Energy People: Bill Hederman

Deck: 

We talked with Bill Hederman, who has just left government service as senior advisor to the U.S. Secretary of Energy.

Fortnightly Magazine - October 2016

Through early July, Bill Hederman was senior advisor to Dr. Ernie Moniz, U.S. Secretary of Energy, and counselor to the director of energy policy and systems analysis.

Bill began his career as a systems integration engineer at Bell Labs in the directorate that later developed the cell phone system. He then served on the RAND Corporation’s research team that pioneered analysis of federal government technology demonstrations. Bill also worked as the Congressional Budget Office’s first energy and science budget analyst.

After that, he led the establishment of the policy analysis department at INGAA, the pipeline association. And then he led the establishment of the International Energy Agency’s gas technology center.

Later, Bill was vice president for business development and strategic initiatives at Columbia Transmission Companies. He was on the management team that brought Columbia out of bankruptcy and sold it to another utility at an attractive price for shareholders.

During the Enron and California crises, FERC Chairman Pat Wood asked Bill to join the agency and form the office of market oversight and investigations. Bill’s team has been credited with playing a major role in the restoration of confidence in electricity and natural gas regulatory oversight.

Ukraine Prime Minister V. Groysman (left) with Bill Hederman (middle).

PUF’s Steve Mitnick: Could you tell us about working with the Energy Secretary Ernie Moniz?

Bill Hederman: It certainly was one of the great privileges of my career. And I’ve had lots of adventures.

Secretary Moniz knew me from the old MIT mafia. He wanted to move to an analytic regime where there was more evidence-based decisionmaking. He also wanted more systems analysis. He didn’t call the new policy shop “energy policy.” He called it “energy policy and system analysis.”

Melanie Kenderdine was the policy person. I was the system analysis person.

University of Notre Dame robotic football team, with Bill Hederman on the far left and former head of the Natural Gas Supply Association, Skip Horvath, on the far right.

I studied control theory and system analysis at MIT grad school. My first real job was at Bell Labs as a system integration engineer.

PUF’s Steve Mitnick: In this context of energy policy, working with the Energy Secretary, what do you mean by system analysis?

Bill Hederman: We’re talking about how different systems interact with each other. Like how a solar generation system interacts with a power transmission grid. How does a natural gas pipeline system interact with a transmission and electric grid system when you’re generating the power with gas?

Things like that. Worrying about counter-intuitive effects. And looking at increasing interdependence among energy systems, like New England’s challenges with electric reliability because of tight gas pipeline capacity, which was due to the electricity capacity market rules. Or the difficulties in a blackout because the initial blackout knocks out electric gas pipeline compression, which hinders restart of some gas-fired generators.

PUF’s Steve Mitnick: It was the government. Did you accomplish anything significant?

Bill Hederman: Good question. For anyone who’s gone in the government once, it takes a lot to get you to go back another time. I’ve done it four times. The calling here was, okay, I think that Secretary Moniz could make things work better.

There was so much change going on. And there was somebody at the helm who understood the technical side, and how to make policy change. From his earlier experience, Secretary Moniz knew how to do that. I wanted to be part of that if I could. When I got the chance, I said, sure.

PUF’s Steve Mitnick: What were your proudest accomplishments?

Bill Hederman: One of the proudest accomplishments of my whole career was working with the Ukrainian government. During my time at the Energy Department, Russia invaded Ukraine. The Russians took over a good chunk of the eastern part of the country.

It knocked out several important coal mines for their power generation systems. They also had issues with natural gas.

Russia was continuing to pay Ukraine for the transiting of gas to western Europe. However, the Russians were refusing to give any more gas to Ukraine. They were claiming Ukraine owed a lot of money.

Ukraine made an unfortunate first move. They said, we’re taking gas. We need the gas to keep our people warm in winter.

Gazprom was able to present that as, these thieves are taking your gas, western Europe. It’s going to affect what we’re able to get to you.

After the Euromaidan Revolution, and after President Petro Poroshenko took office, he visited the U.S. President Poroshenko met with President Obama. He, interestingly, asked to meet with the Secretary of Energy. He came to meet with Secretary Moniz and said, I would appreciate technical assistance.

So the Secretary sent the lead person from the Energy Department’s emergency response group, me as the lead market analyst, and one of the people from the international affairs unit. A group came from the Federal Energy Management Agency as well, to deal with emergency response.

And Canada sent a few energy experts. It turns out that a good share of Canadian citizens have Ukrainian roots. So they had a very special interest in being involved.

It was a small team.

PUF’s Steve Mitnick: What happened when you got over there?

Bill Hederman: The Ukrainians said, we’re getting a lot of so-called advice. We’re both overwhelmed and underwhelmed. We don’t know what to pay attention to. You’re here delegated by the Secretary. We trust him to pick real experts. Help us figure out what to do.

We spent two weeks in the late fall of 2014, trying to get Ukraine ready for that winter. We were able to help them. We looked at natural gas storage and production. We also looked at how to use their hydro power a little differently. They have a big challenge with district heating, one of their major uses of their natural gas.

We went in and helped them make a few fairly simple measures. We didn’t have much time.

They came back in the spring and said, could your team get back here earlier and help us really develop a strategy on how to move forward? So we went back in July of 2015. The European Union ended up helping out too. The Canadian team grew. The Energy Department’s national labs team grew.

We helped them develop a strategy to move away from Russia. And to integrate more with the European Union. The team presented ideas. The Ukraine government made all the decisions.

The icing on the cake came in almost my last month at the Energy Department, in June. The new Prime Minister, Volodmyr Groysman, had been one of the working members of the team from the Ukraine side, while we were working on this.

He came to Secretary Moniz’s office with a large delegation of his people to thank us for the help. As of June 2016, they had not bought one iota of gas from Gazprom. So they were very happy. And that was helping them make other reform moves.

PUF’s Steve Mitnick: Wasn‘t there a cyber-attack in the Ukraine?

Bill Hederman: Yes, there was. I was not there when it happened. It happened in December of 2015.

It was a clearly pre-planned and professional attack. It had several waves to it, including the pre-planting of malware.

When they went back forensically, they found stuff had been there for six months. There’s a lesson for all of our utilities. Be looking for malware. Just because it’s not doing anything, doesn’t mean it’s not there in your system.

It was sitting there, waiting to be triggered. The attack happened and knocked out about a quarter million people, though not for very long.

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They attacked the control room. The controller could literally see his cursor moving and shutting things off that shouldn’t be going off. He was in a battle to try to regain control, but was not able to. Then, when the Ukrainians tried to take other counter measures, the avenues to do that had already been cut off.

They had been disabled. It wasn’t something the Ukrainians had noticed. The other avenue of sophistication here is that the attackers pre-planned a denial of service attack, as well, bombarding local emergency numbers with calls. People couldn’t call. So Ukrainian operators didn’t know which parts of their system were affected.

It was very serious. I think we will learn a lot from the forensic analysis of that.

PUF’s Steve Mitnick: Did you have some other great experiences?

Bill Hederman: I really loved my job at FERC, setting up the office of market oversight and investigations. We built this team of a hundred and ten people. It was interdisciplinary. People joked I didn’t know what it was going to be like, my being a non-lawyer and having fifty lawyers working for me. We all lived to tell.

That was the early 2000s. I was hired by Chairman Pat Wood. He had to deal with the twin buzz saws of Enron and California. He started asking questions. The staff was made up of mostly rate design people with a couple of exceptions. The Chairman had a pretty sophisticated marketing monitoring operation when he headed the Texas commission.

He said, we don’t have that here. We need something like that. His key advisor was Rob Gramlich [now senior vice president of the wind association AWEA]. Rob and I knew each other. We were both Berkeley policy school grads and had actually done some work for the policy school around the crisis.

I met with Chairman Wood. He’s a very charismatic guy. So I said, I will take on setting up this office, if the other commissioners at FERC also think it’s a good idea. The other commissioners all agreed.

The commissioners were Linda Breathitt, Nora Brownell [now on the boards of National Grid and Spectra Energy], and Bill Massey [now a partner at Covington]. It was a great crew of commissioners.

They all said, absolutely, we really need this. We’d love to see you make it work.

PUF’s Steve Mitnick: Wasn’t there enormous pressure?

Bill Hederman: Chairman Wood said, I want your work to assure that we’ll never have another Enron and California. I don’t want you to get consumed by dealing with it. I want you to be forward-looking. I want you to get the systems in place so we can catch this bad behavior and stop it early.

Our enforcement and investigatory lawyers spent a lot of time working with the California parties. The market oversight shop spent its time thinking about what information we would need going forward. And how were we were going to communicate the need.

We had to earn the faith of Congress again. We also had to earn the faith of the state PUCs. And we wanted to earn the faith of industry and consumers. They were at a point where they were like, I don’t know who I can trust as a counter-party. The whole thing had really gone dysfunctional.

We called it “market oversight and investigations,” not “enforcement.” That was something that Chairman Wood and I spent a lot of time talking about. I called several friends in the industry and told them what we were thinking about. And asked their opinion on the name.

Every one of them said, we’re chatting on the phone now as friends and former colleagues because you are head of market oversight and investigations. If you were head of enforcement, the conversation would be between you, me and my lawyer.

Ultimately, FERC did establish an office of enforcement.

PUF’s Steve Mitnick: Where did you take market oversight?

Bill Hederman: We built up this monitoring capability. And Congress decided to get more serious, primarily about reliability.

It was after the 2003 blackout. Congress had enough confidence in FERC. So we went from whipping boy to favorite child. They gave us that million-dollar per day per violation penalty authority. That was immense and dangerous.

That was a change from oversight to enforcement. It changed relationships too.

Chairman Wood and I were looking at this and saying, there was a clear line, black and white, out in California. Enron figured that out and would go right up to the line.

We felt it was better to have a grey zone and say, we’re going to start talking to you when you touch the grey zone. It doesn’t mean you’re breaking any laws. But we want to know why you’re doing what you’re doing. And we’re going to keep an eye on that.

The Chairman used a metaphor. He wanted us to be the cops on the beat. He wanted us to have our nightsticks going along the fence, so everybody was reminded we were around.

We put a lot of effort into that, through being open to industry meetings. When we saw things that were suspicious, we called and said, why is that going on?

PUF’s Steve Mitnick: You were also at the Congressional Budget Office.

Bill Hederman: Yes. Very early in my career, I was on the startup team for the Congressional Budget Office. I was Congress’ first energy and science budget analyst. We set up the protocols for how you estimate the cost of energy legislation.

We started checking on the Office of Management and Budget. Coming in and setting up a new budget system, we encountered hostility from many. It was fun because of the people, but also due to it being a startup.

PUF’s Steve Mitnick: What‘s your next adventure?

Bill Hederman: My main professional activities are going to be as a senior fellow at the University of Pennsylvania’s Kleinman Center for Energy Policy, which is just a little over a year old.

Penn’s Wharton business school wants to work with us. They want to help their students understand the options for the future of utilities. They also want utility executives to consider the strategic options for their companies. Penn’s engineering school wants to do more on smart grid and more on cybersecurity.

The law school already has a Center for Regulatory Excellence. Building that up, particularly the energy area, is of great interest to them. Even the School of Regional Planning and Design is very interested in how the smart city affects all of this, both on the energy and environment side.

PUF’s Steve Mitnick: You’re also promoting innovation in a unique way.

Bill Hederman: It’s my belief that the best way to stimulate innovation is with competition and prizes, not with long-term grants. We’re accelerating robotic technology by building American-style football teams to compete at the intercollegiate level. We’ve got about nine schools involved.

Notre Dame was the anchor. We started this in memory of my son who died while a student there, and who sketched a robot quarterback.

PUF’s Steve Mitnick: The football players are robots?

Bill Hederman: Yes. They don’t look like the robots on the Fox football commercials yet. They’re not humanoid. They’re functional. They look like printers on wheels.

But they mean business. They weigh twenty-five to forty pounds, and move up to thirty miles an hour. We have a lot of successful forward passes. It’s not just a ground game. And there’s kicking too.

There’s a lot of quarterback to receiver communication. The students are building more and more autonomy using sonar and lidar (radar with laser light).

PUF’s Steve Mitnick: There’s a lot happening in our industry. What developments or challenges most interest you?

Bill Hederman: The most alarming development to me is the cyber threat. As we have come to see, it’s almost existential. There’s no question that nation states, including those hostile to us, are preparing for this kind of struggle. We need to be ready for that. I feel like we’ve got to up the game. I hope to be able to help make that happen.

PUF’s Steve Mitnick: It seems overwhelming.

Bill Hederman: It’s overwhelming. But not hopeless. It’s like the race to the moon. There were two countries trying hard to win that race. One team got out in front of the other. It’s like that.

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It’s not going to be something where we can find an answer and then say, oh good, that’s answered. It will always be an ongoing evolution. The threat will evolve. And the defense will have to evolve.

I think it can be done on a reasonable cost basis when the right networks of cooperation are put in place. This ties in very closely with one of the other big challenges, which is, what’s the business model for utilities going forward?

I hope we don’t pick one model. I’m sure we would pick the wrong one. We need to muddle through. We don’t know what the right answer is. It’s great we have very distinct and different solutions being tried in the southeast, the west coast, the Midwest, the northeast.

We’re going to find pluses and minuses of the different ideas. Everybody’s going to learn that way.