Public Utility Commissions to Foster Resilience Investment in Power Grid Infrastructure

Abstract

In the United States, power system works at 99.9 percent reliability but it does not imply that it is safe and reliable against all types of hazards whether natural, technological or man-made. Especially the high impact low probability (HILP) events also called “black-swan events” offer a complex risk environment for power grid infrastructure. On the other hand, the utility companies have to work in a very competitive and regulated environment maintaining a balance between their investments on infrastructure, rate of returns, serviceability and cost to the customers. Hence, it is not economically feasible and justifiable to harden the entire infrastructure owing to budget constraint and regulatory issues. In such a scenario, enhancing resilience selectively within the power grid infrastructure would serve the purpose of achieving optimum security against any type of hazards, including HILP events. Resilience is the property that incorporates robustness and rapid recovery of infrastructure in face of any type of unprecedented havoc hazards. Enhancing resilience is cost intensive and future return on such investments are also risky and uncertain. Again, “resilience investments” i.e. investments needed to enhance resilience of power grid need approval from Public Utility Commissions (PUC) for cost recovery from public consumers and also must involve other investment agencies to invest in the power infrastructure by offering them good rates of return on investment (ROI). This paper will discuss the various key issues that hinder adequate investments in resilience enhancement of power grid infrastructure. Some of the key issues identified are (i) lack of knowledge about the Black Swan Events and their impact on the power grid infrastructure; (ii) strict regulatory restrictions imposed by PUC within the purview of which the utilities work; (iii) lack of strong value proposition for resilience investment business cases as presented by the utilities to the PUC, and (iv) lack of adequate incentives for the investors to invest in the power infrastructure. A conceptual strategic decision making framework for the PUC is also proposed that would help in approving or incentivizing adequate resilience investments for power grid infrastructure.