Power & Pipes

FERC, CFTC, and State Energy Law Developments

A new report by the National Infrastructure Advisory Council (NIAC) concludes that the nation is not prepared to adequately respond to a catastrophic power outage. The NIAC is a special advisory council composed of representatives from private industry, state and local government, and academia that is tasked with providing the president with advice on issues facing the nation’s 16 federally designated critical infrastructure sectors. The NIAC issued the report after it was tasked with examining the nation’s ability to respond to and recover from a “catastrophic power outage of a magnitude beyond modern experience, exceeding prior events in severity, scale, duration, and consequence.” The NIAC generally considers these to be limited- or no-notice events with a long duration (i.e., lasting weeks or months due to damage) impacting a broad geographic area (e.g., multiple states and affecting tens of millions of people) that could be further complicated by a cyber or physical attack.

Central to the NIAC’s report is examining the extent to which a catastrophic power outage that causes a failure in one critical infrastructure sector could lead to severe cascading impacts and force other critical sectors to operate in a degraded state for an extended period of time. The report reflects the NIAC’s view that, while the roles and responsibilities for emergency authorities are understood generally, the actual implementation of roles and responsibilities in response to a catastrophic power outage (e.g., cyber and physical attacks and larger-scale disasters) is still very much unclear. In this regard, the report stresses the importance of strong federal leadership in responding to and recovering from large-scale emergencies.

The report concludes that the United States should respond to these concerns by 1) designing a national approach to prepare for, respond to, and recover from catastrophic power outages, and 2) improving our understanding of how cascading failures across critical infrastructure will affect restoration and survival. The report is organized as a series of recommendations, accompanied by a summary of the NIAC’s findings on the existing state of affairs and the identification of lead and supporting agencies for each recommendation.

A summary of the report’s recommendations is below.

  • Clarify the Federal Authorities: The report acknowledges that existing incident response frameworks do not identify clearly which federal entity has ultimate decisionmaking authority during a widespread, multistate catastrophic power outage that would require coordinated cross-sector, cross-government response. An event of that scale, the report concludes, would require an “unprecedented level of federal leadership,” combined with military engagement. Thus, the report recommends examining, identifying, and clarifying roles that federal authorities (including cabinet-level officials) may exercise during a catastrophic power outage. This effort could clarify the roles of the various agencies that have some role in such efforts, including DOE, FERC, NERC, the E-ISAC, and DHS.

  • Develop a Design Basis for System Hardening: The NIAC concludes that there are currently no coordinated standards or design criteria for increasing resilience to a catastrophic power outage, or a common agreement on the level of redundancy that should be built into critical utility systems. The report suggests that federal government input will be necessary to fill that information gap because without such guidance, it may be difficult for critical infrastructure owners and operators to justify their investments in system hardening, receive regulatory approval, or understand the cross-sector impacts of those investments on other critical functions. Greater assurance of cost recovery of these investments by utilities would encourage appropriate system hardening and also avoid ad hoc approaches that could differ significantly between utilities.

  • Develop Guidance for Community Enclaves: The report highlights the importance of community enclaves—areas that co-locate critical services and resources to provide shelter and sustain health and safety—in response to a disaster. Instead of building new infrastructure, the report suggests, communities can upgrade existing construction (e.g., schools, malls) to create local resilience centers with adequate fuel, power, and communications to sustain residents during an emergency.

  • Incentivize Grid Resilience Investments: The report suggests that more incentives are needed to promote resilience, ranging from regulatory compliance waivers during catastrophic events to direct financial assistance and investment tax breaks. Among the recommended incentives is a proposal for the Federal Energy Regulatory Commission to permit cost recovery and return on equity (ROE) incentives for public utility investments to harden the bulk power system. The report also raises specific concerns with respect to liability in the power sector, noting that the Federal Power Act provides no such protections during emergencies to grid owners and operators. To address that gap, the report suggests that Congress should legislate the expansion of liability protections where the government currently lacks authority. Liability protections against catastrophic outages could be critical given the enormous direct and indirect liability that could result and the difficulty of insuring against those risks. ROE incentives have also proven to be a reliable method of encouraging capital investment, and significant grid resilience improvements are likely to require extensive capital improvements.

  • Conduct Outage Simulations: Although utilities already participate in emergency simulations (e.g., GridEx), the NIAC believes those exercises do not engage all necessary stakeholders and therefore could be limiting. The report recommends conducting a simulation with a broader spectrum of participants, including cross-sector infrastructure owners and operators, to provide a more realistic view of how electricity failures could trigger cross-sector and cross-jurisdictional concerns that are not tested in existing simulations.

  • Protect Natural Gas Pipeline Infrastructure: The report observes that electric generators are increasingly dependent on natural gas as a fuel supply, but that existing voluntary pipeline security standards are insufficient to ensure the resiliency of the nation’s interstate natural gas transmission. The report recommends implementing augmented security standards, whether voluntary or mandatory, and encouraging generation and transmission owners to conduct blackstart exercises with their natural gas providers.

  • Develop an Emergency Communications System: To adequately support cross-sector coordination in the event of an emergency, the NIAC recommends the development of a flexible, adaptable emergency communications system which is self-powered and can be used by all critical infrastructure sectors. The system would facilitate critical service restoration and connect infrastructure owners and operators, emergency responders, and government leaders.