Mandatory Electric Reliability Standards and Transmission Expansion Suedeen G. Kelly Commissioner Federal Energy Regulatory Commission The Canadian Institute Energy Group Transmission Planning & Reliability Toronto, Canada January 26, 2005

2 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

3 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?

5 Lagging Electric Transmission Investment Half as much annual investment in 2000 as in 1975 Annual growth rates in Gen, Trans, Load

6 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

7 Operations Group FERC’s new Reliability Division

8 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)

9 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

10 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

11 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.

12 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

13 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.

14 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.

15 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

16 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

17 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

18 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.