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How Needed Is NERC?

Critics say its new budget and business plan could simply duplicate the work of RTOs.

Fortnightly Magazine - November 2006

a long wait, Congress eventually enacted EPACT, turning NERC’s dream into reality. FERC put the icing on the cake when it certified NERC as ERO.

Hitch in the Plan?

But a funny thing happened on the way to the dance. During the nine-year wait for EPACT, and with no mandate from Congress or FERC, the utility industry on its own created a parallel network of a half-dozen or more regional independent system operators (ISOs) to run the transmission grid and organize wholesale markets. Today, these ISOs and RTOs have come to perform a lot of the functions that one might once have associated with NERC, or with any regional enforcement arm of the new ERO:

• Coordinate regional operations of grid assets owned by individual local utilities;

• Conduct regular, long-term regional assessments of generation adequacy;

• Perform minute-to-minute evaluations of grid conditions, to provide a near-instantaneous situational awareness;

• Evaluate grid capabilities and award “must-run” status for power plants essential to grid operations;

• Choose which power plants to certify as “system” resources, based on capacity, availability, and grid access ( i.e., reliability);

• Set minimum requirements for load-serving entities (LSEs) for supplies of electric capacity (consider programs such as New York ISO’s ICAP plan, ISO-NE’s Forward Capacity Auction, and PJM’s proposed RPM plan);

• Conduct stakeholder sessions to develop and plan new additions to infrastructure; and

• Mandate transmission expansions where merchant investment has been found insufficient to guarantee reliability, or where grid congestion cannot be hedged through the market (think PJM’s Regional Transmission Expansion Plan [RTEP] plan).

Thus, during the last decade, while NERC was waiting for Congress to act, the ISOs and RTOs quietly were acquiring the characteristics thought to be required for a lawful reliability czar: (a) regional coordination of control areas; (b) full and impartial stakeholder accreditation; and (c) complete financial independence from market outcomes.

This is not to say we don’t need reliability standards, but rather, why not choose RTOs for their enforcement?

Final Word

Nevertheless, FERC has spoken. The conventional wisdom has prevailed. Reliability enforcement will come from NERC and its associated regional entities—not from the RTOs themselves. So let’s skip ahead to Aug. 23, 2006, when NERC unveiled its proposed budget and business plan for calendar year 2007, in its new role as the FERC-certified ERO.

NERC (the North American Electric Reliability Council) projects a net funding requirement for its national organization of about $22.5 million, plus another $52.6 million for activities of its eight proposed regional entities (REs), and to recover those costs through assessments allocated among all load-serving entities (LSEs) across the country. These sums, in numerical terms, appear quite reasonable. Rounded off, the average assessment would run between about 1.1 cents/MWh (for the Southeast) to as much as 2.6 cents/MWh (for the West).

To calculate those assessments for its 2007 operations, NERC would rely on statistics showing utility deliveries of “net energy for load” (NEL) for calendar year 2005, which, as NERC explains, “is the most recent calendar year NEL data available.” That means, according to a protest filed