We covered a lot of material in a condensed timeframe during the 2021 IRLE Virtual Workshop. This summary highlights a few key takeaways from the discussions and presentations throughout the workshop. A main area of discussion was the expanding role of the regulator in the clean energy transition. Multiple participants noted how the scope of the job was becoming ill-defined due to the vast array of issues they now have to address in addition to rates.
With mounting warnings about climate change, environmental concerns have forced an accelerated retirement of thermal power plants in many states. Eric Talley discussed the pros and cons of the asset securitization approach to retire stranded assets, noting that the ring-fencing of valuable sources of income to issue highly rated bonds can be used to acquire funds at a potentially low rate. And by replacing these thermal assets with near-zero marginal cost energy, the rate surcharge used to pay for these bonds may be partially offset by the decrease in the utility’s costs. However, there is no such thing as a free lunch, as existing debt may be downgraded as legacy creditors get squeezed and each subsequent use of securitization by a regulated entity will be less valuable (with the analogy of multiple trips to the buffet line). In addition to financing, and particularly given the recent February winter weather event in Texas, concerns about reliability and resiliency in the grid with high renewable penetration were top of mind.
Another topic taken from current events was the discussion surrounding cybersecurity in the wake of the ransomware attack on the Colonial natural gas pipeline. There have been increased pressures on rates from IT departments and expenditures on software, cloud computing, and improving cybersecurity. Several discussions came up during the session on power networks regarding how much is enough for cybersecurity, or when it is too much and restricts the usability of the software or devices. We talked about how nothing can truly be 100% secure, but there are processes and procedures to undertake such as employee training to avoid phishing scams and having 3rd parties review and stress-test system security. Doug Sicker provided links to a detailed list of questions to ask, NARUC’s cybersecurity guidelines, and best practices for preventing ransomware attacks.
Beyond cybersecurity, issues regarding data access and data portability have fallen under the regulator’s purview. To accelerate the clean energy transition, expanding access to smart meter and other consumer data may be critical in fostering competition and innovation in retail electricity and distributed energy resource markets. During the discussion on digital platforms, an analogy was made between Google using its search monopoly to protect its trove of data for advertising services and the incumbent utility utilizing its access to user data as an entry barrier.
Finally, we carried out several experiments in the virtual lab with Rim Baltaduonis over the course of the workshop. We started with a double auction, where we saw how even with little to no information about the other participants, efficiency levels close to 100% were quickly achievable in our market. We moved on to acting as electric power suppliers in a simulation of RTO markets with the sealed bid, uniform price complex offer auction versus the simple offer auction. As sellers, the group managed to extract slightly higher revenues in the simple offer auction, likely due to the shortened nature of our game. However we discussed that in the complex offer auction with start-up fee recovery, it not only ensured full recovery of costs with a margin for profits, but also allowed for gaming behavior through overstating your start-up fee.
