The Federal Energy Regulatory Commission (FERC) demonstrated strong leadership in meeting the aggressive timeline set by Congress for establishing the regulatory basis on which the Electric Reliability Organization (ERO) will be created. In doing so, the commission has issued rules and orders requiring additions and modifications to NERC programs and procedures.
Much work indeed has been accomplished. But next summer’s peak-demand season is fast approaching. And much more work remains ahead for the industry to finish the job.
The 102 mandatory reliability standards submitted to FERC still must be approved. Regional delegation agreements must be executed and approved. Regional compliance programs must be revised as necessary to provide consistent enforcement and due process. These programs also must be ready when reliability standards are approved and become enforceable. And throughout the transition, mechanisms must be in place to ensure continuous reliability on a comprehensive basis.
All the stakeholders involved in this critical initiative can take pride in what has been accomplished. But we must now redouble our efforts and work together to accomplish these goals and complete the transition—effectively and promptly—from today’s world to the new era called for in the Energy Policy Act of 2005 (EPACT).
The commission has made it clear that the ERO-mandated reliability regime should be in place by next summer, including a set of enforceable reliability standards. Last July, FERC staff completed a thorough and thoughtful assessment of the 102 standards that NERC presented for approval. This includes analysis aimed at making certain that the problems identified with the 2003 Northeast blackout are being addressed in the proposed standards. FERC then requested public comments on the proposed standards, emphasizing that only those standards that meet the legal requirements of EPACT would be approved as final.
We at the Edison Electric Institute testified that the proposed reliability standards are a good start on building the solid foundation needed for enforceable reliability standards. We suggested that in approving the standards, the commission consider grouping them into two categories. The first category includes those reliability standards that are fully ready for enforcement and the imposition of penalties. These can be approved as final standards now. We believe that approximately half of the 102 standards fall into this first category.
The second category includes those standards that are not quite ready to be made final. These standards may need clarification of certain specific performance measures or the addition of certain “fill-in-the-blank” requirements before they can be fully enforceable and subject to penalties for noncompliance. We have recommended that the commission approve these standards on a conditional basis so that there are no gaps in standards when the ERO begins its operations.
FERC should establish an expectation of continuous compliance with standards that are conditionally approved, because such standards essentially are the standards under which the bulk electric system is currently operated. This is consistent with the approach suggested by NERC. Penalties, however, should not be imposed for violations of these conditionally approved standards until the necessary changes, such as supplying missing compliance elements, have been made. As soon as possible, though, the interim standards must be amended to comply with commission expectations.
FERC will not be developing or revising standards—the industry must do this. It is up to all of us, through the ERO, to clarify and improve standards as necessary, and to develop new standards. All standards, whether revised or new, must in turn be submitted to FERC for approval. With approximately half the 102 standards needing work, and with NERC simultaneously developing new standards, the industry has a big task in front of it.
Maintaining a reliable electricity system in the new ERO structure will require that the ERO delegate most compliance enforcement activities to the eight regional entities around the country. The ERO will harness regional expertise and resources through delegation agreements—the contracts through which the ERO will assign compliance enforcement duties to the regional entities, and ensure that those responsibilities are clearly delineated.
These delegation agreements also will determine the essential elements of the relationship between the ERO and the regional entities. And they will be the mechanism for achieving consistency both among the regional compliance programs and in the regional implementation of these programs.
To this end, we have strongly supported and facilitated the development of a pro forma regional delegation agreement. We are pleased that it has been conditionally approved by the commission and will soon be finalized. Now we must turn our attention to several key programs that will become part of the delegation agreement—the most important of which is the regional compliance and enforcement program.
FERC has required that when the regions carry out compliance and enforcement programs, and as the ERO oversees these programs, there must be a high degree of uniformity. NERC and the regions must provide the commission with adequate justification for any different regional approaches.
Two areas regarding the compliance and enforcement programs are particularly important. The first is that the ERO must ensure that compliance with standards is measured and determined with consistency across the regions. The second area concerns the investigatory and due process procedures followed by the regions. In addition to ensuring that all parties are treated fairly and even-handedly with respect to the conduct of investigations, confidentiality, and other matters surrounding enforcement, the ERO must make certain that its compliance enforcement process is consistently applied across the regions.
Any enforcement penalties must be uniformly applied as well—sanctions must consistently fit the severity of the violation, regardless of the region where it occurred. In short, all owners, users and operators similarly situated must be treated the same regardless of the region in which they operate.
Accomplishing these goals will be a formidable challenge, but it is crucial that the commission and the ERO demand consistency and accountability from the regions—both in how they investigate problems and in how they apply any penalties. The regions will be exercising delegated statutory authority to levy penalties that can reach $1 million per day per violation.
As a final note, we strongly believe that the ERO and the regional entities should have the primary role in conducting compliance, investigation, and enforcement activities. We anticipate that the commission would serve as the oversight agency to ensure that these processes are working well, appropriate due process has been followed, penalties have been appropriately applied, and sufficient levels of uniformity have been achieved. As such, we anticipate that appeals from an ERO determination to the commission will be rare.
Much work also remains to be done to ensure that the registration of entities responsible for complying with reliability standards is completed before next summer. To achieve this, the industry must reach out to every user, owner, and operator of the nation’s bulk-power system. The old saying about something being as strong as its weakest link certainly applies here—every entity that affects the reliability of the power system must play its part. A small entity that violates a standard can cause just as serious an impact on the reliability of the electric grid as a large utility.
As a first step, each entity must register with the region or regions in which it operates. Once registered, the entity must then understand which of the particular standards it must comply with. And, it must make certain that it has the mechanisms and structures in place so that it can comply with those standards. Finally, these steps must be done consistently across all the regions.
To date, the industry has made impressive progress in implementation of the ERO statute that EEI has long sought. FERC is performing a strong oversight role, but in the final analysis, it is up to all industry participants to complete the transition to the ERO. Time is running short to complete all the steps we must take before the summer peak-demand season is upon us. With continued cooperation and participation among all the stakeholders involved, we are confident that this mutual goal will be achieved.