Utility Automation & Engineering T&D - NERC posts draft ERO application for comment

Princeton, NJ, Dec. 21, 2005 -- The posting of the draft application marks the close of the most significant and eventful year in NERC history, according to the commission. This summer, Congress passed and President Bush signed into law the Energy Policy Act. The law, which authorizes the creation of a self-regulatory ERO that spans North America, allows NERC to fulfill the mission for which it has been preparing for more than a decade.

Another significant event occurred when Mike Gent, NERC's leader of 23 years, stepped down in September and Rick Sergel stepped in to lead NERC through the transition as its new president and CEO.

NERC plans to file its formal application in February or March, after the Federal Energy Regulatory Commission (FERC) issues its final rule establishing the requirements of the ERO. FERC has until February 4, 2006, to complete its rulemaking, and formal applications are due within 60 days of the final FERC rule.

The draft application follows several important events that took place this fall. In September, FERC issued a notice of proposed rulemaking concerning certification of the ERO. Chairman Joseph Kelliher in November addressed the Board of Trustees on the need for a strong ERO. NERC then participated in two technical conferences FERC held in November and December. The draft application addresses the issues FERC has raised.

The ERO will operate under FERC oversight in the United States. NERC is seeking comparable recognition in Canada, and this year added a second Canadian seat to the Board of Trustees.

The draft ERO application is available at NERC's website. NERC encourages all interested parties to submit comments.

NERC's draft application addresses several key issues defining how NERC will function as the ERO, including membership, funding, governance, functions and responsibilities, relationships with Canadian regulatory authorities, and the role of the NERC regions. NERC is working with the active involvement and support of government and industry stakeholders, and with a stakeholder group called the Post-Legislation Steering Committee to assist in coordinating the transition to become the ERO. The Stakeholders Committee and the Board of Trustees will review and discuss a second draft of NERC's ERO application at their meetings on February 6–7, 2006. Following board approval of the final ERO application, it will be submitted to FERC.

NERC says its long-standing purpose has been to promote the reliability and security of the bulk power system in the United States, Canada, and part of Mexico. NERC expects that becoming the ERO will empower NERC to move beyond promoting reliability to enforcing compliance with its standards and continually striving to improve the industry's reliability performance.

NERC envisions the ERO as an international center for excellence in reliability. To that end NERC says the ERO will have the following characteristics:

* The ERO will be open to participation by all with an interest in the reliability of the bulk power system in North America and will not be dominated by any particular segment of the industry. The ERO will develop robust, technically sound reliability standards.
* The reliability standards will be applied and enforced consistently across North America, through effective, regionally based, compliance and enforcement programs.
* The ERO will support market solutions to reliability problems where that is possible, with the clear understanding that we won't have competition if we don't have a reliable electric system.
* The ERO will strive to improve the performance and reliability of the bulk power system. It will do so not just by setting and enforcing standards but by monitoring, evaluating, and measuring the status of the power system. Only through real and measured improvement can we be assured that the ERO will live up to its promise to support a more reliable electric system.
2005: Implementing Change

In 2005, NERC launched several key initiatives and advanced existing programs to prepare for its transition to become the ERO. From February, when NERC adopted its new reliability standards, through December, when NERC posted its draft ERO application, NERC made unprecedented strides toward becoming the ERO.

In February, NERC adopted the initial set, or Version 0, of its reliability standards, which translated the former NERC operating policies and planning standards into an integrated and comprehensive set of measurable reliability standards. The new standards took effect April 1. To date, NERC has adopted more than 91 reliability standards with more than 800 requirements that apply to all owners, operators, and users of the bulk power system.

The NERC reliability standards define the requirements for planning and operating the North American bulk power system reliably. They are based on discretely defined functions that need to be performed to ensure reliability. Developing reliability standards is at the core of what NERC does and what the ERO will do.

The process NERC uses to develop new standards and improve existing ones is guided by explicit reliability and market interface principles and accredited by the American National Standards Institute.

In 2005, as part implementing the new standards, NERC began to register the entities responsible for meeting the standards. About 200 entities are actively monitored in the NERC Compliance Enforcement Program, which monitors compliance with the standards. NERC expects the list of registered entities to grow to 500 or more by the time the ERO is established.

In May, NERC became a member of the North American Energy Standards Board. The two organizations work together to coordinate the development of business practices and reliability standards for the wholesale electric industry and minimize duplication of effort.

Through its Compliance Enforcement Program, NERC monitors industry compliance with the reliability standards by auditing the performance of responsible entities, publicly posting confirmed violations of the standards, and reporting those violations to all interested government authorities and industry stakeholders. Being certified as the ERO will give NERC the authority to enforce compliance with its standards.

After the new standards took effect in April, the Compliance Enforcement Program was modified to incorporate the new standards. In June, NERC adopted a new process for disclosing violations of the standards. NERC now issues quarterly reports on industry compliance with reliability standards.

In 2005, NERC expanded and improved its Readiness Audit Program and launched its Examples of Excellence Bulletin. Both efforts focus on improving reliability and highlighting excellence in system operations.

The Readiness Audit Program independently reviews the operations of all balancing authorities, transmission operators, and reliability coordinators in North America to determine their readiness to maintain safe and reliable operations. This year, NERC expanded the coverage of the program to include local control centers. The audits identify areas of excellence in operations and areas in need of improvement. Unlike compliance audits, the readiness audits do not measure compliance with the NERC standards.

In April, NERC launched an initiative to highlight examples of excellence in operations by posting the first Examples of Excellence Bulletin. The quarterly bulletin recognizes select electric industry practices identified through the Readiness Audit Program as being exceptionally effective in ensuring and protecting reliability. NERC highlights these practices as examples for the electric industry to consider in achieving excellence in system operations.

NERC is the United States government's designated coordinator for electricity sector security information. In that role, NERC works to ensure the resilience and recoverability of the electricity infrastructure from both physical and cyber attacks. NERC also works closely with Canada's Department of Public Safety and Preparedness to coordinate industry-government critical infrastructure protection initiatives.

* The Electricity Sector Information Sharing and Analysis Center (ESISAC) gathers, disseminates and interprets security-related information and coordinates information exchange with the electricity sector, government, and other critical infrastructure industries.
* Urgent Action Standard 1200 — Cyber Security establishes the requirements for securing information assets that support reliability and market operations. In August, NERC extended the urgent action standard for one year to allow continued work on development of a permanent standard.
* The security guidelines for the electricity sector are a compendium of best practices for protecting critical facilities against security threats. These guidelines address vulnerability and risk assessment, business continuity, physical and cyber security, and protecting sensitive information.
* NERC is working with the United States Department of Energy to design a standardized, industry-wide, public key infrastructure (PKI) that binds policy and technology together to establish a trusted environment in which to conduct electronic business. PKI promotes and protects data transfers among industry participants by ensuring privacy, identity authentication, data integrity and non-repudiation.
* Much of the equipment that is critical to bulk power system operations is also vulnerable to physical attack. To address this threat, NERC developed an industry-wide critical spare equipment database and is working with the industry to ensure the security and availability of these assets.

Every year, NERC reviews, assesses, and reports on the reliability and adequacy of the bulk power system for the upcoming summer and winter seasons, and the next 10-year period. The reports assess projected electricity demand and resources, and discuss key issues and trends that could affect electric system reliability in North America. This year, in addition to its regular assessments, NERC monitored the effects of limited rail service from the Powder River Basin on coal inventories at certain power plants.

NERC establishes basic standards of competency for electric system operators. NERC offers credentials in four areas of operation: balancing and interchange; transmission; balancing/interchange and transmission; and reliability. To date, NERC has credentialed more than 5,000 system operators and approved more than 1,000 continuing education courses.

NERC supports the development and deployment of tools, data, and systems needed to maintain bulk power system reliability. Among other technical issues addressed in 2005, NERC worked with the wind generation industry to develop interconnection agreements that FERC recently approved. It also worked on improving congestion management tools and creating a dynamic transfer catalog to assist reliability coordinators. In February, a NERC technical team verified that the Midwest Independent Transmission System Operator had the tools necessary to begin its market operations in April.

NERC also maintains a variety of databases that support system reliability and assessments, including the Electricity Supply & Demand Database (ES&D), and the Generating Availability Data System (GADS).

NERC heads into 2006 ready to become a strong and competent ERO with clear, consistent, enforceable, and technically sound standards. Following FERC certification of the ERO, which may occur by August 2006, NERC will submit a proposed ERO budget for 2007. NERC counts on the continued support and active involvement of the entire community of NERC stakeholders as we move forward to become the ERO for all of North America.

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