lessons ThinkStock

Lessons of a Regulator

A leading utility regulator shares the insights of a decade of wrestling with everything from cybersecurity to M&A.

EDITOR’S NOTE: This is second of a series of commentaries by Philip Jones, former Washington state regulator and influential past president of the National Association of Regulatory Utility Commissioners. Last week: Toughest Job in Government – a Regulator’s Mini-Memoir.

When I think back to some of my highlights and biggest challenges as a Washington commissioner since 2005, and president of the National Association of Regulatory Utility Commissioners in 2012 and 2013, here are a few:

Mergers and acquisitions:  I must have participated in orders of at least 10 major mergers during my tenure.  These are difficult and contentious issues, and involve both legal (is it a “no harm” standard or a “net benefits” standard), and more importantly, policy and social issues that implicate the public interest standard.  I participated in merger decisions in telecommunications (a very dynamic industry), natural gas, and electricity.  I dissented on the acquisition of Puget Sound Energy by the group of investors led by Macquarie and the Canadian pension funds.  Do I regret that dissent today?  No, I don’t and still stand by my reasons stated in the order and that dissent.  Only time will tell if the public and PSE ratepayers and stakeholders are better off now, than under a free-standing company traded on public equity markets. In the meantime, I supported and approved many other mergers as being in the public interest.

Philip Jones

Renewable portfolio standards (RPS): The RPS in Washington, of course, was not enacted by the legislature but voted in by the people under a citizens’ initiative in 2006.  We had to write the rules for the IOU’s, and then fine-tune them over time, and engage our staff, the utilities, and many stakeholders in the process.  It covered not only eligible renewable energy, but also imposed mandatory obligations on utilities to achieve more energy efficiency.  This was a great deal of work, and it took some time for the commission to get the process right. Overall I think it has been a success and been an effective measure to deploy more clean energy (mainly large-scale wind) in our state, and deepen energy efficiency. But mandates have their disadvantages as well, and impose inflexibilities, don’t accommodate new technologies easily, and inevitably involve gamesmanship in the target-setting between the utilities and our staff.  As we move in to a more dynamic future, we probably need to revisit this, and not necessarily adopt the knee-jerk response of increasing the CE percentage or forcing more mandatory EE, but instead think more creatively;

EPA regulations on power generation: This included not only the famous (or infamous Clean Power Plan), but a series of federal Environmental Protection Agency rules, enforced by state environmental agencies, on fossil generating units.  People forget that the train started rolling on coal-fired generating units with the MATS rule (in addition to the cross-state rule, and the coal ash, or coal combustion residual, CCR, rule as well) in 2011 or so.  On behalf of NARUC, together with FERC, we got very engaged in this process on MATS issues and tried to set forth how utilities, RTO/ISO’s, and transmission owners might comply with this rule.  This rule had a significant impact on utility resource planning, and after a couple years of scenario planning and engagement, Many utilities in the Midwest and East had already decided to accelerate the retirement of older, smaller coal units, replacing them with wind, renewable or EE.  By the time the Supreme Court (Scalia opinion) ruled on this, most believe that train had already left the station.  Yes, the Clean Power Plan would have been a much more ambitious, expansive, and perhaps costly regulation to comply with over time and tried to control CO2 and GHG’s for the first time, not mercury and air toxins.  But I would argue that the trend lines are still continuing in the same direction that started over six years ago, and utilities and Commissions are planning generally for a future with accelerated retirements of coal plants.

Finally, I hope that cybersecurity and physical security continue to define my legacy both at NARUC and at the WUTC and other state commissions around the country.  This is a very challenging issue to address at the state level, and at commissioners for a number of reasons.  I won’t go in to the details of that here, but perhaps in a future column.  But what I tried to do was three-fold: 

a) Raise the awareness of commissioners (who turn over on average every three and a half years), commission staff through NARUC’s Critical Infrastructure Committee as well as leadership; 

b) Build up the capabilities of our regulated utilities to use the available risk assessment methodologies (whether it be the NIST Framework, or DOE’s cyber maturity model), and have our commission staff review its implementation; and

c) Since there are so many players in cyber in federal agencies as well as state, encourage the commissions to work in a collaborative way with the wide panoply of other federal and state agencies in an effective manner.  Have we succeed in this?  Yes and no.  I think Washington state has done one of the better jobs in the country, thanks to the work of our Military Department/National Guard in coordinating our efforts, and the efforts of certain key utilities to “raise the bar”.  But let me be clear – a cyber incident will occur on our grid sometime in the future, as it did in the Ukraine a year and a half ago, and malware has most likely already been implanted in certain utility systems, and is “sleeping” and laying dormant. 

It is just a matter of time.  Which is why I believe all of us need to focus much more on risk mitigation mechanisms, and broad incident response planning among both utilities and state and federal agencies so that when the event occurs, we are able to respond effectively and timely, and that it will not cascade into a longer black-sky type outage. 

Moreover, as we saw in the Metcalf substation incident in California several years ago, physical attacks on critical components of the grid remains a high-priority issue.

.

Hide comments

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Publish