NERC Knows Best?

Deck: 

FERC this year must select a reliability czar. But the obvious choice could prove less than ideal.

Fortnightly Magazine - January 2006

“If you want us to be a dictator, we can be a dictator.”

That was Richard P. Sergel, president and CEO of the North American Electric Reliability Council (NERC), speaking late last year at a conference on the Energy Policy Act of 2005 (EPACT), hosted by the Edison Electric Institute (EEI) and Energy Daily.

Sergel’s words followed upon this editor’s question: “Do you think NERC’s corporate culture is ideal to fill the position of Electric Reliability Organization (ERO), the new national enforcer of ‘mandatory’ reliability standards, that Congress has ordered under EPACT?”

It is not clear—to me at least—that NERC is the right candidate for the job of ERO. The Federal Energy Regulatory Commission (FERC) should consider many more applicants (we hope they will come forward) before making what many see as the key decision for the electric utility industry.

Tough Love

NERC up until now has been, in its own words, “a self regulatory organization, relying on reciprocity, peer pressure, and the mutual self-interest of all those involved in the electric system.”

Nevertheless, can this tradition of kind, gentle, and voluntary consensus-building stand NERC in good stead as it seeks to transform itself in to a steel-fisted czar that would enforce mandatory standards?

Sergel, who came to his post last year from National Grid, says NERC can be ruthless if need be. He defended his organization against the charge that it’s much too cozy with the utilities industry to enforce reliability properly.

Sergel said his newly minted “independent” board was meant to silence critics on that score. But it may not be enough simply to appoint a new board.

Critics charge that bowing to industry peer pressure is in NERC’s DNA; that no legislation will change that. NERC, however, is not just any applicant. For years it’s been lobbying Congress, the industry, and just about anybody willing to listen that we need a new reliability enforcer with teeth, and that NERC would fit the bill. Even last December, a presentation by Gerry Cauley, director, Standards, ERO Project Manager at NERC, could be found on the NERC Web site outlining how NERC would transition to ERO status.

All this seems just a bit presumptuous. Congress, for example, opted in the language of the statute not to identify NERC by name. This reticence, moreover, raises a serious question: Did Congress think NERC was up to the task? Our representatives in Washington pragmatically ordered FERC to “certify an applicant meeting the requirements, including independence and due process, as the electric reliability organization.”

NERC is not the only institution capable of managing the technical aspects of reliability. Several independent system operators (ISOs) and regional transmission organizations (RTOs) have the technical skills and market-monitoring capabilities to accommodate greater enforcement duties. PJM, for example, suffered much less than did the Midwest during the great blackout of Aug. 11, 2003, by some measures the largest in U.S. history.

FERC Chairman Joseph Kelliher, in a technical conference last year, noted with great disdain that the blackout had been caused by a failure to adhere to NERC’s voluntary standards. So, why not give someone like PJM a chance?

Even ReliabilityFirst, which is consolidating reliability planning between regions, might make a good candidate for ERO.

Institutions like these perhaps would be more ambitious and willing to rise to the opportunity. FERC should do more to encourage other ERO applications, given that utility execs and the commissioners themselves already have discussed alternatives to NERC.

In fact, such discussions have been taking place for years. The idea that ISOs and RTOs would take over the reliability function was being discussed as early as 2001 in conjunction with the development of the Energy Industry Standards Board (See “Izzbee, Izz It?,” Bruce W. Radford, Public Utilities Fortnightly, July 15, 2001).

Watching Paint Dry

NERC’s Sergel puts a modern face on this institution, which should be grateful to have him as leader. But for all his efforts, he cannot hide what some have called a sick and dying bureaucracy.

At FERC’s November technical conference on ERO certification last year, the most prevalent criticism centered on NERC’s procedures as too slow.

For example, although not meant as a criticism, Ken Wiley from the Florida Reliability Coordinating Council (FRCC) provided an illuminating look at NERC efficiency. (FRCC’s Linda Campbell read his statement at the FERC technical conference).

“An examination of the NERC reliability standards Web page revealed the following things: There have been 23 standard authorization requests or SARs, to develop reliability standards submitted since January of 2002. The Version 0 SAR, which produced 90 reliability standards, was posted in April 2004 and passed in January 2005. This was a great effort.”

It was willing to acknowledge, however, that some standards in Version 0 were missing measurements and compliance administration elements. Furthermore, Wiley explained that a SAR was introduced in May 2005 to provide these missing pieces, and that SAR contemplated a time period of four years to accomplish that task.

Moreover, on the IT side, Wiley’s review found that a cyber-security standard passed through the Urgent Action process twice. A SAR was submitted for the cyber-security standard in July 2003. That standard is currently in its fourth drafting stage and is expected to go to ballot sometime in 2006.

Wiley counted 21 SARs in various stages of development, with some still awaiting approval. Nine of these have been in the process since 2002; two have been in the process since 2003; two since 2004; and eight were posted into the process in 2005.

“I believe all these things indicate that so far, this process has not met the criteria of being timely and responsive.

“I would respectfully suggest,” Wiley added, “that the reliability standards development process needs to be reviewed and perhaps revised to correct these deficiencies.”

I would hope so. Nevertheless, the NERC CEO insists on keeping procedures that are notoriously time-consuming.

Sergel also defended NERC’s reliance on the American National Standards Institute (ANSI serves as the central body responsible for the identification of a single, consistent set of voluntary standards), but even Chairman Kelliher lamented the ANSI process.

“I think we’ve had a total of one standard develop over five years, under the current process,” Kelliher said. “The cyber-security standard I think is a temporary, ANSI-approved standard, and I’m not trying to be critical, but it just seems going forward maybe a standard is needed in a year, 18 months, something like that; and we need a standards-setting process that actually can accommodate that kind of timeline.”

The ANSI process is all-inclusive and very democratic, but as previously mentioned, slow as dirt. And in FERC Commissioner Nora Mead Brownell’s words, it “raises the concern that it is a democratic process that doesn’t yield the highest standard.”

NERC proclaims it will be different, but it appears the would-be reliability emperor has no clothes.