to a two-way system. We are moving from a system wholly dependent on large, distant generation sources (e.g., coal-fired power plants) to one using more small, local sources (e.g., rooftop solar panels). And federal policies, like Federal Energy Regulatory Commission (FERC) Orders 2222 and 2222-A, help aggregated Distributed Energy Resources (DERs) like microgrids compete with traditional sources in wholesale markets.
Cybersecurity threats – Hackers are getting more sophisticated and brazen in their attempts to hijack, disable or damage our computer systems. Private emails. Corporate files. Election systems. Public facilities like airports. And we are in the early stages of such cybersecurity attacks. When will we recognize this threat as the urgent national security issue that it is?
The influence of new technologies cannot be overstated. Smart grid technology, including storage devices, advanced grid controls and Artificial Intelligence (AI), will improve microgrids and spur distributed generation capabilities. New rooftop solar panels and advanced metering will accelerate renewables. Cheaper, long-lasting storage capacity will increase Electric Vehicle (EV) demand and make renewables more feasible. Smart water heaters and thermostats will improve energy efficiency. On the downside, such new technologies could increase the vulnerability of our energy system to cybersecurity threats.
This landscape dictates a dynamic, agile model energy management model. One that can quickly adapt to emerging threats and unforeseen events. Since the issues are too complicated to invite a simple solution, we can only suggest the fundamentals of that new model for further analysis (see below).
Forging a New Regulatory Model
Deregulation remains an unfinished work. Thanks in part to the Enron scandal, deregulation efforts stalled in the early 2000s, leaving a disjointed regulatory structure. While Texas confined their grid within their borders to evade federal regulation, it is not clear what state leaders were trying to dodge.
Federal regulatory authority is diffused. The FERC is the paramount energy regulatory agency, regulating the interstate transmission of electricity, natural gas and oil. However, its regulatory authority is limited and flows more from federal statutes than the Constitution. And other federal agencies deal with energy, including the Department of Energy (DOE), Energy Information Administration (EIA), Environmental Protection Agency (EPA), Bureau of Land Management (BLM), Bureau of Reclamation (BOR) and Department of Labor (DOL).
Since the early 1990s, the FERC has focused on spurring the development of competitive wholesale electric markets. Under Order 888, the FERC assumed jurisdiction over wholesale energy sales, wholesale transmission service and the transmission component of unbundled retail rates. It fostered the creation of regional power entities—the ISOs and RTOs—to oversee wholesale markets. However, these regional entities have several flaws, including limited powers and weak accountability practices. Their service areas were cobbled together with little geographic coherency, some extending across many states or parts of states.
During deregulation’s heyday, many states restructured their retail power markets. Under FERC Order 888, states assumed jurisdiction over the generation and distribution components of retail service and the transmission component of bundled retail service. In most states, public utility commissions regulate energy management. Some states, like Texas, have spread regulatory powers across multiple agencies.
The division of labor between these new regional entities and the states remains unclear. The regional entities (ISOs or RTOs) often serve more than one state, but their service areas are not necessarily coterminous with state borders. Many states are served by more than one RTO or ISO. In short, states lack the geographic flexibility—let alone the organizational or financial agility—to manage an increasingly regional energy market.
The American regulatory structure suffers from vague, overlapping jurisdictions. The FERC has exclusive jurisdiction over some matters, like wholesale sales and interstate transmission rates. States have exclusive jurisdiction over distribution and retail generation rates. But the FERC and states share jurisdiction over other matters. We are left with a hodgepodge of three grids, 13 regions and 50 energy markets, ranging from deregulated energy-only markets (Texas) to traditional regulation models (e.g., Southeast).
What should we do? The US desperately needs a new regulatory model. A hybrid model that, rather than rejecting deregulation, encourages both short-term competition and long-term investment. A flexible model that continually strikes a balance between affordability and reliability. That model should honor at least two major principles—federal and regional.
The model’s federal strategy should recognize energy not only as an interstate commerce function under the Constitution, but as a national security function. It should assign one federal agency primary responsibility for overseeing regional energy connectivity issues, protecting our energy systems against international security threats and realigning federal regulations and policies with the country’s dynamic energy landscape. The federal government’s authority to regulate energy management should be beyond constitutional dispute.
The model’s regional strategy should entail the regional (multi-state) administration of energy markets. It should involve the creation of 15 to 25 compact regions. It should include the design of a uniform, collaborative operating model for regional regulatory entities like the electric cooperative model. It should require states to regulate power through regional interstate compacts and incentivize states to merge (or at least synchronize) their public utility commissions with the reorganized regional entities.
Modernizing Our Energy Infrastructure
The US lacks a national grid. Instead, it has three power grids, the Eastern, Western and Texas grids. The electrical barriers (seams) separating these grids dramatically impede the transfer of power between grids. Even when one region has a huge surplus and another has an urgent need (like Texas), the gap persists. Since the 15 central states generate far more renewable energy than they need, the grid design is inexcusably inefficient.
Our power grid, once one of the world’s engineering marvels, is deteriorating. In the early 2000s, the US Energy Information Administration (EIA) warned that “investment in new power generation capacity has not kept pace with the increasing demand for electricity.” The transmission and distribution infrastructure also has been neglected. Microgrid investments remain inadequate. The American Society for Civil Engineers, (ASCE), among others, has decried the growing gap between the power grid’s capital needs and projected funding.
The risks of this neglect should alarm us all. As illustrated by the Texas and California debacles, a fragile grid cannot handle extreme weather events. Inefficient grid connections and transmission systems impede the importing of renewable energy from one region to another. A decaying grid is increasingly vulnerable to cybersecurity threats. Our energy system, once one of our cherished economic assets, is becoming a competitive liability in the global economy.
While rebuilding our national grid with minimal disruption will be challenging, we must do so. We need a modern, efficient and reliable national super-grid. As the ASCE wrote, “additional transmission and distribution infrastructure, smart planning, and improved reliability are needed to accommodate the changing energy landscape.” The grid should be modular, linking decentralized regional grids in a way that expedites intra-regional energy flows but with adequate security controls to prevent compromising the entire network.
Federal leaders must fund the development of the national super-grid, but also establish a national fund for incentivizing regional and local energy investments, including transmission and distribution lines, underground power lines, advanced microgrids, urban microgrid districts and consumer-based discount storage and backup generator acquisition programs. It also should fund advanced grid management technologies.
Making our Energy System More Efficient
The national shift to renewables is inevitable. They are weather-sensitive, harder to tap during emergencies and require a flexible grid design to facilitate their interregional transfer. However, our zero carbon emission goals need them and deregulation enhances their appeal. As climate change becomes more imminent, renewables, coupled with other efficiencies, will permeate our energy system.
There are many measures we can take to accelerate our use of renewable energy. We can set more ambitious national, regional and local clean energy goals. We can offer sufficient federal incentives to spur state and local leadership and investment in renewable energy (e.g., expanding EV charging infrastructure and streamline processes for installing solar panels and selling surplus power to the grid). We can create public-private funding models to help consumers defray upfront costs for solar panels and batteries and help businesses transform their operations with renewables to (e.g., agrivoltaics for farms).
We also can intensify our efforts to improve energy efficiency and reduce consumer energy demand. We can offer federal incentives to spur state and local energy efficiency investments (e.g., LED streetlights and traffic signals, tree-planting programs and solar photovoltaic panels at public facilities). Through utilities, we can reward consumers for using less energy during critical periods and upgrading insulation and HVAC systems. We can use local code enforcement to encourage builders to use energy-efficiency measures liker thicker walls and insulated windows. We can expand existing federal programs that work (e.g., weatherization programs).
Ensuring Energy System Resilience
Investments in resilience (ensuring sufficient peak demand capacity) vary by state. Both Texas and California, due in part to entirely different ideological strategies, exemplify how inadequate planning, investment and preparation can undermine an energy system’s resilience. Texas chose low costs over a capacity market. California chose investments in renewables over investments in resiliency.
Some regions seek greater resilience. For instance, in 2018, ISO-New England launched a program to compensate power generators for providing extra capacity when their regional system was strained. The regulated states tend to guarantee their utilities a reasonable return for investments in peak demand capacity. Some deregulated states, anticipating that the shift to renewables could lower wholesale prices and profit margins for their utilities, found other ways to encourage long-term investments in peak demand capacity.
Again, there are actions we can take to make our energy system more resilient. We can refine the energy management model to reward power generators that quickly provide sufficient power to mitigate outages. We can establish funding mechanisms to help regions protect power plants and grid components from extreme weather conditions. At the very least, as recommended for Texas by the FERC and North American Electric Reliability Corporation after Texas’ 2011 storms and blackouts, we can “increase reserve levels...” to avoid “massive … generator failures.”
Ensuring Energy Security and Accountability
The American power system is increasingly vulnerable to cyberattacks and other failures. The security measures carried out thus far to protect our energy system fall short of the standards set forth in the 2011 US Department of Energy Roadmap to Achieve Energy Delivery Systems Cybersecurity. A sophisticated cybersecurity attack on our energy system in its current state could be catastrophic.
On top of the troubling security issue, our energy system is too detached from its consumers. For it to work well, especially as it is redesigned and rebuilt, it will have to be more interconnected with and accountable to its consumers. For energy consumers to become truly effective energy producers and distributors, they will need a better grasp of the entire energy system. Consumers will have to be more informed and engaged. And they will have to be more accountable themselves.
At the federal level, one agency should be charged with developing a rigorous national energy data system that will enable all energy generators, distributors and consumers to benchmark energy metrics. It should continually share information on cyber threats, vulnerabilities, mitigation strategies and incidents in real time. It should fund information and training initiatives to attain a system-wide security culture. It should develop an effective warning and mitigation system for alerting participants to potential system failures and helping them navigate and survive those failures when they occur.
At the regional level, we should launch more economic development initiatives around energy projects, jobs and technologies. We should fund more community-based microgrids, big storage, emergency generators, risk inspection and prevention technologies, security protocols and training programs. We should incentivize the development and regular updates of coordinated emergency response plans and communications systems. We should institute standard protocols to help customers minimize the potential damages from system failures.
Perhaps the most critical strategy will be to improve consumer education and engagement. To make all consumers well-informed about the energy they consume, affordable ways to reduce their consumption (and bills) and ideas for generating, storing and even selling energy. To make us all more responsible and self-reliant as energy system participants. For America’s new energy system to become the marvel, the current system once was, we must find a way to make us all accountable for its success.
A New Energy Vision for America
Why do we need a new energy system? Look at California and Texas. Disruption. Destruction. Chaos. Death. As George Carlin once predicted, turn off the power for three days and our civilization will collapse. Every other issue tormenting our society pales in comparison. Without reliable, affordable power, we can solve nothing else.
We must develop a new national and regional energy management model. One that strikes a delicate balance between market pressures and human needs, between safe, reliable electricity service and fair, competitive rates. Since 1882, when the Edison Illuminating Company, America’s first investor-owned electric utility. delivered power to 59 customers in Manhattan, we have had to find this intersection.
A modern energy management model, as outlined above, offers many benefits to Americans. It will increase jobs and spur sustained economic growth. It will reduce fossil fuel reliance and carbon emissions. It will make our energy system more reliable and resilient. It will optimize energy flows across grids. It will enable more consumers to become energy generators and sellers. It will generate a healthy return on our energy system investments. And it will cut energy bills and render unnecessary massive power grid expansion, health and environmental costs. Finally, it will position America for future prosperity.