September 2004

Terror

by Roger Feldman  --   Bingham, Dana L.L.P.
(originally published by PMA OnLine Magazine: 2005/01/08)
 

As the national election rounds the post, increasingly the appeal to fear is becoming the campaign leitmotif. Ironically, a major historic root cause of that fear - energy dependence - has been lost in the mist - a 900 pound gorilla too big to think about. Not surprisingly for the time being, the classical issues of “National Energy Policy” which have been fought over in the electric power area have diminished to twinkling footnotes.

And yet, perhaps even ahead of running out of gas, the core energy issue is this: terror stalks our own society in the form of the systemic vulnerability of our electric power system. Not just attacks on individual plants or power lines, but the ability of the power/communications/security grid to bounce back from the wide range of possible forms of sabotage. An issue way beyond color coding and duct tape on windows. An issue too not necessarily within the purview of traditional basically energy regulatory bodies or general emergency planners. An issue with significant private investment implications.

The recent hurricanes’ consequences provided a snapshot of the issue. As stated in a Wall Street Journal report “Phone System’s Weak Link”, “(B)ecause of fiber optics and other new technologies . . . added to upgrade its networks, over the past decades, the systems are ironically more susceptible to disasters. The key problem: many . . . networks that used to rely on their own electricity now depend partly on commercial power . . .”

In Washington, home of the better late than never policy response, two new groups have sprung up, each focused on aspects of the issue - which each include on-site generation/DG and smart grids as necessary areas of investment, one way or another.

The Critical Power Coalition (“CPC”) focuses on the electric power system’s pervasive importance to all types of operation of the domestic economy, particularly as the line between physical and cyber assets becomes more blurred by the widespread use of digital control systems and computer technology. It emphasizes the de facto highly distributed nature of power risks among a variety of “critical nodes”. Owned by many persons other than power companies, therefore, the “hardening” of the electric power infrastructure, the CPC points out, will require far more than the improved protection of large power plants and the grid - notably if the telecommunications and law and order sectors are to be supported.

This in turn, implies a paradigm shift from the traditional utility regulatory issues - “quality and reliability” - to newer concepts of “sustainability” and “resiliency” (including focus on duration of permissible down time; recovery time; and period of necessary ongoing operations prior to system restoration). Because it is focused on the needs of distributed frequently privately controlled nodes, the CPC emphasizes the importance of enhancing on-site power, storage and controls and enhanced grid management capabilities.

One consequence of the CPC’s line of reasoning, which may become more influential the coming years, is to turn away from the notion of central utilities as the principal guardians of overall system security. Its focus, instead, is on a variety of types of public-private cooperative arrangements to establish standards, information sharing and interconnections between the public policy authorities responsible for security and the distributed node operators, and to remove obstacles to private investment.

Its focus is not just on DG, but the interstitial SCADA networks, automated control systems, and emergency fuel storage required for backup generators. CPC presence in government councils on behalf of higher technology companies and system planners is to be expected.

Not in counterpoint, but in contrast to CPC, the Power Reliability and Security Council (“PRASC”) has organized to respond to the likelihood that absent DG planning and installation of DG as key grid nodes (“reliability nodes”), the likelihood of sufficient T&D system growth and rehabilitation over time to avert accidental - and intentional blackouts - is low. Politics and economics seem to have produced gridlock on the wires issues. Beyond that, vulnerability at key public protection facilities and services (“security nodes”) can be significant without DG. Recognition of a tier of power system operations beyond “ride through” and “reliability” - “recovery” from sustained grid outage extending for several days until the core system is again operative - is critical.

ROGER FELDMAN, Co-Chair of Andrews Kurth LLP Climate Change and Carbon Markets Group has practiced law related to the finance of environmental and energy projects and companies for 40 years.  In particular, he has analyzed and executed a wide variety and substantial value of project financings.  He chairs the American Bar Association’s Committee on Carbon Trading and Finance, serves on the Board of the American Council for Renewable Energy, and has been a senior official in the Federal Energy Administration.  He is a graduate of Brown University, Yale Law School and Harvard Business School.