1. ERCOT Compliance Audits Robert Potts Sr. Reliability Analyst March 23, 2005

2. NERC Standards NERC Operating Standards NERC Operating Standards NERC Planning Standards NERC Planning Standards

3. NERC Operating Standards P4T2-System Coordination/Operational Security Information. P4T2-System Coordination/Operational Security Information. P4T4 Coordination and Reporting of Scheduled Outages P4T4 Coordination and Reporting of Scheduled Outages P5T1 Implementation of Capacity and Energy Emergency Plans and Coordination with other systems. P5T1 Implementation of Capacity and Energy Emergency Plans and Coordination with other systems. P6T1 Emergency Operations/ Preparation of capacity and Energy Emergency Plans P6T1 Emergency Operations/ Preparation of capacity and Energy Emergency Plans P6T2 Emergency Operations/ Preparation of Restoration Plans P6T2 Emergency Operations/ Preparation of Restoration Plans P6T3 Emergency Operations/ Loss of Primary Controlling Facility P6T3 Emergency Operations/ Loss of Primary Controlling Facility P8T3 Operator Personnel and Training/ Training Program P8T3 Operator Personnel and Training/ Training Program Vegetation Management (Transmission Operations) Vegetation Management (Transmission Operations)

4. NERC Planning Standards for TDSP Participants IAM1 Simulated system performance under normal (no contingency) conditions IAM1 Simulated system performance under normal (no contingency) conditions IAM2 Simulated system performance following the loss of a single bulk system element IAM2 Simulated system performance following the loss of a single bulk system element IAM3 Simulated system performance following loss of two or more bulk system elements IAM3 Simulated system performance following loss of two or more bulk system elements IAM4 Simulated system performance following extreme events resulting in the loss of two or more bulk system elements IAM4 Simulated system performance following extreme events resulting in the loss of two or more bulk system elements IICM1 Methodology(ies) for determining electrical facility ratings IICM1 Methodology(ies) for determining electrical facility ratings IIIAM4 Documentation and implementation of Transmission protection system maintenance and testing IIIAM4 Documentation and implementation of Transmission protection system maintenance and testing IIIAM5 Analysis and reporting of Transmission protection misoperations IIIAM5 Analysis and reporting of Transmission protection misoperations

5. NERC Planning Standards for TDSP Participants (Cont.) IIIDM2 UFLS programs with Regional UFLS requirements IIIDM2 UFLS programs with Regional UFLS requirements IIIDM3 Implementation and documentation of UFLS equipment maintenance program IIIDM3 Implementation and documentation of UFLS equipment maintenance program IIIEM3 Technical assessment of the design and effectiveness of the UVLS programs IIIEM3 Technical assessment of the design and effectiveness of the UVLS programs IIIEM4 Under voltage load shedding system maintenance and testing IIIEM4 Under voltage load shedding system maintenance and testing IIIEM5 Analysis and documentation of UVLS program performance IIIEM5 Analysis and documentation of UVLS program performance IIIFM5 Notification and analysis of SPS misoperation and corrective action plans IIIFM5 Notification and analysis of SPS misoperation and corrective action plans IIIFM6 Special Protection System maintenance and testing IIIFM6 Special Protection System maintenance and testing

6. ERCOT Requirements There are the ERCOT Protocols and ERCOT Guides that incorporate the NERC Standards, but also “specialize” the needs of ERCOT as an Operating Entity.

7. Are You Compliant? ERCOT Operating Guides and Protocols spell out the requirements that ERCOT QSE and Transmission Operator Participants must adhere to. ERCOT Operating Guides and Protocols spell out the requirements that ERCOT QSE and Transmission Operator Participants must adhere to. Participants are to be compliant with these from the time they register. Participants are to be compliant with these from the time they register. ERCOT Compliance Audits are a means for ERCOT to assess whether Participants and ERCOT itself are compliant with the Protocols and Operating Guides. ERCOT Compliance Audits are a means for ERCOT to assess whether Participants and ERCOT itself are compliant with the Protocols and Operating Guides.

8. QSE Audit Questions There are a series of questions in the audit that are derived from ERCOT Protocol and Guide References. There are a series of questions in the audit that are derived from ERCOT Protocol and Guide References. These questions are designed to help Compliance determine if QSE Participants are operating within the requirements of these documents. These questions are designed to help Compliance determine if QSE Participants are operating within the requirements of these documents. Guide and Protocol requirements are not new! Guide and Protocol requirements are not new!

9. Transmission Operator Audits Questions here are geared to Transmission requirements set forth in the ERCOT Operating Guides and Protocols. Questions here are geared to Transmission requirements set forth in the ERCOT Operating Guides and Protocols. Questions are geared to help Compliance assess if requirements are being followed. Questions are geared to help Compliance assess if requirements are being followed. The ERCOT Operating Guide and Protocol Requirements are not new! The ERCOT Operating Guide and Protocol Requirements are not new!

10. How Do Audits Work? ERCOT Compliance will send the questionnaire to the Participant. ERCOT Compliance will send the questionnaire to the Participant. The Participant will have one month to answer the questions and return them to Compliance. The Participant will have one month to answer the questions and return them to Compliance. Compliance will review the answers and arrange a date to do a site visit to discuss questions with management and operations staff. Compliance will review the answers and arrange a date to do a site visit to discuss questions with management and operations staff.

11. What Happens Next? Compliance issues a report consisting of findings that were identified at the audit and shares this with the Participant. Compliance issues a report consisting of findings that were identified at the audit and shares this with the Participant. Non-Compliance items will be addressed and posted on the Compliance Web site. Non-Compliance items will be addressed and posted on the Compliance Web site. Depending on the seriousness of the violation, different levels of non- compliance will be initiated. Depending on the seriousness of the violation, different levels of non- compliance will be initiated.

12. What is the end result? Participants will be aware if they are not compliant. Participants will be aware if they are not compliant. Participants will provide corrective actions for non-compliance issues. Participants will provide corrective actions for non-compliance issues. Compliance will do follow up on suggestions made and corrective action plans of Participants. Compliance will do follow up on suggestions made and corrective action plans of Participants.

13. How Often are Audits Conducted? ERCOT Compliance will conduct Audits on a three year cycle or at any time deemed necessary. ERCOT Compliance will conduct Audits on a three year cycle or at any time deemed necessary.

14. Audits ERCOT Compliance will audit ERCOT Operations in August of this year ERCOT Compliance will audit ERCOT Operations in August of this year ERCOT Operations will be audited by NERC in October of this year. ERCOT Operations will be audited by NERC in October of this year. There are some self certification documents that are sent out from NERC to ERCOT. There are some self certification documents that are sent out from NERC to ERCOT. There are some Self Certification Documents sent from ERCOT to the Participants as a part of the Compliance process. There are some Self Certification Documents sent from ERCOT to the Participants as a part of the Compliance process.

15. Investigations What triggers an investigation? What triggers an investigation? Who performs an investigation? Who performs an investigation? What is the process? What is the process? What is the outcome? What is the outcome?

16. Types of Investigations Incident Investigation Incident Investigation 1. Usually initiated by ERCOT Operations. 1. Usually initiated by ERCOT Operations. 2. Can be initiated from findings by 2. Can be initiated from findings by ERCOT Compliance. ERCOT Compliance. Event Investigations Event Investigations These are investigations that are triggered by an event in the ERCOT System. These are investigations that are triggered by an event in the ERCOT System.

17. Incident Trigger ERCOT Operations flags a possible Protocol Violation that can not be resolved between Operations and the Participant. ERCOT Operations flags a possible Protocol Violation that can not be resolved between Operations and the Participant. The Possible Protocol violation is escalated from Operations to Compliance. The Possible Protocol violation is escalated from Operations to Compliance. ERCOT Compliance finds Protocol Violations through other means. Audits, Spot Checks, Self Certification… ERCOT Compliance finds Protocol Violations through other means. Audits, Spot Checks, Self Certification…

18. Who performs investigations? ERCOT Operations Support sometimes does preliminary investigations. ERCOT Operations Support sometimes does preliminary investigations. ERCOT Compliance does most follow up investigations. ERCOT Compliance does most follow up investigations. ERCOT Compliance weighs all evidence in an investigation. ERCOT Compliance weighs all evidence in an investigation. The investigation can lead to Compliance finding ERCOT Operations non-compliant. The investigation can lead to Compliance finding ERCOT Operations non-compliant.

19. Incident Investigations What is the Process? ERCOT Operations identifies a possible Protocol or Operating Guide Violation. ERCOT Operations identifies a possible Protocol or Operating Guide Violation. They try to work out the problem with the Participant. They try to work out the problem with the Participant. If they can not, an Incident Report is written up by the Shift Supervisor and sent to the Chief System Operator. If they can not, an Incident Report is written up by the Shift Supervisor and sent to the Chief System Operator. The CSO reviews the incident and decides whether or not to send to the Participant. The CSO reviews the incident and decides whether or not to send to the Participant.

20. Process (cont.) Once the letter is sent to the Participant, they have 5 business days to respond. (The letter is copied to ERCOT Compliance and the PUCT as well). Once the letter is sent to the Participant, they have 5 business days to respond. (The letter is copied to ERCOT Compliance and the PUCT as well). They must respond with a corrective action plan that will remedy the problem and give a time line as to when the action will be taken. They must respond with a corrective action plan that will remedy the problem and give a time line as to when the action will be taken. The Response may indicate that the Participant does not feel that an infraction occurred. The Response may indicate that the Participant does not feel that an infraction occurred. If the response is not satisfactory, the CSO escalates the matter to ERCOT Compliance. If the response is not satisfactory, the CSO escalates the matter to ERCOT Compliance.

21. Process (cont.) ERCOT Compliance will then initiate an investigation that will include information gained from ERCOT Operations and the Participant. ERCOT Compliance will then initiate an investigation that will include information gained from ERCOT Operations and the Participant. Compliance will determine if there was a Protocol Violation and take steps with either the Participant and/or ERCOT Operations to address the situation. Compliance will determine if there was a Protocol Violation and take steps with either the Participant and/or ERCOT Operations to address the situation.

22. Process (continued) The results of the investigation will be filed and the infraction will be handled in the appropriate manner. The results of the investigation will be filed and the infraction will be handled in the appropriate manner. Lane Robinson will speak on the consequences in a few moments. Lane Robinson will speak on the consequences in a few moments.

23. Event Investigations What is the process? Event investigations are triggered by any number of significant events that can occur within the ERCOT System. These events are as follows: These events are as follows: EECP implementation EECP implementation Emergency Notice issued Emergency Notice issued SPS Activation SPS Activation

24. Significant Event Triggers Continued Simultaneous loss of any combination of three generating units, transmission lines, and autotransformers (138KV and above). Simultaneous loss of any combination of three generating units, transmission lines, and autotransformers (138KV and above). RAP implementation requiring load shedding. RAP implementation requiring load shedding. Sustained voltage deviations greater than 5% on the 345KV system. Sustained voltage deviations greater than 5% on the 345KV system.

25. Significant Event Triggers Continued Under Frequency relay operations (or frequency deviations greater than.7 Hz from scheduled frequency. Under Frequency relay operations (or frequency deviations greater than.7 Hz from scheduled frequency. First contingency security violations for significant transmission elements (list of elements to be defined). First contingency security violations for significant transmission elements (list of elements to be defined). Failure of computer systems at ERCOT, the QSE or TO. Failure of computer systems at ERCOT, the QSE or TO.

26. Significant Event Triggers continued Voltage collapse on portions of the 138KV or 345KV system. Voltage collapse on portions of the 138KV or 345KV system. Loss of an ERCOT, QSE, or ERCOT TO control center. Loss of an ERCOT, QSE, or ERCOT TO control center. Black Start Plan initiation. Black Start Plan initiation. Uncontrollable loss of 150MW or more of firm load, shed for more than 15 minutes from a single incident. Uncontrollable loss of 150MW or more of firm load, shed for more than 15 minutes from a single incident.

27. Significant Event Triggers continued Any event determined by the ROS to be significant. Any event determined by the ROS to be significant.

28. Process for Significant Event Investigation ERCOT Operations will notify Compliance of a significant event. ERCOT Operations will notify Compliance of a significant event. ERCOT Compliance will investigate to find the root cause using information from ERCOT Operations and the Market Participants. ERCOT Compliance will investigate to find the root cause using information from ERCOT Operations and the Market Participants. Reports by ERCOT Operations or Participants should be back to Compliance and completed within 60 days. Reports by ERCOT Operations or Participants should be back to Compliance and completed within 60 days.

29. Significant Event Process Continued ERCOT Compliance will follow up with ERCOT Operations, the Market Participants or both on corrective action plans or other solutions. ERCOT Compliance will follow up with ERCOT Operations, the Market Participants or both on corrective action plans or other solutions. Investigations of this sort may or may not lead to compliance issues. Investigations of this sort may or may not lead to compliance issues. Compliance will file and post the report when it has been closed. Compliance will file and post the report when it has been closed.

30. Bottom Line We are in this together We are in this together Compliance is determined to make sure that all Participants and ERCOT follow the rules contained in the NERC, ERCOT Protocols and ERCOT Guides. Compliance is determined to make sure that all Participants and ERCOT follow the rules contained in the NERC, ERCOT Protocols and ERCOT Guides. The System must be RELIABLE! The System must be RELIABLE! That is the bottom line! That is the bottom line!