Closer coordination between FERC and CFTC (and perhaps also with DOJ) will increase enforcement risk for energy industry traders.
Building a Strong ERO
The North American Electric Reliability Council should be promptly certified as America’s electric reliability organization.
The Federal Energy Regulatory Commission (FERC) is moving forward under the Energy Policy Act of 2005 (EPACT) to create an electric reliability organization (ERO). It will at the same time be establishing mandatory reliability standards, delegating the enforcement authority to regional entities, and ensuring that the regional entities properly enforce those standards.
To accomplish these goals and create the strong electric reliability system envisioned by Congress, the commission needs to focus on many issues, two of which are especially important: creating consistency in how compliance and enforcement programs are carried out at the regional level, and leading the transition—effectively and promptly—from today’s world to the new era called for in EPACT.
Regional Enforcement Consistency
Maintaining a reliable electricity system in the United States is both a national and a regional matter because significant expertise, experience, and wherewithal reside with the regional reliability entities. In addition, some of the reliability standards that will be developed will be regional in nature to reflect the differences in regional operations, systems, resources, and the like.
Therefore, the ERO will need to delegate certain reliability duties to the regional entities. At the same time, however, the ERO will need to exercise close oversight to maintain reliability. As envisioned in EPACT, delegation agreements will be the mechanism for accomplishing both.
When the ERO enters into these delegation agreements, and as it administers them over time, it is crucial that the ERO demand consistency from the regions, both in how they investigate problems and in how they apply any penalties. The regions must treat all parties fairly with respect to the conduct of investigations, confidentiality, and other matters surrounding enforcement. And the regions must uniformly apply any enforcement penalties. Sanctions must consistently fit the severity of violations regardless of the region.
The Edison Electric Institute has strongly supported and facilitated the development of a pro forma regional delegation agreement to achieve this regional consistency. Such an agreement will ensure that the key elements of all of the delegation agreements—to the greatest extent possible—are the same. A pro forma agreement also will enable any regional differences to be negotiated from a common basis.
Careful Transition Process
As of this writing—prior to the issuance of the commission’s final ERO rule— it is expected that the North American Electric Reliability Council (NERC) will file its ERO certification application in April. A critical part of that application will be the transition plan—how, and how fast, NERC plans to move from today’s reliability mechanisms to those called for by EPACT. A smooth and prompt transition involves many complex sequencing issues.
For example, regional delegation agreements cannot be executed until the ERO has been certified and the commission has acted on the proposed pro forma delegation agreement. Regional compliance programs must be revised as necessary to comply with commission rulings. Likewise, regional standards, and the processes used to propose and