Electric grid resiliency also must be pandemic-proof, utility CFOs say
A resilient electric grid, which is designed and built to handle hurricanes, snow storms, cybersecurity threats, and other disruptions that could result in outages, now also has to be strong enough to weather the impacts of a pandemic, according to chief financial officers in the power industry.
The COVID-19 pandemic, in fact, has impacted business operations nationally with more employees working remotely, said Dan Doyle, conference chairman of the Edison Electric Institute (EEI) 55th Financial Conference and senior vice president and chief financial officer at Washington state energy utility Puget Sound Energy.
“This shift in operations and increase in residential demand has further amplified the need for affordable energy, and a reliable and resilient energy grid,” Doyle said during The Rising Impact of Resiliency session held Nov. 9 on the conference’s opening day. “In addition to the changing business environment, many utilities have set ambitious GHG goals and several states have set aggressive clean energy standards and targets.
“The industry has invested significant capital to build a more resilient and reliable grid,” said Doyle.
The increasing severity and frequency of weather events coupled with the threat of cyberattacks also have increased focus on the importance of resilient capital expenditures, according to panelists, who discussed the industry’s efforts to address these and other issues.
Maria Rigatti, executive vice president and CFO at Edison International, the parent company of both Southern California Edison, one of the nation’s largest electric utilities, and Edison Energy, a portfolio of businesses that provide commercial and industrial customers with energy management and procurement services, outlined how the pandemic has impacted loads and how the company is dealing with the related affordability issues faced by its customers.
When the COVID-19 pandemic initially hit America, for instance, Rigatti said that the governor of California issued stay-at-home and work-from-home orders, which meant more students learning from home and more people working from home, increasing residential loads while commercial loads decreased. But because load is very susceptible to weather, and it has been warmer in the state recently, Rigatti said “there hasn’t been a tremendous impact on load from the pandemic.”
“I will say though, that doesn’t mean that our customers aren’t feeling the impact, especially the economic impact of COVID,” said Rigatti. “So, we’ve been very focused here also on how we alleviate those impacts, not just on how we manage the load variation.”
Rigatti also said that California has a long history of trackers, which allow a utility to recover expenditures on an ongoing basis by adjusting rates on a quarterly or biannual basis for certain categories of costs, such as fuel costs. In turn, a utility does not have to wait for the next rate case to recover those costs. “Any variations we would have around load or sales was definitely going to be covered by our existing trackers,” she said. “So from a utility standpoint it was very manageable.”
Additionally, the California Public Utilities Commission immediately put in place a disconnect moratorium, which Rigatti called one of the longest running in the country because it stretches out from now until April 2021. “That really helped customers from an economic perspective,” she said.
Another thing that California did, and which Edison International was supportive of and involved in, was legislation recently passed and signed by the governor that will allow the company to securitize those changes in load or increases in bad debt expense, said Rigatti.
“From a utility perspective, we would be able to start recovering any of those costs starting next year. But that could be a pretty significant impact on our customers,” Rigatti said. “So this recently passed legislation goes right to the heart of affordability and will allow us… to securitize that over a much longer time.”
Entergy Corp. is dealing with the pandemic and its impact on customers in similar ways, according to Drew Marsh, executive vice president and CFO at New Orleans-based Entergy, an integrated energy company that owns and operates regulated and merchant power plants. The company’s utility business serves nearly three million customers in four states in the Gulf Coast region while its merchant portfolio comprises nuclear plants that primarily serve the country’s Northeastern states, including the New York City metropolitan area.
“We launched our pandemic response plan earlier this year like many utilities and we’ve been running by that playbook since the very beginning,” Marsh said during the conference session. “That has caused us to have to do things a little differently than what we normally would, but we put that into action with other things like storm response and nuclear outages, and had to plan very differently about how we operate during the course of the year.”
For instance, Entergy also has been implementing disconnect moratoriums in its states, but also has been working on customer payment plans to help them manage better, said Marsh.
And like in California, regulatory orders allow Entergy to recover from bad debt expenses and pandemic costs. “We have the opportunity to securitize in Louisiana,” he said. “We don’t get all the way to load differentials, but we do get some of the bad debt expense and some incremental costs recovered in that way.”
Most importantly, Marsh said, “we are flexing our spending quite a bit this year. And we talked about reducing our expenses by over $100 million this year and we’ve been on target to meet or exceed that opportunity, so that’s been a big part of our response to help our customers keep their costs down going forward.”
Both Rigatti and Marsh also looked at the pandemic through the lens of wildfires in California, hurricanes in the South, and reliability and resiliency.
“Certainly the pandemic has had an impact on how we approach that,” Rigatti said, “not so much from the types of work that we do, but really it’s impacted the way we interact with our communities.”
Edison International, for instance, has a lot of critical risk-management work it must accomplish, she said, whether that’s hardening the grid or requiring some power safety shutoff to mitigate near-term risk. “So when we started dealing with the pandemic, we knew our customers were now home, more than ever, and were going to be highly sensitive to any outages that we wanted to take,” Rigatti said.
The company had in play a similar response team and playbook that it used to deal with the situation like any other business resiliency issue, added Rigatti, noting that the “team immediately went to production with protocols to reach out to our local communities, to deal with their concerns,” such as the release of joint alerts released with state regulators letting customers know that wildfire mitigation work would be ongoing during the pandemic.
“Granted, we had to make some adjustments,” Rigatti said, such as the size of the crew to enable more work to get done more quickly. “I think what it really affected was our communication, our protocols, our outreach, and our engagement with our communities made that more important than ever.”
Entergy also enacted protocols in its territory during the pandemic that allowed employees to spread out to deal with the impacts, Marsh said. For example, normally Entergy would have several people working in a room, whereas during the hurricanes and pandemic, social distancing doesn’t allow that, so “we have to make it one per room,” he said, adding that the company also has had to set up more camps to accommodate workers.
“It’s led to more expense to the tune of maybe a couple hundred million dollars this year associated with storm response expenses,” said Marsh. “Part of that is the lodging, the PPE and so forth.” He said that sometimes when changing protocols, there’s more expense related to it, but it’s safer and has to be done.
The pandemic and extreme weather events have definitely put more need on resiliency, said panelist Andrejka Bernatova, CFO at Houston-based Enchanted Rock LLC, a resiliency microgrid company that handles the design, construction, commissioning, operations, and maintenance of natural-gas powered generators so utilities can provide their customers with reliable backup power without the cost and challenges of maintaining a backup generation system.
Bernatova said customers want grid energy, reliability, more control of behind-the-meter solutions, storage, and regeneration, all with a focus on resiliency first and then on costs.
“Over the past year we have seen much more focus on green solutions,” she said, noting that Enchanted Rock has a natural gas fleet and is looking at other solutions in terms of fuel to provide carbon-zero or carbon-neutral solutions for some of its bigger customers.
Cost and resiliency focuses seem most important for clients such as smaller groceries and hospitals, said Bernatova, but for larger customers, like data centers and larger store chains, “the green solutions are very, very important.”
What this means for utility customer interaction is that the clean and ESG push is driving conversations about resiliency in the boardrooms and the C-suite, she said, adding that customers also now want a long-term, multiyear resiliency program, which previously hadn’t been a consideration.