Electric system reliability is fundamentally, and importantly, an economic issue. First, when the lights go out, particularly across large areas and for sustained periods of time, economic losses to the economy lacking electricity mount up quickly and can run up to billions of dollars. For utility systems, like Texas ERCOT when storm Uri froze off gas required for electric production, with outages lasting days in February 2021 for millions of customers and killing more than 240 Texans. According to NERC, the national reliability regulator, the Federal Reserve Bank of Dallas estimated direct and indirect losses to the Texas economy from Uri between $80 and $130 billion. Another recent severe winter storm, Eliot, impacted about 17% of firm generating capacity in the Eastern Interconnection, putting millions of customers out of power at Christmas, 2022, and again racking up economic losses in the billions of dollars. So, no question, reliability is an economic issue.

Reliability is also cost issue for electric consumers. Investments to increase electric system reliability can raise consumers’ electric rates. So, the economic question from a consumer perspective is “How much reliability can we afford?” Getting the last few percentages of increased reliability, from say 98% reliable to 100% reliable, is a very expensive proposition, since a lot of that investment would sit idle until needed in very rare events.

These big recent electric system outages, resulting from winter storms Uri and Elliot, have increased scrutiny on how utilities plan for and provide system reliability. That increased scrutiny has led to proposals for how utilities can do better at maintaining or increasing reliability at lower cost to consumers. We recognize that most outages impacting consumers are caused by failures and problems in the transmission and distribution or wires part of the business, but focus here on generation reliability, having enough generation at the right time and place to keep the lights on.

In crude terms, today’s standard utility approach to maintaining the generation part of the electric system’s reliability is focused mainly on having enough generation “capacity.” Generation capacity is defined as the maximum amount of electricity a generator can produce at a given time under specific conditions, usually measured in megawatts (MW) or kilowatts. An analogy would be to horsepower of a car’s engine, maximum engine power available under certain conditions, like having enough fuel to run the engine. To plan for generation reliability, electric utilities typically pick a period of time, like the peak summer day, when cooling loads stress system requirements, that they anticipate. They plan to have enough generating capacity to meet that peak load, then add a 15% “planning reserve margin” and report to their regulators that they are prepared to provide reliable service with that much generation capacity in hand.

What happened in storms Uri and Eliot show how this crude “capacity + 15%” reliability approach misses key factors that need to be addressed: utilities had plenty of capacity during these storms, but the fossil gas fuel they needed to use their capacity to produce power was missing, since the gas system couldn’t deliver fuel, they needed in really cold weather.

So, the conclusion followed that better methods of planning for reliability would be superior to the standard “capacity + 15%” approach. Those methods have been developed by the Energy Systems Integration Group, a consortium of hundreds of utilities and electrical systems engineers from around the world who share solutions for how transition to a cleaner and more reliable grid could work. Their proposed new method for planning for reliability has six key principles:

Principle 1: Quantifying size, frequency, duration, and timing of capacity shortfalls is critical to finding the right resource solutions. Planners need to consider a wider range of causes of reliability problems, use more than one industry standard method for quantifying and reporting reliability impacts, and focus on what reliability problems, exactly, they are trying to solve.

Principle 2: Chronological operations must be modeled across many weather years. It’s not good enough to marry systems operations, weather, renewables output and other data from disparate and ill-fitting data sets. The data needs to be consistent across time.

Principle 3: There is no such thing as perfect capacity. No generator supplies power 100% of the time. They all have outages, planned and unplanned, and are subject to a variety of challenges. Generator capacity needs to be addressed based on probabilities derived from careful analysis, not assumed based on rules of thumb.

Principle 4: Load participation fundamentally changes the resource adequacy construct. If a utility can call on customers to reduce their loads at times when generation is insufficient, the load side of the load and resource equation can provide solutions at least cost.

Principle 5: Neighboring grids and transmission should be modeled as capacity resources. Texas’ isolation from neighbor grids made it impossible to withstand Uri’s challenges, so Texans died to serve the state’s need to be grid independent. Better to build needed ties to share electric resources across areas larger than the storm that knocks out the lights.

Principle 6: Reliability criteria should be transparent and economic. Back to where we started: reliability is an economic issue. Certainly, good to avoid large scale outages, but 100% reliability would break the bank. What’s the right balance between cost for outages and costs for reliability?

The ESIG work confronts the utility standard reliability planning approach with sensible reforms that should be commonplace and shows not only what to do, but details how to do it. These are not changes impossible for utilities to incorporate in their planning. But the utility sector is slow to change and most of these reforms need more attention and implementing.

Are consumers concerned about reliability and economics?
The Clean Energy Buyer’s Association (CEBA) represents more than 400 members that comprise one-fifth of the Fortune 500, represent more than $20 trillion in market capitalization, and include institutional energy customers of every type and size – corporate and industrial companies, universities, and cities. CEBA activates energy buyers and partners to advance low-cost, reliable, carbon emissions-free global electricity systems. Their concern about reliability as an economic issue is front and center in their recent report “Energy Customer Priorities for Meeting Resource Adequacy Needs” CEBA’s priorities reflect ESIG’s approach and are evidence that many of the nation’s largest and most active energy consumers are asking utilities to do a better job planning for and providing generation reliability.

3. https://cebuyers.org/blog/ceba-outlines-energy-customer-priorities-for-meeting-resource-adequacy-needs/