The Electric Reliability Organization: Getting from here to there. Public Release ERO Slippery Slope NERC Today Uphill Climb Gerry Cauley Director, Standards ERO Project Manager

Electric Reliability Organization Canada Alberta, British Columbia, Manitoba, Ontario, New Brunswick, Nova Scotia, Quebec, and Saskatchewan United States Federal Energy Regulatory Commission Mexico Comision Reguladora de Energia Reliability Standards Compliance Enforcement Electric Reliability Organization Regional Entities Other ERO Members Bulk Electric System Owners, Operators, Users

Strengths of ERO Model Partnership between government and private sector Industry expertise, experience, technical competence Government oversight to assure fairness, openness, due process, accountability Recognizes international character of grid Interests from U.S., Canada, Mexico Develop single acceptable ERO solution

U.S. Reliability Legislation One industry self-regulatory ERO FERC oversight Delegates authority to set and enforce mandatory standards to ERO ERO delegates authority to regional entities Standards apply to all owners, operators and users of bulk power system Independent governance FERC rule within 180 days (2/4/06) Additional details in FERC rule

ERO Is International Bilateral Electric Reliability Oversight Group principles and terms of reference ERO oversight in each Canadian province Enforcement of mandatory standards Consistency of enforcement actions Proportionate funding in Canada Coordination of ERO certification and regulatory actions with U.S. Plan to work with Federal-Provincial Task Force and each province

FERC NOPR – Key Issues NOPR mostly stays close to legislation and provides good framework for ERO Areas of interest: De-certification and civil penalties against ERO, regions and their directors Disclosure of alleged and ‘about to occur’ violations Standardization of regional delegation agreements and rules of procedure Limitations on regional standards Chain of accountability: FERC, ERO, regions FERC directives on standards Compliance personnel qualifications

ERO Transition Project FERC Rulemaking ERO Certification ERO Implementation Final ERO Rule Energy Policy Act 2005 Public Comment ERO Application ERO Rules of Procedure NERC Preparations Stakeholder Inputs Delegation Agreements Region Rules of Procedure Region Preparations

NERC Stakeholder Inputs Post Legislation Steering Committee Reports to Board of Trustees Consults stakeholders and members (regional reliability councils) Working groups Membership Funding Regional delegation Sanctions and penalties Standing committees Including SAC/CCC

ERO Transition Timetable 8/31/05 9/1/05 9/30/05 10/7/05 11/30/05 ~12/05 ~1/06 ~2/06 ~4/06 – 8/06 ~10/06 12/31/06 Project startup and organization NOPR issued Principles on key issues drafted NOPR response Rules of procedures drafted FERC rule issued FERC rehearing and final rule ERO and regional applications ERO certification ERO 2007 budget approved Transitional business cycle ends

ERO Governance Retain existing NERC independent board Add second Canadian trustee to exceed 12.5% NEL threshold Retain NERC identity Form new corporation prior to certification and merge into new corporation upon certification

ERO Membership (Team Assigned) Required members? Bulk electric system owners, operators and users? Voluntary members? Other stakeholders? Decision-making rights of members? Elect board, approve amendments to certificate and bylaws? Stakeholder representation and balance?

ERO Funding (Team Assigned) Who pays? Bulk electric system owners, operators, users? Based on NEL (at balancing area or load-serving entity)? Other members pay? Who collects funds – ERO? Regions? ERO must include plan in application Annual regulator approval of budget All entities subject to FERC jurisdiction must pay according to approved plan Transition funding through 2006 using existing budget process

ERO Reliability Standards Subject to FERC approval FERC may direct and remand standard FERC defers to ERO on technical expertise, but not on effect on competition Rebuttable presumption for Interconnections Approach: Maintain ANSI-accredited, open process File all approved standards with application Develop procedures for filing of standard, responding to remands, etc. Develop procedures for ERO approval of regional standards and differences

ERO Compliance Enforcement Delegated to regional entity by agreement Framework for penalties and sanctions (Team Assigned) Need consistency of process and penalties/sanctions among regions Compliance actions subject to FERC review - FERC may enforce directly Procedures for handling of alleged compliance violations Preserve existing disclosure guidelines

ERO Additional Functions Disturbance investigations Reliability coordinators Organization certification Personnel certification Readiness audits Critical infrastructure protection Training program accreditation Reliability support tools

Regional Entities (Team Assigned) Pro forma delegation agreement Execute individual agreements Include regional entity applications with ERO application Executed agreement Documentation of minimum qualifications and requirements of region met