What is an Adequate Level of Reliability?

NERC recently closed comments on its revised definition of an adequate level of reliability. I’m confused, though. Doesn’t section 215 of the Federal Power Act already state that reliability standards are “to provide for reliable operation of the bulk-power system,” where “’reliable operation’ means operating the elements of the bulk-power system… so that instability, uncontrolled separation, or cascading failures of such system will not occur?” It’s certainly what my managers at FERC used to think—that there couldn’t be a transmission event without someone having violated a standard!

In contrast, some Australians are starting to wonder if they’re paying to much for power supply more reliable than necessary. And at home in the United States, one Wall Street Journal columnist suggests that we should do a better job of preparing for blackouts, since we’ll never eliminate them.

And about that adequate level of reliability definition [PDF]… All they’ve managed to come up with is four pages of circular logic—the state the bulk electric system will achieve when standards are followed. Sheesh!

Cybersecurity and the Aftermath of the 2003 Blackout: An Alternate History

Do you think of NERC as big brother and the reliability standards as micromanaging your business. Imagine, if you will, something really sinister. Imagine a response to the blackout that included the takeover and centralized control of all transmission and distribution networks, as well as other infrastructure systems.

That is what Ubisoft has imagined in the company’s upcoming video game, Watch Dogs. Check it out:

5 Tips for Surviving a NERC Audit with Your Sanity Intact

Fear, uncertainty, and doubt—nearly 5 years into mandatory electric reliability standards and there’s still plenty of it to go around. Some people seem to want it that way. But with regard to compliance audits, it’s just not necessary. I’ve been through a few. Follow these five tips and you too can come out the other end of a NERC audit calm, cool, and collected.

1. Ignore the audit

Perhaps that’s a bit of an exaggeration, but the point is that the audit should not be your focus. Put your attention on reliable operations. Be diligent at maintaining compliance. Keep proper documentation always. If you’re doing what you’re supposed to be doing all along, then the audit becomes no big deal.

2. Remember, it’s just an audit

Uncertainty and doubt breed fear. “What if we can’t find all the maintenance records in time?” “What if the auditor disagrees with our interpretation of that standard?”

Relax! It’s just an audit. The worst thing that can happen is the audit team issues findings of possible violations. You still have time to address those during the enforcement process before they become official alleged violations. After that, you can contest a violation and request a hearing. And you even have an opportunity to appeal a notice of penalty to FERC.

I’m not saying the audit is meaningless, just keep it in perspective. It’s the first step in an enforcement process with multiple opportunities to demonstrate compliance. Documents that take time to locate can be submitted later. Interpretations of standards can be argued at hearing.

3. Complain

Auditors asking for confidential records or showing up at your door (sometimes even with FERC representatives in the group) can be very intimidating. Don’t be afraid, though. Speak up! NERC and regional entity auditors aren’t always right and, in my experience, they usually could do a better job of explaining why they’re asking for something. Now, be careful about refusing to answer a question or provide a requested document. However, don’t hesitate to ask an auditor the basis for his or her request if it seems to imply an assumption or interpretation with which you disagree. At NERC’s recent seminar on audits, Michael Moon, Director of Compliance Operations, said, “This is not a gotcha game. It’s an open book test.” Throughout the seminar, the presenters also encouraged entities to ask questions of their auditors and provide feedback on the audit experience.

4. Shut up

While you should not hesitate to speak up for yourself during an audit, in general, I counsel people to be quiet. With nerves on edge and outsiders questioning one’s work product, there’s a natural tendency to talk—to explain, to justify, to relate interesting stories. This is even more the case when auditors, as they are trained to do, refrain from the personal smalltalk common in business meetings.

Don’t. An audit is not a typical business meeting. You and the auditors are not on the same team. These people are there to determine if you are being compliant with the reliability standards. Answer their questions. But stick to the facts.

5. Do what you say, say what you do

This is both the easiest thing to get wrong and the easiest thing to get right. A number of NERC standards require entities to develop procedures and then follow them. Examples of this include vegetation management plans, maintenance intervals, emergency operations plans, and facility ratings. But besides some general guidelines or limited criteria, the exact procedures or policies are left up to the entities themselves. What could be easier than writing your own standards?

Unfortunately it seems that many entities take this flexibility further than it was intended. They seem to think that because they get to write the procedures themselves, their practices can vary from the procedures if “within reason” or “for the purpose of maintaining reliability.”

Similarly, for many standards a specific procedure document isn’t required, yet an entity may have one for its own reasons. In such a case, there appears even less need to follow the procedure exactly.

Not true! With all due respect to the technical expertise of the engineers and technicians, you need to understand that what we’re dealing with are federal regulations. To be compliant, you must follow the standard exactly as written. If the standard says that you must write a procedure and then implement it, then that is what you must do. Sure, you could have written the procedure differently, but you didn’t. On the other hand, if what you’re doing is better, then change the procedure to match. Even if a procedure document wasn’t required, inconsistencies may lead auditors to question compliance in practice. Don’t let that happen.

FERC Interference With Reliability Standards Development

Last week, FERC held a technical conference on reliability policy. The main topic of conversation was the Environmental Protection Agency’s pending regulations on power plant emissions, which most panelists asserted could have a significant negative effect on electric power supply reliability. Some argued that the EPA should institute a blanket delay in implementing the regulations, some that the President should exercise his authority to grant an extension to all generators nationwide. Personally, I’d side with some of the other panelists, who suggested that if shutting down (either permanently or temporarily) any particular power plant would lead to a reliability problem, then the EPA, President, DOE, or FERC could certainly explore the possibility of granting that plant (and only that plant) an extension of time to comply.

But that’s not what I wanted to address with you today. That topic was covered thoroughly throughout the media. And further, FERC’s jurisdiction does not extend to generation resource adequacy, thus in my mind calling in to question why this issue would be addressed in a FERC conference on reliability policy.

Rather, I wanted to discuss an issue raised on the first day of the conference—an issue related to bulk-power-system reliability standards.

During the second panel, as part on a discussion of FERC intrusion in to the standards development process, Gerry Cauley, President of NERC, complained about FERC staff participation. He explained that FERC staff only partially participate in standards development, making occasional comments and complicating the discussion, but refusing to contribute specific proposals or commit support to a particular point-of-view on behalf of the commission. He said that FERC staff should either be “into or out of the tent.”

I spoke to FERC staff after the panel and know they took this comment seriously. However, resolving it is not a simple matter.

See, one possibility is for staff to “step into the tent.” This they’d be happy to do. But staff aren’t the decision-makers. That authority rests with the commission. And FERC attorneys regularly advise engineering staff not to speak on behalf of the commission, or commit to a specific result.

FERC staff could “step out” and allow the stakeholder-led process to go where it may. But that too seems unlikely. FERC’s Division of Reliability Standards has a staff of around 20 people dedicated to standards development and approval (not including CIP standards, for which there are additional staff in a separate division). The director of the Office of Electric Reliability also relies heavily on one particular senior staff member and one consultant, neither of whom hesitate to put their opinions ahead of those of NERC or other stakeholders.

An alternative is for the commission to make the Division of Reliability Standards non-decisional and reassign it to the Office of Administrative Litigation. No longer part of the team advising the commission on the approval of standards, these staff would then be free to participate fully in standards development without undermining the authority of the commission. I don’t know whether this would resolve the situation to Mr. Cauley’s satisfaction, but it would allow the commission to feel that it is still involved in the process—contributing rather than interfering.

FERC’s 3 Lessons for NERC Reliability Standards Compliance

On March 17th, the Federal Energy Regulatory Commission (FERC) approved an $80,000 settlement between NERC, WECC, and Turlock Irrigation District for the violation of electric reliability standards (order [DOC]). In several previous cases, FERC had requested additional information from NERC. However, this is the first and only case in which FERC chose to proceed with an actual review of a notice of penalty.

What can we learn about the Commission’s views on reliability compliance from a read-through of its decision?

1. Load Shedding and Harm Are Factors in Assessing the Severity of a Violation

There has been some debate as to whether or not loss of load should be considered an aggravating factor in the assessment of a reliability standard violation. The concern is that load shedding is an essential tool for protecting the grid from cascading failures. In fact, load shedding may be required by the reliability standards. System operators shouldn’t be discouraged from acting to contain an emergency because of a concern that their actions will result in larger penalties. Thus, the Commission states:

Moreover, an underlying violation may require an operator to shed load to comply with a Reliability Standard to protect customers from a larger, possibly cascading outage. In such a situation, the operator’s decision to shed load pursuant to the Reliability Standard is not itself a violation and the Commission would not approve or assess a penalty for that decision.

However, the Commission also makes it very clear that a failure to serve customer load is an important measure of the seriousness of a violation.

A loss of load caused by a violation of a Reliability Standard results in harm that is unnecessary and avoidable.

Therefore, when considering an appropriate penalty for a violation, the Commission declares that loss of load should be a factor.

In order to set penalties at an appropriate level, we will consider the quantity of load lost in our analysis of the harm when it occurs, based on the particulars of the load lost resulting from a violation.

2. Self-reporting Should Be Strictly Interpreted

Self-reporting a reliability standard violation is normally grounds for special consideration in the assessment of penalties. What, though, counts as a self-report? Several standards explicitly require companies to notify regional entities about certain events. In such situations, a report is required anyway. In some cases, auditors have allowed companies being audited to file self-reports when violations were discovered (before the audit report was turned in).

In this order, the Commission soundly rejects Turlock’s assertion that it had self-reported an FAC-003 violation. The Commission distinguishes between cooperation and self-reporting, explaining that submitting a report required by a standard does not justify the credit accorded self-reports.

3. Human Error Is No Excuse

The professor of my Human Factors class in college used to say that there is no such thing as human error. Obviously, people make mistakes. What he meant was that you should expect people to make mistakes and design machines and systems to accommodate them.

The Commission makes a similar point in the Turlock order and rejects human error as a mitigating factor in reliability standards violations.

Whether or not these occurrences resulted from human error is not relevant to our consideration of this matter… language translator The possibility of a significant monetary penalty for a violation of a Reliability Standard resulting from human error that adversely affects the BPS provides an incentive for registered entities to create and implement robust training and compliance programs and procedures to make human errors less likely.  Merely because a violation resulted from human error, however, does not by itself warrant reduction of a penalty.

One More Thing…

We can see in this decision hints of the dysfunctional relationship that exists between FERC and NERC. FERC will intervene in the compliance process but finds it difficult to contradict NERC on enforcement.

Regulated entities should understand that FERC is an active participant in the compliance monitoring process. While preparing to respond to the regional entity or NERC during an audit or investigation, companies should remember that there’s also another agency that’s very much involved in the decision-making.

FERC staff work closely with NERC investigators on nearly every case and can have a strong influence on the results. In this order, the Commission approved the settlement but also directed WECC to spot-check Turlock’s performance of several specific standards. During investigations, FERC staff, though they don’t have the authority to order NERC, will similarly raise issues, ask questions, and recommend findings.

However, while FERC is wont to intervene during the investigation stage, when it comes down to the final decision regarding what violations to declare and what penalties to assess, the agency hasn’t demonstrated the willpower to overrule NERC.

This case is the one-and-only review initiated by the Commission for notices of penalty covering 1,872 reliability standard violations. Not a record that suggests a strong position on oversight (unless, that is, you think that NERC and the regional entities did a good job on all 1,800+ violations). Further, NERC filed the notice of penalty on November 13, 2009 and the Commission initiated its review on February 26, 2010, so this decision took more than a year to issue! Finally, the language of the order is pretty clear that the Commission would rather have seen a larger penalty, yet it approved the settlement and justified the action with an acknowledgment that the violation occurred during the early start-up period of mandatory standards.

This article was last edited on June 23, 2011.