“Overview of FERC-NERC-SERC”

2006Transmission Customer Forum

“Overview of FERC-NERC-SERC”

2006Transmission Customer Forum

Marc Butts

September 21, 2006

Marc Butts

September 21, 2006

How did we get here with NERC & SERC?What is this Energy Policy Act all about?How did we get here with the NERC

standards?What is this “registration thing” all about? What are the penalties if I don’t comply?

Topics:

What’s the history behindNERC & SERC?

NERC – North American Electric Reliability Council• 1965 – Created after the Northeast Blackout • 1968 – Formed by 12 regional and area organizations• 1996 – Opens its Board and Committees to voting participation

by all industry segments (IPPs & marketers)• 1999 – Independent Board Created• 2005 – EPAct mandates creation of an Electric Reliability

Organization (ERO)• 2006 – North American Electric Reliability “Corporation”• 2006 – FERC approves NERC as the ERO

SERC – Southeastern Electric Reliability Council

1970 – Organizations in the Southeast combined to form SERC – 4 were original members of NERC

2003 – Established voluntary Compliance Enforcement Program

2006 – Changed it’s name to “SERC Reliability Corporation” and applied to become a Regional Entity under the ERO

SUB-REGIONS of SERC

- Companies grouped together

to form Regions

- Regions formed NERC and

became the members

- Regions delegated certain

authority to NERC

- NERC received it’s authority

from the regions and relied on

voluntary compliance with

standards

CompanyCompany

CompanyCompany

CompanyCompany

Region

NERC

Authority

The way things were

FERC

- EPAct mandated creation of an ERO and

gave FERC oversight of the ERO with

significant penalty authority

- The ERO can delegate some authority to

an approved Regional Entity (RE)

- Companies can join a Regional Entity.

However, companies must comply with

NERC standards

- NERC (the ERO) and standards are being

reworked and refined

- Regions are being reworked and refined to

become Regional Entities

Authority

Where we are today

Company

Regional Entity

NERC/ERO

Summary of What Has Changed• Where NERC receives it’s authority from (“who’s the

boss?”)• Mandatory vs. Voluntary compliance• Compliance will be integrated into our corporate structures

just like other risk areas • More requirements, documentation, and costs• Increased coordination and cooperation will be necessary• Significant penalties for non-compliance ($$$)

What Hasn’t Changed• NERC’s need for technical expertise• NERC’s standards development process• The need for regional groups (SERC Reliability Corp.)• Our stand on being in compliance with standards (our

“culture of compliance”)• Our proactive support and involvement with

NERC (the ERO) and SERC

What is this Energy Policy Act all about?

Energy Policy Act of 2005• Signed into law by the President on August 8, 2005.• Creates an ERO certified by FERC with authority to

develop and enforce mandatory reliability standards, including authority to levy penalties for violations of standards.

• All users, owners, and operators of the bulk-power system must comply with the mandatory reliability standards.

Energy Policy Act of 2005• The ERO must submit each proposed new reliability

standard or modification to an existing standard to FERC for approval.

• FERC may approve a reliability standard filed by the ERO or remand it to the ERO for further consideration.

• Only a reliability standard approved by FERC is enforceable by the ERO or a Regional Entity (RE).

• FERC must approve all penalties imposed by the ERO or Regional Entities.

Energy Policy Act of 2005

• The ERO, with FERC approval, may delegate enforcement authority to a RE (SERC) if the RE is governed by an independent board, a balanced stakeholder board, or a combination of independent and balanced stakeholder board.

• A Regional Entity may propose reliability standards to the ERO.

ERO Certification Final Rule

• FERC issued a Notice of Proposed Rulemaking (NOPR) on September 1, 2005 with comments due by October 7, 2005.

• FERC issued a Final Rule on February 3, 2006.

NERC Application for ERO CertificationMajor Components of the Application

• Rules of Procedure Document (approx. 225 pages)• Summary of NERC Approved Reliability Standards• Preliminary Outline of Transition Roadmap for ERO

Reliability Standards• Pro Forma Regional Delegation Agreement

NERC Reliability Standards Filing

• NERC filed 102 reliability standards for FERC approval on April 4, 2006.

• FERC issued a staff assessment of the standards for public comment on May 11, 2006.

• FERC held a technical conference on July 6, 2006 to solicit additional public input on the filed standards.

NERC Application for ERO CertificationFERC Order• FERC issued an order on July 20, 2006 certifying

NERC as the ERO.• NERC must make a compliance filing by October

18, 2006 to modify certain documents and to provide additional justification for certain proposals.

• Compliance filing will be very substantial.

NERC Reliability Standards Filing• NERC stated in the filing that certain standards

lacked compliance measures and that these standards would be refiled in November.

• NERC also stated that certain standards currently require compliance by the RROs (rather than users, owners, and operators) and that a schedule for modification of these standards would be provided in November,

NERC Reliability Standards Filing

• FERC plans to issue a NOPR in September.• Final Rule on the reliability standards filing is

expected in the first quarter of 2007.

ERO Transition Timeline (Approx.)

7/6/067/20/06

08/02/0608/02/068/25/06

9/811/8/0611/8/06

11/08/0611/1/06

12/061st Q 071st Q 07

7/1/07

Technical conference on standardsFERC certifies NERC as the EROBoard approves 2007 ERO/region budgetsNERC merges into new corporationNERC files ERO/region budgetsStandards NOPRFile regional delegation agreementsFile compliance elements, risk factorsFile plan for regional fill-in-blank standardsFERC approve 2007 ERO/region budgetsFERC approve ERO compliance filingFERC approve standardsFERC approve delegation agreementsERO begins assessing monetary penalties

How did we get here with the NERC standards?

In the Beginning …

• NERC Operating Policy Manual– General Information– Control Area Criteria– Reliability Coordinator Standards of

Conduct– Operating Policies– Appendixes– Training Documents– Data– References

In the Beginning …• NERC Planning Standards

– Foreword– Introduction– I. System Adequacy and Security– II. System Modeling Data Requirements– III. System Protection and Control– IV. System Restoration– References– Reliability Criteria Subcommittee

NERC Activities• 2001 - Functional Model and Standards Taskforce

– NERC passed several resolutions to approve a functional operating model, ensure the independence of the reliability coordinators, and initiated a transition to organization standards

– NERC Operating Committee designed a model that defines the basic functions for reliable bulk electric system operation

– NERC developed a series of new control area criteria, based on the Functional Model, which established the requirement for qualification as a NERC-certified control area

– The Standards Task Force (STF) was established to redesign the process by which NERC standards are developed

Steps Toward Reliability Standards• 2002

– Concern over physical and cyber security lead to formation of the Critical Infrastructure Protection Advisory Group

– NERC implements a new reliability standards development process for the industry

• NERC/NAESB Coordination• Organizational Certification• Personnel Certification• Reliability Coordinator Audits• New Tools and Procedures

– Standards Development Process is implemented under the Standards Authorization Committee

• ANSI approved standard process• Well defined, but slow

Steps Toward Reliability Standards

• 2003– First standard approved under new process (CIP)– 18 new standards under development

• August 14, 2003 Northeast Blackout

Impacts of 8-14-03 Outage on Standards Development• Joint U.S.-Canada Power System Outage Investigation

– Interim recommendations– Final report

• NERC Activities– October 10, 2003 - Near-Term Actions to Assure Reliable

Operations (Quick Action List)– Final Report Action Item List– Missing Standards Taskforce (added Vegetation Control + others)

– Version 0 Reliability Standards

From Policies & Planning Standardsto Reliability Standards

• Version Zero Taskforce– Operations

• Reviewed 9 Operating Polices, Appendixes and References• Created 43 Version Zero Reliability Standards

– Planning• Reviewed existing Planning Standards, Measurements and

Guides• Created 47 Version Zero Reliability Standards

– The basis for the current Reliability Standards

What is this “Registration Thing”

all about?

Energy Bill Registration Requirements• Each “user, owner, and operator” of the Bulk Power System

registers with the ERO (now NERC) and respective Regional Entity (e.g.,SERC).

• NERC’s compliance registry identifies organizations responsible for reliability functions for each Regional Entity (RE).

• NERC’s registration process ensures:– no areas are lacking any entity to perform reliability function– there is no duplication of coverage or oversight of such

coverage.

Balancing AuthorityBalancing AuthorityDistribution ProviderDistribution ProviderGenerator OperatorGenerator OperatorGenerator OwnerGenerator OwnerLoad serving EntityLoad serving EntityPlanning AuthorityPlanning AuthorityPurchasing-Selling EntityPurchasing-Selling EntityReliability CoordinatorReliability CoordinatorRegional Reliability OrganizationRegional Reliability OrganizationResource PlannerResource PlannerTransmission OperatorTransmission OperatorTransmission OwnerTransmission OwnerTransmission PlannerTransmission PlannerTransmission Service ProviderTransmission Service Provider

* Black functions were * Black functions were registered at the SCS levelregistered at the SCS level

* Red functions were * Red functions were registered at the OPCO levelregistered at the OPCO level

** Not registered as an RRO Not registered as an RRO

SoCo Registered for 13 NERC functionsSoCo Registered for 13 NERC functions

After registration, certain functions must become certified!!

NERC

Certification process

begins for TOP, RC, and

BA functions

either late ’06

Or early ‘07

Southern

begins

gathering all

documents for

certification audit

Southern will

become

certified!!

Responsibility Matrix

• The Reliability Standards approved to date have a total of 1,401 specific requirements and sub-requirements

• Responsibility for each of these is assigned to a Functional Entity, although many requirements have no matching Compliance Measures

• The next slides show you how to find the “Responsibility Matrix” for the Generator Owners

Click here

Click here

Click here

Standard Number

Requirement Number Text of Requirement

BA

DP

GO

GOP

IA

LSE

PA

PSE

BAL-001-0 R1. Each Balancing Authority shall operate such that, on a rolling 12-month basis, the average of the clock-minute averages of the Balancing Authority’s Area Control Error (ACE) divided by 10B (B is the clock-minute average of the Balancing Authority Area’s Frequency Bias) times the corresponding clock-minute averages of the Interconnection’s Frequency Error is less than a specific limit. This limit is a constant derived from a targeted frequency bound (separately calculated for each Interconnection) that is reviewed and set as necessary by the NERC Operating Committee. See Standard for Formula.

BA

             

Once in the matrix, look for

Responsibilities of the GO

VAR-002-1 R4. The Generator Owner shall provide the following to its associated Transmission Operator and Transmission Planner within 30 calendar days of a request.

    GO

VAR-002-1 R4.1. For generator step-up transformers and auxiliary transformers with primary voltages equal to or greater than the generator terminal voltage:

    GO

VAR-002-1 R4.1.1. Tap settings.     GO

VAR-002-1 R4.1.2. Available fixed tap ranges.     GO

VAR-002-1 R4.1.3. Impedance data.     GO

VAR-002-1 R4.1.4. The +/- voltage range with step-change in % for load-tap changing transformers.     GO

VAR-002-1 R5. After consultation with the Transmission Operator regarding necessary step-up transformer tap changes, the Generator Owner shall ensure that transformer tap positions are changed according to the specifications provided by the Transmission Operator, unless such action would violate safety, an equipment rating, a regulatory requirement, or a statutory requirement.

    GO

VAR-002-1 R5.1. If the Generator Operator can’t comply with the Transmission Operator’s specifications, the Generator Operator shall notify the Transmission Operator and shall provide the technical justification.

     

Examples of Responsibilities for Generators

What are the penalties if I don’t comply?

Compliance Audit Program• FERC requires NERC and Regional Entity to develop a single audit

process.• Compliance audits are at least once every three years.• FERC stresses uniformity among Regional Entity (RE) programs.

– The compliance audit process among the Regional Entities are presumed uniform until there is an indication otherwise.

• The RE (e.g., SERC) compliance staff shall not be “unduly influenced” by the registered entities being audited.

• All audits will be conducted in accordance with generally accepted government auditing standards set forth in the Government Auditing Standards.

Penalty and Fine Process• Penalties shall bear a reasonable relation to the seriousness of the

violation and take into account efforts to remedy violation.• Monetary and non-monetary penalties can be assessed.• If monetary penalty is appropriate, 1st Step is to calculate a Base Penalty

Amount that will apply to each violation:– “Reliability Risk Factor” identifies the violation as a Low, Medium, or

High impact on reliability of the BPS.– “Violation Severity Level” characterizes a measurement of the

degree to which the standard was violated.• FERC has directed NERC to increase the maximum penalty amount per FERC has directed NERC to increase the maximum penalty amount per

day per violation for the Base Penalty Table from $200,000 to day per violation for the Base Penalty Table from $200,000 to $$1,000,0001,000,000..

Please sit down before viewing the next

slide!

Don’t shoot the

messenger!!!

Base Penalty Table

Requirement Risk Level

Noncompliance Severity Level

Lower(Level 1)

Moderate(Level 2)

High(Level 3)

Severe(Level 4)

         

Lower $1,000 $5,000 $10,000 $15,000

         

Medium $20,000 $30,000 $40,000 $50,000

         

High $60,000 $70,000 $80,000 $200,000

         

Penalty and Fine Process

• 22ndnd Step is to apply Step is to apply Adjustment FactorsAdjustment Factors to adjust the Base to adjust the Base Penalty Amount to the particular circumstances of a violation.Penalty Amount to the particular circumstances of a violation.

• FERC’s FERC’s Enforcement Policy StatementEnforcement Policy Statement will guide NERC on will guide NERC on application of the Adjustment Factors:application of the Adjustment Factors:– Assess violator’s “Assess violator’s “commitment commitment to compliance”to compliance”– Takes into consideration the Takes into consideration the effortsefforts of the user, owner, or of the user, owner, or

operator to remedy the violation in a operator to remedy the violation in a timelytimely manner manner– Rewards the violator for “Rewards the violator for “mitigating factorsmitigating factors” (0 to -25%)” (0 to -25%)– Punishes the violator for “Punishes the violator for “aggravating factorsaggravating factors” (0 to +50%)” (0 to +50%)

Penalty and Fine Process• Aggravating factors increase the sanction

– Time horizon of standard – operations vs. long term (+ 0-50%)– Repetitive infractions (+ 10, 30, and 50% discrete steps)– Prior warnings (+ 25% initial; 50% multiple) – Lack of cooperation (+0-50%)

• Mitigating factors decrease the sanction– Prompt disclosure (- 0-25%)– Voluntary corrective measures (- 0-25%)– Substantial cooperation (- 0-25%)

Sanction Table — Ranges with Adjustment Factors Applied

Requirement Risk Level

Noncompliance Severity Level

Lower(Level 1)

Moderate(Level 2)

High(Level 3)

Severe(Level 4)

         

Lower0 - $7,000 0 - $35,000 0 - $70,000 0 - $105,000

         

Medium 0 -$140,000 $280,000

0 - $210,000$420,000

0 - $280,000$560,000

0 - $350,000$700,000

         

High 0 - $420,000$840,000

0 - $490,000$980,000

0 - $560,000$1 million

0 - $700,000$1 million

         

Budgeting• NERC will collect fees from end users on a net energy for

load basis; will be collected by the Load Serving Entity (LSE).• Regional Entities (SERC) will perform the billing and collection

of the end user fees from the LSE.• Fees are to be collected to support:

– Standard development– Enforcement– Registration and certification– Readiness audits– Situational awareness and infrastructure security

For more information…Marc Butts

Office Phone: 205-257-4839Email: mmbutts@southernco.com