Overview Of NERC Reliability Standards

Gerry CauleyPresident & CEOOverview of NERC Reliability StandardsUtilities & Energy Compliance & Ethics ConferenceSociety of Corporate Compliance and EthicsGerry CauleyPresident & CEOSERC Reliability CorporationMarch 3, 2009Gerry CauleyPresident & CEOElectric Reliability OrganizationCanadaAlberta, British Columbia, Manitoba,NEB, Ontario, New Brunswick, NovaScotia, Quebec, and SaskatchewanUnited StatesMexicoFederal Energy RegulatoryCommissionComision Reguladorade EnergiaGovernment OversightElectric lEntitiesComplianceEnforcementReliability ors,UsersUsers1

Gerry CauleyPresident & CEOOverview of NERC Reliability StandardsApproximately 120 standards and over 1500 requirements Resource and demand balancing (BAL)Communications (COM)Critical infrastructure protection (CIP)Emergency preparedness and operations (EOP)Facilities design, connections, and maintenance (FAC)Interchange scheduling and coordination (INT)Interconnection reliability operations and coordination (IRO)Modeling, data, and analysis (MOD)Nuclear (NUC)Personnel performance, training, and qualifications (PER)Protection and control (PRC)Transmission operations (TOP)Transmission planning (TPL)Voltage and reactive (VAR)Gerry CauleyPresident & CEOAugust 14, 2003 BlackoutSkyline of NYC at Dusk (CNN Helicopter)2

Gerry CauleyPresident & CEOBlackout Recommendations – Key Focus The “3 T’s”:– Trees – effective vegetation management in right of way– Training – well-trained operating personnel able torecognize and act in an emergency– Tools – visualization of system, situational awareness,recognition of system conditions System protection was key to extent of blackout CIP is the new ‘hot issue’ in standardsAugust 14, 2003Insufficient Clearance with TreesGerry CauleyPresident & CEO3

Gerry CauleyPresident & CEOVegetation Management Standard Key focus of regions, NERC, and FERC Encroachments/contacts continue today and areof serious concern Working to inform entities that: encroachment of vegetation into clearance 2is possible violation independent of an outage momentary vs. sustained outage bears onreporting, not violation Penalties for trees: 180,000, 75,000, and 50,000 Will be going up, not downGerry CauleyPresident & CEOProtection and Control Among most frequently cited violations Many violations are documentation-related Gaps properly describing program scopeLacking bases for some intervalsLack of documentation of maintenance Some maintenance not performed Failed action can mean failed program Low tolerance in enforcement for single failure Relay operations are central to almost everymajor disturbance in history4

Gerry CauleyPresident & CEOCritical Infrastructure Protection Proposed legislation to allow FERC to mandateconfidential security directives/alerts Increased number of NERC alerts Implementation of CIP standards– SERC conducting CIP spot audits on pilot basis– Key issue is handling of data needed for audit– Many new entities now involved, e.g. generators, loadserving entities, distribution providers Role of NERC and regions in reviewing criticalcyber assets and feasibility exceptions FERC moving standards through Order 706Gerry CauleyPresident & CEORecent Standards Revisions Filed PER-004 & PER-005; retire PER-002– SAT, 32 hours emergency training including simulation– 3-year implementation plan MOD-030 flowgate methodology updates VAR-002 AVR interpretation TOP-002 interpretation on reliability studies5

Gerry CauleyPresident & CEORole of Regional Standards and Criteria Regional ‘fill-in-the-blank’ standards– Not approved by FERC– Replacements being developed Dependency on regional criteria and procedures––––Under-frequency load sheddingContingency reserve requirementsDisturbance monitoring equipmentRelay mis-operation reporting and analysisGerry CauleyPresident & CEOCoping with the Vagaries of the Standards How to interpret what is accepted practice What evidence is sufficient to show compliance– Use of Reliability Standard Audit Worksheets (RSAWs) Request for interpretations– Formal requests through NERC ANSI process– Informal requests Additional sources– Finalized notices of penalty and settlements www.nerc.com– Published lessons learned: www.regionalentities.com Expanded reach of standards through enforcement Efforts to clarify standards – 3 year plan6

Gerry CauleyPresident & CEO2009 Compliance Monitoring Program 49 high priority standards monitored in 2009– Includes 418 requirements for audits and certification– About 20% a reduction from 2008– Must comply with all standards/requirements in effectGerry CauleyPresident & CEOApplicability of the Standards - BES Nominal NERC definition is 100 kV and above– May include designated critical facilities below 100 kV– Regional variations exist Excludes distribution– Boundary not clear in cases of political or media sensitivity,e.g. New York City, Washington DC, etc. Biggest challenge is addressing applicability ofstandards in situations of shared responsibilities––––RTO/ISO versus transmission owners/operatorsJoint registry groups, e.g. cooperatives/municipal agenciesFunctions not well-aligned with functional modelJoint owned facilities7

Gerry CauleyPresident & CEOUse of VRFs and VSLs VRF’s set risk priority: high, medium, low VSL’s determine how badly standard is violated: low,medium, high, severe Approval process changing– Developed in standards process, recommended by NERCstaff, approved by NERC board Preference to eliminate VSL’s except as a judgmentmade during enforcement Penalty range: 0 to 1,000,000 per violation per dayNERCCompliance and CertificationCommitteePresented byW. Clay Smith, Esq.Vice President and Chief Legal, Administrative,Financial and Compliance OfficerGeorgia System Operations CorporationVice Chair NERC Compliance and Certification Committee8

NERC Compliance and CertificationCommittee (CCC) a NERC Board-appointed stakeholdercommittee serves and reports directly to the NERC Boardof Trustees responsible for engaging with, supporting,and advising the NERC Board responsible for all facets of NERC Compliance17March 8, 2007NERC CCC CCC Members CCC Charter CCC Subcommittees CCC Programs CCC Hearing and Mediation CCC Annual PlanMarch 8, 2007189

NERC CCC CCC Members (Up to 34)–––––––––––––Industry StakeholdersInvestor Owned UtilityState/Municipal UtilityCooperative UtilityFed. Provincial Utility/Fed. Power MarketingTransmission Dependent UtilityMerchant Electric UtilityElectricity MarketerLarge End Use Electricity CustomerSmall End Use Electricity CustomerISO / RTORegional EntitiesGovernment March 8, 2007 US StateUS FederalCanadian ProvincialCanadian Federal22222222228proportional vote22 NV1 NV1 NV19NERC CCC CCC Charter– FERC approved– NERC Compliance Monitoring and EnforcementProgram– Organization Registration program– Organization Certification program– CCC provides support and advice, but is otherwiseindependent of the execution of these programs– CCC monitors NERC’s compliance with the Rules ofProcedure for these programs on an ongoing basisMarch 8, 20072010

NERC CCC CCC Subcommittees– Procedures– Organization, Registration, and Certification– ERO Monitoring– Standards Interface21March 8, 2007NERC CCC CCC Procedures Subcommittee– Scope Perform document review to promote consistency betweenmultiple documents (procedures, policies, standards, rules,orders, etc.) that comprise the overall NERC ComplianceMonitoring and Enforcement Program (CMEP) Assure documents are clear, unambiguous, consistent andcomplementary. Advise the CCC of any such unclear, ambiguous, orinconsistent portions of the CMEP documents Propose changes to the documents that will clarify anunclear, ambiguous, or inconsistent situationMarch 8, 20072211

NERC CCC CCC Procedures Subcommittee (cont.)– Scope Develop methods to actively solicit information with respectto stakeholder perception of the procedures, policies,standards, rules, orders, etc. and the effectiveness of theNERC CMEP Provide this information to the CCC and applicable CCCsubcommittees Develop and maintain CCC operational procedures withrespect to the CCC responsibilities under the CCC Charter23March 8, 2007NERC CCC CCC Organization, Registration andCertification Subcommittee– Scope Advise and provide support to NERC and the regional entitieswith development and implementation of organizationregistration and certification processes (i.e., RoP 500 &Appendix 5) Advise and provide ongoing support to NERC and theregional entities relating to approved organizationregistration and certification processesMarch 8, 20072412

NERC CCC CCC Organization, Registration andCertification Subcommittee (cont.)– Scope Evaluate the success and effectiveness of NERC and theregional entities’ administration of the organizationregistration and certification processes Establish programs to monitor NERC’s and the regionalentities’ implementation of the organization registration andcertification processes25March 8, 2007NERC CCC CCC ERO Monitoring Subcommittee– Scope Establish and implement programs to monitor NERC’scompliance with the reliability standards that apply to NERC Establish and implement programs to monitor NERC’sadherence to the Rules of Procedure regarding theCompliance Monitoring and Enforcement Program asspecified in Section 405 of NERC’s Rules of ProcedureMarch 8, 20072613

NERC CCC CCC ERO Monitoring Subcommittee (cont.)– Scope Establish and implement programs to monitor NERC’sadherence to the Rules of Procedure regarding the reliabilitystandards development process with the exception ofappeals of substantive or procedural action or inactionassociated with a reliability standard or the standardsprocess as defined in the appeals section of the ReliabilityStandards Development Procedure as specified in Section405 of NERC’s Rules of Procedure27March 8, 2007NERC CCC CCC ERO Monitoring Subcommittee (cont.)– Scope Develop criteria for use by NERC for the annual evaluation ofthe goals, tools, and procedures of each regional entitycompliance enforcement program in the determination ofthe effectiveness of each regional entity program asspecified in Section 402.1.2 of NERC’s Rules of ProcedureMarch 8, 20072814

NERC CCC CCC Standards Interface Subcommittee– Scope Advise and prepare recommendations to the CCC to addressany standards-related issues relevant to and within thescope of the NERC Compliance and Certification Committee– e.g. request from the Standards Committee, Standard DraftingTeam, CCC, NERC Compliance Staff, etc. Act as liaison of the CCC to the NERC Standards Committee29March 8, 2007NERC CCC CCC Standards Interface Subcommittee (cont.)– Scope Implement CCC oversight, facilitate, and participate as neededin the development of the Compliance Administration Elements(CAEs) for new reliability standards under development or forrevisions to existing reliability standards Identify personnel to serve on the Compliance AdministrationElement (CAE) drafting teams as needed Identify personnel to serve on the Compliance AdministrationElement (CAE) drafting teams as neededMarch 8, 20073015

NERC CCC CCC Programs– CCCPP-001 Monitoring Program for NERC’sAdherence to Rules of Procedure– CCCPP-002 Compliance Monitoring Program forReliability Standards Applicable to NERC– CCCPP-003 Monitoring Program for NERC’s StandardsDevelopment Procedure31March 8, 2007NERC CCC CCC Programs (cont.)– CCCPP-007 Monitoring Program for NERC’s Adherenceto Rules of Procedure for Organization Registration andCertification– CCCPP-008 Program for Monitoring Stakeholder’sPerceptions of NERC Compliance Program, registrationprogram and Certification Program– CCPPP-011 Program for Developing/Reviewingthe Criteria for Annual Regional Entity Audits and CMEPCompliance AuditsMarch 8, 20073216