Increasing Grid Reliability and Resilience

Continuing to provide a safe, reliable grid remains the core objective of all public policy and regulatory initiatives. Resilience – the ability of the grid to recover from the impact of a disruptive event – differs from reliability, which is the ability of the power system to deliver electricity in the quantity and with the quality demanded by users. The resilience topic has renewed interest from the recovery efforts that have followed major natural disasters in recent years, long-term load planning to meet demand growth, and concerns over potential grid vulnerability to terrorist attack. AEP is involved in a number of policy initiatives geared toward increasing grid resilience.

NERC Oversight

Compliance with regulations to protect the reliability and resilience of the power grid is complex, and the rules are becoming increasingly more stringent and numerous. How we manage these issues directly influences our business. The North American Electric Reliability Corporation (NERC) develops and enforces the rules and standards that protect the North American bulk power system. To ensure compliance, NERC conducts annual reliability assessments, monitors the bulk power system and educates, trains and certifies industry personnel. In 2016, this involved extending physical and cyber protection to a broader set of AEP assets now considered critical.

As a result of this increasing focus on NERC compliance, AEP has revamped its compliance program with increased staffing and improved governance. In 2018, we restructured our NERC governance to ensure direct line of sight with business units responsible for compliance. Through this restructuring we are seeking to establish an industry-leading program that collaborates as one enterprise to meet or exceed all obligations of the NERC Reliability Standards. To achieve this, our intent is to fully adopt a risk-based approach, seek common solutions and continue to fully cooperate with regulators.

The new structure consists of three layers of governance with distinct responsibilities. The Reliability Compliance Committee (RCC), which is composed of AEP’s top executives who have accountability for compliance programs, establishes the vision, mission and culture expectations for AEP’s NERC compliance program.

The Reliability Compliance Strategy Team (RCST) is made up of compliance program senior executives who are charged with program strategy, health, and developing cross-business unit solutions. The RCST advises the RCC and directs the Reliability Compliance Implementation Team (RCIT). The RCIT consists of director-level program stakeholders representing compliance and operations. This group focuses on implementation, advises the RCST and engages subject matter experts and compliance teams across AEP. We strive to maintain an open, collaborative and transparent workforce that raises issues when necessary and focuses on operational excellence that goes beyond a culture of compliance and “doing the right thing” consistently.

DOE/FERC Grid Initiative

The Department of Energy (DOE) recently initiated a nationwide conversation about the resilience of the U.S. electric grid. In August 2017, DOE published the Staff Report to the Secretary on Electricity Markets and Reliability, in which the Department concluded market distortions threaten the resilience of the grid. To address these threats, in September 2017 DOE released a formal proposal for FERC to implement reforms that would eliminate the undervaluation of generation assets that contribute to the resilience and reliability of the grid. The proposal sought to minimize the premature retirements of resources that provide critical attributes to the grid.

Subsequently, in January 2018, FERC established a docket directing transmission system operators to provide information as to whether FERC and the markets need to take additional action on system resilience. The goal of the proceeding was to develop a common understanding among FERC, industry and others of what resilience of the bulk power system means and requires; to understand how each transmission system operator assesses resilience in its geographic footprint; and to use this information to evaluate whether additional FERC action regarding resilience is appropriate. AEP is actively involved in these critical discussions.

AEP is advocating for the use of engineering studies and taking a measured approach to maintaining grid reliability as we transition to the next generation of power generation and delivery.

PJM’s Capacity and Energy Reforms

PJM will be proposing changes to the energy market in 2018. Although these reforms are still in the stakeholder discussion phase, they appear to be designed primarily to address price formation during peak load conditions. In addition to dispatch price signal changes, PJM indicates it will likely try to create additional reserve products to provide more operator flexibility, particularly during peak load times. PJM believes these reforms will help with grid resilience in generation by providing more accurate market-based pricing signals for generators. AEP is working both in the stakeholder process and in FERC-related dockets on these price formation issues and how they affect grid resilience.

On April 9, 2018, PJM filed another set of changes to the Reliability Pricing Model capacity construct. The new filing is meant to address concerns PJM and FERC have over state initiatives to subsidize certain types of units outside of the market (e.g., the Illinois zero emissions credit program from nuclear units). The potential impact to AEP is minimal as long as we continue with the self-supply Fixed Resource Requirement (FRR) capacity plan. However, we will provide comments in this docket supporting states’ rights with regard to long-term supply planning.

Our generation, transmission and distribution system investments directly affect our customers and shareholders. These long-lived investments must coexist with prevailing policy considerations such as environmental rules, affordability and reliability. As we transition to a clean energy future, we are reshaping our asset base in a reliable and affordable manner for our customers while managing the financial risk for our shareholders and recognizing that the transition will take some time to fully execute.