Mandatory Reliability Rules

Implementingthe

Electric Reliability Organization

David W. HiltVice President & Director of Compliance

APPA Reliability SymposiumJanuary 10, 2007

U.S. Energy Policy Act of 2005Reliability Legislation● One industry self-regulatory ERO● FERC oversight

Delegates authority to set and enforce mandatory standards to ERO

ERO delegates authority to regional entities● Standards apply to all owners,

operators and users of bulk power system

● Independent governance and Compliance Program

Electric Reliability Organization OverviewUnited StatesFederal Energy

Regulatory Commission

MexicoComision Reguladora

de Energia

Canada NEB, Alberta, British

Columbia, Manitoba, Ontario, New Brunswick, Nova Scotia, Quebec, and Saskatchewan

Electric ReliabilityOrganization

RegionalEntities

Other ERO Members

Bulk Power System Owners, Operators, Users

ReliabilityStandards

ComplianceEnforcement

Reliability Assessment

Government Oversight

ERO Implementation – So Far● Aug. 2005 Energy Policy Act● Feb. 2006 FERC Implementing Rule● April 2006 NERC Application● April 2006 Standards Filing● July 2006 ERO Certification● Oct. 2006 Compliance Filing● Oct. 2006 Standards NOPR● Oct. 2006 Budget Approval● Nov. 2006 Uniform Compliance

Program● Nov. 2006 Regional Delegation

Agreements● Jan. 2007 Standards NOPR Response

Compliance Program Design

Program Design● Modeled after other

industry based self regulatoryorganizations

● Regional implementation Regional entities monitor

responsible entities● NERC oversight role

Audit regional implementation Measure regional compliance Report to governmental and

regulatory authorities(US, Canada and Mexico)

Compliance Enforcement ProgramThe Program So Far● Since its beginning in 1999

Monitor compliance with simulated enforcement actions (WECC exception)

Letters to non-compliant entities Approximately 350 violations

identified annually

● Non-compliance identified corrective actions taken

● Quarterly & Annual reports developed and posted at www.nerc.com

Compliance Monitoring MethodsCompliance Monitoring● Periodic reporting● Self-certification● Exception reporting● Investigations● Random spot checking

or audits● Compliance audits● Self Reporting

Compliance Monitoring and Enforcement Program● Single audit program for rigorous

audit activities● Prompt reporting● Confidentiality provisions● ERO files summary reports to FERC● ERO or region imposes fair penalties

and sanctions● Single appeals process

Penalties & Sanctions● FERC Policy Statement on

Enforcement Issued October 20, 2005

(Docket No. PL06-1-000)● Post Legislation Steering Committee

Penalties and Sanctions Task Group● Other efforts underway

Relative risk of standard – BOT direction● Other self-regulatory organizations

NASD CBOE NYSE

NERC Sanction GuidelinesERO Sanction Guidelines● Comparable to levels of threat to reliability ● Promotes compliance with standards● Rewards self-reporting & voluntary

corrective actions● Flexible to adapt to all relevant facts

surrounding the violation ● Consistent application of guidelines● Meets FERC policy statement

How Will Penalties Be Applied● Penalties will be applied by the

Regional Entity Staff will determine initial penalty or

sanction Regions may reach a settlement – must

be filed with FERC Penalties may be appealed

● Once finalized NERC files “notice of penalty” Penalties may be adjusted by FERC Penalties become effective 31 days

after filing Remedial actions may be applied

immediately to preserve reliability

Schedule for Implementation

● Approval of Standards Penalties apply to some

entities

● Standards NOPR Response NERC proposed no actual

penalties until January 1, 2008

Organization Registration

Who Must Comply?● Any entity responsible for any part

of bulk electric system reliability Historically defined as control areas

and reliability coordinators● Functional entities

Aligns reliability requirements with functional unbundling

Functional Responsibilities

ReliabilityCoordinator

TransmissionOperator

GenerationOperator

BalancingAuthority

TransmissionOwner

GenerationOwner

DistributionProvider

Load ServingEntity

PlanningAuthority

PurchasingSellingEntity

RegionalReliability

Organization

ReserveSharingGroup

TransmissionPlanner

TransmissionServiceProvider

ResourcePlanner

RegisteredIn

2005

Owners, Operators, and Users● Energy Policy Act:

All users, owners, and operators of the bulk-power system shall comply with reliability standards

● FERC Rule All entities subject to the

Commission’s reliability jurisdiction… (users, owners, and operators of the bulk-power system) shall comply with applicable Reliability Standards …

● Who are they?

Section I Owner, Operator, or User of the BPS

Section III Smaller Entity De-selection Criteria

Section II Functional Type Definitions

Section IV Joint Action Agencies

Registration Selection Criteria

Organization Registration● Registration process

Entities may register directly Regions or NERC may add to

the registration list Others may nominate for

registration● Entity may challenge being

placed on the compliance registry Must demonstrate why it is not

a bulk power system owner, operator, or user

Entity Registration● Non-binding Registration List

First draft complete and under review

● Registration completed once FERC approves NERC standards and rules on their applicability Notices will be provided to entities

beingregistered in the compliance registry

Next Steps

● Regions continue efforts to complete preliminary registration

● Criteria from “Statement of Compliance Registry Criteria (Revision 2)” Posted on the NERC Web

site

Functional Types Required to Register

Function Type Acronym Function Type Acronym

Balancing Authority BA Reliability Coordinator RC

Distribution Provider DP Reserve Sharing Group RSG

Generator Operator GOP Resource Planner RP

Generator Owner GO Transmission Owner TO

Load-Serving Entity LSE Transmission Operator TOP

Planning Authority PA Transmission Planner TP

Purchasing-Selling Entity PSE Transmission Service Provider TSP

Exceptions to the Registration Criteria● Certain functional Entities are

allowed exceptions to the registration requirements Load Serving Entities Distribution Providers Generator Owner/Operators Transmission Owners

● Statement of Compliance Registration Criteria (Revision 2) contaians specific requirements

Load Serving Entity Exceptions

● The LSE has a peak load that is < 25 MW or; is NOT designated as the responsible

entity for facilities that are part of a required UFLS or;

is NOT designated as the responsible entity for facilities that are part of a required UVLS.

Distribution Provider Exceptions

● The DP is a system serving a peak load that is

< 25 MW or; is NOT designated as the responsible

entity for facilities that are part of a required UFLS or UVLS;

is NOT designated as the responsible entity for facilities that are part of a required Special Protection System or Transmission Protection System.

Generator Owner/Operator Exceptions

● The GO/GOP is an individual generating unit < 20

MVA or; a generating plant/facility < 75 MVA

or; a generator, regardless of size, that

is NOT a blackstart unit material to and designated as part of a TO entity’s restoration plan, or;

a generator, regardless of size, that is NOT material to the reliability of the bulk power system.

Transmission Owner Exceptions

● The TO is an entity that DOES NOT own an

integrated transmission element 100 kV and above, or lower voltage necessary to provide for the reliable operation; or

is an entity that DOES NOT own a transmission element below 100 kV on a critical facilities list that is defined by the regional entity/CBRE, or;

DOES NOT have Ownership of radial transmission facilities where NERC Reliability Standards are applicable (e.g. vegetation management, system protection maintenance and testing) are included in this definition.

Generic Exception

● An Entity will not be registered based on these criteria if effective control and responsibility for maintenance and operation of the designated function(s) has been transferred by acceptable contract to another entity, such as a load-serving entity, G&T cooperative or municipal joint action agency, etc.]

Joint Action Agencies & Members● A JAA (or similar organization) may register

as a Registered Entity on behalf of one or more its members.

● A member of a JAA may choose to register as a separate Registered Entity

● Both the JAA and its member may choose to register for the same function as a Registered Entity.

JAAs and Members who register in one of the above manners must comply with Registered Entity Compliance Reporting Requirements of Statement of Compliance Registration Criteria (Revision 2)

Questions