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.
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.
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 review these standards, will depend in part on commission rulings on ERO standards and ERO standard-setting processes.
These are just a few examples of sequencing issues. There are many more. The transition period to new reliability standards and institutions to enforce them obviously will take time. Caution must, however, be exercised to ensure that reliability mechanisms are in place continuously during the transition.
When NERC files its proposed ERO reliability standards with the commission, FERC should approve as many of these reliability standards as possible. This will avoid the potential for discrepancies, or gaps, in reliability standards—both with respect to ERO standards and to regional entity standards filed with the ERO. We are encouraged by the statements to date of FERC Chairman Joseph T. Kelliher, who has said that, in the event a particular standard requires improvement, FERC will consider granting conditional approval so that the standard can be enforced during the period the commission or the ERO is considering revisions to strengthen it.
The conditional approval approach being considered for ERO standards may have to be used to address regional issues as well. The commission may need to grant conditional approvals of certain regional standards or regional compliance enforcement programs to get a mandatory reliability regime in place as soon as possible.
As the ERO transition process moves forward, the commission also should support the formation of an industry forum within the ERO to focus on best practices and lessons learned. The Institute of Nuclear Power Operations (INPO) has established a solid track record of promoting nuclear safety, reliability, and operational excellence, based on the critical feature of conducting candid peer-to-peer discussions of lessons learned on a confidential basis. Adopting the INPO model within the ERO will help transmission owners and operators to evolve from focusing only on bottom-line compliance with mandatory standards to the mode of continuous performance improvement.
We strongly supported passage of the ERO provisions of EPACT, and we strongly support the prompt certification of NERC as the ERO. We have and will continue to encourage NERC to seek industry consensus on all-important issues prior to filing its ERO application and proposed standards. NERC also should address in its transition plan how it will proceed.
It is imperative that the transition to the ERO be completed by Jan. 1, 2007, so that we have in place the mandatory compliance enforcement system set forth in EPACT. EEI and its members will continue to offer input and assistance to NERC as it works to implement the ERO provisions within this time frame. We also will continue to support the efforts of the regional reliability councils to fulfill their roles as regional entities under the statute.
As FERC, NERC, the industry, and other stakeholders work toward completing this transition, the end result should be what Congress intended: a self-regulating ERO with active governmental oversight. The success of self-regulating organizations is based on adherence to the idea that regulation is most effective when it is carried out as closely as possible to the regulated activity. Thus, the expertise, experience, and “front line” resources of bulk power system owners, operators, and users must be well utilized if the mission of the ERO is to be carried out effectively and in accordance with statutory intent. The more closely the ERO reflects this approach in its structure and operation, the more reliable the nation’s bulk power system will be in the 21st century.