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How Much Reliability Is Enough? How Much Are Consumers Willing To Pay?

The current efforts to draft and approve reliability standards intend to require additional winterization of power generating facilities. The open question is: how much winterization is enough?

The 2021 Joint FERC-NERC-Regional Entity Report states that generators “should have the opportunity to be compensated for the costs of retrofitting their units to operate to a specified ambient temperature and weather conditions (or designing any new units they may build)” (Key Recommendation 2). Those costs will ultimately be borne by consumers. How much are consumers prepared to pay each month, every month, for the added reliability? Note that the report only specifies compensation for retrofitting existing generation or designing (and building) new facilities. Some of the expected measures to provide reliability during cold weather events are temporary in nature. The compensation for the upkeep and maintenance of any these measures is not addressed in the report.

Which entity or entities will determine if a generation owner’s proposed freeze protection measures are fiscally acceptable, and thus will be compensated? How will regulators ensure that generators are not retrofitting or building powerplants that can withstand any storm up to and including a new ice age? And which regulators have the authority to question the costs to comply with standards in centralized markets that cross multiple states?

Should power plants be built to withstand weather than occurs for only a few hours during their life expectancy, if at all? What is the economic balance point between what consumers are willing to pay and what is needed to winter-proof every generating plant in North America?

As a next step, should the industry be looking at hurricane proofing all generating facilities and transmission lines, since hurricanes occur significantly more frequently than the cold weather periods that are the current focus? What about flood proofing vulnerable generating facilities based on the worst-case hurricane flooding event? (See map below). Add to that the expected sea level rise in the next century.

Finally, recognize that weatherization is only one of the current reliability concerns facing the grid today. Other areas that would incur additional spending include fuel security, relieving transmission constraints via new transmission line construction, cyber security and physical security. What level of reliability can consumers afford?

National Hurricane Center Storm Surge Map

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