Developing a Resilient, Diverse Electricity System—The NARUC Perspective

by Colette D. Honorable, President, National Association of Regulatory Utility Commissioners

Now more than ever, the job of a state utility regulator is one of the toughest and most important in the country. The utility industries we regulate—from the natural gas companies that heat our homes to the electric companies that light our streets—are on the cusp of profound change. Our job is to ensure these utilities are able to perform their essential functions as safely and affordably as possible. And as we confront these major changes, the work NARUC members are undertaking across the country will be essential to our collective success.

I have been privileged this year to serve as president of NARUC, where I’ve had a close-up view of the hard work and leadership our state utility regulators are doing on a daily basis. This year marks the 125th year since NARUC’s founding, so it feels appropriate to reflect on the work we do and how we can improve.

Thus far, 2014 has been quite a year. Right now we are in the midst of reviewing the EPA’s proposed regulations aimed at reducing greenhouse gas emissions from existing power plants. Whether or not you support this proposal, its issuance alone would make 2014 a landmark year for our work.

This year has also reminded us of the need to focus on infrastructure replacement and utility resilience. In my home state of Arkansas, a devastating tornado in April killed 16 Arkansans, destroyed homes, and caused prolonged power outages. In New York City this past March, a suspected natural gas explosion leveled an apartment building and took eight lives. And throughout the year we’ve focused on issues concerning cyber security and the physical security of the electric infrastructure.

Indeed, if we ever needed a reminder of how consequential our work is, this year has provided one on many occasions.

Thankfully our state utility commissioners are well equipped to lead as the utility sectors confront these major challenges. Through the lenses of utility safety, resilience, and reliability and diversity, NARUC members are ready to ensure that the utility industries continue to provide their crucial services at fair and reasonable rates.

Utility Safety

The tragedy in New York City was another sobering reminder about the importance of public awareness and utility safety. We do not yet know the exact cause of the fatal accident, but many suspect that a gas leak in or near the apartment building most likely played a role. Our members take these incidences personally, because inspection of intrastate pipelines falls within our many core responsibilities.
At NARUC, we’ve been focused on pipeline safety for decades. I have a deep personal commitment to this cause due to my role as the first chair of our Subcommittee on Pipeline Safety. Throughout my tenure as NARUC president, the subcommittee, with the support of our Committee on Gas, has led educational and outreach efforts designed to share best practices and keep all stakeholders informed about the latest trends and technologies. We recognize that although the number of pipeline incidents is declining, any deadly incident is one too many.
Nationwide, we continue to see incidents involving explosions due to excavations or leaks. We also recognize that a sizeable amount of old, outdated pipelines exist throughout our country. Replacing this pipe will be a costly endeavor. The pipeline companies are responsible for the maintenance and upkeep of the lines, and they also develop risk-based infrastructure replacement programs. Although not necessary in every situation, NARUC has encouraged our members to consider adopting accelerated rate-making structures that we believe will expedite pipeline replacement. Nearly 40 states have already done so, spurring replacement programs across the country. In fact, according to the American Gas Association, less than 3% of nation’s entire gas infrastructure is composed of cast iron, a number that goes down each year thanks to these efforts.

Resilience and Reliability

Pipeline replacement is only one element of our efforts to facilitate a safer, more resilient utility system. The threat of severe weather seems to grow every season, as we learned all too harshly this spring in Arkansas. Can we harden our electric infrastructure to withstand F5 tornadoes, or to withstand more common storms? What measures can we take that will make the system more nimble and hardened against cyber attacks, hurricanes, and other natural or manmade disasters?

Over the past year, NARUC has initiated a dialogue to find out. We’ve issued two reports and held workshops across the country at various state utility commissions. As with pipeline safety, we encourage a risk-based approach and recognize that making every element of a utility’s system resilient is not only cost prohibitive but also unnecessary. State commissions seek investments that deliver the best system improvements and ratepayer value. As a result, we must prioritize our investments—putting ratepayer money where it is most needed first.

This strategy leads to a few natural questions: Just how do we make these determinations? Who should pay, and how should these costs be allocated? For many regulators, one useful approach is to differentiate between and within customer classes. Commercial and industrial customers, for example, could lose a considerable amount of business from a prolonged outage and may be more willing to pay for system hardening. Residential consumers, meanwhile, face other hardships when the power is out, such as health concerns if the outage occurs during a heat wave or cold snap. Management strategies that help eliminate long outages for smaller groups of residential customers may have a smaller economic payoff but are still worth prioritizing.

This is an area in which states are taking a leadership role. Each state is different and faces its own unique challenges. Some, like Texas, Florida, Mississippi, and Louisiana, face hurricane threats every year and are well versed in restoring power as quickly and safely as possible. Others, though, are dealing with this kind of weather on a more regular basis. And when you add pipeline safety and cyber and physical security as well, states are well equipped to determine which approaches will best keep their energy infrastructure safe and affordable.

Diversity

A key element to maintaining safe, reliable, and affordable utility services is diversity. A diverse generation portfolio is essential if we are to keep the lights on at fair and reasonable rates. The EPA’s landmark proposal to reduce carbon emissions from existing power plants under Section 111(d) of the Clean Air Act will undoubtedly impact states and regions in different ways. Our members have their own views on the proposal, and we are letting them speak for themselves, but we must make certain that these proposals do not impact reliability, overburden consumers, or favor certain kinds of generation over others.

As we have seen over time, diversity of our fuel mix is indeed the strength of our utility system. Wind, solar, and other renewables are playing an increasing part in our power supply, thanks to early leadership at the state level. But nuclear, coal, and natural gas will always have a role to play. In Arkansas, we have been blessed with a diverse portfolio of nuclear, gas, coal, renewables, and energy efficiency to provide reliable, lowest-cost generation for consumers in our state. Fuel diversity will be the key in getting us over the hurdles of transitioning to leaner, cleaner generation fleets. Natural gas will continue to be a “go-to” fuel for the future, and it has dramatically changed the outlook for generation sources for years to come. It will also revolutionize global gas markets with the future export of liquefied natural gas at extremely competitive prices. For several states, nuclear is also part of the solution.

As our members digest the EPA 111(d) proposal, there are many questions about how states will comply and what agencies will take the lead. Thankfully NARUC and our sister associations the National Association of State Energy Officials and the National Association of Clean Air Agencies have been holding dialogues over the last several years in anticipation of this and other EPA rulemakings. These discussions have helped all of us become more familiar with each other and our agencies’ specific roles. Each state will take their own approaches when and if this proposal becomes final. Our job at NARUC is to make sure the federal government understands the importance of a diverse system and the essential role our members play in making these decisions.

Diversity is key in one more crucial respect: the future of our utility and government workforce. According to industry statistics, about 40% of our nation’s energy workforce is already eligible for retirement. Therefore the time to ask questions about workforce management and succession is now. What is the industry doing to develop a strong, comprehensive succession plan? What are state and federal governments doing? Are we encouraging students to pursue careers in engineering, accounting, the law, and similar fields to support this industry? It is imperative that we focus collectively on the pipeline that will produce skilled, educated energy-sector workforce employees going forward. And it is equally imperative that the employees who work on the wires, poles, and pipes, as well as those in the C-suite and boardrooms, reflect the consumers we serve. This tent is big enough for all of us, and it’s an incredibly exciting time to work in the energy sector.

At NARUC we’ve been analyzing this issue through our Subcommittee on Utility Marketplace Access. The subcommittee regularly addresses issues of diversity and access throughout the year. NARUC leadership has consistently supported this effort, and in my first decision in becoming NARUC president in November, I appointed Commissioner Nikki Hall of South Carolina to chair the subcommittee.
NARUC is also embracing an international effort focusing on celebrating diversity. The International Confederation of Energy Regulators (ICER) includes a wonderful new initiative, Women in Energy (WIE), which strives to support the advancement of women working in the energy sector. WIE has launched a virtual mentoring program to further its goals of creating an international collaborative women’s network that enables women in energy to draw support, advice, and a wealth of knowledge from experienced women and men across the globe while sharing professional knowledge. I am honored to lead the mentoring project for ICER, and have two mentees from Egypt and Turkey.

We encourage commissioners—both men and women—to serve as mentors, and invite women regulators or women who serve as commission staff members to sign up to request a mentor.

These truly are transformative times in the utility sector. Yet no matter how much changes, effective regulatory oversight remains essential. Electricity policy may at times have national or even international implications, but fewer industries have such a significant local reach. When the lights go out, the onus is on the utilities, with support from state regulators, to restore service as quickly as possible. For the last 125 years, we’ve been able to effectively carry out the mission of ensuring safe, affordable, and reliable utility service, and I expect this work will only improve in the future.