Energy Regulatory Outlook 2017

Analysis

2018 Energy Regulatory Outlook

Forging ahead amid uncertainty

Gain insight into key energy regulations that companies in the industry should be monitoring and addressing in 2018.

Embracing complexity: 2018 regulatory trends in energy

Most energy companies are forging ahead with their risk and compliance initiatives even as regulatory uncertainty will likely remain a significant an ongoing challenge. Even if lawmakers and regulators make definitive changes, companies must continue to drive effectiveness and efficiency of their risk and compliance programs so they meet applicable laws, regulations, and supervisory expectations.

Fortunately, many of the changes companies are making to achieve compliance are useful improvements from a business perspective. Therefore, they’re worth doing no matter how the future unfolds.

Read on to learn more about the energy regulations we’re tracking for 2018.

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Price reporting

Price reporting continues to be of interest to regulators and market participants alike. Regulators want transaction price information because of the implications for price formation and market visibility. Market participants want the information because it gives them a sense of how their business is contributing to and/or shaping the market at different trading locations. It also gives them a barometer for evaluating their own trading activities relative to the market.

Lingering concerns include the challenge of establishing and overseeing a price reporting program, as well as how regulators will use the data.

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Leadership update for the CFTC and FERC

In the wake of the 2016 presidential election, 2018 will be a time of transition at both the Commodities Future Trading Commission (CFTC) and the Federal Energy Regulatory Commission (FERC). Under the new administration, new chairmen have been nominated and confirmed, some commissioners have departed before their terms expired, and new commissioners are joining or being confirmed.

It’s hoped that 2018 will see both commissions restored to their full strength of five commissioners in order to deal efficiently with the industry’s complex regulatory issues.

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Market/trade surveillance and data collection

A focus on trade surveillance in the energy commodity markets has continued despite uncertainty in the direction of US regulations on this topic. Globally, other regulators are increasing their oversight and prescribing additional requirements, helping to keep the interest of US market participants relatively stable. Organizations with a global trading footprint are continuing to build out capabilities to meet the demands of new requirements coming online in the near term.

Key steps to consider include:

  • Perform an assessment of current practices to validate effectiveness in preventing compliance risks 
  • Develop a risk register that prioritizes risks and profiles requirements across the portfolio, as driven by overseeing bodies
  • Build a road map that rightsizes the solution, factoring in existing technology investments and off-the-shelf solutions

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Operational integrity and safety

The power and utilities (P&U) asset base is stressed due to aging infrastructure, growth in customer demand, and impacts from innovation in such competing areas as solar and distributed energy resources. Meanwhile, increased scrutiny from state and federal regulators continues to drive a need to revisit asset management protocols that are significantly dated, despite evidence that analytical approaches are beneficial and more efficient.

Organizations should consider the following to get ahead of the problem:

  • Performing a detailed assessment to identify asset management program improvements that align with the latest standards
  • Identifying, categorize, and collect relevant operational data
  • Predicting critical failure types and locations to improve operations, maintenance, and capital investments
  • Creating a risk-based priority roadmap to strategically align asset investment plans with business strategy

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Innovation

The energy industry is rushing to develop innovative technologies that improve how companies operate. Businesses are making great strides in adopting these technologies, either alone or by joining major consortiums. To avoid business disruption, companies need a carefully prepared change management plan that addresses the obstacles and risks.

Key steps to consider include:

  • Focusing innovation on a specific pain point of business goal
  • Surveying the industry to benchmark the firm’s current state and expected future state
  • Rightsizing an innovation plan to fit the firm’s capacity and risk tolerance
  • Clearly communicating the innovation plan to key stakeholders within the firm and getting early buy-in
  • Developing a long-term plan to be executed once the first initiative is complete

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North American Electric Reliability Corporation (NERC)

Electric grid reliability remains a strong focus for regulators. And we’re now seeing an extra emphasis on cybersecurity, particularly from FERC, which is the parent regulator to the North American Electric Reliability Corporation (NERC).

Here are a few key trends and issues to be aware of:

  • FERC regulation of NERC: FERC has participated in a growing number of NERC audits and has actively initiated FERC audits of compliance by entities subject to NERC critical infrastructure protection (CIP) regulations.
  • Third-party vendor/supply chain: NERC has begun adopting proposed supply chain standards and implementation plans.
  • Cross-border collaboration: NERC has been focusing heavily on supporting a more collaborative and integrated approach to reliability with both Canada and Mexico.

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Cybersecurity

Cybersecurity regulation is a topic to monitor closely. Greater regulatory focus will lead to increased obligations to better structure and implement governance and compliance programs to ensure cybersecurity activities are being executed as designed. This isn’t only for the sake of regulatory compliance, of course, but to also keep the business and its cyber assets secure.

Regulation of cybersecurity operations and activities continues to evolve, with a current mix of mandatory regulatory requirements and regulatory pressure to step up voluntary efforts.

Key issues include:

  • Privacy and data protection
  • Cloud services
  • Third party/supply chain

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Utility commodity hedging and risk management

State regulators are starting to take a closer look at utility commodity hedging and risk management programs.

A shift in regulatory thinking might push utilities to take a more risk-based approach to developing hedging strategies. This would require more sophisticated risk measurement and monitoring capabilities, as well as the development of a strategy based on risk indicators that are tied to market movements—whether up or down—rather than simply locking in a percentage of expected commodity purchases or sales. Done well, such a strategy could allow utilities (and by extension, their customers) to limit downside commodity price risk while not completely eliminating their ability to benefit from advantageous market movements.

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Taking decisive action in uncertain times

Regulatory uncertainty remains a fact of life. And waiting for absolute certainty is rarely a viable option. That’s why energy companies should take decisive action, pay close attention to emerging regulatory developments, and stay as flexible as possible.

To learn more about these key trends and how embracing complexity can help you accelerate performance, stay ahead of change, and successfully navigate energy regulations, download Navigating the year ahead: 2018 energy and resources outlook.

Look again

In today’s rapidly evolving marketplace environment, key business issues are converging with impacts felt across multiple industry sectors. What are the key trends, challenges, and opportunities that may affect your business and influence your strategy? Look for more perspectives and insights from some of Deloitte’s forward thinkers.

Discover more Industry Outlooks.

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