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RELIABILITY | ACCOUNTABILITY

NERC 2017Annual ReportFebruary 2018

2016 Annual Report2

Table of Contents

Letter from the Board of Trustees Chair 3

Letter from the Interim President and Chief Executive Officer 5

NERC Overview 7

2017 Achievements 8

Building and Preserving Achievements 8

Ongoing Analysis of Known Reliability Risks 8

Effective and Efficient ERO Enterprise Operations 10

Strengthening Engagement 12

Adapting to Change 13

Identifying and Assessing Emerging Risks 13

Promoting Leading Security Practices, Information Sharing and Analysis, and Resilience 15

NERC Regional Entities 18

2018 Board of Trustees 20

2018 NERC Executive Management Group 21

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Letter from the Board of Trustees ChairAs Chair of NERC’s Board of Trustees, I would like to thank you for your support of the ERO Enterprise throughout 2017. The 2017 Annual Report identifies many accomplishments for the year. The ERO Enterprise model owes its strength to the hard work and expertise of the entire ERO Enterprise community – the electric utility industry and other stakeholders, NERC’s staff and the staff of the eight NERC Regional Entities that provide essential compliance and enforcement services across the ERO footprint. Coupled with the Board’s focus on strategic priorities and independent oversight, this combined expertise and dedication safeguards the reliability of the North American bulk power system.

The ERO Enterprise has faced many challenges over last 10 years and more remain in the coming years. These ongoing challenges include addressing the reliability impacts of growing cyber and physical security threats to the grid and the rapidly changing electric resource mix driven by economics and environmental concerns. At the same time, the ERO Enterprise is committed to increasing operational efficiency and effectiveness in all of its activities in order to meet its mission to assure the reliability of the bulk power system. NERC recognizes that safeguarding the reliability of the grid in the face of new challenges and risks necessitates working together to enhance the resilience of the bulk power system.

In 2017, after the substantial progress achieved in its first 10 years of operations, the Board approved the first ERO Enterprise Long-Term Strategy to identify significant new developments and related risks affecting reliability and establish key focus areas to guide the ERO Enterprise’s work over a five-to-seven year horizon. This strategy was informed by expertise of all sectors of the industry. It provides an excellent basis on which to develop the ERO Enterprise’s coordinated annual budgets and business plans and three-year work plans, enabling everyone to keep a laser-like focus on achieving the ERO’s mission.

The strategy includes mitigating risk through improved analytics that address the operational changes that are being driven by the growth of variable, renewable resources and greater dependence on natural gas generation. It also focuses on the need for NERC to provide independent, in-depth assessments of the reliability needs of the changing grid. Key to the ERO Enterprise’s success will be maintaining strong partnerships with many regulators and policy makers, including Congress, the Federal Energy Regulatory Commission, the Department of Energy and U.S. state regulators as well as Canadian provincial and national regulators and policy makers. In 2018 and beyond, an important priority will be to develop stronger relationships with policy makers and the electric industry in Mexico.

In 2018, a top NERC priority will be to implement a major upgrade of the Electricity Information Sharing and Analysis Center (E-ISAC), which collects, analyzes and shares information on cyber and physical security threats and mitigation strategies across the industry. The critical importance of the grid to the economy, public

Roy Thilly

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health and welfare demands that the E-ISAC provide excellent analyses, timely alerts and information sharing to the industry. Planned upgrades, which are already underway, will increase expert staffing and technical facilities at the E-ISAC, growing the analytical capabilities of the organization and enhancing collaboration with our government partners and cross-sector industries such as water, natural gas and telecommunications. The Board is determined to ensure that the E-ISAC is an indispensable asset to the electric industry across the ERO footprint.

The North American ERO footprint has produced a strong, long-term reliability partnership between Canada and the United States. The objective of a memorandum of understanding (MOU) signed with Mexico in 2017 is to move toward a fully aligned set of North American mandatory Reliability Standards, coupled with coordinated situational awareness, event analysis and assessments. In 2018, NERC and Mexican electric policy makers and service providers will work to implement this MOU.

The Board understands that maintaining and enhancing the reliability of the North American bulk power system requires the collaboration of the many participants in the industry and other stakeholders, as well as of policy makers and regulators at all levels. The Board is fully committed to listening, supporting and communicating with all these partners as we work together to fulfill the ERO Enterprise mission.

It is an honor to serve as the Board Chair. I look forward to working together in the coming year in the public interest.

Roy ThillyNERC Board of Trustees Chair

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Letter from the Interim President and Chief Executive OfficerThe rapidly evolving generation resource mix, dynamic security risks and severe weather events comprise the top reliability issues of the past year. Amid this changing reliability ecosystem, NERC remained focused on assuring reliability of North America’s bulk power system.

Our State of Reliability 2017 documents how the ongoing efforts by NERC and industry are driving year-over-year improvements to system reliability. For the second consecutive year, there were no Category 4 or 5 events. Other findings include a four-year decline in protection system misoperations, improvement in certain aspects of frequency response and increased resilience to severe weather.

NERC pursued a number of strategic initiatives to enhance the company’s efficiency and effectiveness. In November, the NERC Board of Trustees approved the Compliance Monitoring and Enforcement Program (CMEP) technology project – a suite of tools to integrate and share data across the ERO Enterprise, which is comprised of NERC and the eight Regional Entities. This project is designed to better align the business processes of the ERO Enterprise by improving documentation as well as sharing and analysis of compliance work activities and by making CMEP activities more efficient and effective.

NERC continues to provide leadership in identifying new and emerging risks to reliability and helping to improve understanding of these risks. In March, NERC convened its fourth Reliability Leadership Summit with more than 100 leaders from industry, including top executives, state and federal regulators and other stakeholders. The summit identified challenges in operating the bulk power system, resilience and security and new risks. These priorities were used to inform the ERO Enterprise Long-Term Strategy and business plans.

NERC’s assessment and events analysis work keeps the ERO at the forefront of risk identification, including those with the potential to adversely impact the grid if left unaddressed. The 2017 Long-Term Reliability Assessment (LTRA) highlights the continuing change of the resource mix over the next 10 years, while also identifying areas of concern in two assessment areas that fall short of their reference margin level during the assessment period. The report emphasizes that adequate levels of essential reliability services and fuel assurance are key to maintaining a highly reliable and resilient bulk power system. In 2017, NERC highlighted a number of less understood aspects of inverter-based resource behavior that could pose a risk to future reliability of the bulk power system. We continue to lead effective industry collaboration to develop a broader understanding of the reliability implications of increasing inverter-based resource penetration and address issues that are now sufficiently understood.

Charles A. Berardesco

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Another key focus area for NERC going forward is ensuring the E-ISAC continues to provide actionable information on cyber and physical security threats and mitigation to industry and stakeholders. Enhancements are underway to increase staffing and technical expertise. This year marked the E-ISAC’s fourth grid security exercise, GridEx IV. Industry participants exercised their response and recovery plans to major cyber and physical security attack scenarios in a simulated environment, culminating with a senior industry and government leader executive tabletop portion focused on grid restoration and recovery. More than 450 organizations participated in this exercise, growing from 75 organizations in our initial exercise in 2011.

Recognizing the interconnected nature of the North American grid across political borders, NERC continued to strengthen engagements with our partners in Mexico and Canada. In March, NERC signed an MOU with the Comisión Reguladora de Energía and the Centro Nacional de Control de Energía, Mexico’s regulator and grid operator, respectively. This framework agreement is intended to foster continued growth of the cooperative relationship between Mexico and NERC to enhance reliability. At its August board meeting in Ottawa, Canada, NERC hosted Canadian regulators and executives from the three Regional Entities with cross-border footprints. Attendees discussed the ERO Enterprise Long-Term Strategy and were provided an update on reliability standards and enforcement across Canada.

NERC remains focused on its core mission to assure reliability and security of the bulk power system, as well as remaining agile in order to identify and address dynamic challenges. I am pleased to present the 2017 Annual Report reviewing benefits to reliability through the hard work of our dedicated staff and collaboration with committed stakeholders throughout the year. It is an honor to serve as interim president and CEO of this great organization, and I look forward to our continued work in 2018.

Charles A. BerardescoInterim President and CEO

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NERC Overview

NERC has spent more than a decade focused on enhancing and improving the reliability of the bulk power system. In its eleventh year as the Electric Reliability Organization (ERO), NERC demonstrated dedication to its mission of assuring the reliability of the North American bulk power system. Changes were made to the standards and compliance process to better address known risks, while new initiatives were developed and launched as risks to reliability, including physical and cyber security, were redefined.

The accomplishments highlighted in the following 2017 Annual Report focus on three main areas: Building and Preserving Achievements, Strengthening Engagement, and Adapting to Change. These three categories encompass NERC’s current efforts to increase the security and reliability of the electric grid as well as NERC’s vision for the future of an integrated and forward-looking ERO.

While the ERO Enterprise has a central responsibility in identifying and addressing bulk power system reliability risks, assuring grid reliability requires a long-term collective commitment by many organizations. NERC is committed to its mission and to continuing to evolve with the changing face of reliability to assure a stable and secure North American grid in 2018 and beyond.

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2017 Achievements

Building and Preserving Achievements The ERO Enterprise, comprised of NERC and the eight Regions, is charged with assuring the reliability of the bulk power system. One of the primary ways this is accomplished is through the identification, prioritization and effective and efficient mitigation of risks to the bulk power system. Over the past several years, NERC has focused on implementing several major risk-based initiatives, enabling the ERO to adapt to the changing reliability landscape and better respond to emerging risks. By maintaining a risk-based focus in its operations, the ERO is able to apply resources to the most significant reliability risks and drive additional enterprise-wide operational efficiencies and effectiveness.

Ongoing Analysis of Known Reliability RisksThe ERO Enterprise works closely with industry and other organizations focused on bulk power system reliability to perform ongoing analysis of significant known reliability risks and develop recommendations on how to best address any such risks, whether through standards or other programs and methods.

ERO Reliability Risk Priorities Report The 2017 ERO Reliability Risk Priorities Report presents the results of the Reliability Issues Steering Committee’s (RISC’s) continued work to strategically define and prioritize risks to the reliable operation of the bulk power system and provide recommendations to the Board regarding the approach that NERC should take to enhance reliability and manage risks.

This report and its recommendations reflect discussions with representatives from NERC technical and standing committees, industry dialogue through a series of focused executive leadership interviews, the discussion with leaders at the NERC Reliability Leadership Summit, the FERC Reliability Technical Conference and many technical reports and assessments.

The RISC reviewed and assembled information from ERO Enterprise stakeholders, policy makers and focused executive leadership interviews to develop a composite set of risk profiles. The individual risk profiles have been categorized as high, moderate or lower.

The nine risks were identified as:

High Risk Profiles • Cyber Security Vulnerabilities • Changing Resource Mix • Bulk Power System Planning • Resource Adequacy

Moderate Risk Profiles• Increasing Complexity in Protection and Control

Systems • Loss of Situational Awareness • Physical Security Vulnerabilities• Extreme Natural Events

Lower Risk Profiles • Human Performance and Skilled Workforce

These results were presented to ERO Enterprise executive leadership and incorporated into the ERO Enterprise’s 2018 strategic and operational plans. A final 2018 RISC report is expected this month.

State of Reliability NERC’s State of Reliability 2017 reviews past performance of the bulk power system and examines the state of system design, planning and operations as well as the ongoing efforts by NERC and industry to continually improve system reliability and resiliency. Based on data analysis and metrics, this independent review of bulk power system performance enables NERC to examine trends, identify potential risks to reliability, establish priorities and develop effective mitigation strategies. Key findings and recommendations inform NERC’s risk assessment and mitigation activities, standards development and other process improvements.

The report documents that the bulk power system provided an adequate level of reliability during 2016.

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Protection system misoperations continued a four-year decline, decreasing to 8.7 percent — down from 9.5 percent in 2015 and 10.4 in 2014. The three largest causes of misoperations remain the same — incorrect settings/logic/design errors, relay failure/malfunctions and communication failures. Continued focus on regional education, outreach and training efforts with stakeholders in these areas is intended to drive continued incremental improvements in reliability and security. Additionally, while there were no reported cyber or physical security incidents that resulted in a loss of load in 2016, cyber and physical security threats are increasing and becoming more serious over time.

Recommendations included enhancing measurement of frequency response and voltage to quantify effects of changing resource mix, including vendors and manufacturers in analyses where possible and redefining reportable cyber and physical security incidents to be more granular. The findings indicate that the bulk power system continues to perform well and that improvements across several areas in the past year bode well for continued reliable operation.

Supply Chain Risk MitigationNERC and industry have decades of experience working to protect the shared reliability infrastructure. The ERO Enterprise is constantly reevaluating threats and taking steps to protect the system. Reliability Standards are one piece of this complex, dynamic endeavor of providing a comprehensive approach to reliability.

On August 10, the Board adopted proposed Reliability Standards CIP-005-6, CIP-010-3, and CIP-013-1 (i.e., the supply chain standards) and their associated implementation plans, which address cyber security supply chain risk management issues and meet the directives of Order No. 829. NERC filed the supply chain standards with FERC in September 2017. In January 2018, FERC issued a notice of proposed rulemaking for these standards. To effectively manage the mitigation of supply chain risks, NERC initiated a collaborative program with industry, trade organizations and key stakeholders.

In adopting the supply chain standards, the Board concurrently adopted additional resolutions related to their implementation and evaluation. The resolutions outlined six actions, developed by NERC management and stakeholders, to assist in the implementation and evaluation of the supply chain standards and other activities to address potential supply chain risks for assets not currently subject to the standards. Those resolutions, in summary form, include the following actions: support effective and efficient implementation; initiate a cyber security supply chain risk study; communicate supply chain risks to industry; develop forum white papers; develop association white papers; and evaluate effectiveness of supply chain standards. Geomagnetic Disturbance MitigationWhile the impacts of space weather are complex and depend on numerous factors, space weather has demonstrated the potential to affect the reliable operation of the bulk power system. In 2017, NERC continued its work to develop Reliability Standards to mitigate the reliability risks caused by geomagnetic disturbance (GMD) events.

The first-stage standard (i.e., EOP-010-1 – Geomagnetic Disturbance Operations) took effect in April 2015. The standard requires entities throughout North America to have GMD operating procedures that can mitigate the potential impacts of GMD on the electric grid. The second-stage standard (i.e., TPL-007-1 – Transmission System Planned Performance for Geomagnetic Disturbance Events) was approved by FERC in September 2016. The new standard requires entities throughout North America to perform state-of-the-art vulnerability assessments of their systems and equipment for potential impacts from a severe 1-in-100 year benchmark GMD event and mitigate against identified impacts. When needed, mitigation can include changes in system or equipment design, or the installation of hardware to monitor or reduce the flow of geomagnetically induced currents. Entities began implementing the new requirements in 2017 and must meet several steps leading to the completion of vulnerability assessments and mitigation plans by 2022. In approving TPL-007-1,

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FERC directed certain revisions to the standard, aimed at enhancing the benchmark GMD event used in GMD vulnerability assessments, establishing deadlines for entities to complete mitigation actions and expanding the collection of GMD data.

At its November 2017 meeting, the Board adopted TPL-007-2 – Geomagnetic Disturbance Mitigation, which establishes requirements for performing GMD vulnerability assessments using a modified GMD event. It also modifies established requirements pertaining to transformer thermal impact assessments, requires the collection of GMD-related data and deadlines for Corrective Action Plans and GMD mitigation actions.

Effective and Efficient ERO Enterprise Operations ERO Enterprise Long-Term Strategy The ERO Enterprise identified the need for coordinated strategic and operational planning to guide coordinated operations and resource budgeting across the Enterprise. In response, the ERO Executive Management Group developed the ERO Enterprise Long-Term Strategy,

which looks ahead five-to-seven years to examine how changes in the industry will affect the ERO Enterprise now and in the future.

The strategy identifies six focus areas to plan activities and allocate resources to minimize bulk power system risk, while also driving operational efficiency and effectiveness. The activities the ERO Enterprise undertakes will take into account the increasing reliability and security interdependency between the United States, Canada and Mexico and will strengthen the role of the ERO Enterprise throughout North America.

The six focus areas are risk-responsive Reliability Standards; objective, risk-informed compliance monitoring, mitigation, enforcement and entity registration; reduction of known reliability risks; identification and assessment of emerging reliability risks; identification and reduction of cyber and physical security risks; and effective and efficient ERO Enterprise operations.

In order to maximize its investment in a strategic, unified approach to communication with all audiences and to help inform activities within the focus areas, the ERO Enterprise also developed an Enterprise vision and mission statement:

• Vision: A highly reliable and secure North American bulk power system.

• Mission: To assure effective and efficient reduction of risks to the reliability and security of the bulk power system.

The ERO Enterprise’s strategic and operational planning process is informed by ongoing activities to identify bulk power system reliability risks, particularly the RISC’s biennial reliability leadership summit and ERO Reliability Risk Priorities Report, and by opportunities to improve ERO Enterprise effectiveness and efficiency. The transparent and collaborative process includes

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input from the Board, Regional Entity boards and stakeholders. In addition to the ERO Enterprise Long-Term Strategy, the process is used to inform:

• ERO Enterprise Operating Plan – Guided by the long-term strategy, the operating plan identifies the ERO Enterprise’s vision, mission, core principals and goals, and provides a list of key contributing activities by the combined ERO Enterprise, NERC and the Regional Entities as applicable to inform a rolling three-year operational planning horizon. The operating plan is reviewed biennially and updated as needed.

• ERO Enterprise Business Plans and Budgets – These set the specific annual activities, resources and resource allocation in support of the goals and objectives in the operating plan. The business plans and budgets are prepared, reviewed and approved annually for NERC and each of the Regional Entities.

• ERO Enterprise Metrics – The metrics include measures, thresholds and targets to provide indicators of bulk power system reliability and security, as well as ERO Enterprise effectiveness and efficiency. The metrics are reviewed annually and updated as needed to ensure they meaningfully inform near- and long-term priorities.

The Board approved the ERO Enterprise Long-Term Strategy at its November meeting.

ERO Enterprise Program Alignment ProcessOver the course of 2017, NERC and the Compliance and Certification Committee (CCC) focused numerous activities and discussions on how to improve consistency. The result of these conversations was the development and implementation of the ERO Enterprise Program Alignment Process, which builds upon the Regional Consistency Reporting Process and Tool.

Using the ERO Enterprise Program Alignment Process, NERC captures identified issues from various resources in a centralized repository. NERC classifies the issues through an initial screening to ensure the appropriateness for this process, then works with Regional Entities and the CCC to analyze the issues and

determine the scope and material impact. The ERO Enterprise develops recommendations and determines the priority of the activities taking into consideration all ERO Enterprise efforts. Finally, NERC posts the issue along with the recommendations and results and provides status updates on its activities.

The ERO Enterprise Program Alignment Process is intended to enhance efforts to identify, prioritize and resolve alignment issues across the ERO Enterprise. This is a repeatable, transparent process that registered entities or other relevant industry stakeholders may use to report any perceived inconsistency in the approach, methods or practices implemented and executed by the ERO Enterprise.

CMEP Technology ToolNERC’s risk-based Compliance Monitoring and Enforcement Program (CMEP) framework enables compliance enforcement authorities across the ERO to focus resources where they are most needed and likely to be the most effective, thus enhancing the security and reliability of the grid.

Each Regional Entity develops its own CMEP processes and systems within the Rules of Procedure. This has resulted in varying practices and consistency issues across the ERO Enterprise. Regional Entities also use different tools and software platforms for data collection, making information sharing across the ERO Enterprise more difficult.

John Moura attends the “Knowledge Exchange Between U.S. Power System Operators” event in Berlin, Germany

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In 2017, the ERO Enterprise executive team agreed that more unified processes and systems were needed to help ensure that compliance and enforcement with Reliability Standards is monitored consistently across the ERO Enterprise. The resulting CMEP technology project was established with the vision and mission to promote greater efficiencies in work, better use of resources and lower costs while offering more flexibility and better alignment.

The CMEP technology tool — a suite of tools to integrate and share data — will better align the business process of NERC and the Regional Entities, improving documentation, sharing and analysis of compliance and enforcement work activities and making CMEP activities more efficient and effective across the ERO Enterprise.

The CMEP tool will:

• Improve the ability to share and analyze compliance and enforcement information by being risk informed and adaptive to trends;

• Align and consolidate business processes and common tools to increase efficiency;

• Ensure consistency in practices and data;• Define and standardize compliance monitoring and

enforcement data for consistency in submission, reporting and analysis; and

• Meet requirements under the Rules of Procedure for planning, conducting, reporting and quality assurance.

While this a complex project, slated to begin in 2018 with full implementation in 2020, the benefits to the ERO Enterprise are undeniable. When completed, the ERO Enterprise will have a more comprehensive, consistent and efficient CMEP platform.

Strengthening EngagementIn 2017, NERC continued to explore ways to engage industry stakeholders, regulators and policy makers from across North America in the shared reliability mission. The North American bulk power system spans 10 sovereign jurisdictions across North America.

Throughout 2017, NERC held numerous meetings across North America, including CIP standard drafting team meetings; Operating, Planning and Critical Infrastructure Protection Committee meetings; and technical working group and subcommittee meetings.

Continued Engagement with CanadaThe August NERC Board and Member Representatives Committee meetings were held in Ottawa. While in Ottawa, the Board hosted its annual private meeting with Canadian provincial regulators and federal government representatives. The August 2017 meeting was well-attended, with regulators from nearly every interconnected province, as well as Natural Resources Canada and regional executives from the Midwest Reliability Organization (MRO), the Northeast Power Coordinating Council (NPCC) and the Western Electricity Coordinating Council (WECC). Participants reviewed the ERO Enterprise Long-Term Strategy and were provided an overview of Reliability Standard and enforcement implementation across Canada.

Engagement was not limited to meetings held in Canada. NERC hosted the Canadian Federal, Provincial and Territorial Electricity Working Group (FPT EWG) in Washington, D.C. Throughout 2017, NERC coordinated with this group of regulatory-end energy ministry staff to ensure visibility and consistent direction. NERC has also maintained regular engagement with the Monitoring and Enforcement subgroup, an ad hoc subgroup

Janet Sena speaks at 2017 Fortis Energy Exchange in St. John’s, Newfoundland, Canada

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under the FPT EWG, which is focused specifically on compliance monitoring and enforcement in Canada, to share experiences and insights related to enforcement of NERC Reliability Standards and facilitate the necessary consistency to support a reliable North American grid. These groups made substantive contributions to the content for the Board meeting with Canadian regulators.

Memorandum of Understanding with Mexico On March 8, 2017, the first MOU between NERC and Mexico was signed by NERC, the Comisión Reguladora de Energía (CRE) and the Centro Nacional de Control de Energía (CENACE). The MOU outlines a framework for a cooperative relationship between Mexico and NERC to enhance reliability of electric power systems and recognizes the established and growing interconnections between the United States and Mexico and the roles of each party in support of continued reliability. The MOU also establishes a collaborative mechanism for identification, assessment and prevention of reliability risks to strengthen grid security, resiliency and reliability.

Under the MOU, a steering group of executives from NERC, CRE and CENACE work together to establish priorities and objectives for the technical collaboration envisioned in the MOU. An initial steering group meeting was held in Mexico City on May 31, 2017, where a high-level plan of work focused on Reliability Standards, operational reliability, reliability assessment and cyber security was approved. The steering group will ensure that activities align with Mexican policy priorities and shared reliability goals and that they are conducted within resource constraints.

Since the steering group meeting, steady progress has been made. Mexican representatives have attended NERC standing committee and working group meetings. A team of NERC, WECC and CRE staff have reviewed standards to prioritize them for incorporation or amendment through Mexico’s administrative processes prior to incorporation in CRE’s reliability regulations. NERC and a team of industry subject matter experts have observed CENACE’s seasonal blackstart exercises, and CENACE has observed exercises conducted by its peers in North America. CENACE participated, at its national

control center and all of its regional control centers, in GridEx IV.

In addition to these efforts to integrate Mexico into the technical discussions that support a reliable North American grid, NERC worked with Mexican counterparts to fulfill administrative aspects of the MOU, including funding arrangements. These conversations are ongoing.

Adapting to Change As the ERO, NERC works to enhance and improve the reliability and resiliency of the bulk power system based on a technical foundation of data and analysis. Information sharing and discussion assures that stakeholders have a broad perspective and are able to develop focused efforts on the aspects that pose the most risk to reliability in the future. NERC and industry continue to monitor and prepare for the evolution of the bulk power system. The following ERO Enterprise assessments demonstrate the importance of adapting to changing reliability risks for the continued security of the bulk power system.

Identifying and Assessing Emerging RisksIn addition to preparing and publishing traditional reliability assessments, the ERO Enterprise also produces detailed assessments of emerging risks based upon specific circumstances and available data. The evaluation of early indicators of risk as supported by the appropriate data and analysis drive actions across industry that support bulk power system reliability.

Annual LTRAThe 2017 Long-Term Reliability Assessment (LTRA) identified the most important set of emerging reliability risks facing the bulk power system. The LTRA found that recent retirement announcements in Texas RE-ERCOT and the canceled nuclear plant expansion in SERC-E resulted in projected margin shortfalls for both assessment areas. In light of these retirements, NERC will be working more closely with the affected areas to identify and assess plans and proactive measures for maintaining reliability given the reduction in expected capacity resources.

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The LTRA concluded that the combination of accelerating conventional generation retirements, increased dependence on natural gas generation and rising reliance on renewable generation requires action from policy makers and more robust planning approaches from industry. As the resource mix continues to rapidly shift, reduced amounts of conventional generation can lead to reduced amounts of essential reliability services — physical characteristics of synchronous generation used to preserve the voltage and frequency stability of the bulk power system. While industry must work to ensure new resources have the capabilities to provide essential reliability services, policy makers and market regulators must make certain that appropriate rules and approaches are in place so that these services are not depleted from the resource mix.

NERC also found that the influx of generation from natural gas and renewables provides industry with a unique set of challenges and opportunities to maintain adequate fuel assurance mechanisms. Specifically, natural-gas-fired capacity has increased to 442 GW from 280 GW in 2009 with 44.6 GW more planned over the next 10 years. Wind generation accounts for more than 10 percent of total installed capacity in six areas with 14.8 GW of NERC-wide additions projected during the next decade. A total of 37 GW of solar additions are projected by 2022. Of these, 20 GW are distributed, raising visibility concerns for system planners.

In light of the LTRA findings, NERC recommended an initiative to undertake a comprehensive review of its Reliability Standards to ensure they promote sufficient levels of essential reliability services, generator performance, system protection and control and balancing functions.

Solar Eclipse White Paper In 2017, NERC developed A Wide-Area Perspective on the August 21, 2017 Total Solar Eclipse – the first white paper of its kind. While the eclipse did not pose any reliability concerns for the North American bulk power system, the white paper recommended preparation and increased coordination by system planners and operators

to understand how the eclipse affected power flows and resource commitment. It also called for utilities across the United States to conduct studies of the eclipse’s impact on solar output and on their systems’ ability to meet the increased electricity demand from non-solar resources.

Generation and system operators have more control of utility-scale solar resources; however, operational planning and advanced power system studies must account for the impacts that may not be completely visible to the system operator, such as distributed and rooftop solar photovoltaic resources. While solar generation levels are relatively low, states including California and North Carolina experienced the greatest impact to solar resources and system operations during the eclipse. As more solar generation is integrated into the bulk power system, solar eclipses will need broader study. Given the highly predictive nature of these events, NERC has confidence that reliability can be maintained by bulk power system operators through comprehensive planning and awareness.

Solar Inverter ReportA joint NERC and WECC task force investigated the August 16, 2016 occurrence in the Western Interconnection, which resulted in the loss of approximately 1,200 MW of solar photovoltaic generation. The task force found the loss of inverter power injection was due to an incorrectly calculated low-frequency condition and momentary cessation of the inverters in response to depressed voltages. The task force produced the 1,200 MW Fault-Induced Solar Photovoltaic Resource Interruption Disturbance Report, which found that inverters are susceptible to tripping during transients generated by faults on the transmission system. The report found many of the resources tripped as they used near-instantaneous frequency calculations, which erroneously indicated very low frequencies. The task force recommended a minimum delay for frequency tripping to ensure accurate system frequency calculations. The task force continues to work on recommendations for inverter behavior and momentary cessation during fault conditions to support bulk power system reliability.

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The loss of significant amounts of inverter-based resources due to transmission faults highlights a previously little understood risk to reliability. NERC and industry have begun taking steps to better understand the phenomena and mitigate the risks by conducting additional studies and reviewing existing NERC Reliability Standards. NERC and industry will continue to work with inverter manufacturers to better understand capabilities and requirements for reliable integration and employment of inverter technologies on the bulk power system. 2017 Frequency Response of the Eastern Interconnection during Light Load Conditions UpdateIn a June 2017 filing on FERC Order No. 794, NERC submitted an updated assessment of primary frequency response for the Eastern Interconnection. The 2017 Frequency Response of the Eastern Interconnection during Light Load Conditions Update concluded that the interconnection frequency response obligation under Reliability Standard BAL-003-1.1 for the Eastern Interconnection is adequate during light-load conditions. As a result, NERC found no impending need for immediate action but recommended that the ERO Enterprise continue its efforts to improve dynamic modeling for studying frequency response and continue its analyses of frequency response-related matters.

Severe Disruptions on Natural Gas System Special AssessmentThe emerging dependence on natural gas generation combined with a growing reliance on wind and solar resources has increased electric and gas infrastructure interdependencies and resulted in bulk power system operational and planning reliability challenges, according to Special Reliability Assessment: Potential Bulk Power System Impacts Due to Severe Disruptions on the Natural Gas System.

The operating realities of renewables and other intermittent generation resources, when combined with ongoing coal and nuclear retirements, create a greater dependence on natural-gas fired generation. With this paradigm shift, comprehensive planning by planning coordinators can significantly increase the grid’s

resilience. The report recommended that the Department of Energy consider collecting data to quantify dual-fuel storage and seasonal on-site inventory. Owners and operators of dual-fuel generators must ensure their operability, and NERC should enhance its Generator Availability Data System for better granularity on the causes of generator outages.

Promoting Leading Security Practices, Information Sharing and Analysis, and ResilienceThe ERO Enterprise and industry understand that the protection and resiliency of facilities and systems critical to maintaining bulk power system reliability is a crucial objective. NERC’s Reliability Standards and risk-based compliance and enforcement play an important role in addressing physical and cyber security risks to the bulk power system. The ERO Enterprise also recognizes the need for accurate and timely information sharing regarding current and emerging threats, prevention, response and mitigation and recovery strategies. Over the past several years, NERC’s Electricity Information Sharing and Analysis Center (E-ISAC) has focused on improving its technical and analytical capabilities with a goal of becoming the electricity industry’s leading and trusted source for analysis and sharing of security information.

GridSecCon 2017The E-ISAC hosted its seventh annual Grid Security Conference (GridSecCon) in St. Paul, Minnesota in October 2017. More than 500 leading cyber and physical security experts from industry and government gathered at GridSecCon for a dialogue on the latest training and tools to succeed in a dynamic threat environment. Discussions included U.S. and Canadian perspectives on industry and government collaboration addressing potential grid security threats, industry partnerships with law enforcement, insider threats, geomagnetic disturbances and electromagnetic pulse research. The agenda also featured a day of cyber and physical security training for industry, a classified security briefing and a tabletop exercise to prepare GridSecCon participants for NERC’s fourth biennial Grid Exercise.

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GridEx IVMore than 6,500 stakeholders from 450 organizations participated in GridEx IV, which NERC held on November 15 and 16, 2017. The exercise, which began in 2011 and takes place every two years, allows utilities, government partners and other critical infrastructure participants to engage with local and regional first responders; exercise cross-sector impacts; improve unity of message and communication; identify lessons learned; and engage senior leadership in a simulated environment. The large-scale cyber and physical attack scenario was designed to overwhelm even the most prepared organizations. NERC used input from participants to develop observations and propose recommendations to help industry enhance the security, reliability and resilience of North America’s bulk power system.

While there has not been any loss of load in North America attributed to a cyber attack, the security landscape is dynamic and requires constant vigilance and agility. Coordination and events like GridEx ensure industry is as prepared as possible. NERC remains focused on its mission to assure the reliability and resilience of the bulk power system, which is inextricably tied to grid security.

Updated E-ISAC Website and Portal Key features of the new E-ISAC portal include improved functionality and organization of content, increased security procedures, enhanced discoverability of data, the ability to tag and rate portal posts and a user-friendly design for tablets and mobile devices. The portal upgrade built on user experience and feedback from the prior portal since 2015. Additional enhancements, slated for 2018, include enhanced collaboration features, refined notification mechanisms and support for the import and export of STIX-formatted data.

The revamped portal will enable better collaboration with stakeholders, expedited analysis of information and more rapid sharing of actionable intelligence for continued security of the grid.

ResilienceThe North American bulk power system is one of the most critical infrastructures to human society and is vital in many ways. As electrification expands into every aspect of modern life, including transportation and advanced automation, the dependence on the electric infrastructure increases. Resilience has become a critical element of bulk power system reliability.

NERC Bulk Power System Awareness team participates in GridEx IV

Executives from NERC, DOE and other organizations participate in GridEx IV media briefing

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Because the bulk power system is highly interconnected and interdependent, the system must be designed to achieve agreed upon levels of performance to minimize the possibility of cascading failures, prevent equipment damage and ensure continuity of service. While NERC Reliability Standards are robust, additional requirements and mechanisms are also established at the state, local, wholesale market, federal and provincial levels in order to be resilient to risks that may be inherently regional. Along with the current set of reliability responsibilities, more and more emphasis is being placed on the resilience of organizations to respond to extreme events. Due to the changing nature of reliability, evolving resources on the grid and the expanded expectations, resilience is becoming the new yardstick to measure reliability. For this reason, many aspects of resilience have been interwoven into industry’s and NERC’s reliability activities.

In 2017, resilient bulk power systems across North America were able maintain reliable operations during hurricanes Harvey and Irma and quickly recover from storm-related damage. Many lessons learned from past weather events, as well as infrastructure hardening and new technologies, were deployed to speed restoration efforts. Utilities also plan for storm-related events by conducting preparedness drills involving their fellow utilities under existing or improved mutual assistance agreements.

The ERO Enterprise will expand its capability to use detailed information from events to provide cause analysis and reliability assessment reports that can highlight priorities for improving grid resilience from catastrophic events. The revamped portal, GridEx and GridSecCon were among the E-ISAC programs and initiatives in 2017 that strengthened the cyber and physical security posture of the industry, which also contribute to the reliability and resilience of the bulk power system as a whole.

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NERC Regional Entities

FRCCFlorida Reliability Coordinating Council is a not-for-profit company whose mission is assure effective and efficient reduction of risks to the reliability and security of the peninsular Florida bulk power system.Stacy Dochoda, president and chief executive officer

MRO Midwest Reliability Organization covers roughly one million square miles spanning the Canadian provinces of Saskatchewan and Manitoba, the states of Iowa, North Dakota, Minnesota and Nebraska, the majority of the states of South Dakota and Wisconsin and portions of Illinois, Michigan and Montana. Daniel Skaar, president and chief executive officer

NPCCNortheast Power Coordinating Council, Inc. includes the State of New York and the six New England states, along with the Canadian provinces of Ontario, Québec and the Maritime provinces of New Brunswick and Nova Scotia. Overall, NPCC covers an area of nearly 1.2 million square miles, populated by more than 56 million people.Edward Schwerdt, president and chief executive officer

RFReliabilityFirst’s territory stretches from the eastern seaboard to Lake Michigan and includes the District of Columbia and all or part of the states of Wisconsin, West Virginia, Virginia, Tennessee, Pennsylvania, Ohio, New Jersey, Michigan, Maryland, Kentucky, Indiana, Illinois and Delaware. The ReliabilityFirst footprint consists of approximately 23 percent of the nation’s population; 23 percent of the nation’s gross domestic product; numerous, densely populated metropolitan centers; and the interconnection of two of the world’s largest energy markets. Timothy Gallagher, president and chief executive officer

SERCThe SERC Reliability Corporation is a nonprofit regulatory authority that promotes effective and efficient administration of bulk power system (BPS) reliability in all or parts of 16 central and southeastern states. The SERC Region covers an area of approximately 560,000 square miles and serves more than 53 million customers.Gary Taylor, president and chief executive officer

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SPP Regional EntityThe Southwest Power Pool Regional Entity (SPP RE) is an independent and functionally separate division of SPP, Inc. SPP RE promotes and works to improve bulk power system reliability within SPP RE’s footprint, an eight-state area that includes all or parts of Arkansas, Kansas, Louisiana, Mississippi, Missouri, New Mexico, Oklahoma and Texas. Ron Ciesiel, general manager

Texas RETexas Reliability Entity, Inc. is a nonprofit corporation responsible for ensuring reliability of the bulk power system in the Electric Reliability Council of Texas (ERCOT) region. The ERCOT region is located exclusively within Texas and represents 90 percent of the state’s electricity load and 75 percent of the Texas land area.Lane Lanford, president and chief executive officer

WECCWestern Electricity Coordinating Council’s purpose is to assure the public of the reliability and security of the Western Interconnection’s bulk power system. WECC’s territory extends from Canada to Mexico. It includes the provinces of Alberta and British Columbia, the northern portion of Baja California, Mexico, and all or portions of the 14 western states between, which totals approximately 1.8 million square miles, the largest footprint for NERC’s Regional Entities. James Robb, chief executive officer

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2018 Board of Trustees

Frederick W. Gorbet

Robert G. Clarke

Kenneth W. DeFontes, Jr.,

Vice Chair

David Goulding

Robin E. Manning Jan Schori

Roy Thilly,Chair

Suzanne KeenanGeorge S. Hawkins

Janice B. Case

Charles A. Berardesco

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Charles A. BerardescoInterim President and Chief

Executive Officer

2018 NERC Executive Management Group

Michael WalkerSenior Vice President and Chief Enterprise Risk and

Strategic Development Officer

Mark Lauby Senior Vice President and

Chief Reliability Officer

Janet SenaSenior Vice President and

Director of Policy and External Affairs

Scott JonesSenior Vice President,

Chief Financial and Administrative Officer and

Treasurer

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Sonia MendoncaVice President, Acting General

Counsel and Corporate Secretary and Director of Enforcement

2018 NERC Executive Management Group

Stan Hoptroff Vice President, Chief

Technology Officer and Director of Information

Technology

James MerloVice President, Director of

Reliability Risk Management

Ken McIntyreVice President, Director of Standards and Compliance

Timothy E. RoxeyInterim Chief Security

Officer and Vice President and Chief E-ISAC Operations

Officer