NERC NERC Compliance Enforcement Compliance Enforcement ProgramProgram

2002 Compliance

Enforcement

Program*************************************************

Regional Seminars

ERCOT03/07/02

NERC CEP Outline – NERC CEP Outline – Regional SeminarsRegional Seminars How Did We Do? (2001 Compliance Program) What Changes Are On-the-Way? (Reporting Change/ Key Activities) Where Are We Going? (2002 Compliance Program) What Else Is New?

New NERC Standards Development Process

NERC Functional Model Questions?

NERC Compliance NERC Compliance Enforcement ProgramEnforcement ProgramBackground – Overall Program/Process

NERC CEP Is Beginning Its 4th Year. New Measurements Were Introduced for

Field-testing During Each of the 1st, 2nd, and 3rd Years.

New Measures for the 4th Year Have Been DelayedNO New Standards Will Be Introduced Unless

They Have Been through the New Standards Process.

Current Operating Policies Do NOT Support Formal Compliance.

How Did We Do? -How Did We Do? -2001 Compliance Program2001 Compliance Program

Major Objectives

Field-tested 30 “New” Planning Measures and 1 “New” Operating Measure

Further Refine the ProcessConduct Audits – Both Reliability Authority

(Formerly, Called Security Coordinator)

and Control AreaContinue TLR Investigations

Initiated When TLR 5 (Firm Curtailments) Occur

TotalViolations

Planning Subtotal 169 32 42 183 426 $1.5M43 me as ure s

O pe rating Subtotal 159 93 167 453 872 $8.3M17 me as ure s

Total  328 125 209 636 1298 $9 .8M

Com pliance Results2000 2001

Planning Meas ures 89% 93% 83% with non

Operating Meas ures 90% 94% s ubmittals

TO TAL 90% 94%

S a n cti o n s w/ n o n

s u bm i tta l s

Preliminary N ER C 2001 C ompliance Program Summary

Level 1 Level 2 Level 3 Level 4 S tandards

2001 Compliance Program2001 Compliance ProgramPreliminary ResultsPreliminary Results

2001 Compliance Program2001 Compliance Program

Preliminary Results/Findings 2001 Implementation Plans Followed Extensive Use of Self-Certifications

Process Working Extremely Well More Audits and Spot Checks; Good Validation Observed Officer/Executive Signatures Obtained (in Most Cases)

Difficulty in Establishing Contacts Many Non Submittals-Applicability Issue – Members and Non-members Some Small Entities Still Struggling Most Regions Used a Late-Data Procedure Most Regions Simulated Sanctions ($ and Letters) Most Regions Requested and Obtained Mitigation Plans

Preliminary Results/Findings (Continued)New Planning III C Measures (Gen. Protection and Control)

10% Non-Compliance Rate55% of Planning Violations37% of Planning Non-Submittals

New Operating Measure P6 T2 (Restoration Plans) 20% Non-Compliance Rate

New Planning IVA Measures (Blackstart) 14% Non-Compliance Rate

6 Regions Do NOT Have Automatic Load Restoration (IV B)Many Comments on Planning Standards Field-Tested

CRS and PSS Will Review CommentsMeasures to Enter Organization Standards Process

2001 Compliance Program2001 Compliance Program

Reporting Change - Reporting Change - Transition to a 12-Month Reporting Transition to a 12-Month Reporting PeriodPeriod

Action – It’s Time to Transition from Field-testing to Operational Mode!

2001 Compliance Enforcement Program Extend the 2001 CEP to December 31, 2001

(Originally, Set to End on October 1, 2001) Region and Subgroup Compliance Reports are due February 6, 2002

Full Year for Continuous Reporting Measures NERC 2001 CEP Report to be Issued at the End of March, 2002

2002 Compliance Enforcement Program Program Initiation - January 1, 2002 Program Completion December 31, 2002 Regional Summary Reports due to NERC - February 15, 2003

Key Activities - Key Activities - Regional Compliance Program Regional Compliance Program AuditsAudits Obligation of NERC to Oversee the Overall Program

NERC Audits the Regional Implementation

2000 “Pilot” Audit of 1999 Program Implementation MAPP Region

2001 Audits of 2000 Program Implementation ECAR, MAAC, and SERC Regions

2002 Audits of 2001 Program Implementation FRCC, NPCC, and SPP Regions

Key Activities –Key Activities –NERC Reliability Authority NERC Reliability Authority AuditsAudits

NERC Operating Committee Directed Audits of Reliability Authorities (Security Coordinators)

“Pilot” Program for 2001 – Volunteers (6)California ISO, ECAR North, Pacific Northwest, MAPP,

Rocky Mountain Desert Southwest, and MAAC

New Reliability Authorities (Security Coordinators) – Readiness Audits (2)Midwest ISO (MISO) &

Alliance Regional Transmission

Organization (ARTO)

Key Activities –Key Activities –NERC Reliability Authority NERC Reliability Authority AuditsAudits

General Results/Next Steps Audit Process, Procedure, and Questionnaires Working Well Some Improvements Recommended in Overall Process

Assessment Existing Reliability Authority Audits, in General, are

Showing Good Overall Performance Final Reports

Identified Areas of Improvement Posted on NERC Compliance Web Site Includes Operational Readiness Audits for New RA’s

2002 Audit Schedule Developed 15 Reliability Authorities to be Audited!

Goals Make an Assessment of the Alert Issued on September 11th

Were All Appropriate Entities Notified of the Threat? What Types of Actions Were Requested and/or Taken as a Result of

This Alert? Confirm that Security Coordinators, Transmission and

Generation Owners, and Load Serving Entities Have Pre-identified Their Contacts with the FBI

Document Lessons Learned and Best Practices Make Recommendations to Address Any Identified Shortcomings in the NERC Operating Policies and Planning Standards

Key Activities – Key Activities – September 11September 11thth Assessment Assessment

Communications Most Operating Entities Received Notification from Their Security

Coordinator Communications Beyond Control Areas Needs to be Improved

To Generation Owners, Municipals, Cooperatives, and Others In Most Cases, Key Operating Personnel Were Notified Most Had FBI Contacts Identified

Training with Operators Needed Improvement

Actions Taken Some Activated Back-up Control Facilities Most Increased Security at Critical Facilities Some Stopped Contract Work

Performed Checks of Contract Personnel

Policy Changes Needed Need to Clarify the Alert or Threat Levels and the Actions

Results!!! – Results!!! – September 11September 11thth Assessment Assessment

Where Are We Going? - Where Are We Going? - 2002 Compliance Enforcement 2002 Compliance Enforcement ProgramProgramObjective –Develop a Manageable &

Meaningful ProgramRecognize the Effort Required to Transition to

New NERC Standards - No “New” Measures Introduced

17 Operating Policy Measures and10 Planning Measures Carried Forward into 2002 ProgramRegion Will Discuss Specifics

Where Are We Going? - Where Are We Going? - Compliance Enforcement Program – Compliance Enforcement Program – Beyond 2002Beyond 2002 Existing Measures Were Identified from Current

Operating Polices and Planning Standards New “Organization Standards” Will Include Compliance

Administration Measures Utilized in Future Years’ Programs Must Meet

the Organization Standard Definition. i.e., Material to ReliabilityMeasurable

NERC Compliance Enforcement Program Will Identify and Utilize Compliance Measures that Will Endure through the New Standards Development Process

Contract Based Contract Based Enforcement ProgramEnforcement Program

Contract Based Contract Based Enforcement ProgramEnforcement Program

Contract BasedContract BasedEnforcement ProgramEnforcement Program

9-out-of-10 Regions Have Signed Agreement

Contains Three Compliance MeasuresCPS1, CPS2, and DCSCompliance Managers are Developing

Revisions to Compliance Templates UsedSeveral Regions Expected to Include

Enforcement Actions in 2003Talk to Your Region for Details

New Standards New Standards Development ProcessDevelopment Process

New Standards New Standards Development ProcessDevelopment Process

NERC Standards - HistoricalNERC Standards - Historical Industry Stakeholders

Recognized Need for “Standards” to Allow for Reliable Operation of the Electric Systems as They Became interconnected

NERC was Created and Developed Guidelines from Previous Work

These Guidelines Became NERC Policies

NERC Standards - HistoricalNERC Standards - Historical Standards

Focused on Reliable OperationWere “Voluntary”!Generally Applied to Vertically

Integrated Utilities with Common GoalsProcess was Committee Driven

FERC Order 888 and 889 Allowing Open Access to Grids - Changed the Industry LandscapeStakeholders Identified Need to Develop Standards to Assure

Reliable Operation with the New MarketsStandards Affected Other Market Participants & Market

Operations

Mandatory Standards and Mandatory Standards and ComplianceCompliance

Those Who Previously Cooperated Voluntarily on Reliability Matters, Became Competitors

Incentives Changed Among Market Participants Voluntary Compliance with Industry Reliability

Rules was No Longer Adequate. Established the NERC Compliance Program and

Sought Legislative Authority to Implement Absent Legislation – Work with Contract Based

Program

Stakeholders & NERC Board Recognized Need to Make Policies/Standards Mandatory and to Monitor Compliance

Need for Change to the Need for Change to the Standards Process!Standards Process!

Need for Legislative Authority

FunctionalModel

Compliance Enforcement

Manageabilityof Standards

Market Needs

Very

High

Level

Issues

Driving the

Change!

NERC Functional ModelNERC Functional Model Historically, NERC Operating Policies Assumed One

Operational Entity – the Control Area. Industry Structure has Changed and Continues to

ChangeOpen Access and Functional SeparationFERC Order 2000 – RTO’s

Need to Identify “Functions”

Rather than “Entities”

NERC Functional ModelNERC Functional ModelNERC Functional ModelNERC Functional Model

ReliabilityAuthority

InterchangeAuthority

BalancingAuthority

Trans ServiceProvider

GeneratorLoad-Serving

Entity

Purchase-SellingEntity

TransmissionOwner

TransmissionOperator

PlanningAuthority

DistributionProvider

ComplianceMonitor

Standards(NERC)

ServiceFunctions

Planning &OperatingFunctions

MerchantFunctions

Develop Standards for These Entities!

Standards and ComplianceStandards and Compliance Standards are Necessary to Assure a Reliable

Delivery System To Promote Efficient, Robust Competitive MarketsTo Support Public Health, Safety, and Welfare or

National Security (i.e., Public Good)Require “Active” Monitoring for ComplianceCompare the Roles of the NTSB and FAA

FAA Monitors to Prevent Airline AccidentsNTSB Determines “What Went Wrong” When an Airline Incident Does Occur

Compliance Enforcement Compliance Enforcement Requires Legislative AuthorityRequires Legislative Authority

To Establish a Self-Regulating Reliability Organization (SRRO) to Actively Monitor Certain Standards

To Allow “Organization Standards” to be Filed with FERC and Canadian Provinces

To Assure that the Standards and Compliance Actions Would Apply Equally to All Industry Participants

Similar to Securities IndustryNASD (National Assn. of Securities

Dealers) and SEC Roles

NERC Board of Trustees NERC Board of Trustees Recognizes Need for New Recognizes Need for New Standards ProcessStandards Process

Goal - Develop a Standards Process that Provides:Measurable Performance StandardsUnambiguous Definition of “to Whom” Each

Standard AppliesDistinction between Core Reliability Standards

and Supporting Implementation PracticesStandards Process that is Above ReproachManageability of Standards and the Process

Board of Trustees Established Standards Task Force in February 2000

New Standards Process New Standards Process -“Approved”-“Approved”NERC Board of Trustees Approved the New

Process in October of 2001Recommended Voting be Modified to Sector Voting

ModelRecommended Modifying Process to Develop Both

Reliability Standards & Wholesale Electric Business Practice Standards

New Standards Process New Standards Process ApprovedApproved

December FERC Order - Alternatives for Developing Wholesale Electric Business Practice Standards and Communication Protocols

Board Revisited October 2001 Decision at February 2002 MeetingRe-affirmed the Need for NERC With Independent Board to

Develop Core Reliability StandardsContinue to Work With Other Industry Groups to Determine if

an Industry Response to FERC Can Be Achieved Regarding Business Practice Standards and Communication Protocols

Include Sector Voting Model and Apply to ANSI

Standards Process PipelineStandards Process Pipeline

Standards Transition Project Advisory Group

OrganizationStandards

Ballot

SA

C A

pp

roval

Draft S

tand

ard P

osted

SP

M R

eview

Stan

dard

Drafted

SA

C A

pp

roval

Com

men

ts Review

ed

SA

R P

osted

SA

C A

pp

roval

SP

M R

eview

SA

R S

ub

mitted

6-14 mo.

Any IndustryStakeholder

ComplianceTemplates

ComplianceTemplatesOperating

Policies

PlanningStandards

ComplianceEnforcement

Program

PlayersPlayersPlayersPlayers

Trans Owners

RTOs

LSEs

Trans Dep Utilities

ElecGenerators

Brokers, Marketers

Gov’t

LgCust

SmCust

SAC(Stds. Auth. Comm.)

Drafting Teams

SAR Requestors

StandardsProcess

Manager

IndustryStakeholders

New NERC Standards New NERC Standards ProcessProcess

Is a Fair, Open, Balanced, and Inclusive Process Supports Development of All Types of

Standards Incorporates the Concerns Expressed by

Industry Stakeholders Recognizes the Unique Needs of the Electric

Wholesale Stakeholders and North American Bulk Electric Systems

Capable of Working with the NAESB Proposal Filling the Electric Wholesale Quadrant

Ballot

SAC Approval

Draft Standard Posted

SPM Review

Standard Drafted

SAC Approval

Comments Reviewed

SAR Posted

SAC Approval

SPM Review

SAR Submitted

NERC NERC Compliance Enforcement Compliance Enforcement Program Program

Questions?www.nerc.com

jbickley@nerc.com