Structuring and Implementing a Truly International ERO Kevin Kelly Director, Policy Analysis and Rulemaking Office of Markets, Tariffs and Rates Federal Energy Regulatory Commission Canadian Electricity Association Reliability Workshop Washington, D.C. October 20, 2004 The authors views do not necessarily represent the views of the Federal Energy Regulatory Commission.

2 International ERO Legislation directs the President to work with Canada and Mexico Legislation directs the President to work with Canada and Mexico FERC and DOE have been consulting with Canada frequently for years about working together on implementing the new law. FERC and DOE have been consulting with Canada frequently for years about working together on implementing the new law. This Spring: Binational ERO Working Group began identifying ERO issues This Spring: Binational ERO Working Group began identifying ERO issues U.S. is committed to a cooperative effort U.S. is committed to a cooperative effort

3 After legislation passes FERC issues a proposed rule implementing the legislation FERC issues a proposed rule implementing the legislation Rulemaking process must follow the Administrative Procedures Act: notice & comment; decisions based on the record Rulemaking process must follow the Administrative Procedures Act: notice & comment; decisions based on the record Ex parte does not apply; no prejudgment Ex parte does not apply; no prejudgment Issue final rule within 180 days – a tight deadline Issue final rule within 180 days – a tight deadline

4 After the final rule issues One (or more – unlikely) parties may apply to FERC to be the ERO in the U.S. 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. FERC selects and certifies one ERO for the U.S. The ERO then pursues recognition in Canada and Mexico, according to the law. 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. Canada and Mexico may choose to have a similar or different process.

5 Our Governments Common Goal The ERO must be an advocate for excellence in North American reliability. The ERO must be an advocate for excellence in North American reliability. Reliability standards should be more than the least common denominator of the current practices of todays grid operators. Reliability standards should be more than the least common denominator of the current practices of todays grid operators. Our September conference on what NERC learned from its audits shows that some 2/3 of grid operators have room for significant improvement. Our September conference on what NERC learned from its audits shows that some 2/3 of grid operators have room for significant improvement.

6 Which policies to include in the rulemaking? At minimum, the rule must establish procedures for ERO application and criteria for ERO certification. At minimum, the rule must establish procedures for ERO application and criteria for ERO certification. Adding other issues has a pro and a con: Adding other issues has a pro and a con: Pro: simplifies ERO stakeholder negotiations Pro: simplifies ERO stakeholder negotiations Con: extends a process with a tight deadline Con: extends a process with a tight deadline Preferred: NERC stakeholders address these issues in advance of legislation. Preferred: NERC stakeholders address these issues in advance of legislation.

7 Examples of other possible ERO rulemaking issues Should the rule provide the answers, should the ERO develop answers as it develops its ERO application, should the issues be addressed after the ERO is certified, or should NERC address issues in advance of legislation? Relation of the ERO to regional entities Relation of the ERO to regional entities ERO funding ERO funding Regional entity funding Regional entity funding Standard-setting process – excellence Standard-setting process – excellence Note: NERC is addressing the first two issues.

8 Insert RTO map here

9 Canadian Input to the Process There are at least two approaches to Canadian government input to these ERO issues: 1. The international ERO uses an international stakeholder process to develop answers to propose to all the governments: U.S., Canada, Mexico. 2. The governments consult to discuss issues and preferred ERO policies. Use the better approach for each issue: e.g., funding versus coordinating enforcement versus coordinating multiple Canadian jurisdictions

10 Binational ERO Working Group Formed in the early Spring 2004 by Canadian Federal-Provincial task force, DOE, and FERC. Formed in the early Spring 2004 by Canadian Federal-Provincial task force, DOE, and FERC. Government staff from NRCan, Provincial Regulators, DOE, FERC. Government staff from NRCan, Provincial Regulators, DOE, FERC. Identifying issues and possible solutions Identifying issues and possible solutions Have not yet involved principals Have not yet involved principals Mexico to be included later Mexico to be included later

11 Examples of Issues ERO Mandate ERO Mandate ERO Independence ERO Independence ERO as an International Organization ERO as an International Organization Standards Development Process Standards Development Process Certification of ERO Certification of ERO Regulatory Review/Approval of Standards Regulatory Review/Approval of Standards Enforcement of Standards Enforcement of Standards Intergovernmental Cooperation Intergovernmental Cooperation Other Issues: roles of regions & members Other Issues: roles of regions & members