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With Biden’s ambitious new infrastructure plan, renewed calls for corporate climate responsibility, and unprecedented demand for alternative energy sources - the utilities industry has reached an inflection point.
While it's still too early to know the far reaching effects of these events and trends, it’s already clear that 2021 is the start of a new future for utility regulation and compliance. Naturally, many utility leaders are wondering what to expect.
This post covers three significant compliance trends that will require prompt action from utility companies.
New Markets and Strict Production Regulations
Fueled by alternative and renewable sources, as well as increased public demand for greater consumption control - energy production is changing.
Since 2019, renewables have accounted for more than 70% of grid additions. In fact, according to a recent study by EY, the US is now considered the world’s most attractive investment market for renewables.
With these additions come new environmental and economic regulations.
Opening the wholesale market
Historically, the utility industry has been defined by a high barrier to entry.
The capital resources required to generate power make providers natural monopolies. However, distributed energy resources - ranging from wind and solar to micro-grid storage capabilities - have complicated market regulations.
In September 2020, FERC passed Order 2222 - opening the possibility for a wholesale distributed energy resource (DER) market.
Soon, a whole host of companies will be able to enter the competitive energy market to augment and/or supplement how consumers receive power. This order is likely to spur innovation and increase competition: forcing traditional providers to rethink their approach to energy transmission and distribution.
With traditional models under threat, some grid operators are requesting extensions to meet the new compliance requirements and reposition their market strategy.
Energy exchange markets
While the exact makeup of energy production is impossible to predict, established providers have started to push for regional energy exchange markets.
Most notably, Duke Energy, Dominion Energy, Southern Company, and the Tennessee Valley Authority filed a proposal to FERC in 2020 that would create the Southeast Energy Exchange Market (SEEM) - opening up “energy choice” for consumers in the southeastern US.
This agreement - according to a Duke spokesperson - would enable providers to buy and sell power "closer to the time electricity is consumed," rather than the more traditional capacity market approach.
In the wake of the catastrophic weather events in Texas (a deregulated market) in early 2021, the approval of regional energy exchange markets could fully transform the traditional pricing model, as well as the way energy is bought and sold.
The complexity of each NERC region, combined with a lack of historical precedence defies blanket statements about the outcomes and effects of energy exchange markets. So, as providers contemplate their options, they must recognize that unforeseen complications are possible, if not likely.
Climate Change and Increased Resilience Standards
While climate change has been a hot-button political issue for years, utilities and corporations have steadily moved towards renewable energy and decarbonization. Still, federal and state regulations can vary significantly.
The new presidential administration has set a national target to achieve 100% clean energy by 2035. Whether or not this target is reached, states have set their own goals - meaning utilities must meet shifting standards to avoid fines and public backlash.
Renewable portfolio standards
Competition will drive change in the wholesale energy market, but so too will legislation.
38 states and Washington DC have established renewable portfolio standards (RPS), which are policies meant to encourage renewable energy sources for electricity generation.
Recent studies from the NREL and LBNL found that the benefits of legislated RPSs outweigh the costs and, in some cases, actually lower the price of electricity. Still, no two states are the same and the specific combination of renewables will be determined in part by regional geographies and climates.
The current FERC commissioner voiced their full support for state authority in these instances, but providers should be vigilant when comparing the shifting federal and state minimums for RPSs.
Resilience and risk
As companies restructure their energy portfolios to curb climate change, they must also respond to the threats posed by extreme weather events and other climate challenges.
In the 2018 national climate assessment, experts concluded that potential economic losses in the infrastructure and transportation sector could exceed the entire United States GDP. Utility providers are therefore retooling their goal of reliability to include climate resilience.
Regional concerns vary but can include wildfires, sea-level rise and flooding, rising temperatures, changes in precipitation, and increased storm intensity.
Even as the pandemic disrupted the world, energy demand has reached new highs. The grid’s capacity is already strained, making it particularly vulnerable to extreme weather events.
States are increasingly likely to fine utilities for failing to adequately respond to extreme weather events. This must be taken into account when balancing budgets for grid upgrades.
Customer Data and Cyber Security
Regulation and the changing energy landscape have been driven in large part by technology and customer expectations. Underlying this digital shift is a rise in concern over cybersecurity, customer data, and new grid vulnerabilities.
As providers embrace technological solutions and optimize data to improve performance, they must do so carefully and securely in order to protect their customers.
Utility cyber security
The SolarWinds cyber breach in early 2021, in which Florida water utilities were infiltrated, renewed concerns over the vulnerability of the country’s critical infrastructure.
Outdated software, legacy systems, and mobile platforms that do not meet modern security standards put utilities and customers at risk.
Providers are well aware of these concerns, but many question how they can fund efforts to overhaul their systems to meet new and changing cybersecurity standards.
While the costs to overhaul a system can be daunting, the benefits of avoiding fines, crippling hacks, and improving customer service are generally in a providers best interest. Moreover, while providers are region focused, congress has made cybersecurity a national security issue, which means proactive measures are the best way forward.
Customer data
The days of paying a bill by mail then forgetting about your utility provider for a month are over. Consumers demand more from utility providers than ever before.
Smart devices, social media, and other mediums have empowered consumer control, two-way communication, and other vulnerabilities for data breaches.
Customers are willing to provide more data to improve their service and take control of their habits. This can be great for business, but it also puts the onus on providers to protect their customer’s data - if the customer is always right, then their privacy is sacred.
In order to comply with critical infrastructure protection guidelines, utilities should partner with security solution firms to ensure that cloud infrastructure, encryption models, and other models are regularly tested and updated.
Conclusion
Energy habits, sources, and technologies are changing. While the utility grid will always be powered by a complex network of physical assets in the field, how providers and their consumers interact, and how governments regulate them may soon be unrecognizable compared to the twentieth century model.
For utilities to stay up-to-date and in compliance, they must consciously look for solutions that are both robust and flexible to meet shifting demands and reporting requirements.
To learn more, check out our blogs on the uncertain future of utility regulation and growing threat of cyberattacks on critical infrastructure.
Or take a deep dive by reading our white paper on pressing software vulnerabilities and securing the cyber supply chain.