[BETA] Fortnightly

The D.C. Circuit’s Homer City decision doesn’t eliminate the uncertainty about environmental regulations that has vexed public utility commissions, the utilities they regulate, and the investment community for more than a decade. At a minimum, it extends that uncertainty farther into the future, and arguably adds new levels of uncertainty where issues had been largely resolved.

No regrets, risk-reducing solutions—incorporating energy efficiency and demand response, including clean distributed generation—can cut through the fog of uncertainty and serve the public interest regardless of how these issues unfold. In the wake of Homer City , these risk-mitigation concepts make as much sense today as they did before the D.C. Circuit issued its CSAPR decision.

Prescient NARUC Exercise

The National Association of Regulatory Utility Commissioners (NARUC) ended its Summer Committee Meetings with an innovative interactive workshop designed to give participants an opportunity to experiment with different strategies for responding to a complex set of market, policy, technological, and regulatory conditions. Workshop participants received a whirlwind introduction on existing and proposed environmental regulations and technology options available to meet these requirements while also maintaining reliability. Next, participants were assigned to groups, each of which was to act as the energy portfolio manager for a fleet of generating units, each with a distinct set of attributes, in a multi-round simulation game.

With this foundation, the first round of the workshop challenged the portfolio managers to comply with the new federal Mercury and Air Toxics Standards by retrofitting, refueling, or replacing existing assets, along with utilizing additional options—renewable energy, energy efficiency, and demand response resources. During the process, groups were also presented with setbacks, such as construction delays, permitting issues, and court appeals. Portfolio managers who had failed to consider these risks scrambled to implement new strategies to comply with the standards within the timeframe allowed in the Clean Air Act and maintain reliability.

In subsequent rounds of the game, the portfolio manager groups tackled the Cross-State Air Pollution Rule (CSAPR); New Source Performance Standards for greenhouse gas emissions; the Clean Water Act’s Section 316(b) restrictions on cooling water intake structures; a price on carbon emissions; a moratorium on hydraulic fracturing; natural gas price volatility; a national clean energy standard; and rapid, energy-intensive economic recovery. The final round results were clear: the groups that planned earliest for future risks, and employed a diverse portfolio of low-risk resources including energy efficiency, demand response, and renewable energy, achieved the best long-term outcomes in terms of superior reliability and lower overall costs.

The results of the workshop thus elicited two instructive insights for energy portfolio management: First, plan ahead. Planning strategically and comprehensively for all foreseeable contingencies, while including risk explicitly in long-term portfolio planning, produces superior outcomes for purposes of reliability,