Among the supply chain and equipment-related lessons coming out of the pandemic, a clear one for the U.S. electric industry is that not only should we stockpile long-lead time equipment, such as large power transformers, we also need to stockpile equipment that normally have short lead times, such as digital protective relays and SCADA equipment, which perform critical functions in ensuring the operability of the electric grid.

For example, under a large-scale cyberattack or a combined cyber/physical attack on the grid, a shortage of digital protective relays could significantly delay or even paralyze our ability to restore power quickly and safely. During a major power outage, hours and days are critical, and being unable to restore power promptly because equipment that is normally available is now scarce due to spikes in demand seems like a simple failure to plan for the obvious, much less the unthinkable.  Such a failure could have disastrous consequences for public safety and national security.

The Federal Energy Regulatory Commission (FERC) appears to have recognized this potential, and earlier this year issued a Notice of Proposed Rulemaking (NOPR) that included proposed incentives designed to give utilities a return on equity for investing in project or upgrades that would improve system reliability. Specifically, the FERC proposed financial incentives for “certain transmission projects that produce significant and demonstrable reliability benefits above and beyond the requirements of the NERC reliability standards.” (emphasis added)[1]

Perhaps even more importantly, in addition to five types of projects set forth in the NOPR, the FERC also proposed to consider incentives for transmission projects that improve resilience – i.e., the ability of the grid to recover and restore power quickly from a successful attack.[2]

The FERC provided some examples of resilience projects for which it would consider incentives:

• Hardening transmission assets against adverse weather, fires and geomagnetic disturbances;
• “Event recovery” such as investments related to emergency equipment or facilities that can provide start-up power (i.e., “blackstart” facilities); and,
• Investments for disaster recovery such as transformers, circuits breakers or other “used and useful equipment for emergency response and recovery.”

While there is no single definition of resilience for the electric power sectors, the FERC proposed to define resilience as “the ability to withstand and reduce the magnitude and/or duration of disruptive events…” including the capability to “rapidly recover” from such events.[3]

Some refer to resilience as a four-legged stool — anticipate, absorb, adapt to, and rapidly recover from, an event. And it is obvious that investments in hardening and diversifying electrical facilities will lead to greater resiliency. The industry must, however, also be able to rapidly recover from an attack if all the preventive measures prove insufficient.

This means investing in restoration procedures and training (including mutual assistance agreements), hardening blackstart facilities, blackstart paths, and communications facilities, using new technologies to assist in restoration (such as drones after severe hurricanes, and emergency communications systems), and stockpiling even routine spare equipment to replace quickly equipment that was damaged or destroyed.

The FERC has already recognized the importance of increasing the availability of large power transformers and sharing of critical equipment (see the STEP, GridAssurance, and RESTORE initiatives). But as we have seen in the response to the coronavirus pandemic, items that under “normal circumstances” are relatively inexpensive and/or do not require long-lead times (i.e., N95 face masks), can be both in short supply, if available at all, and subject to astronomical price increases.[4]

Determining the quantity of spare equipment that should be stockpiled is difficult, especially for severe events for which there is no historical or statistical basis. But in its 2010 Report, the National Infrastructure Advisory Council (NIAC) identified two factors to consider regarding threats to the electric power system that should be considered in light of potential large-scale attacks.[5]

• Availability of Critical Components: Are key components readily available? Are lead times and costs of critical spares acceptable?
• Domestic Sources: Are domestic manufacturing capabilities adequate?

Evaluation of these factors is key, but may not be sufficient because vendor information on a specific component may not include all the information needed, such as lead times, costs and that source of sub-components, all of which can affect the quality, cost and timeliness of delivery of the equipment, especially where sub-components come from outside of the United States.[6]

In the NOPR, the FERC stated the normal requirement that equipment used for restoration must be “used and useful.” To provide more certainty to the utility industry, the FERC should provide in the final rulemaking better guidance on how it will evaluate, on an ex ante basis, whether spare equipment purchased to recover from a severe, never before seen event that we hope will never occur, is “used and useful.” This guidance is especially important because details of equipment, quantities and storage locations are likely to be Critical Electric Infrastructure Information.

The FERC guidance in the final rulemaking should also account for:

• Using spare equipment for normal operations, when necessary, and replacing that equipment back into stock;
• Accounting changes that may be required to accommodate the difference between events for which there is a historical basis (such as hurricanes) and those for which there are few or no events to perform quantitative analyses using historical statistics;
• Allowing investments in cybersecurity and spare equipment for cyber assets that could be destroyed in a cyberattack (such as digital protective relays, SCADA equipment, etc.).

As we have learned during the Covid-19 pandemic, the time to plan and act for a severe emergency is when conditions are normal, rather than during a crisis. As part of a final rule of its incentive NOPR, the FERC can provide support and ratemaking certainty to the industry, as well as provide guidance to states on the importance of additional investment incentives to protect against extreme events.