ML20133Q167

Forwards Rept from 970115 Meeting W/Doe Exploring Issues Re Reliability of Electrical Grid.Meeting Agenda,Attendees List & Handouts Encl

ML20133Q167
Person / Time
Issue date:	01/23/1997
From:	Rosenthal J NRC OFFICE FOR ANALYSIS & EVALUATION OF OPERATIONAL DATA (AEOD)
To:	Rossi C NRC OFFICE FOR ANALYSIS & EVALUATION OF OPERATIONAL DATA (AEOD)
References
NUDOCS 9701270257
Download: ML20133Q167 (72)

Text

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January 23, 1997 l

MEMORANDUM TO: Charlss E. Rossi, Dircctor j

Safety Programs Division j

Office for Analysis and Evaluation i

of Operational Data i

Jack E. Rosenthal, Chief g gned bf FROM:

Reactor Analysis Branch Safety Programs Division Office for Analysis and Evaluation I

of Operational Data j

SUBJECT:

MEETING REPORT: AEOD/NRR COORDINATION MEETING WITH 1

DOE TO DISCUSS ELECTRICAL GRID RELIABILITY l

e Attached is the report from the January 15,1997, meeting with DOE to explore Issues related to the reliability of the electrical grid. AEOD attendees were Jack Rosenthal, j.

George Lanik, and Mary Wegner of SPD. Meeting agenda, attendees list, and handouts are i

enclosed with the report.

Attachment:

Meeting With the Response Division of the Department of Energy w/ encl.

f cc w/att.:

j' J. Calvo, NRR D. Thatcher, NRR R. Jenkins, NRR N. Trehan, NRR CONTACT:

Mary S. Wegner, AEOD/SPD/RAB j

(301) 415-6369 (msw1@nrc. gov)

DOE ATTENDEES Distribution via E-Mail w/o att.:

David McColloch mccolloc@oem. doe. gov Stephen M. Stern stephen. stern @hq. doe. gov Ken Schafer jon.schafer@hq. doe. gov q

s)f/P(

Jim Brown brownj@oem. doe. gov John Young youngj@oem. doe. gov Kelly Pitt pittk@oem. doe. gov John Makens jmakens@eia. doe. gov Distribution w/att.:

See attached list i I D

Ni AME: C:\\WPS1\\WPDOCS\\TRIPDOE.MSW To receive e copy of this document. Indicate in the box: "C" = Copy wahout attachment /encdlos. "E" = Copy with attachment /en v = no coor a

OFFICE RAB lt RAB l6 C:RAB/ lb i

NAME MWegner:mmkg GLanik/)f JRosenthal

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DATE 01/B/97 015397 01/N/97 4

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9701270257'970123 na~hrtY

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Public W3 RAB R/F SPD R/F Distribution w/ attachment - w/o attachment enclosures:

EJordan, DEDO Dross FCongel KRaglin DHickman

' PBaranowsky

'JMitchell, OEDO i

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Meeting With the Response Division of the Department of Energy On Wednesday, January 15, 1997, representatives of the Safety Programs Division of AEOD and the Electrical Engineering Branch of NRR met with representatives of the Response Division of the Office of Emergency Management, DOE at the DOE Forrestal facility. The meeting was held to discuss DOE activities with regards to electrical grid reliability concerns raised by the restructuring of the electric industry. The agenda and list of attendees are Enclosures a and b.

Mr. David McCulloch, Director of the Response Division, introduced DOE personnel and gave a brief overview of DOE organizations, authorities, and the electrical energy emergency response program (Enclosure c). Mr. John Young, manager of the Emergency Operations Center, gave a description and demonstration of the Operations Center facility and responsibilities.

.Mr. Jack Rosenthal of the Safety Programs Division of AEOD described NRC concerns with regards to nuclear safety. He stated that the reliability of the electric grid was assumed by safety analyses and a change in the reliability of the grid would impact those analyses.

Operational concerns with grid reliability include the increase in reactor scrams and emergency diesel generator loadings. He mentioned the Grid Performance Factors study j

which has been released for comments and the succession of reports and studies leading up to 3

it. Mr. Jose Calvo of the Electrical Engineering Branch, NRR expressed his concerns that potential for grid instabilities impact licensing actions. He talked about his trip to the Connecticut Valley Exchange (CONVEX), in 1996 to discuss the electrical situation in Connecticut as the result of the closure of all four nuclear plants there.

Mr. Jim Brown, an engineer in the Response Division, discussed current activities in the electrical industry with regards to restructuring. He mentioned that the Open Access Same-Time Information System (OASIS), Phase I was online as of January 3,1997. He introduced the System Average Interruption Frequency Index (SAIFI), to show how reliability trends are tracked (Enclosure d).

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He referred to the Code of Conduct guidelines which will make all utility information except for data which is deemed necessary for competition available for all parties. Exempting data could create a problem in determining actual generation available.

On the topic of de Independent System Operator (ISO), he stated that no definitive description of the ISO or its responsibilities currently exist. As states pass laws and regulations, each may define the ISO functions within that state. The need may arise for a 2

national coordination of the ISO function.

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1 Attachment

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DOE has established a transmission reliability panel to evaluate the reliability of the nation's electric power system. It is chaired by former Representative Philip Sharp and its members j,

include representatives from a broad spectrum of groups concerned with the reliability of the electric industry (Enclosure c). He also mentioned that the Edison Electric Institute had formed a CEO committee on reliability (Enclosure f). Additional handouts from the meeting are in Enclosure g.

Based on these discussions, the participants agreed that the North American Electric Reliability Council (NERC) was the logical choice as the entity to oversee programs to j

monitor and improve the electrical grid reliability.

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5 a

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AGENDA C0 ORDINATION MEETING NUCLEAR REGULATORY COMMISSION ELECTRICAL BRANCH

--U.S.

DEPARTMENT OF ENERGY RESPONSE DIVISION f

WEDNESDAY, JANUARY 15, 1997

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10:00 AM EXECUTIVE TEAM ROOM--D0E EMERGENCY OPERATIONS CENTER (GA-288) 10:00-10:05 AM-----INTRODUCTIONS 10:05-10:25 AM-----DOE ORGANIZAT!ON, AUTHORITIES, AND ELECTRICAL ENERGY EMERGENCY RESPONSE PROGRAM---------DAVID MCCOLLOCH DIRECTOR, RESPONSE DIVISION 10:25-10:40 AM-----00E EMERGENCY OPERATIONS CENTER CAPABILITIES----------------JOHN YOUNG MANAGER, E0C 10:40-10:50 AM-----QUESTIONS, DISCUSSION 10:50-11:00 AM-----BREAK i

11:00-11:20 AM-----NRC ORGANIZATION, ELECTRICAL BRANCH AUTHORITIES AND RESPONSIBILITIES-------------------JACK ROSENTAHL NRC 11:20-11:35 AM-----CURRENT ELECTRICAL INDUSTRY ACTIVITIES TO INCLUDE:

RESTRUCTURING OASIS CODE OF CONDUCT INDEPENDENT SYSTEM OPERATOR DOE RELIABILITY ADVISORY COMMil, TEE EE! RELIABILITY COMMITTEE-------r---JIH BROWN

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GENERAL ENGINELR 11:35-11:55 AM-----GENERAL DISCUSSION 1

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OFFICE OF EMERGENCY MANAGEMENTNN-60 l

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John J. Nettles, Jr.

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Director l

I Vincent J. McClelland Deputy Director i

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m Jarnes E. Fairobent Robert A. O'Brien, Jr.

David L. McColloch HN-61 NN-62 N N-63 Planning & Preparedness Operations

Response

i Promulgates DOE Assesses hostile Coordinates DOE's i

requirements and threats to DOE facilities diverse emergency implementing guidance r88Ponse functions Provih assesses Conducts appraisals and of the credibility of Provides support to evaluations of emergency nuclear threats worldwide Headquarters Emergency management programs anagement Teams Operates 24-hour watch Coordinates all DOE office and communication Monitors energy emergency management function supply and distribution planning and preparedness networks and activities infrastructure i

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d+1G56 ta:et am munrices 3co4ta29c3 p.es Reliability Assessutent at Customer Points-of-Delivery: FY96 A sumammasy of she "SAIF1" measer= and recunt risults Service reliability at BPA's customer pointser-delivery (PODS) is measured and asanssed through the use of "SAAFI'. the "Sysseum Average laterruptian F wquency Index". His index is in common use throusbout the urdiry industry as a monas of measuring cusumsmar service and reliability. A recent report by the IEEE Task Force on aulk N System Aalia5iljey Raportang Guadelines, presented at the summer 1995 [EEE Power Engirieering Society sneetmas in Portland, validated the name of SAIFI as an appropriate reporting measure for bulk powwr delivery sy='a-such as BPA. tJse of SA1FI has beevi twfined at BPA over the past four years, with one agency-wide Critical Success Indiceaur (CSI), and one CSI of the Transmission Field Services group. now based upon the a

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in simple terms. SA1F1 enessures tlas everage number of automatic (unplanned) power delivery interrupoons per POD, per year. To ensure ther SA1F1 " 7-ly addresses amerruptions over which BPA has op=vananal or

====gerial responsibility, cuanges anrussed by a sustomer are esclanded from the calculations. Conversely, outages instaaned by another utility which provsdes **transferor" setvises (wheeling) under contract to BPA. to a BPA cuseanner, are mc/asded in the SAlf1 calculatsons.

While the enessutomnesst nierhout surMi-d in SAIF1 is generully standard throu5 out the industry, there is no h

assdustrymanam.d reger to indicars a e= liability goal. Each utility chooses its own tar 5ct level to aseet its particular

--'. financial. or managenal acuds. BPA has chomem a CSI targer based upoem the percentage of pointwf-Jeliveay that as:hieve a SAIFT lens them or equal to 4 (i.e.,4 or fewer interruptions por year). For Fascal Year 1996, the CSI seal was that no moet than 6% or all PODS should fail to achieve this performance level.

Service reliabilimy at etastomer PODS as measured by SAAF1. is shown below for the past fivs fiscal years:

Aaaaaammme sAIFT

% Pops whas Flasal Year (ooengen/ POD)

SAD"I

• 4 1992 1.2 s.1%

1993 1.5 12.0 %

1994 1.0 5.s%

1995 1.1 5.9%

1996 1.3 F"%

s-YR AVG 1.2 5.1%

(LoIPEX tastems arv SciszA)

N The windstone of Dee y5, the Good effects of Feb 96, and the suanmer disturbances of Jul 96 and Aug 96 had an adverse impact on cuser==arr service reliability in FY96.

Howwver, as the following graphic illustrates, the 5-year trwnd is still on a slightly improving track for the Perzent of PODS that fail to meet the outage frusqueancy tarzet (SA1FD.

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l POD PERFORMANCE ANALYSIS (SAIFI/SAIDI): FY92-FY96 seemi ttA sysses opevesenarttloast.DumM96ettedes46 E

Number of Neseber of Membee of Durettee of Amewellsed Annualised 2

P00 Oesegee Outuges Oveegee Outages SAIFI BAIFI Aenestland Anamelised

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FYf992 1025.1 808 392.5 1200.5 182803 0.8 0.4 1.2 178 8.1%

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FY1993 1027.3 1071 485.5 1559.5 110970 1.0 0.5 1.5 108 12.0%

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FYl994 1028.0 630 381 1011 54348 0.6 0.4 1.0 53 5.8%

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FY1995 967.1 642 417 105' 41290 0.7 0.4 1.1 43 5.9%

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f FYl996 900.1 US See 1138 89239 0.7 9.6 1.3 98 8.5%

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NOTES:

5 AIFl - Syseem Average laserrupsies Frequency Index, and reflects the average numberof automatic outages per POD per year SAIDi = System Average Interruption Duretion Indes, and reDrets the average accumulased duration, la minutes, of all automaticl Momentary outages are these with a recorded duration ofless stran I minute (i.'s., aere minutes)

Sustained outages see chose wish a secorded duration of I mimde er mere i

For a single POD, the

• POD Enposure" is 1.0 if the POD was available for service the entire year; it is less than 1.0 if the For the whole systeen, die " POD Espesert" reflects the total number of PODS (or parts) that mee available for service during she year i

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BFA Transmission Line Outage and SAIFI/SAIDI* Performance Statistics: IM6-lM5 E

Summary by Voltage Class Autosmetic Outages Only i

238-499kw 500kv med above AM 1,Ines

)t BFA SAIFI 1.59 2.8 1.t95 481.8 271.45 SPA SAIDI 141.t t

IEEE Survey of U.S. and Canadian Overhead Transenission Outages at 230kV and above (published 1993) l Primmary Automatic aed Ferted Manual Outagea by Voltage Class,1965-1985:

hi 236 499ky 580kv and above AllIJats l

Nettomal Average SAIFI 2.89 1.76 2.315 Neelemal AverageSAIDI IIS2.4 757.2 954.8

+3 A!H (Sysdem Average laterruption Frequency ladex) indicates average number of automatic outages per line per year l

• SAIDI (System Average Interruption Duration Indes) indicates average accumulated minutes of automatic outage dusation For mR line moltage classes, "^'- 6e ^^'^'M mLa^, the enregefrequency of ameeneetic onhages on RPA lines is p

only 94% ofhe andeest nurage, and the enrege dareden ofeurennade enrages en RFA lines k j

only 28% of 6e nedenalenrege.

For 236 499hv lines only, the BPA suragefrequency k onV $$% of the nellenal enrage, l

and the EPA nurage dareden is only 12% of6e nedeneleverage.

i (Note: comparing similar tirne per ods may yield slightly different results) j' Source: System Operations (TOT 2937) 151ul96

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i DOE Establishes Transmission

• Jose Delgado, director, electrl Reliability Panel sptems operations, Wiwonsin Elec tric I ower; The Department of Energy

. Larry Papay, senior vice presl Wednesday created a 21 member ad*

dent and general manager, Bechtelt visory panel to evaluate the reliabil.

. Roger Nalli, vice president o; q.h Ity of the nation's electric power sys.

planning AES; 1.

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tem. The panel, created in the wake N h. -

Duncan Kincheloe, commis.

of the major power outages in the sloner, Missouri Public Utility Com-western United States this summer, mission; will be chaired by former Rep. Philip

. Theresa Flaim, vice president, Sharp (D.Ind.), who now is director corpora te strategle pla n ning, Niagara of Harvard University's Institute of Mohawk Power Corporation; Politics.

• Karl Stahlkoph, vice president, The advisory panel will hold its po wer d elivery gro up, Elect ric Po wer first meeting in Washington, D.C.,

flesearch Institute; Jan.16,1997. The panel will report

. Walter Canney, administrator, to the Secretary of Energy Advisory Lincoln Electric Company; Board and will meet about six times a

. Bill Newman, senior vice presl.

year.

dent, Alabama Power; Members of the Panel are:

. Mark Bonsall, associate general

. Vikram Budhraja, senior vice manager, Salt River Project; president, Southern California

. Matthew Holden, Jr., professor Edison; of government and foreign affairs,

• Arnold Turner, vice president, University of Virginla; New En' gland Electric System;

. Paul Dragoumis, presid ent, PDA

• Charles Stormon, CEO and chief Inc.;

scientist, Coherent Research;

. Richard Sedano, commissioner,

• Carol Cunningham, executive Vermont Department of Public Ser.

vice president, Consolidated Hydro; vice; and

• Alden Meyer, director of govern.

. Susan Tierney, Economic Re.

ment relations, Union of Concerned sources Group.

Scientists;

• Ralph Cavanagh, senior attor.

n ey, Na tural Resources Defense Coun.

cil-r e, chairman and CEO,

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Potential Areas for Investigation TASK FORCE ON ELECTRIC SYSTEM RELIABILITY Secretary of Energy Advisory Board POLICY l

What is the appropriate federal role in ensuring electric system reliability versus the roles of the states and the electricity industry?

To what extent is federal legislation needed to redefine existing role and enhance authorities? Are there other reliability needs that should be addressed in federal legislation or regulations?

I What mechanisms ( market, operating standards, enforcement, etc.) need to be in place to ensure that restructuring of the electricity industry will provide sufficient incentives for ensuring the adequacy of electricity supplies and reliable operation of the bulk power system?

What is the minimum level of reliability that should be achieved? Should several levels be available?

INSTITUTIONS - HOW RELIABILITY IS EVALUATED, MONITORED, AND ENFORCED What type of regional organizations (RTG, ISO, Security Coordinator, etc.) should 4

coordinate transmission system operations?

j What type of oversight and governance is needed for regional organizations?

Who should be responsible and accountable for long term planning for generation and transmission?

Do current institutional entities have adequate authority to develop, monitor, and enforce compliance with standards and criteria for reliable electric system operations?

What metrics are needed to measure reliability performance and hold violators accountable?

Should reliability councils and operating standards be established at the regional or national level or both?

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TECHNICAL' What advancernents in data and information systems are needed to provide system operators with the capability to maintain system reliability and respond to system 1

disturbances?

What advancements in control systems are needed to provide system operators the ability to immediately recognize system disturbances and to plan a response and adjust operations in real time?

What advancements are needed in transmission equipment to improve reliability?

What new models and tools are needed for large system disturbance analysis?

Can distributed generation and storage be used to mitigate disturbances?

Given the trends in restructuring of the electricity industry, what policies and institutions are needed to ensure an adequate level of funding for electric reliability-related technologies?

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Enclosure f

ELEChWC INDUSTRY G...TTEE ON REllABILITY http://www.soi.org/ eel / press /961017.htm GA..

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J MARY KENKEL or JIM OwEN, (202) 500 8482/(2e2) 500 8448 j

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ELECTRIC INDUSTRY GROUP FORMS CEO COMMITTEE ON RELIABILITY j

WASHINGTON, D.C. (OCT.16 ) - Edison Eledric Institute, the trade group representing the investor-owned segmerd of the electric utility industry, today announced the formation of a CEO Steering Committee to look at the reliability of the transmission network.

The Steering Committee will work in concert with a U.S. Department of Energy task force on reliability, as well as the North American Electric Reliability Council. NERC has primary responsibility for transmission system reliability and the CT.O Steering Committee will be providing additional input to them. This follows in the wake of significant multi-sti.te outages occurring in the Westem United States on July 2 and August 10.

The mission of the eel committee is to develop and advocate policy guidance for its members which supports NERC's reliability mission, in light of greater competition in the olectric industry and expanding use of the transmission system. Electric utilities have long advocated the need for careful review of the current system as we increase competition. The formation of this group and the DOE task force will help to ensure that our nation's 4

electric highways remain reliable.

i Among its tasks, the eel steering committee will develop policies and recommendations to address:

D NERC operating standards that must be improved and clarified, and must be adhered to by all market participants.

O Performance measurement and enforcement of compliance with the standards.

O Corred pricing for the use of the transmission system and other appropriate incentives for maintaining, reinforcing, and expanding the transmission grid to accommodate both robust competition and system reliability.

O Wide area information exchange and maintenance of system security.

D Development and deployment of new technologies.

In setting up the CEO-level Steering Committee, eel president Tom Kuhn said, "As competition increases in the electric utility industry, all maiket participants must work together to make sure that the goal of providing reliable electric service for everyone, and the desire to sell electricity in competitive markets, don't woric against each other. Otherwise, one or the other loses."

i "The electric utility industry has a long and successful history of information sharing, coordination and adhering to NERC's rellatsility rules," Kuhn said. " Competition means that all players now must adhere to those rules, and perhaps new ones, to snr.ure reliability for all consumers."

This steering committee is going to be working with the DOE task force, the Federal Energy Regulatory Commission, the North American Electric Reliability Council, and the Electric Power Research Institute. The committee also will seek advice from experts outside the industry.

The steering committee will be comprised of investor-owned utility company Chief Executive Officers from f

each of the NERC regions.

The Edison Electric Institute is the association ofinvestor-owned elect;1c companies, intemational atniiate members and corporate assocrate members. Its domestic members generate and distnibute more than ttvee-quarters of the nabon's elecincty.

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s'!)10/97 FH1 10:0s rAA I L M North American Electric Reliability Council Princeton Forrestal Village.116 390 Village Boulevard. Princeton. New Jency 0:540-5U1 I

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NORTII AMERICAN ELECTRIC RELIABILITY COUNCIL BOARD OF TRUSTEES MEETING January 6-7,1997 Litchfield Park, Arizona MFFTING HICIII TCHTS The North American Electric Reliability Council Board of Trustees met on January 6-7,1997.

Highlights of the meeting include:

Bylaws The Board unanimously approved changes to the Membership Obligations section of the Bylaws, obligating the Regional Councils and their members to comply with NERC Policies.

Options to Ensure Compliance The Board;

- Unanimously accepted the " Options to Ensure Compliance" report and committed to move forward in the directior uggested by the "Next Steps" section of the report.

- Directed the Future Role ofNERC Task Force -Il to oversee the implementation of these "Next Steps." h Task Force will provide direction to the Engineering Committee, Operating Committee, and staff, as appropriate, and regularly report progress to the Board,

and,

- Directed tlw Future Role of NERC Task Force -11 to report to the Board any projects and initiatives required to satisfy the "Next Steps" that have significant policy implications and/or that require major new funding.

StrategicInitiatives for NERC hwity Pmme ---b Board unanimously approved the scope and formation of a Secunty Coordinator Subcommitace of the Operating Committee to primarily oversee the implementation and main,tenance of Regional and subregional security plans and pncesses. It also approved:

- Implementation of a Con 5dentiality Agreement for data sharing among control areas and security coordinators to allow these entities to petform security analyses; Phone sos-452 soso E Fax 809-452 3550 5 BBS 609-452-7569

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Development of an Interregional Security Network (ISN), which is a telecommunications network to enable data sharing; Development of an Interchange Distribution Calculator (IDC) to predetermine the effects of interchange transactions on all transmission paths; and form method for Implementation of a Transaction Information System (TIS) to provide a

" tagging" interchange transactions.

Omaratma Standards - The Board endorsed the Operating Committee's approach to developing new and revised Operating Standards. It also approved the Operating Committee's action plans to deve and implement a NERC-wide System Operator Certification Program and a NERC-wide Accreditatio Program for System Operator Training Programs, and a new operator training tutorial on System l

i Restoration.

Pt=nninn Standarda - De Board approved the Engineering Committee proceeding with the

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implementation ofits " Proposed Action Plan" to establish revised and new NERC Plannia Standard Guides.

i Transminion Reservation and Schedulina/Aumilable Tran=rer Canability -he Board agreed al that the Engineering and Operating Committees should proceed with the development and testing of a i

flow-based transmission reservation and scheduling system as conceptually described j

Reservation and Scheduling Task Force's report.

I f

Reeponse to DOE Recommendations The Board approved proceeding with the programs and activities required to respond to the i

l recommendations contained in DOE's August 2,1996 report to the President, under the direction of the l

Future Role of NERC Task Force-II.

Ahl Future Role of NERC Initiatives i

The Board approved the Future Role of NERC Task Force -II overseeing work on the

" of an indestry compact; defining veliability functions; followingadditionalinitiatives: W,

development of a framework for enforcernent measures; dispute resolution; review of MERC's ad i

)

New Cy =e-N==det== Organisation and Procedures Daa==*

The Board approved the Operating Committee's new Organfration and Procedures Document.

i NERC Budget Revisited The Board approved a special assessment ofits Members for 1997 of $1,500,000 to provide

}

NERC with the resources needed to implement the new and expanded projects appnwed by the Board.

1

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4 Phorn 808-462 8000 W Fax 804 *42-9550 IB SBS 50ME2-7000 V

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v t-n NORTH AM ERIC AN ELECTRIC RELI ABILITY COUNCIL Princetos Forressai Village. 116 390 Village Boulevard. Princetos, f(ew Jersey 08540 5731 October 18,1996 TO:

BOARD OF TRUSTEES Ladies and Gentlemen:

Call for Succort As Chairman of the North American Electric Reliability Council (NERC), I am asking for your assistance and support in reshaping NERC to meet the changing needs of the electnc industry and all its panicipants.

Last January I formed the Future Role of NERC Task Force - 11 to determine how NERC must grow to keep pace with changes in our industry to prevent any adverse impacts on reliability. Erle Nye, NERC Vice Chauman and Chairman of the Task Force, reponed the Task Force's findings and recommendations at our September Board meeting. I subsequently asked the NERC Operanng and Engineering Committees to develop specific programs, with budget estimates, to support and implement these recommendations. To ensure timeliness, I asked the Committees to report directly to the Task Force. In addition, I asked several individuals from our industry to be part of a special team to develop a report that defines various options for ensuring compliance with NERC Policies, including the pros and cons of each.

This team has completed its assignment and I have forwarded its report to the Task Force for use in developing a complete plan foi hupicmenting the 'new NERC." A copy of the team's report is enclosed (Attachment 1). I strongly encourage you to review it with an open mind, discuss it with others throughout your Region or orgamzation, and provide your comments to the Task Force members, Task Force Chairman Erie Nye, or me.

We can expect to hear the recommendations of the Task Fon e and the Committees at our January 1997 Board meeting, and I intend to seek approval from the Board to move forward with those proposed programs. Please make a special effort to review the recommendations prior to the Board meeting, discuss them with the CEOs in your Regional Council, make any concems you have known to the Task Force and Ccmmittees, develop the necessary support from your constituency, and be prepared to support the new pr9 grams and associated resource requirements. I will keep you informed as we progress.

I will also seek approval at that Board meeting to modify the NERC Bylaws such that the Members (Regional Councils) and the members of Regional Councils will be obligated to support, promote, and comply with NERC's Policies. These changes are crucial if NERC and its Members are to be viewed as credible and respected in their role of supporting, promoting, and ensuring " reliability excellence." The proposed changes to Section 2 of the Bylaws are shown in Attachment 2.

Phone 6o9 452 8060 m Fax 609 452 9550 m BBS 809 452 7669

Board ofTrustees iOctober 18,1996

' Page Two I believe it is important for all sectors and participants in the industry to give 100% support to the programs that will be presented for approval in January and to the requested change in the Bylaws. Such a vote will send a strong message to all constituencies watching this process and to the industry we serve that

- NERC is ready to move forward quickly to define a new framework for ensuring reliability. As I stated at the last Board meeting, I would like 100% suppon, but I am committed to getting these approvals even ifit means by a vote that simply meets the minimum requirements.

To give you all the high-level support you will need, I am sending next week an "open letter" to all electric industry executives (Attachment 3). I would like the Observers to our Board to alent the members of the organizations they represent that this letter is coming and encourage them to give it their personal attention.

NERC's otTierm need your support to prepare NERC for the changes before us. The timing is urgent. If you have an; ques ons, please call me or Mike Gent.

Sincerely, t

4 Richard J. Grossi Chamnan North American Electric Reliability Council i

t fjmf Enclosures cc: Board Observers Technical Steermg Committee RegionalManagers Future Role ofNERC Task Force-11 4

J i

S -

s TABLE OF CONTENTS

' I. EXEC UTIVE S U MMARY..........................................................

...............................I1 I I. B A C K G R C l' 'D..........................................................

CHANGES IN THE INDUSTRY.

.. ! l

.. ! I IMrOETaNCE OF RELIABILITY...

...12 NATURF. OF ELECTRICrTY.

.12 PREVIOUS RELIANCE ON VOLUNTARY COOPERATION AND COORDIN ATION.

. 13 WILL VOLUNTARY COMPLIANCE CONTINUE TO WORK 7.

.... 14 OTHER INFLUENCES 14 FUTURE ROLE OF NERC TASK FORCE II...

III. SCOPE................................................................................................................16 I V. A S S MTI O N S............................................................

1n f CCf feC 8-A CCPCCRET' C

......A7 U

ve adaULO W nacLaa4TEL a............................

.. 19 WHO ESTABLISHES REQUIRED RELIABILITY PROTOCOLS 7.

.19 WHO IS RESPONSIBLE FOR RELIABILITY 7..

.21 IS MEMBERSHIP MANDATORY 7..

... 21 APPROACHES TO COMPLIANCE ENFORCEMENT...,.....

-.22 INCENTIVES AND SANCTIONS........

.. 23 WHO MONrrORS FOR COMPL1ANCE7......

1

.24 l

WHO ENFORCES COMPLIANCE 7.

... 25 DUE PROCESS...

.... 25 1 1ABILITIEE..........

25 REGULATORY SurPORT.................................................

26 RESOURCE REQUIREMENis............._.....................................

VI. INDUSTRY OVERVIEW OF REGULATION AND SELF-REGULATION... 27 MI.OmONS...............................................................................................................30 VIII. ROLES OF INVOU.'"" ORG ANIZATIONS.................................................. 33 IX. RECOMMENDED NEXT STEPS......................................................................... 3 7 IMPLEMENTATION MANAGEMENT RESPONSIBILITY........ ~..~...........................................

INDUSTRY COMPACT.

.................... 3 7 REGULATORY BACEBT0F..........................................

.................................... 3 8

..........................._.....38 D Ff t a kff rTY PUNCT10NS.....................................,...........

SECURITY COORDINAT10N.................................................................................... 3 8

... 39 MEASURABLE PROTOCOt3................................................................

.........................39 COMPL1ANCE MONITORING............,..........................................

ENPORCEh8ENT MEASURES....................

..............................................................39

... 40 DeerU11t RESOLUTION..........................................

....... 4 0 CERTIFICATION, EDUCATION, AND TRAINING -

.. 40 NERC ADMINISTRATION.......

b 2

-~Attachmant 1 5

OPTIONS TO ENSURE COMPLIANCE WITH NERC AND REGIONAL RELIABILITY COUNCIL POLICIES, STANDARDS AND CRITERIA Prepared By The NERC Reliability Compliance Team:

Paul Barber i-Vikram Budhraja Jim Byrd j

David Goulding BillNewman Bill Phillips I

October 12,1996 9

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O

f. ' EXECUTIVE

SUMMARY

Background-The electric industry is transitioning from a regulated, vertically-integrated structure to a competitive structure with functional unbundling and disaggregration. In the new competitive structure, it is not clear who has responsibility for reliable operation of the Interconnections, who should pay for reliability, who enforces reliability protocols, and what obligations market participants have to ensure system reliability is not compromised. A transition period is occurring in which institutions are evolving into many different forms, driven largely by the economic and political influences in the various Regions, subregions, political jurisdictions, and individual institutions. Recently, customers, market participants, regulators, economists, legislators, and even the President i have expressed concern that the reliability of one of the world's most dependable electric

-systems should not degrade in the new competitive market structure.

Why is there such universal concern for reliability? The answer has to do with the very nature of this unique service that clearly distinguishes it from most other commodities.

Electricity cannot be inventoried at a level demandad by the consumer. It represents the ultimate in "just-in-time manufacturing," and any disparity between consumption and production shows up as a reliability ~or power quality problem: dimmed lights, burned motors, and, if the problem is severe, brownouts, blackouts, and system collapse. A failure to perform by only one participant can have disastrous consequences for all other participants and the entire delivery infrastructure. This is illustrated by the recent multi-state disturbances in the Western Systems Coordinatmg Council (WSCC).

1 L

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In light of the rapidly changing electric industry environment and heightened focus on j.

reliability, the Chairman of NERC established a reliability compliance team (Team),

i comprised of senior people in the electric irdo.erf, to make recommandarions for i

reliability management. The Team was established in late August with a charge to provide reco==*adadons by mid-October.

l The Chairman'of NERC directed the Team to develop options, with the pros and cons of i

each, to ensure em=aH-~ with NERC and Regional R.eliability Council protocols in light of the rapidly changing electric industry environment. In addition, the Team was directed to provide a report to the Future Role of NERC Task Force II with the Team's recommended option (s) and suggested next steps for NERC.

i i

)

j Issues & Assessesents l

The' Team was instructed to be creative in its deliberations, n S-g solutions that would pmvide a stmng framework for reliability management and ensure c--H=

. In the course ofits deliberations, issues were identified related to developing and ensuring 3

i

compliance with required reliability protocols. To develop positions on these issues, the Team largely relied upon the considerable experience ofits members using brainstorming techniques and roundtable discussions, in addition, insights were ob'.ained from a review of a few other industries, including the nuclear, health care, and securities and exchange industries.

The following represent consensus positions developed by the Team:

f b

. With the transition of the electric industry to a competitive structure,it is critical f

(,

to have a clear reliability management framework with focused responsibility p

and accountability.

h Y

NERC and its member Regions should continue to be recognized as the preeminent authorities on reliability and should develop the mandatory protocols required to ensure reliability of the North American Electric Systems.

The control area concept continues to be the industry basis for control of generation to match load. As such, the control area must continue to be the responsible entity for generation control, for ensuring balance between generation and load, and for effecting electricity interchange transactions between purchasing-selling entities.

The Team supports the Future Role of NERC Task Force II white paper conclusion that "All organizations that form within or across the NERC Member boundaries that have some role, responsibility, or function related to the operation or planning ofinterconnected bulk electric systems in North America (RTGs, ISOs, IGOs, RPXs, POOLCOs, interregional coordination groups, etc.)

l must declare themselves to NERC and establish foresal coordination agreements l

with the relevant NERC Messber(s). These agreements must specifically state i

the intent of the organization and its members to comply with NERC and NF.RC l

h8" r.u-bGb ertteria. Copies of the agreensents must be fund with NERC."

4 i

Those entities performing the primary reliability functions of generation control l

(control areas) and system security coordination must be members of the Regional Reliability Councils in which they carry out their business.

1 The traditional voluntary compliance approach taken by NERC and its member l

j g

, Regions will not serve the needs of the new industry.

Due to the involvement of numerous international regulatory jurisdictions, the l

e j

greatest uniformity in requirements and enforcement of requirements can be obtained through contractual agreements between industn g"---tm. It will be essential that all regulatory jurisdictions approve such agreements and 0

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support the terms and conditions, including sanctions. Legislation will be necessary if non-jurisdictional entities do not voluntarily submit themselves to l

contractual agreements for reliability.

Mandatory sanctions and business incentives should be used to enforce compliance.

The reliability management framework should comprise of control areas and security coordinators for real-time operation and network security, Regional Reliability Organizations to monitor real-time compliance, unified responsibility for each independent interconnected grid within NERC through Independent Interconnection Operators, and NERC to establish mandatory reliability T

protocols.

Security Coordinators and control area operators are charged with responsibilities associated with reliability, up to and including requiring the reduction or disconnection ofload or generation to protect overall network security. Contractual agreements that authorize them to impose sanctions to ensure compliance with mandatory protocols must exist with those under their operational control as well as with NERC and the Regions.

The primary responsibility for real-time monitoring of compliance with operating protocols should reside with the Regional and Subregional Security Coordinators.

A single real-time authority in the form of am ladependent laterconnection Operator (IIO) should be established to provide oversight, coordination, and direction as necessary to maintain the health and security of the full network.

It is critical to establish NERC's and the Region's authorities and enforcement e

powers in contractual agreements approved by the appropriate regulatory l

jurisdictions.

i NERC and each Region should have a standing dispute resolution mechanism to e

j i_

provide for timely resolution of any disagreement or dispute on reliability l

compliance.

I The Board should seek legal support to assess any liability issues created by a j

stronger role for NERC in compliance enforcement.

A regulatory pact must be developed under which an equitable distribution of 1

l the costs of ensuring reliability may be ensured and under which fair recovery of j

those costs may be provided.

i i

5

'i

• All market participants should have a mandatory obligation to comply with reliability protocols.

Regulatory authorities should u.clude and require mandatory compliance with NERC reliability protocols as a condition for approval of tariNs, contracts, licenses, and other instruments.

NERC should employ most of the resources required for this eNort and some increase in permanent stamng must begin immediately to support the many transitional eNorts that are required. Some portion of the required resources (particularly as required to support peak eNorts) should be provided by contractors or from the industry through rotational assignments of two to three years. Expenses should be paid by NERC and the Regions and apportioned accordingly to all participants.

Options Based on the insights gained from its discussions and its review of several other industries. the Team identified eight attemative approaches to the development and enforcement of required protocols, including a hybrid approach recommended for the "new" NERC. The recommended approach has as its foundation the following four principles:

1. Because NERC membership is made up ofindustry experts who understand the technically complicated interactions within the interconnected electric grids, the Team submits that mandatory reliability protocols are best developed and mamtained by NERC.

2. Because universal participation is critical to insuring reliability,100 per cent compliance should be achieved through regulatory pressure. This can be achieved through NERC certificatier..s a requisite for a market license or through uniform contractual provisions written by NERC and required by FERC and other appropriate regulatory authorities to be included in all commercial contracts. Each market participant (including, but not limited to, generators, tran= minion owners, and power marketers) must esser into an " obligation to comply" with all NERC and Regional reliability ro;er.els.

3. Because the Regional Reliability C ni=Jons (Control Areas, Security

. Coordinators, ISO's, Regional Councils, etc.) will normally have access to real-time information on operating compliance to NERC reliability protocols, the Team submits that iaWon and enforcement should be left to these Regional Reliability Organizations, with NERC providing oversight and audit of the Regional Reliability

' organizations.

6

4. Regional Reliability Organizations (RROs) must refuse service if a participant does not abide by approved protocols. However, there should be an escalating scale of stipulated contractual penalties to address an escalating scale of contractual violations. For serious infractions, there could be additional regulatory sanctions to underscore the need for faithful compliance to reliability protocols. Regulators could condition market licensing on a market participant's renewed certification by NERC.

Roles ofInvolved Organizations An Industry Comnact will be needed acknowledging the following:

A voluntary approach to reliability in a restructured competitive industry is unworkable.

ne industry should advocate and all participants should voluntarily transition to e

a mandatory approach to compliance and enforcement, obviating the need for govemment prescriptive intervention.

The industry should endorse functional separation of reliability management and commercial functions.

NERC should take the leadership role in developing the industry compact. NERC should petition all industry participants, including the FERC, DOE, NEB (Canmin), and other appropriate regulatory bodies and policy makers for the support necessary to make the compact work.

Control Areas Until and unless another method of generation control is developed, Control Areas must continue to have the real-time responsibility and authority for generation adequacy and transaction schedule implementation.

Security Coordinators j

Security Coordinators should be independent of market participants (as is currently the case in some Regions) and should be responsible for the near real-time monitoring for I

compliance to NERC and Regional policies and criteria. In some cases, the Security Coorviinatnrs will actually be ISO's with the additional authority and responsibility for managing the real-time use of the interconnected network, a function historically performed by its member Control Areas.

i k

7 i

c i,

independent Interconnection Operator (110)

I A single independent operator must exist with the..s}. nsibility and authority to monitor the health of the Interconnections and to coordinate interregional security issues in real i

time with Regional and subregional Security Coordinators.

i NERC and Regional Reliability Councils 1'

NERC and its member Regional Reliability Councils should continue to be the

(

preeminent organizations responsible for the development of reliability protocols and the overall management of programs to monitor compliance and to penalize non-compliance.

These protocols must be made more specific and measurable if compliance is to be accurately monitored and reported.

l FERC and Other Regulators Regulators must support new approaches that are developed to ensure compliance with reliability rules, including financial penalties. Regulators must:

i Ensure all expenses of the Regional Reliability Organ-tions, incurred to meet the 1

reliability criteria es:ablished by the NERC and the Regional Reliability Councils, are fully recoverable from customers and market participants.

Provide regulatory backstop.

Make mandatory reliability compliance part of Open Access Transmission Tariffs and conditions of==*#

li 5 censes.

l Include " obligation to comply" with reliability protocols in terms and conditions in e

tariffs, interconnection agreements, licenses, and agreements of ISOs, Power 4

Exchanges, and RTAs..

Authorize sanctions for non-compliance, including being " economically 2

disconnected" from the grid or otherwise prohibited from conducting business.

' Support and encourage creation ofIndependent System Operatoa as a means to have l

focused and iP_t reliability responsibility, i

1 8

l' Policy Makers Policy makers will provide an independent assessment of the industry and provide policy and legislative suppon, where required, to achieve the common goal of the regulators and l

.ae utility industry, i ;., to provide a framework for a competitive electricity market with non-discriminatory access to transmission such that economic efficiencies are maximized without jeopardizing reliability.

Recommended Next Steps Throughout the report, the consensus conclusions reached by the Team have been l

identified. The Team provides a number of recommended actions it believes the NERC i

Board of Tmstees should initiate in order to effect the desired objectives:

i Recommendation: The Future Role of NERC Task Force II should take implementation management and responsibility to develop details for and the l

process for implementation. The Task Force should have the details and process j

available for review and approval a: the January 1997 Board of Trustees meeting.

i Recommendation: NERC should take the lead in developing the industry compact.

i NERC should petition all industry participants, including appropriate regulatory l

authorities, for the support necessary to make the compact work. NERC should l

charge a group to visit FERC, the National Energy Board of Canada, DOE, and j

other appropriate regulatory organizations to explain NERC's approach and to seek l

comment. The group should consist of NERC's ofBeers and senior industry

)

representatives.

l Recommendation: NERC should develop proposed means (including, if necessary, j

the pursuit oflegislation) by which to ensure that all segments of the industry are j

subject to NERC's reliability requirements.

1 Recommendation: A group be assigned to develop a comprehensive list of responsibilities and reliability functions to be performed at each of the three levels I

of responsibutty: policy, oversight and implementation.

i l

Recommendation: A group be charged to develop a minimum set of expectations of j

those entities responsible for security coordination and evaluation. These i

expectations would inchde the entities' authority, span of control, responsibilities, i

capabilities, tools, etc. (A Security Coordinators Committee comprised of management personnel from each of the security coordination centers would serve this purpose well).

l Recommendation: The Engineering and Operating Committees should perform a comprehensive review of the existing policies, standards, and criteria to ensure they i

9 i

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e d

9 l

are specific, measurable, adequate and appropriate for the new industry environment.

l 4

i Recommendation: The Engineering and Operating Committees should define how compliance monitoring will be accomplished.

I j

Recommendation:.A group should be formed to define enforcement measures.

j These measures are expected to be a hierarchical matrix of penalties for increasing l

impact ofinfractions of protocols. As the severity of violations increases, so should j

the pensities.

i Recommendation: A group be formed to review and improve the existing NERC dispute resolution process.

}

Recommendation: NERC should develop certification policies, processes, practices j

and/or programs for use by the industry. These should include the certification of people, facilities and tools, and training programs. The certification should include reliability and economic aspects of the industry, i

l Recommendation: NERC should perform a complete review and evaluation ofits l

management structure, administration processes, capabilities, membership and i

committee structure in light of the emerging competitive and disaggregated industry i

structure. It should organize to represent reliability interests, while recognizing i

commercial needs, and to be responsive to the reliability needs of the industry. Due to the difReulty associated with reinventing itself, the NERC Board shonid consider seeking outside support for this effort.

Recommendation: NERC shonid review how policies are created, approved and i

implemented. Its committee structure should 1.: revamped or replaced with a new l

system to speed the overan process. The approval process for reliability protocols i

needs to be addressed to ensare timely implesmentation withont getthig blocked or l

vetoed due to comenmie laterests.

i Recommunendation: NERC shonid adopt a stronger "tep< lown" approach to j

reliability management and the development of mandatory reliabuity protocols.

4 2

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4.

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l

'II. BACKGROUND Changes in the Industry 4

l The issuance, by the Federal Energy Regulatory Commission (FERC), of Rules 888 and 889 signaled the definitive beginning of widespread open transmission access in the wholesale electric industry in the U.S. In some jurisdictions, retail access is also being l

pursued, even as problems with wholesale access are still being solved. The electric industry is transitioning from a regulated, vertically-integrated structure to a competitive structure with functional unbundling and disaggregration. In the new competitive structure, it is not clear who has responsibility for reliable operation of the Interconnections, who should pay for reliability, who enforces reliability protocols, and what obligations market participants have to ensure system reliability is not l

j-compromised. The institutions that have historically accepted the responsibility for reliability may exist only in unbundled forms, or they may be replaced altogether by new j

entities.

j It is likely that control area operators of today will be directed by independent system

. operations (ISOs) and independent power exchanges of tomorrow. Separation of transmission operation and system security functions from merchant functions is important to ensure that all participants will have comparable and non-discriminatory i

access to the power grid. ladapaad-ace will enhance conformance to reliability policies

[

and criteria as it will uncouple the essential functions of control, coordination and i

management of the power grid from the competitive issues, and allow a proper balance l-between reliability and commercial 'mterests.

5 In its rulemaking, however, the FERC has not required ISOs, or defined their responsibilities. A transition period is occumng in which institutions are evolving into many different forms, driven largely by the economic and political influences in the i

various Regions, subregions, pMea! jurisdictions, and individual institutions. 'Ibere l

will be ISOs, RTGs, RTAs, Security Coordinators, Control Arena, and System Operators, l

and the latter will, in some cases, be unbundled into separate tran=niemian control and generation control entities. With this evolution and transition to a ces =itive market structure, speci6c reliability monitoring and enforcement capability must exist no matter 2

what form evolves.

1 impprtance of Reliability in the move toward a competitive industry, there has been little or no recognition of j

potential negative impacts to reliability; it appears to have been taken for granted Only recently have customers, market participants, regulators, economists, legislators, and even the President

,,M concern that the reliability of one of the world's most p-adahle d

i electric systems should not degrade in the new competitive market structure. This is L

11

1 exemplified in the principles adopted by the National Association of Regulatory Utility Commissioners (NARUC) at its 1996 summer meeting. One of those principles states:

"The safety, reliability, quality, and sustainability of electric l

service should be maintained or improved in a restructured electric l

industry."

In commentary,it was added that:

f "No changes in the electric utility industry or the regulatory regime j

should be allowed to compromise reliability, even if the intention

{

is to lower consumer prices, except where a lower level of

)

reliability is freely chosen by a customer and does not impair service to other customers (e.g., intermptible service)."

In some arenas, the notion is being advocated that customers will choose a level of supply

]

reliability based on their willingness to pay. Ultimateiy, the market may mature to a point that it provides all customers (not just large industrial customers) with timely price signals that allow for such customer choice, but, until it does, most customers will

.l continue to expect the historical level of reliability to which they are accustomed.

l It is also very important to distinguish between customer reliability on the distribution system and the reliability of the interconnected grid. The interconW grid is a system of mutual interdepesdence, and all entities must abide by a common set of protocols to i

uphold the integrity of the grid. Even if full choice can be achieved at the customer level, the bulk transmission system must be totally reliable for that choice to be available.

i i

i Nature of Electricity i

l Why is there such universal concem for reliability? The answer has to do with the very i

nature of this unique service that clearly distaguishes it from most other c+ =+iities.

j Electricity cannot be inventodAt a level d-==rdai by the consumer. It wra the j

ultimate in "just-in-time r adevarms," and any disparity between ce==- ;4on and production shows up as a reliability or power quality problem: dimmad lights, burned motors, and, if the problem is severe, brownouts, blackouts, and system collapse. A failure to perform by only one participant can have disastrous consequences for all other l

participams and the entire delivery infrastructure. This is illustrated by the recent multi-stay disturbances in the Westem Systems Coordinating Council (WSCC).

j f

Previous Reliance on Voluntary Cooperation and Coordination F

Since the formation of the Interconnections, and especially since the formation of NERC j

and its member Regional Reliability Councils following the 1%5 Northeast blackout, the 12 1

r--

1 i

i industry has maintained its reliability through the cooperative development of NERC and Regional policies, standards and criteria (reliability protocols) and voluntary compliance j

to those pmtocols. There has not been, and no need has existed for, legislation focused on reliability.

j Compliance has not been perfect: there have been many cases of non-compliance. Some

- have been dealt with effectively through peer pressure, but quite a few have not. One only has to look at a monthly NERC Control Performance Criteria Survey to recognize the compliance disparity that exists. Reliability has been maintained only because there j

have been enough entities willing to do "more than their share" to offset the negative influence of those not in compliance. Such willingness existed on the part of many because required investments were covered in a regulated environment, a situation that is doubtful for the future where functions are unbundled and vertically-integrated utilities may not exist.

Until now, reliability has primanly been a responsibility of Control Areas. With a refunctionalization of the once vertically-integrated industry, and with an increase in the number and magnitude of transactions with wholesale open access, it is becoming increasingly more evident that coordination at the boundaries of Control Areas and Regions is insufficient, as are die protocols to deal with boundary issues. Such deficiencies are leading to the establishment of Host Control Areas, Area Security Coordinators, transaction identification systems, and other new concepts.

i-Will Voluntary Compliance Contiane to Work?

As competition increases, fewer perucipants will be willing to do "more than their share" for reliability. The view is widely shared in the industry that voluntary compliance will not work in a competitive environment. Competitors do not coop.ie, and the existing cooperative and voluntary system for reliability management cannot survive the transition to a w=gstive market. The costs of cooperation are 100 pm incurred by individual utilities and recovered in customer rates, but the bene 6ts accrue to all market participants, 4

utilities or not.

1 i

i in a competitive world, utilities alone cannot be =ddlad with the obligation for a reliability safety net and the associated costs of providing it. Evaamally,ISOs may have mandatary eviocols for all market participants to replace the existing cooperative arrangements, but, in the meantime, what mechanisms will NERC and the Reliability Councils depend upon to ensure compliance? And, even when ISOs have these j

prot 6cols, there will be a need for some overall organization to make sure these protocols are coordi-ad especially at the ISO boundaries.

4 l

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Other Influences in addition to the already pressing influences on reliability brought about by deregulation and increased competition, new and immediate focus on reliability and compliance has been prompted by the recent widespread disturbances in the WSCC. As indicated previously. these events have reminded the industry, the government, and the public of the importance of electricity to the economy and well being in Nonh America.

President Clinton is known to be concerned about the reliability of the nation's privately managed electricity grid, and Energy Secretary Hazel O' Leary promised the President in her August 2 repon on the 14-state July power outage in the West. that she would "take actior to strengthen the system." According to " Electric Utility Business & Finance," the U. S. Department of Energy is now draftmg its own legislative plan for deregulating the electric utility industry, and DOE's Deputy Secretary Charles B. Curtis was quoted in describing the latest outage in WSCC: " Outages of the type that occurred Aug.10 are totally unacceptable. They are preventable: they should have been prevented." Curtis was also quoted as saying,"These safeguards will likely include an expanded role for the North American Electric Reliability Council and the (regional) reliability councils."

i Future Role of NERC Task Force II In January 1996, the Board of Trustees formed a Beard-level task force to expeditious:y reexamine the Agreements in Principle that were the basis for NERC 2000 and to reasses NERC's future role, responsibilities, and orgamzational structure in light of the rapidly changing electric industry environment. The Task Force developed a set of findings and recommendations presented in a " white paper" to the Board at its September 1996 meetmg. Included in the repon were specific policy recommendations in the areas of:

Membership, Aperuents, and Participation Reliability Criteria Performance Measurement e

Compliance i

in addition to other recommendations contained throughout the report, specific Task Force recommendations contained in the August 30,1996, letter to the Board are:

" Findings and Recommendations of the Task Force NEkC will carry out its mission in thefuture by:

Establishing Reliability Policies, Standards, Pnnciples and Guides Measuring Performance Relative to NERC Policies, Standards. Principles and Guides Ensuring Conformance to and Compliance with NERC Policies, Standards, Principles and Guides 14

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To be eftctive in the changing electric industry environment. NERC must:

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' be the leader m coordinating the reliable operation ofinterconnected bulk electric systems.

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• fairly represent the reliability interests ofg!! participants in bulk electricity marken whether or not they own transmission or generation, i

be recognized and accepted by legislative and regulatory bodies as the authority on the

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i reliability ofinterconnected bulk electric systems in North America.

establish, momtor, and enforce compliance with NERC reliability Policies andStarkrds. in i

afair, non-discriminatory manner; resolve its own technical disputes; and work together with all industryparticipants to ensure the continued reliability ofinterconnected bulk electric systems in North America, and i

exercise initiattve and independence with regard to performance measurement, reliability j

auessment, and compliance. "

The Report of the Task Force and its recommendations were approved in principle by the Board of Trustees at its September 1996 meeting. In addition, the Board directed the NERC Operstmg and Engineering Committees to develop, under the auspices of the Future Role of NERC Task Force II, implementation details necessary to effect the recommendations in the report and to present a plan to the Board at its January 1997 meetmg.

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III. SCOPE In light of the rapidly changing electric industry environment and heightened focus on reliability, the Chainnan of NERC established a reliability compliance team (Team) to make recommendations for reliability management T Team was comprised of senior people in the electric industry known for their breadth of knowledge and experience in system operations and what it takes to keep interconnected electric systems reliable.

Members came from the power marketing segment of the industry and from three of the four Interconnections, but did not represent a particular Region or even their own companies. The Team was established in late August with a charge to provide recommendations by mid-October.

The Chauman of NERC directed the Team to develop options, with the pros and cons of each, to ensure compliance with NERC and Regional Reliability Council protocols in light of the rapidly changing electric industry environment. Also, the charge was to provide a repon to the Future Role of NERC Task Force II with the Team's recommended option (s) and suggested next steps for NERC.

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i IV. ASSUMPTIONS I

As indicated above, the prunary directive to the Team was to develop attemative methods for ensuring compliance with approved reliability protocols.' The Team was instmeted to i

creative in its delii trations, seeking solutions that would provide a strong framework for reliability management and ensure compliance. Although the Team did not assume it j

was constrained by any conclusions contained in the " white paper." it did recognize and accept as a starting point the following premises as " approved in principle" by the Board:

" Membership Agreements, and Participation 1

i All entities that are engaged directly in the generation, transmission, or i

interchange ofelectricity (electric utilities, independent power producers, electric power marketers. control areas, etc.) that can affect the interconnected bulk 1

electric systems in North America must be members ofthe Regional Reliability j

j Organi:ation (NERC Member) in which they carry out their business or be

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otherwise recogni:ed and cernfied by NERC as being accountablefor compliance with applicable NERC Policies and Standards.

I All organizations thatform within or across the NERC Member boundaries that have some role, responsibility, orfunction related to the operation orplanning of l

interconnected bulk electric systems in North America (RTGs, ISOs, IGOs, RPXs.

POOLCOs, interregional coordination groups, etc.) must declare themselves to 1

NERC and establishformal coordination agreements with the relevant NERC Member (s), These agreements must specifically state the intent ofthe organization and its members to comply with NERC and NERC Member I

i reliability criteria Copies ofthe agreements must befiled with NERC.

All entities that are accountablefor complying with NERC Member reliability criteria and NERC Policies, Standards, Principles and Guides, as well a.c writies who are afected by the " state ofreliability" of the interconnected bulk <dectric systems, must be aforded afair, equitable, and non-discriminatory opportunity to 1

participate in NERC Member and NERC processes.

Members of the NERC Board must continue to represent all ownership sectors of ths. electricity industry as well as those engaged directly in the generation, transmission, and interchange ofelectricity (electric utilities, independent power

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producers, electric power marketers, control areas, etc.) that can afect the interconnected bulk electric systems in North America. Board members should be representatives who can understand the issues and who have suficient authority

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to directly influence policy in their respective organizations.

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Compliance

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'NERC and the NERC Members must establish and maintainformal mechanisms to ensure compliance with NERC Member reliability criteria andNERC Policies,

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j Standards. Principles and Guides, regularly review and improve the efectiveness

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ofthese mechanisms, and report results, specifcally by member, annually to the j

i NERC committees and Board of Trustees. These mechani.sms must clearly spell out compliance responsibilities and authorities and the consequences ofnon-

. compliance.

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i NERC must establish aformal tracking mechanism, in cooperation with the NERC Members, to track the state ofimplementation ofall recommendations that appear in NERC reports.

i NERC must continue to rely on self-regulation as its means oferuuring i

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compliance with NERC Policies, Standards, Principles and Guides with respect to overall network integrity (Security). NERC's compliance process will be based on:

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aggressive oversight, review andfollow up ofrecommendations; active training, support, encouragement, and assistance to Regional i

l Councils and their members; open, all-inclusive participation; 1

use ofalternative dispute resolution in lieu ofsanctions, court actions, or referrals to regulatory bodies; and a demandfor excellence in the operation andplanning ofinterconnected i

bulk electric systems, up to and including direct CEO involvement.

Compliance processes with iespect to electricity supply (Adequacy) must be based on the consistent and non-discriminatory Applicatwn ofmarket incentives to l

ensure compliance with technically-based Policies, Standards, Principles and j

Guides developed by NERC. (The Task Force was not comfortab?e in suggesting that NERC have a role in establishing and administering the market-based compliance processesfor electricity supply (Adequacy).) "

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V. ISSUES & ASSESSMENTS In the course ofits deliberations, issues were identified related to developing and

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j ensuring compliance with mandatory reliability protocols. To develop positions on these issues, the i'eam largely relied upon the considerable experience ofits members using brainstorming techniques and roundtable discussions. In addition, insights were obtained from a review of a few other industries. In the next Section, narrative is provided to describe how these other industries have organized to deal with a number of the same i.

issues.

What follows are the identified issues with discussion and the Team's position on each I

of the issues:

i A.

Who Establishes Required Reliability Protocols?

i The bulk electric Interconnections in North America have experienced one of the highest j

levels of reliability found in the world, and are at least partially responsible for the economic prosperity and well-being enjoyed by the inhabitants of the U.S. and Canada Team Position: With the transition of the electrie industry to a competitive i

i structure, it is critical to have a clear reliability management framework with I

focused responsibility and accountability.

J For 30 years, NERC and its member Regions have been the caretakers of that reliability l

through the development of, and voluntary compliance to, necessary reliability protocols.

Although serious concerns exist over the need to improve and streamline the processes for their development and approval, there has been no reason to doubt the ability and appropries of NERC and its member Regions to continue to establish the required protocols. Indeed, it is by way of those organizations that the contributions of the best industry expertise has been and can continue to be made available. This view has been widely supported by the industry, as well as by the FERC and the DOE.

Team Penttion: NERC and its member Regions should continue to be recognized as the preeminent authorities on reliability and should develop the mandatory protocols required to ensure reliability of the North American Eler.tiie Systems.

i Who Is Responsible For Reliability?

B.

l Historically, control areas have been viewed as the predommant entities responsible for reliability. Indeed, the NERC Operatmg Policies have required that all generation and load be included within the metered boundaries of the established control areas, and those same Policies have predominantly been written to address control area responsibilities.

19

4 Industry and NERC responses to federal, state and provincial regulatory mandates are l

resulting in the creation of new Regional Reliability Organizations (ISOs, IPXs, RTGs, RTAs, Security Coordinators, etc.), many of which lack standard definition. The only consistent definition continues to be the control area defined by the metered electrical ties that are continuously measured and used in the Area Control Error (ACE) computations of the automatic generation control (AGC) algorithm in an Energy Management System.

Team Position: The contrei area concept continues to be the industry basis for control of generation to match load. As such, the control area must continue to be the responsible entity for generation control, for ensuring balance between generation and load, and for effecting electricity interchange transactions between i

purchasing-selling entities.

In addition to maintaining a balance between generation and load, system reliability depends upon maintaining the security of the network by preventing unacceptable line loading, voltage levels, or potential instabilities that might lead to cascading failures.

Previously, this " security" function was also predommantly performed by control areas.

However, industry pressures are challenging this historical treatment.

With the changing use of the network resulting from an increase in the number of transactions, an increase in the number of involved parties, and an increase in the l

" distance" of the transactions, NERC has developed new requirements for Area Security Coordinators. The intent is to develop a broader pisgctive on the status of the network than has traditionally been available to individual control areas.

l New entrants to the market are arguing that the decisions regarding the safe use of the network should be made by i>*p--at entities that do not stand to gain financially by their decisions. Such arguments have resulted in the FERC's Standards of Conduct i

(Order 889) and, in some jurisdictions, the establishment ofIndependent System Operators (ISO's).

I Testa Position: The Team supports the Future Role of NERC Task Force II white paper conclaslom that "All organizations that form within or across the NERC Member boundaries that have some role, responsibility, or fumetion related to the operation or plasming oflatercommeeted bulk electric systemss in North Amedca (RTGs, ISOs, IGOs, RPXa, POOLCOs, interregional coordination groups, etc.)

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must declare themselves to NERC and establish formal coordination agreements wi.th the relevant NERC Member (s). These agreements must specifically state the j

intent of the organization and its members to comply with NERC and NERC Member reliability criteria. Copies of the agreements must be fDed with NERC."

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C.

Is Membership Mandatory?'

The Future Role of NERC Task Force II " white paper" indicated that all entities "must be members of the Regional Reliability Organization (NERC Member) in which they carry out their business or be otherwise recognized and certified by NERC as being accountable for compliance with applicable NERC Policies and Standards." Since every 1

l generator and load must be included in a contml area this is a satisfactory condition of l

membership, provided the entity does not perform one of the primary reliability ftmetions j

of generation control or system security. Those that perform these primary functions must take a leadership role in the industry by their active participation in reliability efforts.-

Team Position: Those entities performing the primary reliability functions of generation control (control areas) and system security coordination must be members of the Regional Reliability Councils in which they carry out their business.

D.

Approaches to Compliance Enforcement Compliance with required protocols can be encouraged in four ways:

1. Voluntary cooperation (peer pressure)

2. Contractual agreement

3. Contractual agreement with regulatory mandate (including, if required, legislative

' ackstop for non-jurisdictional entities)

4. Legal mandate (legislation) l Although these methods ensure varying hw of enforcement, none of them guarantees 100 per cent compliance by all parties at all times. In each case, parties will weigh the cost of compliance versus non compliance and may willfully choose non-compliance.

Team Position: The traditional voluntary compliance approach taken by NERC and its member Regions will not serve the needs of the new industry.

Parties may agree couh ;tually to meet certain reliabdity protocols. Party A may require Party B to meet or exceed a standard as a requisite for doing business or for obtaming certification. Regional members may contractually agree to meet regional reliability protocols.

M is no such thing as a fully self-regnintmg industry in America. Some aspect of vutually every business in America is governed by some federally-rnandated regulations, especially when health or safety is concemed. Generally, however, regulation occurs as the> result of a wwydon that a problem exists which will not be solved properly ifleft simply to mattet pressures.

21

Since the electric industry is and will continue to be a regulated industry, even cor.tractual agreements carry with them an element oflegislative backing in that such contracts require the approval of appropriate regulatory jurisdictions. Generally speaking, a regulatory body such as the FERC cannot delegate to NERC rule making or rule-enforcing authority. However, the FERC and other regulators are in the position to approve contracts which stipulate performance requirements (compliance to NERC and Regional protocols) as a requisite to doing business. Another alternative could be that FERC and other appropriate regulators issue market certificates requiring conformance with industry-established protocols.

Legally-mandated protocols require the force and authority of the appropriate state.

provincial, or federal body through the enactment oflegislation. Legally-mandated sanctions may also include criminal fines and penalties. Under this form of enforcement, the appropriate body would adopt NERC reliability protocols as their own regulations.

An analogous situation exists with the rules developed and promulgated by the industry-run Financial Accounting Standards Board. Those rules have historically been adopted by the Securities and Exchange Commission as their own regulations.

There are a number of policy makers and regulators on both sides of the border who will have an interest in reliability, panicularly in terms of the enforcement of a mandatory set of protocols. There is currently no Canadian equivalent of the FERC mandate. In Canada, the provinces currently play major roles in policy and regulation of the indusuv; indeed, in most the province is currently the major owner as well as the key policy setter.

Team Position: Due to the involvement of numerous international regulatory jurisdictions, the greatest uniformity in requirements and enforcement of requirements can be obtained through contractual agreements between industry participants. It will b e essential that all regulatory jurisdictions approve such agreements and support the terms and conditions, including sanctions. Legislation will be necessary if non-jurisdictional entities do not voluntarily submit themselves 2

to contractual agreements for reliability.

E.

Incentives and Sanctions Incentives to ensure compliance usually take the form of certifications (market trade privileges or operators' licenses) to allow them to conduct business, or ratmgs that participants seek in order to reduce their costs. Such incentives are effective because they proyide a financial incentive for the party to comply. For example, nuclear units that receive high ratings from the Institute for Nuclear Power Operations (INPO) also experience lower costs in the form oflower insurance premiums.

Where busmess incentives cannot be developed, NERC and the regional reliability councils must have the ability to impose sanctions in the form of fines or punitive prices on non-complying members so that one participant's noncompliance does not degrade 22

I reliability or increase costs for other market panicipants. For example, a Control Area j

might be charged punitive prices for excessive energy taken from the Interconnection as

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inadvenent energy when due to its own failure to generate adequate amounts..

Team Position: Mandatory sanctions and business incentives should be used to enforce compliance.

F.

Who Monitors For Compliance?

As discussed earlier, electricity differs from most commodities in that it must be i

manufactured on demand (it cannot be stored in quantities to meet consumer requirements), and it is transponed over a delivery system (transmission network) that

. tightly couples and creates dependencies between all providers and all customers.

Reliability must be maintained moment by moment and, therefore, compliance to reliability protocols must be monitored on a continuous basis.

l Traditionally, compliance monitoring was conducted by control areas. As previously stated, the control area of the future may not have " network security" infonnation due to issues ofindependence or standards of conduct. Security Coordinators are currently being formed in response to new NERC policies. Rese Security Coordinators will 4

i initially take a number of different forms including control areas. Regional or j

Subregional Security Centers, and even ISO's, but they will each continue to have all System information (generation, transmission, and interchange scheduling) available j

through the Interregional Security Network (ISN) being established by NERC and the l

Regions.

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Team Position: The primary responsibility for real-thme monitoring of compliance with operating protocols should reside with the Regional and Subregional Security Coordinators.

He above position statement indicates that the Security Coordinatars will monitor

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compliance in real time, identifying any non-compliance on the pan of control areas or industry panicipants. Who, then, monitors the performance of the Security Coordinators, i

and how does the induary ensure uniform enforcement ofits reliability protocols across

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four Interconnections and ten Regions?

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The Team concurs with the Future Role of NERC Task Force 11 recommendation that "NEKC must monitor the performance of NERC Members and their control areas (or successor organizations) for compliance with NERC Policies, Standards, Pnnciples and Guides and repen results regtdarly to the NERC committees and Board of Trustees." In addition, it is important that a single entity exist to oversee the health of the y

Int 6rconnections in real time.

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1 Regional and Subregional Security Coordinators are being implemented to oversee the network security of broad geographic areas and, in many cases. multiple control areas.

There will, however, still be border issues between Security Coordinators, there will be j

circumstances under which a multi-regional perspective will be necessary, and there will continue to be evaluations such as Area InterchanP-E or assessments that can only be l

performed on an Interconnection level. Sole dependence on coordination and cooperation between Secunty Coordinators will be inadequate since: they will probably not have the complete picture: they will be accountable to and influenced by their respective j

l governing members; and they may hold different opinions on needed actions to correct a security problem. There has to be a single authority under such circumstances.

i Team Position: A single real-time authority in the form of an Independent Interconnection Operator (110) should be established to provide oversight, i

coordination, and direction as necessary to maintain the health and security of the l

full network.

G.

Who Enforces Compliance?

A basic premise of management is that authority must be commensurate with responsibility. Dunng real-time operation, only the control areas and Security Coordinators that have been given reliability responsibilities can enforce compliance.

Team Position: Security Coordinators and control area operators are charged with responsibilities associated with reliability, up to and including requiring the reduction or disconnection of load or generation to protect overall network security.

Contractual agreements that authorize them to impose sanctions to ensure compliance with mandatory protocols must exist with those ander their operational control as well as with NERC and the Regions.

During other than real-time operation, the Future Role of NERC Task Force II has recommended that "NERC and the NERC Members must establish and maintain formal mechanisms to ensure compliance with NERC Member reliability criteria and NERC Policies, Standards, Principles and Guides, regularly review and improve the 1

effectiveness of these mechanism <, and report results, specifically by member, annually to the NERC committees and Board of Trustees. These mechanisms must clearly spell out compliance responsibilities and authorities and the consequences of non-compliance."

Team Position: It is critical to establish NERC's and the Region's authorities and enforcement powers in contractual agreements approved by the appropriate regulatory jurisdictions.

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H.

Due Process 1

f in any arena in which a party's performance may be judged or a pany may be subjected to fines or penalties, an opportunity for due process must exist, including the right to opeal the findings t a higherjudge. NERC and many (if not all) of the Regions already i

have dispute resolution processes that may be used for such purpose.

i Team Position: NERC and each Region should have a standing dispute resolution mechanism to provide for timely resolution of any disagreement or dispute on reliability compliance.

l.

Liabilities Traditionally, NERC and its member Regions have performed coordination roles. If contractual arrangements are made to place these orgamzations into enforcement roles, new liabilities may exist. For example, if NERC certities a control area operation. what liability may NERC have if the operation fails to perform properly?

Team Position: The Board should seek legal support to assess any liability issues created by a stronger role for NERC in compliance enforcement.

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Regulatory Support Traditionally, the costs of reliability have been born by vertically-integrated entities and have been passed on to customers through rates. In the new industry, such vertically-integrated entities may not exist, and, even if they do, it would be ' equitable to impose m

such costs exclusively on them. New methods must be developed, and regulatory support must be obtained, for the equitable allocation of such costs to all perticipants.

Team Position: A regniatory pact must be developed under which an equitable distribution of the costs of ensuring reliability may be ensured and under which fair recovery of those costs may be provided.

Reliability of the infrastructure can only be ensured if all participants are subject to mand =mry compliance. As indicated earlier, significant non-compliance by only one participant can have dramatic effects on all others and the network.

Teaki Position: All market participants should have a mandatory obligation to comply with reliability protocols.

Team Position: Regulatory authorities should include and require mandatory compliance with NERC reliability protocols as a condition for approval of tariffs, contracts, licenses, and other instruments.

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K.

Resource Requirements In its report to the Board, the Future Role of NERC Task Force 11 indicated that " Staff or outside contractors will need to do more of the work." The Team concurs with this view, i

but a significant increase in resources will also be required if this industry is to truly provide self-regulation in the fonn of compliance monitoring and enfo. cement. To handle such resource requirements, several alternatives were discussed:

j

1) NERC and Regional Staffs could be augmented by committees and working groups populated by industry personnel. This is viewed as inefficient (management by committee) and is subject to part-time availability of personnel.

2) NERC and Regional Staffs could be augmented by industry personnel provided "on loan" for periods of two or more years. This " rotational" concept allows for dedicated staff, but also allows a continuous influx of new experience and ideas. In addition, the actions of personnel will be guided by a more complete understanding of the different views.

3) NERC and Regional Staffs could be increased permanently as required.

Adequate resources would exist, but other advantages offered by option 2 would be lost.

Team Position: NERC should employ most of the resources required for this effort and some increase in perinanent staffing must begin immediately to support the many transitional efforts that are required. Some portion of the required resources (particularly as required to support peak efforts) should be provided by contractors or from the industry through rotational assignments of two to three years Expenses should be paid by NERC and the Regions and apportioned accordingly to all participants.

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t VL INDUSTRY OVERVIEW OF REGULATION AND SELF-REGULATION The Team reviewed the processes used by other industries to ensure compiiance with that industry's standards. The efforts of the Team included a review of the nuclear, health care, and securities and exchange industries.

In virtually every business. some aspects are regulated by the government and some aspects are not regulated. The self regulated activities are left to the industry to set its own internal standards or to adopt standards developed by the industry. Figure 1 describes how information flows in the development of regulation and self-regulation.

Here are over 6,000 voluntary industry organizations in the United States. Many of 1

these organizations develop standards. For self regulated activities, constituent businesses are free to re.iect or adopt these standards voluntarily. Sometimes the adoption of voluntary standards is widespread because it improves marketplace efficiency. An example of this is the voluntary adoption of the Uniform Commercial Code by all 50 state legislatures. Sometimes the standard becomes a recognizable benchmark of quality or safety which can be referenced in contracts. An example of this is the ASME Boiler r

r Code, or the IEEE/ ANSI National Electric Safety Code. In some cases, private organizations offer inspection and certificatica to attest that a given business meets an industry standard. An example of this is 1S0-9000 quality assurance cettification.

When govemment regulation first begins in a particular fie*d of business, govemment regulators often look to existing standards to use as a basis for regulation. He regulatory agency is always free to write its own rules, or continue to review and adopt industry-made standards as they develop. In at least one example found, a regulatory agency has removed the procedural step of adoption and substantially delegated rulemaing authority F

to a private organization. He Securities and Exchange Cornminion proclaimed that "..

prmeiples, standards and practices promulgated by the [ Financial Accounting Standards Board] in its statements and interpretations will be considered by the [SEC] as having substantial authoritative support, and those contrary to such FASB promulgations will be considered to have no such support." (SEC Docket January,1974, p. 276.)

In most cases, inspection and enforcement of compliance with the regulations is done by the regulatory body. D=aading on the scope ofinspection and enforcement a~dat this can require huge resources. One example is the Nuclear Regulatory Commission's large inspection and enforcement staff.

2 l

One way to shift some of the inspection / enforcement burden to industry is through the j

certffication process. Regulators can require certification by an independent private l

organization before a company becomes eligible for government programs, subsidies, or entry into the market place. In 1%5, Congress passed the Medicare Act which contained the provision that hospitals accredited by the Joint Comminion on Accreditation of Health Care Organizations (JCAHO) are deemed in compliance with the Medicare Conditions of Participation and can therefore participate in Medicare and Medicaid i

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programs. JCAHO performs the insper.tions and grants certification. Another example is testing and certification of nuclear operators by the National Academy for Nuclear l

Training, which operates under the auspices of the institute of Nuclear Power Operations (INPO).

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e Models of Regulation and Self-Regulation m

voeuntary Assocasoon o-industry orgeniandone 4-y

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inspecooni Auom

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Standards Stds +Certificadon 6

ANSI. IEEE INPO JCAHO o

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NESC ASME ISO 90uu Adopted by State or Federal Regulatory Body '

Adopted by industry I

as law or policy as standard practice Additionalinternal Rulemsking Voluntary Compilance Mandatory Compilance Voluntary submission to oversight Mandatory Submission to Oversight Market Pressure j

inspection and Enforcement Contractual Compilance Crindnell CMI Sanctions ReallStipulated Damages q

Regulated Activities Unregulated Activities Figure 1.

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i VII. OPTIONS L

Figure 2 summarizes various paths through the regulation and self-regulation model shown in Figure 1. The first seven options were developed primarily as a result of the Team's review of other industries, and the Team could have chosen to recommend one of those for the future NERC. Instead, the Team chose to create a hybrid model (# 8). It is 4

intended to emulate # 4, but recognizes that 100 per cent participation is required.

I Development of Protocols

(

Because NERC membership is made up ofindustry experts who understand the l

technically complicated interactions within the interconnected elecuic grids, the Team i

submits that mandatory reliability protocols are best develoned and maintained by NERC.

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Nature of Compliance L

l In all of the examples studied where compliance was voluntary, there was never 100 per cent compliance. Eighty years after the formation of the parent orgamntion to JCAHO, t

i all hospitals are still not JCAHO certified.

Because universal participation is critical to insuring reliability,100 per cent compliance should be achieved through regulatory pressure. This can be achieved through NERC l

certification as a requisite for a market license or through uniform contractual provisions written by NERC and required by FERC and other appropriate regulatory authorities to be included in all commercial contracts. Each market participant (including, but not j

limited to, generators, transmission owners, and power marketers) must enter into an

" obligation to comply" with all NERC and Regional reliability protocols.

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Inspection and Enforcement l

Because the Regional Reliability Organizations (Contml Areas, Security Coordinators, l

ISO's, Regional Councils, etc.) will normally have access to real-time information on j

operating compliance to NERC reliability protocols, the Team submits that inspection j

and enforemmant should be left to these Regional Reliability Organizations, with NERC l

providing oversight and audit of the Regional Reliability Orgammrions.

Compliamee Pressure Regional Reliability Organizations (RROs) must refuse service if a particinant does not abide by approved protocols. However, there saould be an escalatmg scale of stipulated contractuat p=alties to address an ee=1=timr -=la d =- = *=1 viel=*ians. These tontractual penalties could range from escalatmg rates up to and including the right to refuse tran=ninnion service for continued and serious violations. For serious infractions, i

there could be additional regulatory sanctions to underscore the need for faithful 9

8 30

L compliance to reliability protocols. Regulators could condition market licensing on a market participant's renewed certification by NERC.

NERC and the RROs should develop a mechanism for performing periodic audits of participants for conformance to approved protocols. These audit procedures must be responsive to participant initiated complaints and other icdications of potential non-compliance such as major system disturbances or significant near misses.

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d Modele of Reguladon and Selfflegulaton Standards /

Nature of Inspection /

Compliance Examples Rulemaking Compliance enforcement Pressure 1

Industry Voluntary Self NEPC Today g,

i Contractual 2

industry Contractual Partes Var' Jus d.ma es Voluntary Peers Market Eco$omic.s sty Certdcation Organization Mandatory Certdcation JCAHO for Medicaid "I

Certdcation Required by Law Participation Industry stos 5

adopted by Mandatory Regulators Law NRC & ASME Codes re9ulators O'"

6 Mandatory Regulators Law SEC & FASB Statements haustry 7

Regulatoes Mandatory Regulators Law EPA Contractual

Penalbes, 8

Industry Mandstory NERC Sanctions.

Futuse NERC Possitne loss of leoense i

Figure 2.

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i VIIL ROLES OF INVOLVED ORGANIZATIONS Figure 3 shows an outline of functional responsibilities and what orgamzations could be

- responsible for each function.

i OVERALL ORGANIZATIONAL INVOLVEMENT i

2 There are two aspects to the electric power industry: commercial and reliability. The FERC has established the mandatory commercial protocols in the U.S., monitors use of i

the system, enforces commercial rules of the road through sanctions and determines how costs are recovered. NERC should establish the reliability protocols for the Nonh American Interconnections and take steps to mandate and enforce those protocols.

in order to accomplish the above, an Industry Comnact will be needed acknowledging 1

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the following-l i

1 A voluntary approach to reliability in a restructured competitive industry is unworkable.

The industry should advocate and all participants should voluntarily transition to a mandatory appmach to compliance and enforcement, obviating the need for government prescriptive intervention.

ne industry should endorse functional separation of reliability management and e

commercial functions.

NERC should take the leadership role in developing the industry compact. NERC should l

petition all industry participants, including the FERC, DOE, NEB (Canada), and other t

l appropriate regulatory bodies and policy makers for the support n===ry to make the compact work.

3 1

BASIC PREMISE l

The s+=== d= dons to follow were formulated under the assumption that NERC would l'

continue to be the pr-nhwnt organization responsible for the reliability of the electric industry. The NERC Board, through actions by the Executive Committee, the Technical Steering Committee, and the NERC and Regional Staffs, will need to be proactive with external political and regulatory entities in order to ensure that premise.

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Contrt,1 Areas Each Control Area is defined by the metered boundaries ofit. Vea Control Error (ACE) equation Generation, load, and scheduled transactions are maintained in balance within each Control Area through the use of an automatic generation control system that responds to any error in the net flow across that boundary. Until and u.iless another method of generation control is developed. Control Areas must continue to have the real-time responsibility and authority for generation adequacy and transaction schedule implementation.

Security Coordinators Security Coordinators should be independent of market participants (as is currently the case in some Regions) and should be responsible for the near real-time monitoring for compliance to NERC and Regional policies and criteria. In some cases, the Security Coordinators will actually be ISO's with the additional authority and responsibility for managing the real time use of the interconnected network, a function historically performed by its member Control Areas.

Independent Interconnection Operstor Each Interconnection must have a single independent operator (IIO) with the responsibility and authority to monitor the health of the Interconnection and to coordinate interregional security issues in real time with Regional and subregional Security Coordmators.

NERC and Regional Reliability Councils NERC and its member Regional Reliability Councils should continue to be the praemiaaat orgnizations responsible for the development of reliability protocols and the overall management of programs to monitor compliance and to penalire non-compliance.

These protocols must be made more specific and measulle if compliance is to be accurately monitored and reported.

FERC and Other Regulators J

j Reliability has a cost. It includes the cost of personnel and equipment required to develop the rules and to monitor for compliance, as well as the cost incurred by participating entities to comply with the rules. It shoidd be the function of federal, state, provincial, and local regulators to ensure that such costs, prudently incurred to ensure 34 i

4 reliable operation, are allowed to be recovered and do not become a competitive disadvantage to a segment of the players in the new, competitive industry.

Without economic principles, measurements, compensation and sanctions, it will be impossible to maintain the reliability of the electric system, not to mention the economic viability of the industry participants who have traditionally felt the responsibility for this reliability. Regulators must support new approaches that are developed to ensure compliance with reliability rules, including financial penalties.

Regulators must:

Ensure all expenses of the Regional Reliability Organizations, incurred to meet the reliability criteria established by the NERC and the Regional Reliability Councils, are fully recoverable from customers and market participants.

Provide regulatory backstop.

Make mandatory reliability compliance part of Open Access Transmission Tariffs and conditions of marketing licenses.

Include " obligation to comply" with reliability protocols in terms and conditions in tariffs, interconnection agreements, licenses, and agreements ofISOs, Power Exchanges, and RTAs.

Authorize sanctions for non compliance, including being " economically disconnected" from the grid or otherwise prohibited from conductmg business.

i Support and encourage creation ofIndependent System Operators as a means to have j

[

e focused and i%t reliability re',pomibility.

i h

l Foucy Makers j

Policy makers will provide an i%t assessment of the industry and provide policy and legislative support, where required, to achieve the common goal of 6e regulators and the utility hi, i.e., to provide a framework for a competitive electricity market with i

non-discriminatary access to transmission such that economic efficiencies are maxunized withoutjeopardizing reliability.

l s

a

+

l 35

A Reliability Management Policy

. Rules / Protocols

• Compliance Plan

• Sanctioning Authority

• Training and Certification Regulatory Oversight Regulatory backstop NERC Contracts / tariffs /

market license Oversight

• "'" *'i"8 FERC, Others

• Compliance Enforcement j

Regional Reliability Councils, j

RTG, RTA, ISO i

Implementation 1

• Obligation to comply

• Reliable Operations j

llos, ISOs, Security Coordinators, I

Control Areas l

3 Figure.

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4 36 1

1

~,.

IX. RECOMMENDED NEXT STEPS The assigned scope of this effort included the development of recommended next steps for NERC. nroughout the report, the consensus conclusions reached by the Team have been identified. In this Section, the Team provides a number of recommended actions it believes the NERC Board of Tmstees should initiate in order to effect die desired objectives.

Industry acceptance of a mandatory compliance paradigm will take significant effort. In addition,it will probably take several major steps to implement. The electric power industry is rapidly continuing its move to competition and open-access of the transmission system. Therefore, the Board of Trustees should act on these recommendations as soon as possible.

A.

Implementation Management Responsibility NERC uses task forces and working groups to study issues and implement recommendations. The introduction of mandatory reliability compliance into the electric power industry will take significant effort in many arenas. Acceptance and implementation will require oversight by a group that has the big picture.

Recommendation: The Future Role of NERC Task Force II should take implementation management and responsibility to develop details for sad the process for implementation. The Task Force should have the details and process available for review and approval at the January 1997 Board of Trustees meeting.

4 i

B.

Industry Compact I

In order to accomplish the mandatary reliability compliance, an Industry Compact will be needed to acknowledge a voluntary transition to maad=*ary compliance and separatiou of reliability management and commercial functions.

4 I

Recommendation: NERC should take the lead in developing the ladestry compact.

NERC should petition allindustry participants,incinding appropriate regulatory authorities, for the support necessary to usake the compact work. NERC should charge a group to visit FERC, the National Energy Board of Canada, DOE, and othet appropriate regulatory organizations to explain NERC's approach and to seek comment. The group should consist of NERC's ofBeers and senior indnstry representatives.

l t

37

I C.

Regulatory Backstop

' Reliability of the system is of paramount importance and all users of the system must be i

required to comply with the rules. The Team has suggested that these rules be j

implemented through contracts, with the appropriate regulatory bodies approving and supporting those contracts. However, this scheme may not include all entities using the power system. Mandatory compliance requires 100 per cent accountability (obligation to i

comply) by all users of the power system.

4 Recommendation: NERC should develop proposed means (including,if necessary, the pursuit oflegislation) by which to ensure that all segments of the industry are

)

subject to NERC's reliability requirements.

i D.

Reliability Functions NERC protocols have been developed and implemented on a voluntary basis with the present structure. While it worked satisfactorily for the industry at the time, it will not be j

suitable for the future. The industry must review the overall responsibilities and functions for reliability policy-setting, oversight and implementation as we move toward mandatory compliance. NERC should take the lead in developing a comprehensive list of responsibilities and reliability functions for the future industry structure.

Recommendation: A group be assigned to develop a comprehensive list of responsibilities and reliability functions to be performed at each of the three levels j

of responsibility: policy, oversight and implementation.

I E.

Security Coordination L

Security coordination has historically been the responsibility of the control areas and vertically-integrated utilities. NERC has already started centralizing some of these l

functions through its Security Coordinator requirements. Each Region is developing its own approach to security coordination which could result in significant differences in Regional capability. Each entity responsible for security coordmarion must meet a tnmimum set of standards and capabilities.

1 Recommendation: A group be charged to develop a minimum set of expectations of those entities responsible for security coordination and evaluation. These i

expectations would include the entities' authority, span of control, responsibilities, capabilities, tools, etc. (A Security Coordinaton Committee comprised of management personnel from each of the security coordination centers would serve this purpose well).

i 38 i

F.

Measurable Protocols I

NERC and the industry have worked together to develop protocols and ways to measure l

and control the use of the system for conformance to those protocols. The protocols may

. change for an unregulated generation system. NERC should take the lead to ensure that existing and future protocols are appropriate, specific and measurable as we move to competition.

Recommendation: The Engineering and Operating Committees should perform a comprehensive review of the existing policies, standards, and criteria to ensure they 4

j are specific, measurable, adequate and appropriate for the new industry environment.

G.

Compliance Monitoring Once reliability protocols are in place, monitoring is required to ensure compliance. It is l

clear that an effective enforcement program depends upon being able to identify cases of non-compliance. It will be sufficient to monitor compliance with some protocols through an audit process as has previously been conducted with the NERC and Regional Monitoring Working Groups. NERC might even consider a separate branch ofits i

organization to address auditing, compliance, dispute resolution, and application of penalties for non compliance. This organi7mtion would need the endorsement, if not approval, of FERC and other appropriate regulatory authorities in order to be effective.

I Due to the issues ofindependence, standards of conduct and centralinng security functions, the industry needs to develop a system for momtoring compliance with j

mandatnry reliability protocols. The e:+;+=:on is that the entity responsible for security coordination will have all the informanon nece==ry for monitoring. How this entity will' accomplish compliance monitormg should be reviewed and defined for implementation.

a Recommendation: The Engineering and Operating Committees should deSne how compliance monitoring wiu be accomplished.

H.

Enforcement Measures l

At this time the only mechanism for enforcement of NERC protocols is through peer pressure, but peer pressure will not be sufficient to enforce mandatary compliance in the j

futurfe. With industry-accepted mandatory compliance, a system of enforcement measures needs to be developed. NERC should take the lead in developing these measures. It is expected the industry will review and approve this system of measures and they will be made a part of the contractual agreements.

39

i 1,

Recommendation: A group should be formed to define enforcement measures.-

j

.These measures are expected to be a hierarchical matrix of penalties for increasing impact ofinfractions of protocols. As the severity of violations increases, so should the penalties.

t j

I.

Dispute Resolution W

Due to industry pressure, NERC and many Regions have implemented dispute resolution j

processes. NERC should consider improving and unifying its existing dispute resolution process along with the many procedures that could be adopted. The process that is developed should be one centralized process under NERC providing uniform and predictable resolutions and should be responsive to industry needs.

t Recommendation: A group be formed to review and improve the existing NERC j

dispute resolution process.

I 1

J.

Certification, Education, and Training Industries as complex and :ensitive as the electric power industry need to ensure that users of the system know the rules, obtain proper training and have the capability to l

operate the system within the protocols. There is no common base for trainmg and operation of the system because of the diverse sources of training. New entrants into the industry have had a particularly hard time entering the electric business because of the lack ofinformation and traming.

Comprehensive training programs should be developed for all participants includmg control area operators, security operators, schedulers, marketers, etc., and all personnel and facilities that affect the reliability of the network should be cemfied to perform their l

respective functions.

4 Recommendation: NERC should develop certification policies, processes, practices and/or programs for use by the industry. These should lacinde the certification of 4

people, facilities and tools, and trainlag programs. The certification should include i

reliability and ecomousic aspects of the industry.

K.

NERC Administration The NERC adminiention process has served the industry needs for the last 30 years.

New industry needs will require a "new" NERC ifit is to continue to be r~agni=4 as the preeminent authority on reliability for the North American electric system. NERC needs to decide how it wants to contribute to the electric industry of the future and organize itacif to be able to make that contributio.n in the most efficient way possible. The timely 40

I l*

I l

use of bulletin board systems and the Internet have shown NERC is willing and capable of using the best tools available. This should continue.

The current " bottom-up" and consensus process for developing protocols will not survive i the future. This 6 /elopment process must become more efficient and streamlined.

The Team makes the following recommendations to ensure NERC remains the industry leader in reliability policy making and in monitoring, measuring and enforcing compliance.

Recommendation: NERC should perform a complete review and evaluation ofits

- management structure, administration processes, capabilities, membership and committee structure in light of the emerging competitive and disaggregated industry I

structure. It should organize to represent reliability interests, while recognizing commercial needs, and to be responsive to the reliability needs of the industn. Due to the difficulty associated with reinventing itself, the NERC Board should consider a

i seeking outside support for this effort.

t a

Recommendation: NERC should review how policies are created, approved and implemented. Its committee structure should be revamped or replaced with a new system to speed the overall process. The approval process for reliability protocols needs to be addressed to ensure timely implementation without getting blocked or vetoed due to commercialinterests.

j

\\

Recounmendation: NERC should adept a stronger Mop-down" approach to the reliability management and develop t of mandatory reliability protocols.

J 41

, -.. ~

.. ~....

Attachm3nt 2 NERC Bylaws September 16,1996 1

. Section 4 - Obligations - A Member or Affiliate Member Regional Council, on behalf ofits j

members, shall agree, in writing, to accept the responsibility to promote, support, and.A :.. L.;

etTortrto' comply with the purposes and policies of the Corporation as set fc.th in its Certificate.

cfIncorporation, Bylaws, and Planning and Operating Policies, ';i..d J., T.. n..y;., -.d C.;4ee,

~, -f+_ --- =.,,,..d.;l vi;. yv;;,..., y.

- J=.,..d. yvoa that from time to time may be amended, adopted, or approved. In addition, it shall provide for its share of the financial support cf the Corporation in a timely manner.

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f DRAFT An Open Letter to All Electric Industry Executives in North America I

I 4

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My Fellow Chief Executive:

]

l "A Call to Action" I

As Chairman of the North American Electric Reliability Council (NERC),I am calling on j

i j

you to actively and personally support a dramatic reshaping of NERC to keep pac t

taking place in our industry.

The events of recent months have given significant impetus to the reexamination of future role that i initiated last January. The implications to NERC and all of us are far require a sigmficant change in the way we ensure reliability. It will mean moving aw voluntary l'56 federation of reliability groups that has worked so successfully, to a new structured and equipped to deal with a very different industry than when NERC was for decades ago. The details of this model are still being developed, but we know it mus tion, mgrg detailed and uniform reliability standards that can be put in place quickly 4

pgartici independent monitorig af reliability performance, and mandatory compliance wit r

this happen in the narrow window of time we have will mean increasing the level of reliability issues by those who understand the " big picture" and can make decisions and quicklyt At the Janua:y 1997 NERC Board meeting, I will seek approval to move ahead with s

]

very aggressive programs. Some will be well-defined and others will still be c am calling on you, as leaders from all sectors of our hy, to get personally involved in the discussions that will need to take place within your Regional Councils, your industry your own organizations. It is equally important that those who represent you in th j

clearly understand your resolve and commitment when it comes to reliability. Yes, th i

challenges to face and hurdles to overcome. Change is never easy. But the time f l

nowl i

Please join me and the NERC Board to develop sad implement a "New NERC" that anticipates what the next century will look like and allor<s us to continue our traditio

?

excellence throughout North America for years to come.

nank you.

i Sincerely, f

s W

Richard J. Grossi Chairman North American Electric Reliability Council

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turn such a basic and vitalindustry l

g upside down, we as a nation need tricity is not like durable goods;it to ask a few questions and exam-cannot be warehoused and brought i

ine some critical issues.

out when needed. The ability.tg The matter of reliability is one of meet peak demand and emergers-the most important. Electric power cies depends on maintaining companies have been overseen reserve fuel supplies and generat-through careful local and federal ing capacity. The cost of doing so J

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control and regulation, developed is built into the rate structure. If cost over the past six decades of practi-pressures reduce a company's abil-cal experience. They have operat-ity to maintain such reserves and ed and maintained a reliable, effi-capacity, temporary shortages may q,

cient electricity system, in a become more frequent, causing s

derngulated market, however,com-prices to become volatile.We have panies face defferent cost pressures. afso sed many mergers occ0f Utilities cannot avoid certain since the restructure and deregula.

fixed costs, such as fuel, so the tion of the industry, with rnore areas that get squeezed is opera-expected. A recent industry survey tions and maintenance. If utilities revealed that 93% of surveyed Sy fofus f. serry

• • r cut their work forces and scale power companies anticipated

-N'l,;,~ e -.vt* *ndMsweveh backonsegularly scheduled main. greater consolidation. A key cory J

tenance - as haf beerPtheir cern for the consumeris the pod age Amerleen,8ut your electricity response to change thus far - the tialmanipulation of prices byener-

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may go the way'of your teleph" reliability of the system suffers, gy giants. With almost 90% of and airime service, that is to say; especiallyin times of peak demand generating capacity provided by

)d'"Tj7. dN4*M sotse~ nnri@G, k' ot atT,..theJargesr$00 systemsroen com9 4/

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is this pure consecture petition grow wim deregulation,",r 4

The process of deregulatin our Weham ancreteexampleof this will more mergers take place tc, naton:selecyiqppwwsupp t as irLCalais..re.a, where Pacific Gas & gain an even higher percentage of h

i begun. Most consumers have n6t Electric, in preparing for the new the marketi Perhaps, as m the air"-

felt its effects yet because the competitive market to be instituted line industry, an unintended con-changes have mainly affected the in that state, did just what I sequence of deregulation will be to manner in which electnc utility described. Then, Mother Nature squelch the very competition and companiesself andtransmitpower took a hand and visited terrible openness that changes were meant among themselves. However, if storms on PG&E's service area.The to foster.

proponents of changes brewing in system broke down because it had Proponents of rapid deregulation Congress and in numerous state not been adequately maintained claim that intrcducing the values of regulatory authonties hold sway, and there were not enough trained the open market will benefit our we could all find ourselves " man-workers to do it. The effects on the electric power supply. Any pr6 dated

• into a brave new world of a public were devastating.

ierns, they assert, will be corrected wide-open, restructured electric The utilitylater rehired some of its by the market or by technological workers and instituted a more rig-improvements that will be devel-power mdustry.

, Change in the electrec utility orous maintenance regimen.

oped to meet them. Like most I

tndustry is irovitable in the nedem This season, the system has held Americans, I am an optimist, but i wodd. Yet, those who work in this up well, despite another round of not naive. All of us need to ask the industry as well as all who rely on severe weather.

hard questions and urge legislators its safe, effective performance-i.e.,

Another issue is cost to con-and regulatory authorities to do the everyone - haw the nght to ask: sumers.How do we increase com-same before we accept potentially Where are we headed? Willchange cet tion so that all customers-- disruptive and destructive changes benefit everyonel Will a free mar-large and small--benefiti Many in such a vital industry.

ket for electric power meet the educated observers claim that cus-needs of our economy and ou' tomer cheia...; 6 of little or no Joha J. Barry is the intemational society, as the current system of value when it comes tothe price of President c(the Intemational Broth-rules and regulations has largely electricity for residential consumers whoodo(flectricalnbrkers.Some W

del or small business. LarEe industrial 230,000 fBEW members work m At the heart of the matter are pro-consumers will command any or the electric utility industry in the nosals to bring deregulation from all lower-cost electricity, and utili-United States and Canada.

the wholesale level to the retail ties will rush to serve the big users.

level. That is, there are those who That leaves the rest of us to make want to open up the system so that up the difference.

users of electricity, fr,om large Under deregulation, electric industrial consumers to individual power cornpanies may not ulti-households, could receive their mately be obligated, or have an power from mdependent marketers incentive, to serve those customers or utilities other than the local com-who are considered a financial risk pany, much as they can currently or who live in areas that are unprof.

choose their long distance tele-itable to service.The current regu-phone carrier tand will soon latory system recognizes that elec-choose their local telephone carri-tricity is a necessity, and About TMs Page er as well). In an open market, the compensates utilities for the cost of

,,% p,,,, p,aised

%.%x,,,,l AdWnuMd d am unche argu nent goes, utilities will be providing universal service. What

[wpennumiet i,y e N ne forced to compete for business, will happen to those guarantees in W %tunenn Tunes I

thus requiring that they operate the open marketi

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• o"*d ""Usb more efficiently, deliver cheaper No one can predict with certain-NN electricity, and live under the same ty what will happen to the price of competitive pressures that othe' electricity in an open inarket. Sup.

eus pago ggem conian Rectiant Nonlui, i

do. Everyone will ben' porters of rapid, radical der ula-ggwT1*$

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tion speculate prices will fat, yet wanunpon oc 20002. no2i 06-30%

Mayt>e, maybe not. Before we they don't take into account factors

PAGE A6 / WESIMY,4$NUARY 14,1997 *

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' regu!'ted by';be free market, in retad elettru ity demandmg better and more cost-Editor's Note:

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1 sales, includmg UtihCorp, and are effiaent energy products and ser-Based m Kansas City, %ssouri ahd N.

became provufmg a bluepnnt for con peti-S n es that come from a compentive UtihCorp United (NYSE: UCU)is a operations tion in the energy endustry tus.41 un market. This situation calls for real $4 bdhon intemational eleonc and t

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,enatioris [h

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'tted utili-carefully crafted, fundamental pnn-i han e - now. Both federal and gas company with energy cus-in tiestp Ieri y beychd their tra-ciples:

state islators have a responsitul-tomers and ope 5ations m 45 states h

aidines md c itional lreas; 8

non-

• extension of the right to ( home ity to ta e earlyand effedeve action across the U.S. and m Canada, banking -$e eleC#iG ubitty inchas-utilitV com) hies e right to an electnc su er to alt retad cus-that best serves energy consumers Great Bntam, New Zealand, Aus-ity; mmes as ra ' 4 as pode, We as a whole.

traha and lamata. Uul Corp has

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- at the same time, remforang nec-Some utihty execunves are active-grown rapidly over the past decade the[

tryisonly thelate55g3 undergo this generate o

30a8 y,,

sion separate essary customer otect$ons 1y resisting change, and some through utihty mergers and ac}ut-F regulation, tiori ' pd i SIj mns.

fates: Local

• operation o generateon and mdustry emplnyees may dishke the sitions and by starting non-regu at-l or compet-transmisseon systems to enhance, inihal upheava! and uncertainties ed energy related busmesses.

14ectric utR-tatil can hies Mi,.,

"h,aturalg iticonsumer nH S snnot; martet effiaency lectr tw but the.rathn than impede, rehabdity and c aused by such

. Andshare-in 1995, UtihC launched Ener-y e

bulders, accust to the stabil-gyOne'", the irst nationally grapl]Id b

when !!

• mamtammg the mdustry 5 sty tradinonally found m utility branded line of products and ser-utihty was the on source electritity, and

. lation w

!n le excellent record of environmental st ocks, ma shrink from the vices for electnc and gas utdity cd vedpconsumers responsibihty.

encreased risk that comes from an g gh.

customers. The EnergvOne portfo-needed a proect consumes ensure access 19. basic energy win

' vest of rate Although federal reform is net es-open, competitive market.

ho of value-added services and tai-u.r a

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ng illon sary to bring about benehts to all It is indeed a difficult task to tran-fored energy solutions is playmg a ryalchardCg]r.

8 with and consumers and create a level play-sition from crumbling natt 'al key role in estabhshing UtihCorp as u.

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such jng held for aH energy pmwdes, it nionopohes m open c ition; Amenca's first truly national utshty l

S issues % facing! Congress,In.t e across the counpy, that natura c ma 1 ally benefit utili-is imperative that state r ulators and psour reatest llenge cornpany.

starting point andlegislators retam their hty to wdl.. to make t process and its t

ypica7 the old changes 4d'Ithe energy market manage the detads d h prm ess i omplexity transparent to the con-Ric hard C. Green, Jr. is the Chair-di

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ry systern has hung around e pro-overall that allow true choice m order to meet the needs aruf i-sumer as our mdustry adjusts to the mariand Chidhiw Ofend "W

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@flar benef.its onnes specific to each state. A so.

demands of an open marketplace-OrdeC"# U"'raf to the%detus gso is tect ut monopolies as exclu-a a choms*o@aysayes{s c

M di4ivay d ekanaty thmugh We intend to do it right, and al1 sive fra ises. -,

with posit.ons that ra Today, the generation and supply Similarc to wholesale nat-the local utihty's distnbution w ires mnstituencies - customers, share-aunched in to homes and offaes should prop-huld-rs, employees and communi-froin o, neverl to we i, g power and related services can uralg'as ocecr dramatic eriy remain a regulated naiurat ties - wal ultimately benefit signif-urocoste Usitio the soes.

k'g', study y unta be compedtive, ghring customers 198 have, ma j

the reduced costs and bene senrice resulu, wi!

flatio' -adiusted monopoly, power plants need not n antly from the enhanced having be a part of that monopoly.

ethoergy and value generated by EksIrmmrDNIE I

a inoneg bnarrary g@%"ga*',y,,'"a% C'@g

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. ade for coasumers deserve and a'e a < ompea"ve eaersy iadustry-g as m_

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