Striking the Right Chord: Energy Policy and Resilience

How well can a jazz quartet maintain the rhythm and beat if a fifth player joins? The most creative and innovative music emerges from adaptation but always needs a solid rhythm and beat.

Just as the new jazz quintet requires flexibility and creativity to keep making music, so does the power grid in the face of new challenges. Traditionally, distribution system planning has focused on reliability and cost-efficiency, with metrics designed to capture these dimensions in a straightforward manner. However, today’s resilience planning demands a different and more expansive approach that accounts for the changing climate and the new realities that electric companies and their customers face.

Modern resilience planning requires evaluating investments from multiple perspectives and assessing a range of possible benefits: improving reliability and safety, risk mitigation against natural hazards, enhancing DER integration, supporting decarbonization goals, strengthening community resilience, protecting critical customers, and even reducing customer cost. Companies, regulators, and other stakeholders must expand their view to include these broader dimensions when assessing investments in the resilience of the distribution system.

Bridging Gaps to Achieve Resilience

Trade-offs are inevitable in any planning process. But as we work towards a more resilient energy future, we must ask ourselves: How do we bridge the gaps so that the energy grid is reliable and affordable but also resilient and adaptable to the new challenges posed by climate change and evolving consumer demands? This is where resilience planning becomes crucial. It’s not just about identifying trade-offs; it’s about finding ways to integrate and balance multiple objectives simultaneously.

Integrating and Balancing Multiple Objectives Simultaneously

Source: SEPA, 2024

A New Lens for Resilience Planning

The conversation around resilience is evolving. There is a growing recognition that traditional planning frameworks don’t adequately capture the value of resilience, especially in the face of new risks like wildfires and increasingly extreme and more frequent weather events. Existing frameworks can make it difficult to justify proactive investments in resilience when the potential losses are not easily quantified.

While effective in minimizing immediate costs, least-cost planning can sometimes impede the deployment of new technologies with higher upfront costs but offer significant long-term savings and emission reductions. For example, investments in grid hardening, energy storage, or microgrid integration may come with a larger initial price tag, but the benefits they provide in terms of resilience—reducing the frequency and duration of power outages, minimizing economic losses, and protecting vulnerable communities—can far outweigh these costs over time. These costs include the immediate challenges of power outages and the longer-term impacts on economic activity, public health, and community well-being. By viewing resilience investments through a broader lens, we can better appreciate their true value and make more informed decisions about where and how to invest. This shift in perspective is crucial as we navigate the energy transition. Least-cost planning should not be abandoned, but expanded to consider the value of energy grid resilience. As we move forward, it is essential to integrate resilience more explicitly into least-cost planning frameworks. This involves developing new methodologies and tools that allow utilities, regulators, and stakeholders to quantify the resilience value of different investments and to weigh this value alongside traditional cost metrics.

The value of resilience is increasingly being recognized by utilities across the country, as evidenced by SEPA’s recent Utility Snapshot Survey. According to the survey, 72% of utilities publicly disclose carbon emissions data, indicating that environmental considerations are becoming integral to investment decisions. However, while 88% of utilities conduct formal cost-benefit analyses, only 27% incorporate societal benefits like resilience and carbon reduction. This gap highlights the need for a more comprehensive approach to valuing resilience in economic decision-making.

Industry Case Studies

At SEPA, we are committed to providing actionable solutions that utilities and other stakeholders can implement to enhance the resilience of their energy systems. One of our flagship initiatives in this area is the development of a Resilience Planning Playbook for States and Utilities, which highlights a unique way to bring different parties together to address and integrate energy equity and energy resilience into system and community planning. This playbook helps utilities and states identify priority locations for resilience investments, focusing on key account customers, critical loads, priority circuits, and other strategic areas. The goal is to provide a clear roadmap for making targeted investments that enhance grid resilience while also supporting broader goals like decarbonization and community lifelines. We are also currently partnering with the National Rural Electric Cooperative Association (NRECA) to develop a resilience planning playbook specifically for co-ops. Our work with NRECA aims to equip the co-ops with the resources, tools, and strategies they need to incorporate DERs into their resilience planning. This is challenging, especially for smaller co-ops and municipal utilities that may not have sufficient resources or experience with newer technologies.

In developing the playbook, SEPA draws from its experience working closely with various stakeholders to ensure that it meets the diverse needs of the energy sector. For example, we partnered with Appalachian Power Company (ApCo), an AEP operating company in Virginia, to identify potential sites where grid-scale storage can be co-located with other infrastructure to provide multiple benefits—grid reliability, demand management, resilience, and capacity for renewables. SEPA and ApCo collaborated to develop an energy storage deployment strategy, identifying both customer-sited and grid-scale opportunities for enhancing resilience. The graphic below illustrates this strategy, guided by various data inputs and site selection criteria.

Source: SEPA and ApCo, 2023

Industry Advancements Moving Beyond Traditional Cost-Benefit Analysis

Valuing resilience, primarily as the economic benefits of avoiding power interruptions during extreme events, is essential for energy infrastructure investments and policy decisions. However, traditional benefit-cost analysis also falls short in capturing other resilience benefits, especially societal benefits like carbon reduction or public health. Various methodologies can be employed to better assess the holistic benefits of resilience:

• Bottom-Up Approaches: Many calculators and tools quantify the financial value of resilience by using real-life customer data and simulations, which exemplifies a ‘bottom-up’ approach. For instance, the LBNL Interruption Cost Estimation (ICE) Calculator uses survey data from various customer segments to determine their willingness to pay to avoid power outages. This data is used to calculate a statistically significant value for loss of load (VOLL) for different customers based on the duration and frequency of outages. LBNL anticipates releasing an updated calculator version incorporating updated survey data later this year [1]. Additional calculators and tools include the Business Resilience Calculator (BRC), Customer Damage Function Calculator Tool (NREL), Social Burden Method (Sandia and U of Buffalo), and FEMA Benefit-Cost Analysis Toolkit.
• Economy-Wide Approaches: These consider the broader economic impacts of power failure across entire regions or economies, with tools like the Power Outage Economics Tool (developed by ComEd and LBNL) and tools that model economic output, employment, and the financial flows associated with outages (referenced within a NARUC 2019 Publication).
• Risk-Based Approaches: These employ probabilistic models to evaluate potential impacts and prioritize resilience investments based on the likelihood of different types of disruptions. Other risk-based metrics assess outage frequency, duration, scale, and customer survivability.

As resilience investments gain prominence in policy discussions, the opportunity to refine these methodologies and integrate resilience values into planning becomes increasingly critical. SEPA and its members are at the forefront of these efforts, working to develop frameworks, like the resilience triangle below, that help utilities and regulators make more informed decisions.

Policies Driving Resilience Integration into Utility Planning

Recent legislative and regulatory measures across the country have begun to formally integrate resilience into energy infrastructure investment decisions. Initiatives range from integrating resilience benefits into grant eligibility criteria and utility incentive programs to mandating detailed resilience plans and methodologies for quantifying resilience value from utilities:

• Minnesota H4355-2: A proposed grants program for renewable integration, with resilience value as a condition of eligibility.
• South Carolina S909: A proposed utility resilience incentive bill defining resilience value as the “value of avoided service outages or disruptions.”
• Texas Rule 25.62: The objective of this rule is to submit detailed resilience plans for their transmission and distribution systems that include resilience measures to increase their ability to withstand and recover from disruptions caused by extreme weather events and to quantify the customer’s benefits of reducing the impact and duration of outages
• Louisiana PUC R-36227: The objective of this initiative is to establish rules or recommendations on how utilities should strengthen their systems to mitigate the impact of future storms, ensuring a more resilient power supply during extreme weather events
• Florida PSC 20200181-EI: This docket aims to mandate utilities to file storm protection plans to strengthen infrastructure against severe weather events as part of a broader effort to improve grid resilience in Florida. Michigan PSC U-21359: The objective of this docket is to establish methodologies to quantify the value of resilience in utility operations and is part of a broader effort to integrate resilience into the state’s energy planning process.
• Oregon PUC UM 2056: This docket aims to incorporate resilience quantification into the state’s Integrated Resource Planning (IRP) process.
• Connecticut PURA 21-08-06: The objective of this docket is to propose a set of resilience metrics for utilities to adopt.

These regulatory and legislative efforts reflect a growing recognition and need to provide regulatory guidance to PUCs and utilities to ensure they effectively integrate that resilience into policy and system planning. In 2022, the National Association of Regulatory Utility Commissioners (NARUC) and the National Association of State Energy Officials (NASEO) published a report highlighting each state’s varied approaches to incorporating the value of resilience in utility planning. SEPA will continue to monitor and contribute to these state-by-state developments.

Many other SEPA members are leading the way with innovative projects and strategies demonstrating resilience’s value. For example:

• Florida Power & Light (FPL) has developed methods to quantify the avoided costs of power interruptions through infrastructure hardening. Their approach fosters investments that reduce outage restoration costs and minimize consumer economic losses and emergency response expenditures.
• Duke Energy Florida has emphasized the economic payback of resilience investments by reducing outage duration and restoration costs, which in turn minimizes business disruption and state recovery expenses.
• Tampa Electric (TECO) uses stochastic modeling to forecast storm impacts, comparing restoration costs between base and resilience scenarios. This approach helps quantify cost savings and improved service reliability, demonstrating the financial benefits of proactive resilience planning.

Call-to-action

As we navigate the complexities of the energy transition, it is clear that traditional approaches to planning and investment are no longer sufficient. The challenges posed by climate change, evolving energy demands, and increasing expectations for reliability and sustainability require a fundamental shift in how we think about resilience.

Utilities, regulators, and policymakers must broaden their perspectives to incorporate the full value of resilience into their planning and decision-making processes. This means moving beyond least-cost planning to consider the long-term benefits of resilience investments, including the economic and societal costs of disruptions. It also means embracing new tools and interdisciplinary methodologies that allow us to quantify and prioritize resilience in a way that reflects its true importance.

SEPA, along with its members and partners, is leading the way in developing and implementing these innovative approaches. But we cannot do it alone. We call on all stakeholders to join us in this effort—to collaborate, share knowledge, and invest in the solutions to ensure a resilient, reliable, and sustainable energy future for all.

The next decade will be the most challenging yet. Still, with a collective commitment to resilience, we can overcome these challenges and build an energy system that is strong, adaptable, and ready to face the future.

1. Utility members, such as AEP, DTE Electric, Duke Energy, Exelon, National Grid, Southern California Edison, and San Diego Gas and Electric are all sponsoring this initiative and supporting the collection of survey data on customer willingness to pay to avoid power outages.