Reliability Has Always Been, and Continues to Be, a Central Part of our Planning

We are excited about our active role in leading the clean energy transition, and our plan to increase the amount of renewable generation and achieve significant emission reductions, while at the same time maintaining a reliable system. We believe that both our Supplement Plan and Alternate Plan achieve this balance. But, doing so required a careful examination of reliability considerations as we move from a system built on baseload and load-following resources to one that relies more on variable, weather-dependent resources. The variable and intermittent nature of renewable resources creates a certain amount of unpredictability in our system which must be managed through careful planning.

The North American Electric Reliability Corporation (NERC) defines a reliable electrical system as one that is able to meet the electricity needs of end-use customers even when unexpected equipment failures or other factors reduce the amount of available electricity, and divides reliability into two categories:¹

• Adequacy. Adequacy means having sufficient resources to provide customers with a continuous supply of electricity at the proper voltage and frequency, virtually all of the time. Maintaining adequacy requires system operators and planners to take into account scheduled and reasonably expected unscheduled outages of equipment, while maintaining a constant balance between supply and demand.

• Security. For decades, NERC and the bulk power industry defined system security as the ability of the bulk-power system to withstand sudden,

unexpected disturbances, such as short circuits or unanticipated loss of system elements due to natural causes. In today’s world, the security focus of NERC and the industry has expanded to include withstanding disturbances caused by manmade physical or cyber-attacks. The electrical system must be planned, designed, built, and operated in a manner that considers these modern threats, as well as more traditional risks to security.

The ability to provide reliable electric service depends on a complex and

interconnected network of generating resources and transmission infrastructure that provides capacity and delivers energy to customers. Historically, the grid consisted

1 North American Electric Reliability Corporation,

http://www.nerc.com/AboutNERC/Documents/NERC%20FAQs%20AUG13.pdf (last accessed on June 22, 2021).

primarily of traditional thermal and hydropower sources which can and have been essential to serving our reliability function. The grid has continued to transition away from many of these traditional resources. Thermal plants are retiring and variable and use-limited resources such as wind, solar and battery energy storage are increasing.

This means that the quantity of resources that have traditionally provided grid

resilience attributes are decreasing, and the quantity of resources that require the grid to operate more flexibly are increasing. Overall, grid operators must ensure that, as the mix of resources on the grid continues to evolve, all the necessary resource attributes that ensure the reliable supply and delivery of electricity to customers remain present.

In its 2020 Long-Term Reliability Assessment Report, NERC recognized that the increase in renewable generation creates new planning considerations and a growing need to factor in the uncertainty associated with the inherently variable nature of these resources:²

The addition of variable energy resources, primarily wind and solar, and the retirement of conventional generation is fundamentally changing how the [bulk power system]

BPS is planned and operated. Resource planners must consider greater uncertainty across the resource fleet as well as uncertainty in electricity demand that is increasingly being affected by demand-side resources. As a result, reserve margins and capacity-based estimates can give a false sense of comfort and need to be supplemented with energy adequacy assessments. Energy assessments are key to understanding the reliability needs of a future BPS.

These heightened planning considerations are becoming necessary year-round and not just in the summer months. As MISO stated in its recent report on Winter Storm Uri in February 2021:

Resource adequacy planning needs to be refined. Historically, tight supply and demand conditions typically only occurred on a few peak days in the summer, but today MISO experiences such conditions with increasing frequency across all seasons. Changing from an annual to a seasonal resource adequacy construct will help address this new reality.³

2 See North American Electric Reliability Corporation, 2020 Long-Term Reliability Assessment, available at

https://www.nerc.com/pa/RAPA/ra/Reliability%20Assessments%20DL/NERC_LTRA_2020.pdf (last accessed on June 22, 2021).

3 See MISO, “The February Arctic Event, Event Details, Lessons Learned and Implications for MISO’s Reliability Imperative” available at: https://cdn.misoenergy.org/2021%20Arctic%20Event%20Report554429.pdf (last accessed on June 22, 2021).

Indeed, MISO’s CEO, John Bear, recently explained that “five of the six events that have stressed our system . . . have been non-summer cold weather events.”⁴ Winter storms and polar vortex conditions have affected the region multiple times including in 2011, 2014, 2019 – and most recently, in early 2021. In light of these winter weather emergencies that are occurring with greater frequency, we must ensure resource adequacy across the entire year.

In addition to these extreme weather events, variations in weather impact fuel for generation. For example, extended periods where there is no wind or sun, extreme heat conditions which may decrease water levels for hydro generation, significant snowfalls that cover solar panels are just a few of the considerations that negatively impact reliability and resource adequacy and which we must factor in. The changing nature of our resource mix and increasing dependence on variations in fuel supply changes the roster of risks that negatively impact reliability and adequacy of energy supply to our customers. While renewable generation is an excellent energy resource, it is not by itself an excellent capacity or demand resource. To be an excellent

capacity or demand resource, we must be able to have control over the resource, that is, ensure that it is firm and dispatchable. As our system planners understand,

resource adequacy is the foundation of a reliable Bulk Power System, and we must take steps to reduce the reliability risks.

As discussed in more detail below, the recent electricity blackout events in Texas underscore the need to carefully plan the system to be resilient to extreme weather events. We and other utilities are significantly increasing the amount of renewable generation on our systems, and as a result, increasing the risks associated with lack of continuity of energy supply. To mitigate those risks, our renewable additions must be measured and supported by sufficient firm, dispatchable resources. In addition, all resource types must be reasonably prepared for extreme weather conditions. Weather-related threats to the electricity system are increasing in frequency and intensity and are projected to worsen in the future. As a result, it is prudent to take steps to ensure that we have sufficient production capacity to handle unexpected demand spikes or supply shortfalls.

Our Alternate Plan represents yet another step in the ongoing evolution of the regional electric grid. While the electric utility industry has evolved significantly over the past several decades, that evolution has accelerated in recent years.

Our new plan marks the end of an era. We no longer plan to rely on large central station power (discussed below) for resource additions and will continue our move

4 See S&P Market Intelligence, “Grid Officials Mull Lessons Learned from February Freeze,” June 11, 2021.

toward a diverse resource mix that is distributed across the region. This move requires thoughtful planning to ensure reliability and maximize efficiencies while increasing the amount of variable generation on the grid.

In the next section, we set forth the history of the grid over the past century and the advancement of utility systems to reliably meet customer needs. This historical context provides useful background for the development of our Alternate Plan and for our vision for the future. Over the past century, we have continually adapted to changes in technology and the needs of our customers. Throughout our history, we have always prioritized reliability. The move away from central station power marks an inflection point in the ongoing evolution of the grid. We are confident that we can meet the challenges before us as we continue this evolution.