Mandatory Electric Reliability Standards and Transmission Expansion

1. Mandatory Electric Reliability Standards and Transmission Expansion Suedeen G. Kelly Commissioner Federal Energy Regulatory Commission The Canadian Institute Energy Group Transmission Planning & Reliability Toronto, Canada January 26, 2005

2. Standards and expansion go hand in hand • Canada and the U.S. should continue and expand our cooperative efforts on improving grid reliability. • We need both mandatory reliability standards and – at least in the U.S. - cost-effective transmission expansion • One without the other is simply second best

3. FERC has added Reliability to the Infrastructure portion of its Strategic Plan • Allow prompt recovery of prudent expenses to safeguard reliability, security and safety • Oversee the development and enforcement of grid-reliability standards • Work with other agencies, especially the states, to improve infrastructure security • Work with the states to support robust programs for customer demand-side participation

4. Transmission infrastructure investment problems • Not just one problem • Siting • Uncertainty about • Restructuring • Who builds? • Who pays? • Lack of regional overview of needs • We have many roads, few regional highways. • What can the FERC and others do?

5. Lagging ElectricTransmission Investment Half as much annual investment in 2000 as in 1975 Annual growth rates in Gen, Trans, Load

6. Solutions • Generator interconnection policies • Clarify transmission rights & pricing • Provide incentives where effective • Support others’ efforts: • FERC’s Infrastructure Conferences • Improve RTO transmission planning • States (NGA, MSEs, RSCs) & merchants • DOE: critical infrastructure bottlenecks • Legislation • Take a regional focus

7. FERC’s new Reliability Division

8. FERC reliability efforts in 2004 • Completion of the Blackout Report • Participation in the Readiness Audits with NERC • Policy Statement – Bulk Power System Reliability (107 FERC ¶ 61,052) • Encouraging the revision of NERC standards to be specific and enforceable (Version 0)

9. More 2004 reliability efforts • Specific investigations & studies -- e.g., Vegetation Management (107 FERC ¶ 61,053) • Operator training study • Coordination with the NRC for grid reliability and nuclear plant safety issues • Participation in a natural gas pipeline disruption impact analysis • Study and identification of best tools and practices for IT functions

10. Possible future FERC initiatives • Cyber security evaluations of SCADA systems and IT platforms • Reactive power oversight, including planning, operations, and compensation • Transmission planning oversight including adequacy and extreme contingency plans • Work that will be required by any reliability legislation – various rulemakings

11. Reliability legislation needed • FERC would certify an Electric Reliability Organization – ERO – for the United States. • The ERO would develop reliability standards applicable in the U.S., subject to FERC approval or remand. • The ERO would enforce standards and impose penalties. Note: the ERO could not require transmission expansion – separate expansion policies needed as discussed earlier.

12. After legislation passes • FERC issues a proposed rule implementing the legislation • Rulemaking process must follow the Administrative Procedures Act: notice & comment; decisions based on the record • Ex parte does not apply; no prejudgment • Issue final rule within 180 days – a tight deadline

13. After the final rule issues • One (or more – unlikely) parties may apply to FERC to be the ERO in the U.S. • FERC selects and certifies one ERO for the U.S. • The ERO then pursues recognition in Canada and Mexico, according to the law. • Canada and Mexico may choose to have a similar or different process.

14. An International ERO • The proposed law urges the President to negotiate international ERO agreements with Canada and Mexico. • FERC, DOE and Canada have been consulting frequently for several years about working together on implementing the new law. • U.S. is committed to a cooperative effort.

15. Binational ERO Oversight Group • Formed in the early Spring 2004 by the Canadian Federal-Provincial-Territorial task force, DOE, and FERC. • Government staff from NRCan, Provincial Regulators, DOE, FERC. • Identifying issues and possible solutions • Have not yet involved principals • Mexico to be included later

16. A Cooperative Effort • Common Goal of Enhancing Reliability • FERC is working in partnership with • Canadian government officials • U.S. Federal and State Agencies (DOE, NRC, DHS) • NERC, regional reliability councils and industry stakeholder groups • Non-jurisdictional entities • Overlapping Roles and Responsibilities

17. Examples of Issues • ERO as an International Organization • Standards Development Process • Regulatory Review/Approval of Standards • Enforcement of Standards • Intergovernmental Cooperation • Other Issues: roles of regions & members

18. Two Governments— One Goal • Reliability standards should be more than the “least common denominator” of the current practices of today’s grid operators. • The ERO must be an advocate for excellence in North American reliability. • Blackouts like in 2003 should be, if not a thing of the past, as rare as humanly possible.