America’s Mr Reliability

Next Generation Power & Energy talks to Rick Sergel, CEO of the North American Electric Reliability Corporation.

According to the North American Electric Reliability Corporation (NERC), electricity usage in the United States is projected to grow at twice the rate of committed resources over the next 10 years. Unless additional resources are brought into service, some areas could fall below their target capacity margins within two or three years. In parts of western Canada, demand is projected to outpace resource growth within about two years.

“We are at the stage where emergency situations are becoming more frequent,” says Rick Sergel,
President and CEO of NERC. “Though some improvements have been made, we are requiring our aging grid to bear more and more strain, and are operating the system at or near its limits more often than ever before. As operating margins decrease, we are limiting our ability to manage unplanned events like equipment failures and extreme weather.”

It’s a challenge close to Sergel’s heart. NERC is responsible for aspects of an international electricity system that serves 334 million people, and has some 211,000 miles of high-voltage transmission line under its jurisdiction. As head of the power industry heavyweight, Sergel’s mission is to improve the reliability and security of the bulk power system in North America through the enforcement of reliability standards; monitoring of the bulk power system; assessments of future adequacy; the auditing of owners, operators and users for preparedness; and the education and training of industry personnel. Here he speaks to Next Generation Power & Energy about the need for standards,

NGPE. As of June this year, compliance with electricity reliability standards for US utilities and other bulk power industry participants is now mandatory and enforceable for the first time. What will the shift mean for the power and energy industry in North America, and why are voluntary guidelines no longer enough?
RS. Well let me first deal with why voluntary guidelines are no longer enough, as there are several points to be made here. The first is that we had 4000 self-reported violations of the standards that came in prior to June 18 – the effective date for mandatory standards – and another 300 violations that came in after the mandatory date. As a consequence, it’s pretty clear that the mandatory nature of the standards is driving the level of performance up, and that’s what it was intended to do. This has been a very important step.

The second thing is that thanks to the mandatory standards, we have been able to create a long list of users, owners and operators who are on our registry, and we have a better understanding of the roles that everyone plays in the system and fewer gaps in coverage. Hopefully, we’ll get to the point where we have no gaps in coverage and that’s a very important function of mandatory standards.

I think what this means for industry participants is that they have to be sharper in their performance, and we’re already seeing that. Many organizations have conducted what I would describe as a pre-audit, meaning they hire someone to come in and look at their operations prior to NERC arriving to audit them, and we’re pleased about that. On the downside, we do have unacceptable performance in some areas. We have got to get to 100 percent compliance with the standards, and we’re going to be working towards that. The key thing the standards do is create visibility into those areas of non-performance and non-compliance, and allow us to address those in a more standardized way.

NGPE. And so what was your contribution to the standard development process, and who else was involved in that discussion?
RS. The standards development process that we have is a collaborative process that involves all of the stakeholders. NERC is the chair of that process, if you like, but the process itself is really dependent upon volunteers. At any given time, this organization has 400 highly talented professionals who have full-time day jobs, and yet they take the time to volunteer and work for us in the development of standards. The heart and soul of the process is the volunteers. It’s an anti-approved standards process, meaning that it has lots of layers of voting and careful consideration of minority opinions. Again, I think those things make the process very strong. We also have super-majority voting, so it takes more than 50 percent for something to pass. This means that on a first ballot, a single negative comment can send a proposal back to be reconsidered, which I consider to be one of the great strengths of the process.

NGPE. The US Department of Energy recently proposed the designation of national interest electric transmission corridors. Why are such national corridors a step in the right direction towards relieving congestion and enhancing reliability?
RS. Well the system in North America operates basically in four separate interconnections – the Eastern Interconnection, the Texas Interconnection, the Western Interconnection, and the Quebec Interconnection. But within each of those, all of the customers who rely on electricity are actually dependent upon the system in the entirety of the area around them. It’s not local, it’s not about individual states; it’s multi-state and it’s regional. Arguments as to the need for additional transmission lines can’t be supported solely on them being of benefit to the local community. It’s broader than that. Their value is to the entirety of the grid and to all the users of electricity in the grid.

The corridor study is simply designed to increase the level at which we are looking at the problem, rising up from the local level to the 10,000 foot level and being able to create these corridors to help meet a need – particularly where there is a reliability concern, a security concern or congestion concerns. We support their designations and we do believe that it will help move a number of important projects forward in the long-term.

NGPE. Let’s move on to infrastructure. In a recent NERC study, an aging infrastructure ranked among the top reliability issues amongst industry professionals. Why is this area such a concern, and how are you working with the industry to ensure reliability doesn’t suffer as a result of an aging infrastructure?
RS. As an industry, we currently run a system that operates closer to the edge more often than ever before. Utilities are operating under stress conditions more often than in the past. To use a medical analogy, it’s as if our electric system has high blood pressure – and as a consequence it makes everything else we do more difficult. And if it’s cholesterol that creates the high blood pressure in a person, in the power system it’s the underlying level, the age and the availability of those facilities that matters. We are simply not replacing or adding to the grid at the same rate that customers are increasing their demand for the product; here we are trying to get more out of the system than ever before, but we’re not adding to the facilities.

Recent NERC studies indicate that the growth in the demand for electricity is growing at twice the rate at which we’re projected to add transmission and generation facilities. Over time, that just continues to increase the stress, increases the average age and makes those assets more vulnerable – ultimately increasing the likelihood that they’re not going to be available. It’s a negative cycle that we have to turn around and in order to do this we need investment in transmission, we need investment in generation, we need investment in demand side measures, we need renewable resources – we need the whole portfolio of available resource and demand options in order to be able to take ourselves out of that negative cycle and to get ourselves back on the right track.

NGPE. So I guess it’s going to require a holistic solution to this problem that involves all industry stakeholders. What do you see as the best forum for all those stakeholders to come together to work towards getting a holistic solution put into place?
RS. We issue long-term assessments once year (we just released one in October). We have very specific recommendations that we make in those reports, and we’ve seen some success in the past from organizations coming together to address those, but specific actions need to be taken by each of the individual organizations that are responsible. So in the case of the Department of Energy, it did move on with the corridor designation. In the case of the Federal Energy Regulatory Commission, I think it has addressed some of the pricing policies that need to be addressed. Within the RTOs and ISOs, I think they’ve done a nice job of putting in place pricing mechanisms to encourage the construction of facilities to meet future demands. So it’s really a matter of each of the players doing that which they’re responsible for. If they do that, then we can get the job done.

NGPE. So how do the grid’s current operating models need to change to accommodate further modernization?
RS. There are two things that come to mind. The first is that because we have such a high dependence upon natural gas in some regions, we need to have changes to how we traditionally operate in order to stay reliable. An example of that would be dual fuel capability. Another would be communications – what are the communication protocols during shortage moments of gas or difficult times of delivery of gas? A second issue is the integration of wind resources into the grid, which, again, will require additional transmission capabilities – and thus further changes in operating procedures in order to maximize the value of that attractive alternative.

NGPE. Demand response is increasingly viewed as an important resource to meet the growing demand for electricity in North America. So how can demand side management help improve electricity reliability, and what is your organization doing to promote the implementation of a demand response approach?
RS. I think the role of demand side management has already been demonstrated: this past summer, demand side measures were used in both a California shortage and a similar event in New England, so the advantages of demand side are well documented. The potential is greater than is currently available, however, and as with any resource we need to maximize that availability. In order to do that, we must make sure that there’s a consistency of approach, and that’s the role that NERC is playing – to make sure that the standards are written so that they accommodate the demand side, and that the information that’s available to everyone about what the demand side can do is available and consistent and can further their own work.

The other thing with respect to the demand side is that utilities have historically relied on it being a price play – meaning that customers are offered an inducement of a price advantage, and therefore make a demand reduction available to the grid. I think that this is useful, but I believe we can go beyond that. I think we need to have some form of demand response that is available to operators that is not necessarily price sensitive. In other words, how would we allocate energy in a shortage? It’s about having the capability to have a sophisticated approach to reducing the shortage as opposed to the way we do it today, where we would just simply take off entire circuits.

NGPE. Energy efficiency is another area that the federal government has cited as being key to improving reliability. So what’s the relationship between efficiency and reliability? What efficiency programs are you currently involved in?
RS. Efficiency is typically outside of our scope because we are more narrowly focused on the reliability aspect. However, what efficiency does is it can ultimately reduce the demand for the product – and as a consequence those resources that you do have go further. So it does obviously affect reliability.

I think our primary role in the area of energy efficiency has been to try to make sure that when evaluations are done, there’s recognition of the need for new resources. So one of the concerns that we have had in the past is that the costs are not compared evenly. So for instance, someone might do a calculation and work out the avoided cost of a kilowatt-hour, and then compare the cost of efficiency to that. But that comparison then assumes there’s the resources available for a new power plant to be sited and built, with transmission to connect it to the grid, in order to be able to deliver that power. So in other words, to be able to put a price on something, you need to be able to prove that the alternatives can actually be built and delivered in the timeframe available.

Most people compare efficiency to the alternative of building a plant, without then sitting back and saying, “Well can we actually get that plant built?” You could compare efficiency to a transmission line, and it might be that the line might be less expensive – but only if you could actually build it in the first place. But what if you can’t build it in the timeframe? What if you need to get it done in the next five years? We have places that are gonna have shortages in the next three years, and we need to step up and address those shortages and efficiency is a fine way of doing that. I believe that we should be doing more with efficiency because it’s available now and it’s a resource that’s needed, independent of how many generators we build or how many transmission lines we can put in service. We need as much efficiency as we can get.

NGPE. So with that in mind, what are NERC’s key priorities for the next few years?
RS. Well the first is 100 percent compliance with the current standards, and we will achieve that. We will do what it takes. Each time we see a violation, we will address it and expect it to be mitigated and will not hesitate to use the financial penalties that are part of our mandate, if those are necessary to get the job done. But basically, we want to achieve 100 percent compliance with the current standards.

Second, we want to raise the bar on the standards, and we have a three-year work plan to do that. We want to make sure that the standards are mandatory everywhere on the interconnected system, so we have some work to do in Canada to achieve that aim and we look forward to doing that in the years ahead.

I think the final area for us is in the area of resource adequacy, to develop a way to make adequacy more transparent. By that I mean developing a system to help us understand exactly what the standard of an adequate system is, what it means to have enough reserve margin and what level of load loss one is willing/able to withstand. Once we understand that we will then be able to compare the plans that have been provided to us, to compare against those clear transparent benchmarks, and that’s an objective that we would want to achieve in the next few years.

Long-term reliability
NERC’s 2007 Long-Term Reliability Assessment analyzes the adequacy of the North American bulk power system through 2016 and calls for actions to improve reliability. Key findings include:

Wind, solar, and nuclear generation
Wind and solar are increasingly attractive generation resources, which provide benefits including fuel mix diversification and greenhouse gas emissions reductions. “Renewable resources are an important part of North America’s energy future, but reliably integrating them into the bulk power system has its challenges. Large-scale wind and solar generation resources are often remotely located and will require new transmission lines to deliver their power to population centers. Furthermore, we must pin down how much power these renewables can consistently produce during peak demand times so that they can be factored into reliability planning,” says Sergel. Proposed nuclear plants, because of their large size, will also require expansion and strengthening of the grid to provide for their reliable integration.

Capacity margins
Peak demand for electricity in the United States is forecasted to increase by almost 18 percent (135,000MW) in the next 10 years – enough energy to power more than 100 million homes on an average day. Meanwhile, committed resources to meet demand, including demand response programs, are projected to increase by only roughly 8.5 percent (77,000MW). Counting uncommitted resources, total resources would increase by 123,000MW or 12.7 percent. California, the Rocky Mountain states, New England, Texas, the Southwest and the Midwest could fall below their target capacity margins within two or three years if additional supply-side and demand-side resources are not brought into service.

Transmission
While several transmission projects were completed in the past year, and a number of planned projects have been accelerated, projected transmission additions still lag demand growth and new generation additions in most areas. Transmission miles are projected to increase by 8.8 percent (14,500 circuit miles) in the United States and 4.8 percent (2250 circuit miles) in Canada over the next 10 years. While this is significantly more planned transmission than projected in last year’s assessment, financing, pricing, cost allocation, siting, permitting, and building new transmission lines remain difficult. “NIMBY is becoming NIMS: Not in My State. Reliability of the power grid in one state affects reliability in other states too, due to the interconnected and interdependent nature of the power grid,” says Sergel.

Aging workforce
About 40 percent of senior electrical engineers and shift supervisors in the electricity industry are eligible to retire in 2009, according to a Hay Group study. This loss of expertise, exacerbated by the lack of new recruits entering the field, is one of the more severe challenges facing reliability today. Support for university R&D programs, additional outreach, and continual partnership between industry and government are required to address this issue.

Natural gas reliance (US only)
Florida, Texas, the Northeast, and Southern California continue to be highly dependent on natural gas as a fuel for electricity generation. This dependency could impact reliability in those regions as competition for gas supply and delivery capacity increases and Canadian imports begin to decline. Overseas markets can provide new supply, but require the construction of LNG terminals, and increase the grid’s exposure to global economic and political risks. While a number of steps have been taken to mitigate the reliability impacts of this high gas reliance, more action is needed.

Richard Sergel is President and Chief Executive Officer of the North American Electric Reliability Corporation (NERC). Until 2004, Sergel served as President and CEO for National Grid USA, and was National Grid Group plc Executive Director for North America upon the completion of the National Grid and New England Electric System (NEES) merger in March 2000. From 1998 through the date of the merger, Sergel was President and CEO of NEES, where he held positions of increasing responsibility since 1979. He is presently a Director of State Street Corporation, and has also served on the boards of the Edison Electric Institute, the Consortium for Energy Efficiency and the United Way of the Merrimac Valley.