FERC’s Cheryl LaFleur: Need to Stay Ahead of Cyber Threats

By Rebecca Kern

Aug. 30 — Cheryl LaFleur, who’s serving her sixth year as a commissioner on the Federal Energy Regulatory Commission, says one of the hottest issues at FERC today is cyber threats to the U.S. electric grid, which individual hackers and nations attempt to attack on a daily basis.

LaFleur also highlighted the importance of ensuring the reliability of the grid with the addition of more intermittent renewables during a sit-down interview with Bloomberg BNA’s Rebecca Kern. She described some of the challenges FERC will face as it shrinks to three commissioners who are all Democrats—a first for the agency—because Republican Commissioner Tony Clark is expected to leave at the end of September. This interview was edited for clarity and length.

Bloomberg BNA:

What are some of the actions FERC is taking to address the growing number of cyber threats against the nation’s electric grid?

Cheryl LaFleur:

We are on the sixth generation of the mandatory cybersecurity standards, which are basic protections to make sure cybersecurity is sustained across the grid. The fifth generation was really the first one standard that requires some level of cybersecurity for all parts of the bulk electric system, tiered by risk.

What we’re looking to is defense in depth, so that if something goes wrong, it won’t cascade. It can be localized in some way. So I think we have a strong set of standards in place, which has been a major accomplishment.

The difficulty is that the threats are evolving very, very rapidly. I don’t think I knew what ransomware was six months ago, and now it’s all over the press. There seem to be constant new words of new types of cyber incursions, and the standards process is not nimble enough to continually adapt to all of the new cyber threats. So I think we have to work beyond the standards to communicate between the government and industry and other parts of government to make sure threat information is shared and responses can adapt rapidly.

I think the law that Congress passed last year—[Fixing America’s Surface Transportation] Act—to facilitate sharing of cyber-threat information was very positive.

Bloomberg BNA:

One of the most recent actions FERC has taken on cybersecurity is ordering the development of a reliability standard for supply chain cyber controls. You filed a dissent against this order. Can you explain your reasoning behind this?

LaFleur:

The commission voted to require the North American Electric Reliability Corp. [NERC] and the industry to develop standards around supply chain management for cyber—how hardware, software are purchased and how cyber protections are taken into account in the process. I think this is a very important issue, but I dissented because I thought we should have carried out more of process of consideration to give more guidance before we required them to come up with a standard.

When we had our technical conference on this, it was quite clear the tremendous complexity of the issue because of the levels of supply chain. I don’t think it’s a straight forward thing to figure out how to structure a standard within our authority, and I think we would have been better served to do more work to be able to give clearer direction about what we wanted. I think we would have ended up with a better standard more quickly if we took that step.

Bloomberg BNA:

As there are more intermittent renewables like wind and solar, do you have concerns about reliability of the grid?

LaFleur:

I think they’ll change the challenge. Right now, the commission and NERC are looking at what are the ways in which you need to change the operation of the grid to ensue reliability at a time when a growing number of the resources are not controllable with a switch, but are controlled by the natural forces—the wind and the sun. I’m confident that we can keep the lights on, but it’s a different structure in which we’ll be working than when we had the baseload as the primary sources of energy.

I also think that right now natural gas is the primary way that grid operators are balancing variable renewables. There are other technologies—emerging storage technologies, demand side technologies—that can help renewables, but they’re less mature than some of the gas technologies.

Bloomberg BNA:

Can you discuss some of the challenges that have arisen now that we’re relying more on natural gas as a resource?

LaFleur:

We as a nation are becoming more and more dependent on natural gas. Obviously, we’ve seen a tremendous amount of coal-to-gas substitution, with all the retirements of the coal plants because of the Mercury and Air Toxics Standards. We don’t see coal being built and we don’t see very much nuclear being built in the country, so gas is being looked at as the primary central station technology.

I’ve been in energy for 30 years, but it’s never been easy to build things. Building out energy infrastructure, just like transportation infrastructure, is a difficult enterprise, but I think the level of difficulty around gas infrastructure right now is more than I have seen in the past.

Bloomberg BNA:

Is there more FERC can do to streamline the gas infrastructure build out?

LaFleur:

We have the responsibility to consider pipeline applications under the Natural Gas Act. We have been trying to do it as carefully and as promptly as we can consistent with doing it right, and making sure we consider all of the comments in the dockets, and all of the issues that are raised by a pipeline.

I think how we do our environmental review, like many other aspects of our work, is something that we’re constantly trying to improve. Right now we’ve seen some guidance on the National Environmental Policy Act come out from the Council of Environmental Quality that we’ll be following. And like other aspects of our work, we can continue to do it as well as we can.

Bloomberg BNA:

How do you address the impacts that distributed energy resources, like rooftop solar, which are regulated at a state level, are having on the wholesale energy market rates, which are regulated by FERC?

LaFleur:

We’re seeing more and more distributed technologies on the distribution level behind the meter that collectively can contribute in the way that a central station technology at the wholesale level could. And so the wholesale markets are appropriately trying to compensate and take into account those distributed technologies, yet they’re state-regulated but the wholesale market consequences are federally regulated. So there is that line between that I think is primarily driven by new technology.

Our responsibility is to make sure that the wholesale tariffs properly compensate the reliability of power attributes, whether they’re old fashioned resources or whether they’re new, distributed resources. So we’ve done a lot work. I would say the demand response rule [Order 745], our frequency regulation work, and work on distributed solar make sure that those resources are properly valued in the markets. And that’s been one of the ways in which markets have had to adjust.

Bloomberg BNA:

Likely at the end of September, Tony Clark—the one remaining Republican commissioner at FERC—will leave the agency following the expiration of his term. This will be the first time FERC will have a panel made up totally of Democrats, and you will be shrinking to three members. What are the limitations this places on FERC and how will you work to overcome them?

LaFleur:

This will be the first time since I’ve been at the commission that we’ll be down to three. We have been at four several times. I think the commission is strongest with a full complement of members. It’s five for a reason. I think we can make the best decisions when we have can have the most insights on a topic, ideally from people from different geographies, different professional backgrounds, and different ideologies.

However, I’m confident the vast majority of work will go forward and we will vote out our orders. Where we might have an issue is where a commissioner might have to recuse by law on any matter and we didn’t have a quorum of three.

Most of the matters we consider are not that partisan and don’t break along partisan lines. So I do think that for the vast majority of things, I would not be concerned about the perception.

But I think having a bipartisan commission would be better, and I look forward to getting the nominations of non-Democrats, be they independents or Republicans, as soon as possible so we can fill out the ranks.

Bloomberg BNA:

What qualities that are important to have as a candidate for FERC commissioner now that you have two openings that are awaiting White House nominations?

LaFleur:

I think the strongest group is a diverse group. When I first came, I came from a private sector background—legal and operating. We had somebody with a Hill background, a state commissioner, someone with a consumer background, and a state commissioner but also who had previously been a state representative. So I thought that diversity of professional background was very positive. There’s no one path to get here, I think having different backgrounds is good.

I think what’s important, no matter who you are, you’re going to have a tremendous amount to learn when you get here. I thought I knew a lot, and the longer I’m here, the more I think I have to learn because nobody knows about all aspects of our work and all regions of our country.

So what’s important is someone with an open mind, who will put in the time to fill out his or her background and understand the parts of our work that he or she might not have had. Of course, all of us strive to decide the cases based on the record and the law.

To contact the reporter on this story: Rebecca Kern in Washington at rKern@bna.com

To contact the editor responsible for this story: Larry Pearl at lpearl@bna.com

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