CHICAGO — The Mid-America Regulatory Conference last week drew an above-capacity assembly of public utility regulators, legal counsel and other industry insiders to the shores of Lake Michigan. Registration was initially capped at 550, but 62 more attendees signed up for a conference that featured panel discussions on cybersecurity, energy storage, artificial intelligence and other challenges facing regulators.

FERC Faces ‘Plot Twist’

Acting FERC Chairman Cheryl LaFleur addressed the commission’s lack of a quorum during her keynote, saying there’s been a “little bit of a plot twist” in D.C.

LaFleur sits in the chairman’s seat for the third time in seven years following Norman Bay’s departure in February, which also left FERC without a quorum. LaFleur is one of only two remaining on the five-person commission. Commissioner Colette Honorable has announced she will not seek a second term when her current one expires June 30. (See Honorable: Leaving FERC, but not Sure When.)

While Honorable has not said how long she might stay on, LaFleur made clear she intends to finish her term, which expires in June 2019. In the meantime, LaFleur and Honorable await the arrival of recent appointees Robert Powelson and Neil Chatterjee, who still await Senate confirmation.

“This will add a line to my obituary and hasten its appearance,” said LaFleur, noting that one of her staffers has grown a “quorum beard” similar to hockey playoff beards.

“And it’s really quite shaggy.”

Orders awaiting a final ruling are piling up. FERC’s regular monthly open meeting is still on the calendar for July 20, but it is expected to be canceled. The commission doesn’t meet in August, meaning FERC might not conduct its second open meeting of the year until late September.

“We’re trying to triage [the orders],” LaFleur said. “We’re assessing the comments, and we’ll frame the issues for the new commissioners. Since we’ll [eventually] have four new commissioners, it’s not for me or Colette to say which way we’ll go.”

In the meantime, the commission is keeping an eye on price formation (“It’s important to send clear and concise signals.”), energy storage (“We’ve gotten a pretty strong signal there’s a lot of work on that.”) and the “issue du jour” — the interplay between wholesale markets and state policies.

“We’ve seen a decoupling of what resources are being built and invested in, driven by federal tax policies and state policies,” she said, citing as examples CAISO’s curtailment of solar and hydro energy, and efforts by SPP and MISO to integrate more than 20 GW of wind energy.

“The states are not satisfied with the resources markets are choosing for them,” she said. “They are subsidizing some resources [nuclear units in New York and Illinois] and requiring utilities to buy resources. Are we going to let the markets choose, or the states choose?

“I always say there are three basic values: what is the cost, the reliability and the environmental impacts? The markets weren’t set up to take the environmental impact into account. They would have to be redesigned,” LaFleur said.

She offered three solutions to the problem: 1) redesign the markets to allow the states to become the “resource payer and selector,” but set a market for nonsubsidized resources and allow the markets to price in carbon; 2) litigation, as is taking place in Illinois and New York; and 3) changing how states handle resource adequacy.

“I’m fine with that,” LaFleur said, “as long as we do it on purpose, and don’t tumble into anything by accident.”

Southern Diversifies

With 46 GW of generating capacity and vast natural gas assets, Southern Co. bills itself as “America’s premier energy company.” But like others in the industry, the utility is weaning itself off coal.

“Carbon is a big issue around the world,” Southern CEO Tom Fanning said during a “fireside chat” with Ellen Nowak, chair of the Wisconsin Public Service Commission. “We have to think about ways to transition our fleet in a responsible way, while balancing the issues of clean, safe, reliable and affordable energy. The transition to that is a big, big deal.”

The company plans to add 1,900 MW of renewable resources, along with 1,000 MW of nuclear capacity and 500 MW of “21st century clean coal.” Its wholesale subsidiary, Southern Power, has added or announced more than 2,400 MW of new capacity from renewable resources and more than 1,400 MW of natural gas capacity since 2010.

Before Fanning arrived at Southern in 1980, the company’s generation was 70% reliant on coal. Coal still made up 67% of the resource mix in 2002, but that number dropped to 31% last year. Natural gas meanwhile increased from 11% to 47%, while renewables now account for 5% of the portfolio.

“It’s all part of our long-term strategy. We really wanted to be long on gas,” Fanning said. “It was clear to us the transition of the fleet had to occur.”

To that end, Southern in recent years acquired a 50% equity interest in Kinder Morgan’s Southern Natural Gas pipeline and created the nation’s largest natural gas-only distribution company by merging with AGL Resources.

“One of the keys to success in building this portfolio of the future is the notion of infrastructure creating options,” Fanning said. “It gives you the scale to withstand stormy seas. Who would have predicted Westinghouse [Electric] would have gone bankrupt?”

Southern and Westinghouse recently reached an agreement to complete two units as part of the troubled Vogtle nuclear plant expansion. Whether the construction is ever completed remains to be seen, but Southern will continue to diversify its portfolio.

“[The U.S.] has the ability to set policy based on the notion of abundance,” said Fanning, who co-chairs the Electricity Subsector Coordinating Council, an advisory board to the federal government. “One of the challenges we saw in the last presidential election was that so many people are viscerally losing faith in the institutions of government and the people running them. We in the industry have to step into the middle and get rid of the red and blue.

“I’m one of the optimists. At the end of this decade, we can easily be net energy exporters, creating wealth, creating a better experience for everybody. We have the public-private partnerships to grow the finances of the states we serve. I believe we can make a difference.”

Commission Chairs: Energy Policy with the States

A panel of Midwest commission chairs agreed that state legislators and regulators will continue to set energy policy direction regardless of what happens in D.C.

Nancy Lange, chair of the Minnesota Public Utilities Commission, said the state’s long-time fuel mix of coal, natural gas, nuclear, Canadian hydro and wind energy is changing in the face of modest load growth (less than 1%). Each of Minnesota’s three investor-owned utilities are adding more wind generation to the mix, driving out coal in the process.

“It’s not because of policy but because of price,” Lange said. “Minnesota utilities are still offering coal as a must-run resource, but they’re on the margin in some cases, and that’s led to some of the retirements we’ve seen. The interesting thing about coal is some of the coal units are not operating as baseload units in the market, largely because they’re not clearing the market price.”

The Illinois Commerce Commission’s Brien Sheahan said renewable energy and energy efficiency will earn 70% of the economic benefits flowing from the Future Energy Jobs Bill, approved in December, which includes zero-emission credits for nuclear plants.

“Some have estimated that at $12 [billion] to $15 billion,” he said. “It’s not just about supply. … It’s really about energy policy and getting the state to lower carbon in the future. Whether we continue to have [a] leadership position depends on what the courts do and what FERC does. There was a lot of discussion at the FERC technical conference about accommodation, harmonization or mitigation. Some of [FERC’s] proposals lean to mitigation too strong.

“Markets exist to serve state purpose. They don’t exist in and of themselves,” Sheahan said.

DTE Energy announced recently that it would phase out coal by 2030, accelerating what the Michigan Public Service Commission’s Sally Talberg called a “fundamental transition in [the state’s] energy supplies.” She said the slow pace of energy policy decisions at the federal level makes it difficult for state regulators and planners to find certainty.

“Often, by the time an investment is made, you get a court ruling,” Talberg said. “Regardless of what we see at the federal level, states are taking the initiative. Naturally, they’re looking at cleaner suppliers. It does provide us the opportunity to move to cleaner and more efficient resources, such as natural gas.”

Nowak pointed to the difficulty of assessing a social value for various fuel resources, asking, “Why are we pricing just wind and solar?

“I’ve always struggled with choosing just one resource to apply that to,” she said. “We don’t do it for nuclear, and we don’t do it for gas. What’s the social benefit for coal? It provides jobs. Nuclear is carbon-free. … Are we going to put social value on that?”

“The [legislative] directive to look at externalities and the social cost … is a very difficult thing for our commission to grapple with,” Lange said. “As these [distributed energy resource] valuations and methodologies move along … we think of them as supply resources and not social resources. Not having to add on that externality piece, which some legislators added on because of some imperative they want to take … will have the carbon fee showing up as costing less in [integrated resource planning] scenarios.”

‘Doug’ Need not Apply at RTOs

The staid, hidebound grid operator, with its granular focus on engineering models and studies, has seldom been an attractive landing place for America’s brightest young students. Acronyms like PJM and MISO don’t carry the same cachet as Apple, Google or Microsoft.

However, that is changing quickly, agreed a panel of RTO leaders.

“When I first joined SPP, I kept hearing about this guy, Doug,” said Paul Suskie, an Arkansas commissioner before joining the RTO in 2011. Eventually, Suskie, SPP’s executive vice president of regulatory policy and general counsel, came to learn that “Doug” actually stood for Dumb Old Utility Guy.

No more.

“One of the benefits we have … in the industry is we are kind of cool now,” ERCOT CEO Bill Magness said. “That’s hard to get used to. They see how we integrate wind and solar on the system and how we’re developing markets for the future. They’re introducing us to other students as, ‘They’re doing cool stuff.’ Our mission, to a lot of younger employees, is a very critical thing. We’re doing something that’s important and needs to be done.”

Asked how MISO markets to the younger generation when it can take 10 years to build a transmission line, CEO John Bear said, “Once we bring them into the control room and show them what we’re up against and where we’re headed in the future, that’s very exciting for them.”

They’ve “significantly changed our working environment,” Bear said. “Our offices look more like Starbucks than they did before. That, and the issues we are trying to solve are very intriguing to millennials. They love the mission of the RTOs. They’re not looking to go to Wall Street, but helping people who can’t look out for themselves.”

MISO’s internship program currently brings in 30 to 50 students each cycle. Of course, not all students wind up with a job, Bear said, “but they all go back and talk about what we’re doing. It’s word of mouth. We’re not a big brand, but the compounding effect is very high.”

PJM CEO Andy Ott extolled the virtues of his RTO’s Arc Program, an engineering development initiative designed to provide talent with “career-broadening opportunities.” Participants in the 36-month rotational program spend nine months apiece focused on core learning sessions for markets, system operations and planning.

“It not only gets people excited to work for PJM but improves our diversity,” Ott said.

A diverse team of PJM employees interviews roughly 60 college students a year, hiring only the top three, he said.

“It’s highly competitive. Over the past six years, nearly two-thirds of the candidates we’ve hired are diverse candidates. There’s no mandate. It just happened organizationally.”

Suskie said SPP has also “beefed up” its internship program and has reached out to historically black colleges. “The demographics of the industry are changing,” he said.

Magness spoke to the convergence he has seen between operations and information technology personnel.

“These engineers today know how to code, and the coders understand our system,” he said. “That makes it a faster-paced industry than it used to be.”

Naturally, with change comes learning to adapt to it. Or most of it.

“Just no flip-flops for guys,” Magness said. “I don’t want to look at that.”

Integrate Storage Now, Advocates Say

Energy storage proponents said battery technology and cost improvements make storage more commercially viable, but regulatory and policy actions still pose challenges.

“Energy storage and distributed generation all offer something we’ve never had in the utility industry before. It gives the customers the ability to choose,” said Betty Watson, senior manager of energy policy for Tesla. “Energy storage … is the ultimate streamlined technology. We now have the ability to react to what’s going on the grid. If you look at ways utilities are incentivized, they need to invest in infrastructure.

We’re talking about a technology that reduces the amount of money you invest [in infrastructure]. There are a lot of current opportunities under current existing regulations, but this technology will drive change in the industry,” she said.

“A market means an opportunity to earn a return on the work we do,” said John Fernandes, Invenergy’s director of regulatory affairs. “Developers are frequently told, ‘Well, show us something. We’d like to take a look at it.’ We need reassurance not that we will get selected, but assurance it’s not an exercise in regulation. It’s an opportunity to compete.”

“By the time someone publishes a cost for energy storage, it’s already improved by the time the ink dries. That’s how fast this market is moving,” pointed out Brent Bergland, general manager with Mortenson Construction. “By the time a report gets to the commissions, it’s old news. It took six months to create, but over six months, you might have a significant drop in the cost of services.”

“It’s up to us to keep the momentum going to understand the technology,” said Kiran Kumaraswamy, AES Energy Storage’s market development director. “Pilots waste years. If we’re making a decision on a study, we ought to be planning now.”

“My frustration with pilots is that they’re too narrow. It’s one location, one set of conditions,” Watson said. “We learned from renewables that when you expand the scope, expand regions and aggregate things, these conditions change. We need to get storage on the system and see how it interacts at multiple uses, so we can integrate it.”

Integrating Wind Energy a ‘Mind-Changing’ Issue

As SPP and ERCOT continue to see periods when wind accounts for at least 50% of energy production — a share SPP predicts could reach as high as 60% — Beth Soholt, executive director of Wind on the Wires, sees no reason renewables couldn’t account for 35 to 40% of energy production at any time.

“I think that’s very doable,” said the Midwestern renewables advocacy group’s leader. “One of the greatest shifts we’ve seen is learning how to operate the system with much more wind. It’s not just technical issue, but a mind-changing issue that you can have a reliable system with a lot more variable generation. We’re seeing coal plants being ramped to the market [like intermittent resources]. I think utilities will get smart about their new role in the integrated market.”

Melissa Seymour, MISO’s executive director of customer and state affairs in the Central Region, said the RTO, which is dominated by vertically integrated utilities, could see between 23 and 41 GW of wind on its system by 2025, creating a greater need for transmission. Most MISO states are on track to meet or exceed their renewable portfolio standards, she said.

“Markets need to really incent the types of products the market needs,” Seymour said. “We have the same issues as we do with storage. Conversations with stakeholders are very important as we continue to grow. We have a lot of resources on the system that want to come offline. MISO is trying to ensure they can do this in a safe way. Enabling effective retirements is something we can do going forward.”

“Now is the time for states and the RTOs … to figure out ways to better coordinate the retail planning of the markets with the wholesale design of the market, optimizing clean-energy resources on the system, to ensure just and reasonable rates and prudently occurred costs, for the assets,” said John Moore, director of the Sustainable FERC Project at the Natural Resources Defense Council.

The Machines are Coming

A panel focused on artificial intelligence and machine learning assured its audience there is nothing to fear as today’s smart grid gets even smarter. AI, which uses complicated algorithms to detect unseen patters, and machine learning, the ability of computers to learn without being explicitly programmed, simply enable utilities to use predictive analytics to forecast consumption, monitor assets to reduce outages and improve efficiencies across the grid.

“Artificial intelligence allows you to use a scalpel, rather than a sledgehammer, to make effective use of your dollars,” explained Anna Lising, senior manager of regulatory affairs for Oracle Utilities.

Jeff Gleeson, a product manager with Nest Energy Services, provided a real-life example with the Nest Learning Thermostat. Owned by Alphabet (parent company of Google), the Nest uses AI and machine learning hidden from the customer to yield more efficient results from their energy usage.

“The grid is getting more complicated. People’s usage needs to match the complexity of the grid,” Gleeson said. “We believe you don’t need to know the complexity. We want you to be comfortable. We’re working in the background … using artificial intelligence and machine learning behind the [thermostat]. The thermostat knows what your [time-of-use] rate is. It nicely corresponds to the grid’s challenges … the solutions are also getting more complex, but the good thing is, we can do it in certain ways that make it very easy.”

“The neat thing about artificial intelligence and machine learning is that it’s been used in the utility industry for over a decade,” said Sean Gregerson, a global director with Schneider Electric Software. “We’re ahead of the curve. Ultimately, machine learning is going to be used for self-healing grids … automatically healing grids that are under stress or failing in unforeseen ways.”

“It’s important for everyone to understand, this is not necessarily as complicated as it sounds. It’s heavily stats-based,” Gleeson said. “If you’re wondering whether the machines are coming for us, know machines have a hard time telling the difference between a plate of fried chicken or a picture of a poodle. If you see the pictures next to each other, you feel bad for the machine, because they look the same.”

There are also unforeseen drawbacks. Gregerson related a story about his children playing with Alexa, Amazon’s voice-responsive “intelligent personal assistant.” After his kids mistakenly signed up for a product agreement, Gregerson said he tried to undo the damage.

Alexa responded: “I’m sorry. I don’t understand that.”

– Tom Kleckner