Mandatory Electric Reliability Standards and Transmission Expansion

Suedeen G. KellyCommissioner

Federal Energy Regulatory Commission

The Canadian Institute Energy Group

Transmission Planning & Reliability

Toronto, CanadaJanuary 26, 2005

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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

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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?

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Lagging ElectricTransmission Investment

Half as much annual investment in 2000 as in 1975

Annual growth rates in Gen, Trans, Load

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

1989-2000

GEN TRANS LOAD

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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

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Joe McClellandDivision Director

Planning Group

Logistics & Security Group

OperationsGroup

FERC’s new Reliability Division

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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)

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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

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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

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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.

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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

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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.

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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.

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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

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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

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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

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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.