Reliability in Flux

Deck: 

NERC Assessments are Fine, but DOE Task Force Gets Last Word

Fortnightly Magazine - January 1 1998

Go figure. Plans to shut down nuclear generation in Ontario should not affect electricity supplies this winter within the United States, despite early rumors of chaos and rising natural gas prices. However, an unexpected slowdown in coal delivery by some U.S. railroads has "seriously reduced" on-site stockpiles of coal at some generating plants in three regional reliability councils - ERCOT, SERC and SPP - particularly those dependent on coal from the Powder River Basin in Wyoming.

Even El Niño may have a role to play. Flow rates are up on the Missouri River, forcing hydro plants to spill reservoirs and boosting generation above expected levels in the MAPP region, where a near-term capacity shortfall had been expected because of increase marketing activity from MAPP to MAIN, and where transfer capability on the transmission network was said to have become "marginal on some interfaces."

These findings come from the 1997-98 Winter Assessment of Reliability of Bulk Electricity Supply in North America, released in November by the North American Electric Reliability Council, or NERC, the umbrella organization for the 10 (at last count) regional councils. (The assessment of MAPP capacity and transmission conditions comes from NERC's Reliability Assessment 1997-2006, issued in October.)

Assessments are fine, but the targets are moving. Some regional councils are reorganizing - the aim being to form or support regional independent system operators and/or wholesale spot markets or power exchanges. (See, "ISOs: A Grid-by-Grid Comparison," this issue. p. 44.) In fact, on November 24, the Mid-Continent Area Power Pool mailed new drafts of its revised restated agreement to its members, indicating changes necessary to accommodate an ISO. Transmission owners would give up operation authority of their lines to the MAPP ISO under a new transmission system control agreement. Both documents - the restated agreement and the TSCA - were posted on the internet the day before Thanksgiving.

The most vulnerable target, however, is NERC itself. As the umbrella organization for the regional reliability councils (including those mentioned above, the Electric Reliability Council of Texas, Southwest Power Pool, Southeastern Electric Reliability Council, and the Mid-Continent Area Power Pool), NERC operates as a nonprofit, voluntary organization. As the demand rises for electricity competition, and as doubt grows about who runs reliability, NERC's voluntary feature has attracted much attention.

Rethinking the Current Scheme

Does NERC violate antitrust law?

On Nov. 6, in Washington, D.C., at the sixth meeting of the Task Force on Electric System Reliability (formed by the Secretary of Energy to recommend federal policy on electric system reliability), task force member John Anderson suggested that NERC is vulnerable to a well-devised challenge on the basis of antitrust law.

At a pause in the meeting, as Anderson walked around the room, he distributed by hand a copy of a 13-page legal opinion prepared for the Electricity Consumers Resource Council (where Anderson is executive director) by the law firm of Cleary, Gottlieb, Steen & Hamilton, implying that NERC lacks a statutory framework for federal government oversight and thus violates antitrust principles.

After all, NERC enjoys neither express nor implicit antitrust immunity, as do some other self-regulating organizations, such as the National Association of Securities Dealers, which runs stock trading as an SRO subject to continuing and mandatory oversight from the Securities and Exchange Commission. ELCON, led by Anderson, is urging the DOE Reliability Task Force to recommend legislation to create a new, self-regulating reliability organization - an "SRRO" - subject to limited FERC oversight. With Anderson's appointment to the task force, ELCON seized the moment to educate the other task force member on the state of the law.

"We have been asked," wrote law firm partner Sara D. Schotland, "to provide our legal analysis as to whether the Department of Energy or NERC has adequate legal authority to address reliability in the era of open access. Our brief answer to this question is 'no,' even though NERC's activities are intended to carry out the public interest."

Posturing and Word Smithing

There's something to be said for keeping words vague.

At the November meeting, as the reliability task force conducted its final review of language in the Oct. 27 draft of its position paper on reliability (Maintaining Bulk-Power Reliability Through Use of a Self-Regulating Organization), a document very much the product of committee and compromise. The members debated whether to leave in a footnote that included a specific recommendation to model the new SRRO directly after the NASD. Task force chairman and ex-congressman Phil Sharp jumped in immediately, drawing on his experience in mark-up of energy bills, and said he would delete the footnote. Sharp appeared intent to avoid language in the position paper that would suggest either criticism or accidental praise of the present system.

Later, the task force weighed carefully whether to recommend specific oversight authority for FERC. Sending in her comments by proxy, absent member Susan F. Tierney wanted to insert language that the FERC would "conduct a review" of NERC standards. John Anderson countered, winning the argument to retain the draft language, which appeared tailored to suggest a lack of open access at NERC:

"It is not clear whether the FERC has sufficient statutory authority to enforce NERC rules. The FERC has issued several orders requiring parties to abide by the NERC standards and parties have assented¼ However, the use of FERC's conditioning authority to enforce NERC standards has not yet been challenged. Others question whether the FERC should enforce these rules in light of concerns over NERC's governance and decision-making procedures."

The task force continued with its word smithing. José Manuel Delgado (director, electric system operations, Wisconsin Electric) questioned another footnote recommending that the SRRO consider "distribution-level reliability concerns," saying it would upset state regulators. "Is there a difference between transmission and distribution reliability," asked Ralph Cavanagh, from the Natural Resources Defense Council. Former FERC Commissioner Matthew Holden: "I hate for the committee to say things definitionally when we don't have to, and then get fly-specked."

The mark-up continued, with Sharp killing the footnote about distribution facilities, and fielding more questions about whether certain language might offend one interest group or another. One typical issue concerned whether to leave in the term "bulk power" without supplying a precise definition. Delgado captured the spirit of the moment: "The language," he said, "is conveniently vague."