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To bolster that protective effort, NERC, other Regional Entities (RE), and state regulators have recently beefed up compliance standards and enforcement provisions that demand new attention from many electricity grid service providers. A big part of that new challenge for service providers and others involved with the grid is understanding how to register and self-certify their companies based to a large degree on how directly their operations impact the safety and efficacy of the grid.
After months and even years of wrangling and tweaking, many of these compliance standards became legally mandatory effective June 18, 2007. “Voluntary guidelines worked very well to a point, but they were not enough,” said NERC CEO Rick Sergel in June. “To avoid future blackouts, everyone must follow all the rules, all the time…mandatory standards are the next logical step toward achieving that.”
If a covered entity fails to comply, corrective measures can be ordered, and fines of up to $1 million per day can be imposed.
NERC is in the process of validating registrations. Organizations have been asked to register with their regions and REs are reviewing those now.
But the good news is that NERC and other regulators fully understand that some of these rules are new and that many that had once been voluntary are now or will soon become mandatory. That means REs have some discretion when it comes to levying penalties for compliance violations. For example, they can asses a fine but do not have to collect it.
However, regulators expect good faith efforts toward compliance. At an April 2007 NERC workshop, NERC Executive Vice President David Whiteley noted that any entity responsible for any part of the bulk power system’s reliability must comply.
Registration Required
NERC’s Electric Reliability Organization (ERO) recently initiated a program to identify candidate organizations for its grid compliance registry. The program is being conducted by NERC and the REs.
Under the registration program, organizations will be “responsible to register and to comply with approved reliability standards to the extent that they are owners, operators, and users of the bulk power system, perform a function and are material to the reliable operation of the interconnected bulk power system,” NERC said in its February 2007 Statement of Compliance Registry Criteria.
Over 1,400 entities were listed on the NERC registry as of April 2007.
Entities may register directly or regions and/or NERC may add to the list, Whiteley said. And others may “nominate those with material impact for registration,” he added. However, an entity may challenge any placement in the compliance registry. In order to have a real chance to success in the challenge, entities must “demonstrate they are not a bulk power system user, owner, or operator,” Whiteley said.
Four functional entities are allowed exceptions to the requirements: Load Serving Entities, Distribution Providers, Generator Owner/Operators, and Transmission Owners.
NERC is in the process of mandating Self-Certifications for entities that make up part of the electrical grid. NERC requires that entities self-certify if they are compliant with an individual or set of standards. It is critical to conduct your self-certification properly because doing so helps you immediately identify any gaps in your compliance program. Compliance auditor training was supposed to be completed before June 1 of this year.
This is a new and somewhat daunting situation for many companies involved in the electricity grid. While NERC is signaling that it will be patient with those who show a willingness to address issues and work with them as this transitions from a voluntary to mandatory program, the entities bear the ultimate responsibility for failing to comply.
As you work on Registration and Self-Certification, keep the following questions in mind:
Are you registered as the right entities? There is a whole category of organizations that is just now becoming aware of these entity classifications and they may not realize they should be registered and self-certified. In particular, he says many small and independent entities may not recognize that the compliance requirements have changed and that they may now be under their jurisdiction.
Do you know which standards are applicable based on your organization? A good rule of thumb here is to assess how much, if any, impact your operations have on the reliability of the grid. Bottom-line: the more a problem at your location would harm the grid’s operation, the closer regulators are going to look at your operation. NERC, like other federal regulatory agencies in other industries such as the Food & Drug Administration with drug and medical device companies, is employing a “risk-based” approach that essentially puts greater regulatory scrutiny on entities the more integral their participation is for the reliability of the electrical grid. You have to take a hard look at your business and define yourselves by what you do and how it might impact the grid.
Do you have a management system to document compliance with the applicable standards? Penalty mitigation can be applied if an organization has a good compliance management program in place. It is important to remember the RE audits will want a management and compliance management system in place. They will want documentation and retrievable evidence quickly to show you are working to comply.
Are you aware of the legal issues surrounding self-certification? Compliance penalties vary widely, but according to the guidelines found on the NERC website they can range from several thousand dollars to tens of thousands of dollars. More serious violations will of course draw more serious legal and financial penalties.
Do you have a process or tool to track potential areas of non compliance? If so, is this a tool you are confident about? Does your compliance program have clear lines of accountability and ownership? Does it have firm due dates? Tracking capabilities?
Conclusion
The rules have gone from voluntary to mandatory because the reliability of the electrical grid is of critical importance to the United States. If your company is involved in the electrical grid, it is time to determine if you need to register and self-certify with NERC’s new, and no longer voluntary, requirements.
Entities can control their own destiny to a large degree by taking a proactive, risk-based assessment approach to what they are doing well and what needs work when it comes to compliance.
COMMENT:
The rules have changed, but is the power sector structure the right one everywhere? The stakes would not be as high if structure were right, again, everywhere. Below is what I see emerging under the Electricity Without Price Controls (EWPC) paradigm:Transportation (transmission and distribution) should remain integrated or be reintegrated to manage physical long run (system adequacy) and short run (system security) properly - that is what I termed ultraqualiity transportation. By imposing NERC standards without proper power sector restructuring a lot of value destruction is bound to happen.
As demand will no longer be exogenous, physical systemic risk should be done with the proper mix of supply side resources and demand side resources. The November 2006 large blackout of Western Europe gave a great signal on the weaknesses of having transmission separated from distribution.
Under EWPC restructuring the essential entities are: system engineer (in charge of physical systemic risk), generation, transportation and retailing. The compliance of NERC standards will no fix the structural flaws remaining.
The above is not a position. Comments are invited, under the principle that "I am not my opinion," as part of an Ongoing Generative Dialogue to learn about what power sector market design and architecture is emerging. So far there are 15 energypulse.net articles on the red link.
Jose Antonio Vanderhorst-Silverio
7.25.07
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