Can Decision-Makers Learn to Embrace Change in the Energy Risk Lab? “They can try making a billion-dollar decision without actually making a billion-dollar decision.”

Can Decision-Makers Learn to Embrace Change in the Energy Risk Lab? “They can try making a billion-dollar decision without actually making a billion-dollar decision.”

Herman K. Trabish, August 17, 2012 (Greentech Media)

click to enlarge

Energy regulators, who will decide this nation’s energy future on a state-by-state basis, were recently invited to play games with the nation’s energy challenges.

National Association of Regulatory Utility Commissioners (NARUC) Director of Grants and Research Miles Keogh explained that in order to help regulators “deal with a vast ocean of extremely complex and extremely dynamic issues,” he has been building and running energy emergency tabletop exercises since the post-Hurricane Katrina period.

In 2010, NARUC began thinking about an energy challenge that “wasn’t a hurricane or a cyber-attack, but something policy-driven.” The group began running games challenging regulators to think about new transmission, grid preparation for electric vehicles, andintegrating high levels of renewables.

With recent EPA and DOE funding, Keogh said, NARUC developed The Energy Risk Lab, a game to prepare regulators for real-world changes in power plant regulations they will faceover the next five years.

The game, on which GTM sat in, dealt first with three major new power plant rules: (1) Mercury and Air Toxic Standards (MATS) (2) Cross State Air Pollution Rule(CSAPR), and (3) the Clean Air Act, Section 111B, NSPS (New Source Performance Standards).

It also asked regulators to consider (4) the Clean Water Act, Section 316B, (5) unknown potential carbon pricing, (6) hydraulic fracturing moratoria, (7) gas price volatility, (8) a national Clean Energy Standard, and (9) a rapid, energy-intensive economic recovery.

The game “gives policymakers and decision-makers an opportunity to try out different responses to a complex market, policy and technology environment,” Keogh said. “They can try making a billion-dollar decision without actually having to make a billion-dollar decision.”

click to enlarge

By revealing response patterns, The Energy Risk Lab has become “a policymaker behavioral predictive tool,” Keogh said. “You can model how a transmission line is going to work or how a market is going to behave but it is difficult to predict how human policy makers will respond to policy conditions.” As a result, it has rendered two big insights and one small insight, Keogh said.

“We have people with a lot of experience with power plants,” he explained. “When we get them all together and map out the time each takes, in sequence under the EPA regs, we have a hard time getting the time each expected for their piece and fitting that into the three-year compliance period for the first big rule we’re worried about, MATS.”

EPA presently requires MATS compliance by April 2015. Keogh did not say the EPA must reconsider its deadline. “All I can say for sure,” Keogh said, is that in the game, “it’s hard to make all those pieces sequence up in a way that takes less than three years. That’s the little outcome.”

The first big insight, Keogh said, “is that strategic action is more effective than reactive action. If you figure out what you are going to do and then do it, that makes for a better outcome than if you react to every problem right in front of you.”

Being strategic and not looking only at the first rule but considering other rules, Keogh explained, may lead to wrong specific decisions but will tend to have a better outcome. “Folks who acted strategically, who made a plan for dealing with more than just the one rule, didn’t have to go back and fix their messes as they went along,” Keogh said. “A strategic approach always leads to a more favorable outcome than a reactive approach.”

click to enlarge

“The other big takeaway, Keogh said, is that having more options helps you manage your risk. Preserving options and generating new options leads to better outcomes than heading toward an obvious near-term solution.”

That raises another very important question, Keogh said. “Are we making 50-year investments in infrastructure based on a two-year fuel price horizon?” If we don’t preserve some of our options and generate other options that aren’t just driven by that two-year fuel price horizon, he explained, we won’t have the insurance of a diverse portfolio. “When you are dealing with uncertainty, you broaden your portfolio to deal with variability,” he explained.

“In the near term, it is more expensive to generate a diverse portfolio, but over the course of the game -- and, I think, in the real world,” he said, "[that] will lead to better outcomes than having a single, monocrop kind of portfolio.”

The “breakout story” of the session GTM observed, Keogh said, was how comfortable utility representatives are with utilizing demand-side resources as an actual resource. "I didn’t think people would be comfortable retiring a coal plant and replacing it with demand-side resources outright. But in the context of the game, folks are more comfortable than we had expected.”

That was important, he said, because “folks who really doubled down on efficiency in the context of the game were opening up a whole package of options that diversified their portfolio.”

It opened up, he added, options that made them immune to things others were later hit with.

It was an “eye-opener how much efficiency and demand response punch above their weight. They look like little resources, but they really help a lot. Renewable resources, in the context of the game, played a role but it wasn’t a transformative role,” Keogh said. “They didn’t play the outsized or unexpected role, in terms of providing benefits, that demand response and efficiency did.”

click to enlarge

Tweet