Tail events: Prediction, Planning, and Performance
Extreme weather and related fires and floods are much in the news. The electricity crisis in ERCOT in February 2021 illustrated the challenge of addressing high consequence but low probability events. The extraordinary heat wave on the Pacific Coast of US and Canada in June provided a stark example of a seemingly very low probability event that was not predicted and shocked us because of the magnitude of the temperature spike. How much of this is driven by climate change dynamics? If so, what reliability/resiliency policy implications should that have? And how much remains both surprising and unexplained? Everyone wants to protect against severe consequences. A report on the ERCOT crisis by former state regulators in Texas embraced the title “Never Again”. But we cannot protect ourselves from everything. When we get outside the envelope, emergency procedures are required. How have these cases changed the analysis, prediction, planning and procedures for low probability high consequence events? What promises should we make? What promises can we keep?
Reinhart and Rogoff subtitled This Time is Different to describe “Eight Centuries of Financial Folly” and the durability of hope over experience. Material changes in relative market economics for long-lived assets create the problem of stranded assets. Wise investors look ahead to avoid or insure against such losses, but sophisticated investors have been surprised in the past. For energy, the regulatory compact implies symmetry under cost-based regulation, but the record presents a history of prominent...
Order 2000 by the Federal Energy Regulatory Commission set the regulatory foundation of today’s organized electricity markets. While policies of wholesale competition drove early interests in markets, the growth of intermittent and potential entrance of distributed resources and associated policy changes are driving market interest in further wholesale market development. Do these changes offer greater incentives to utilities to join RTO’s and/or provide the FERC with greater authority to further incentivize or even compel RTO membership? While PJM, MISO and SPP saw... Read more about Order 2000 Revisited - FERC Market Expansion and RTO Policy: Where are we now?