18  EnErgyBiz magazinE  March/April 2007

www.energycentral.com  EnErgyBiz magazinE  19

The North American Electric Reliability Council has been helping to set standards with the utility industry for nearly 40 years. Its goal has always been to prevent electricity disruption, keep the power system running smoothly, and avoid blackouts. In fact, NERC’s launch in 1968 was triggered by the New York City blackout of 1965.

Utilities Brace for New staNdardsBy Gary M. sterN

illUstratioN By BriaN staUffer

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20  EnErgyBiz magazinE  March/April 2007

hen the Federal Energy Regulatory Commission named NERC the Electric Reliability Organization on July 20, NERC’s role in setting standards rose in importance. The standards that the ERO sets, after gaining approval by FERC, are now mandatory, not voluntary. Furthermore, fines imposed for violating these standards can range from $1,000 to $1 million per day per

violation, explained Gerry Cauley, vice president and director of standards at NERC, which is based in Princeton, N.J.

Fines of $1 million per day capture the attention of any utility CEO or senior executive. Despite the hefty fines, Cauley is quick to point out that NERCwill be evenhanded. “Our job isn’t to ... catch 200 people making a mistake. Our role is to make electric reliability better,” he said.

What’s the major difference in NERC’s new role as ERO compared with its former self-regulating role? “It’s our opportunity to put teeth behind what NERC was doing on a volunteer basis,” explained Rick Sergel, president and chief executive officer of NERC. “Voluntary standards aren’t enough and weren’t getting the job done,” he acknowledged.

NERC creates the standards and works with regional organizations to ensure compliance. In fact, it works closely with the eight regional regulatory organizations such as Electric Reliability Council of Texas, Northeast Power Coordinating Council, Southwest Power Pool and Western Electric Coordinating Council, which conduct audits and send investigators to ensure compliance.

In the past, utilities paid attention to standards, but often it might be a compliance officer or engineer’s role to fix a violation, with the CEO and senior management team not getting involved. Insiders suggest some utilities showed a lack of urgency about complying with NERC’s recommendations. Because NERC now operates as an ERO and the stakes have been raised, meeting its standards has become part of a utility’s risk management portfolio. “They’ll pay more attention to where they are exposed and in violation. No one wants to get penalized,” Cauley noted.

Having an independent organization such as NERC devise standards for the industry is critical to its success, suggested Richard Drouin, chairman of NERC’s board of trustees, who is located in Quebec. “The independent part assures that the industry doesn’t serve its own purposes, but focuses on the stakeholders and the public,” he said.

Furthermore, since the 2003 blackout affected Canada and the United States, NERC’s efforts will soon create standards for both neighboring countries once

the Canadian provinces pass the law as well. Ontario, Quebec and Manitoba have already done so, Drouin noted. He expects that all provinces will pass the law in 2007. “Getting both countries to cooperate under one umbrella will help ensure standards for the continent,” he said. Eventually Drouin envisions that Mexico would participate as well, making the grid seamless throughout the three countries.

Utilities are responding to NERC’s expanding role. At American Electric Power, for example, Scott Moore, its vice president in charge of transmission operations, said AEP has established a new executive-level reliability compliance committee. AEP has assigned “dedicated personnel to follow the process to ensure that after we’re audited, documentation is in place” and recommendations are acted on. Compliance with NERC’s standards at AEP, “gets much more attention. There’s been a cultural change within the organization driving down to the lowest level,” Moore noted.

“In general, because of the ability to assess monetary penalties, the focus will move from the regional reliability organizations to the NERC,” stated Herbert Schrayshuen, vice president of reliability compliance at National Grid. Making NERC’s role mandatory not voluntary also strengthens its recommendations, he suggested.

NERC’s ability to gain access to information will be enhanced as a result of its being named ERO. Cauley noted that by law utilities are now required to submit information and data to NERC. “We have clear authority to expect to receive data on their systems,” he said. In the past, utilities might have claimed confidentiality or sensitivity to security data. Now, if NERC needs to know every transmission line that tripped over a year’s time, utilities will be required to provide that information or face heavy fines.

Richard P. Sergel, president and chief

executive officer of the North American Electric Reliability Corp.

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22  EnErgyBiz magazinE  March/April 2007

NERC works closely with utilities to establish standards. Its standards authorizing committee consists of a wide range of utility executives who recommend experts to populate committees and establish standards. “We partner with utilities. We manage the process on behalf of the industry for FERC,” Sergel noted.

NERC has been developing standards for nearly 40 years. After being named ERO, it started developing Version 0 standards, the aim of which is to formalize and update existing standards.

Version 0 currently includes 115 standards, covering 14 different specialties including emergency preparedness, personnel performance, critical infrastructure protection, and resource and demand balancing. “We expect a signif-icant number of NERC’s existing 115 electric reliability standards to be approved to become mandatory and enforceable by June 1, under the federal power act. This

means that a violation of the standard and its requirements will be a violation of federal law,” Sergel noted.

Asked which of these 115 standards are most noteworthy, Cauley pointed to demand balancing as one critical element in helping to prevent any future blackouts. One standard refers to utilities making sure that they have enough generation online to meet all power demands in real time, preventing any power shortages, and possessing enough electricity to meet customer demands, balanced with the needs of the electric grid. Balancing the electric grid is critical to preventing system collapse, he added.

But weren’t these balancing demands operating prior to their inclusion as Version 0 standards? Cauley acknowledged that for the most part they were in place. The difference is the new standards are mandatory. “We’ve gotten rid of fluff and lengthy explanations. Now the emphasis is on, what am I being held accountable for.” he said.

After 9/11, security standards were enhanced to protect power systems from possible terrorist attack. Cauley noted that recent standards have continued to strengthen security regulations for utilities. For example, one new standard requires that utilities put firewall protection around the critical computer systems for all of the 140 control centers across the United States. Prior to these new regulations, the previous guidelines pertained to only the four major control centers that helped generate power, he added.

Other new standards that Cauley deemed most signif-icant were personnel performance, which demands that all utility personnel who operate the control center must be trained operators who have passed a certification test.

Sergel pointed to standards concerning vegetation management as a critical requirement because the blackout of 2003 was triggered by excess vegetation from trees. NERC’s committee, which consisted of transmission operators and arborists, created these new standards to address the problems that led to the 2003 blackout.

But aren’t NERC’s many standards missing some of the most vexing and timely issues, such as utilities still building coal-powered plants and the need to reduce carbon dioxide emissions, contributing to pollution and global warming? Sergel replied that the “concept of ERO was strictly limited by law to look at the reliable power system and to ensure that standards were being set and dealt with. Our mission wasn’t to deal with which fuels to select, environmental issues, or having the authority to order construction of new power plants.”

Yet Sergel noted that NERC can play a role in helping to

set the agenda for meeting future power needs, and can do so without ordering utilities to build new power plants. “Our part is to make sure everyone knows what the demand is for a new product, how fast it’s growing and whether there’s a requirement for new facilities. We can recommend different ways of accomplishing the goal of increasing the capacity of the system. For example, in a recent report, we noted that alternative energies, power plants, and transmission lines, were all necessary,” he noted. This issue of meeting future power needs is timely because NERC forecasted that the demand for electricity in the United States over the next ten years will increase by 19 percent, but new power capacity will only grow by 6 percent.

Cauley also added that NERC stipulates that utilities evaluate future power needs and conduct studies and submit plans to demonstrate that they can meet demand one year in the future, three years in the future, and five years in the future. If NERC thinks the plans fall short of meeting increasing needs, “We can’t tell the utility you need to build a 1,000-megawatt generator. Our authority ends, and it becomes a state regulatory issue,” Cauley said. NERC’s responsibility is “to shine a bright line on it” and then let FERC and state regulatory commissions handle future power generation needs.

What can utilities expect from NERC in the coming years? Sergel replied, “Our most important role is ensuring compliance. It’s not a ‘gotcha’ role. To meet those compliance goals, we conduct readiness exercises, offer training programs, and evaluate incidents to determine root causes to help everyone understand their role in compliance.”

We manage the process on behalf of the industry for FERC.

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