NERC Standards and Compliance Maureen A. Borkowski EEI Transmission and Wholesale Markets School July 1, 2009

1. NERC Standards and Compliance Maureen A. Borkowski EEI Transmission and Wholesale Markets School July 1, 2009 THIS SPRING, THE MIDWEST INDEPENDENT SYSTEM OPERATOR (MISO FOR SHORT) WILL TAKE OVER KEY ASPECTS OF HOW OUR POWER PLANTS ARE DISPATCHED TO MEET LOAD. THEY WILL ALSO BEGIN OPERATING A CENTRALIZED MARKET FOR WHOLESALE POWER. MISO IS AN INDEPENDENT, NOT-FOR PROFIT COMPANY. ITS REVENUES COME FROM FEES PAID BY USERS OF THE TRANSMISSION SYSTEM AND POWER MARKETS. FERC’S IDEA BEHIND RTOS IS TO INCREASE COMPETITION AT THE WHOLESALE LEVEL AND ELIMINATE THE ABILITY OF ASSET OWNERS TO EXERCISE MARKET POWER.THIS SPRING, THE MIDWEST INDEPENDENT SYSTEM OPERATOR (MISO FOR SHORT) WILL TAKE OVER KEY ASPECTS OF HOW OUR POWER PLANTS ARE DISPATCHED TO MEET LOAD. THEY WILL ALSO BEGIN OPERATING A CENTRALIZED MARKET FOR WHOLESALE POWER. MISO IS AN INDEPENDENT, NOT-FOR PROFIT COMPANY. ITS REVENUES COME FROM FEES PAID BY USERS OF THE TRANSMISSION SYSTEM AND POWER MARKETS. FERC’S IDEA BEHIND RTOS IS TO INCREASE COMPETITION AT THE WHOLESALE LEVEL AND ELIMINATE THE ABILITY OF ASSET OWNERS TO EXERCISE MARKET POWER.

2. THIS SPRING, THE MIDWEST INDEPENDENT SYSTEM OPERATOR (MISO FOR SHORT) WILL TAKE OVER KEY ASPECTS OF HOW OUR POWER PLANTS ARE DISPATCHED TO MEET LOAD. THEY WILL ALSO BEGIN OPERATING A CENTRALIZED MARKET FOR WHOLESALE POWER. MISO IS AN INDEPENDENT, NOT-FOR PROFIT COMPANY. ITS REVENUES COME FROM FEES PAID BY USERS OF THE TRANSMISSION SYSTEM AND POWER MARKETS. FERC’S IDEA BEHIND RTOS IS TO INCREASE COMPETITION AT THE WHOLESALE LEVEL AND ELIMINATE THE ABILITY OF ASSET OWNERS TO EXERCISE MARKET POWER.THIS SPRING, THE MIDWEST INDEPENDENT SYSTEM OPERATOR (MISO FOR SHORT) WILL TAKE OVER KEY ASPECTS OF HOW OUR POWER PLANTS ARE DISPATCHED TO MEET LOAD. THEY WILL ALSO BEGIN OPERATING A CENTRALIZED MARKET FOR WHOLESALE POWER. MISO IS AN INDEPENDENT, NOT-FOR PROFIT COMPANY. ITS REVENUES COME FROM FEES PAID BY USERS OF THE TRANSMISSION SYSTEM AND POWER MARKETS. FERC’S IDEA BEHIND RTOS IS TO INCREASE COMPETITION AT THE WHOLESALE LEVEL AND ELIMINATE THE ABILITY OF ASSET OWNERS TO EXERCISE MARKET POWER.

3. NERC History In EPAct of 2005, Congress gave the Federal Energy Regulatory Commission (FERC) authority over electric reliability Standards to be Mandatory and Enforceable with Penalties NERC Certified by FERC as the Electric Reliability Organization (ERO) in June, 2006

4. NERC’s Mission Our mission is to ensure the reliability of the bulk power system in North America. To achieve that, we develop and enforce reliability standards; assess reliability annually via 10-year and seasonal forecasts; monitor the bulk power system; and educate, train, and certify industry personnel.

5. NERC Today NERC is accountable to FERC Membership is voluntary but all entities with an impact on reliability must register Fees are assessed on all load Standards are developed by industry and approved by FERC Compliance is mandatory Compliance is audited and enforced by eight Regional Entities Penalties can be assessed to any entity found not in compliance

7. Functional Entities Entities register according to the functions they perform:

8. Standards Currently there are approximately 100 standards with nearly 1000 requirements Compliance with standards is enforced by registered function for each requirement New standards or modifications to existing standards go through the industry via the ANSI-accredited standards drafting and balloting process New standards are continuously under development After successful balloting, standards are submitted to FERC who can either approve or remand them A formal standards interpretation process also exists Standards can also be developed by specific regions

9. Standards Categories Resource and Demand Balancing (BAL) Communications (COM) Critical Infrastructure Protection (CIP) Emergency Preparedness and Operation (EOP) Facility Design, Connections and Maintenance (FAC) Interchange Scheduling and Coordination (INT) Interconnection Reliability Operations and Coordination (IRO) Modeling, Data and Analysis (MOD) Nuclear (NUC) Personnel Performance, Training, and Qualifications (PER) Protection and Control (PRC) Transmission Operations (TOP) Transmission Planning (TPL) Voltage and Reactive (VAR)

10. Standards Compliance

11. Penalty Matrix

12. Violations

13. Penalties As of June 2009, 64 Notices of Penalty have been filed with FERC Penalties ranged from $0 - $250,000 Many $0 penalties are related to self-reports made prior to June 18, 2007 Large penalties are for violations of FAC-003 the Vegetation Management standard Largest penalties are related to failure to complete mitigation plans in a timely and thorough manner

15. What’s Next? NERC and the industry are looking at some of the commonly violated standards to understand and share lessons learned Focus on throughput at the Regions and NERC FERC is seeking standards making authority through legislation Industry needs to ensure that we are focused on RELIABILITY not just compliance

16. Questions?