The new initiative is intended to provide utility companies and grid operators with a model that will allow them to measure the capabilities and gaps in their cyber defense systems.   The model will be designed by a public/private partnership between the government and the industry through a series of workshops.  This partnership will also feature a pilot program to assess the model as it develops, test the initiative’s effectiveness, and to validate its final results.  

To view the Roadmap to Achieve Energy Delivery Systems Cybersecurity, click here.

To view the draft of the Cybersecurity Risk Management Process Guideline, click here.

1. The timeline to construct new generation and retrofit older units in response to the EPA’s air quality rules are comparable to the EPA’s currently proposed timelines;
2. The overall supply-demand balance for electric power in each region examined would be adequate under the new air quality rules, but further studies are necessary to examine local constraints; and
3. There are mechanisms in place to address reliability issues for specific plants or on a local basis.

DOE and EPA announced the release of the DOE report on a conference call with DOE’s Assistant Secretary for Policy and International Affairs, David Sandalow and EPA’s Air Chief, Gina McCarthy.  Sandalow spoke about the report itself, and he explained that the DOE report used a stricter air quality model than what is expected in the proposed rules.  He said that even with the stricter model, the report shows that grid reliability can be maintained under the new EPA rules.  McCarthy declared that EPA is now confident that the air quality rules can be implemented using the proposed timelines, and she said the rules are affordable and achievable while maintaining national reliability. 

During the conference call, Sandalow stated that the DOE report shows there will not be a compromise on ensuring resource adequacy by implementing the EPA rules.  In addition, there are many mechanisms in place that will allow the agency to address any issues that arise in the future.  Sandalow reminded the audience that as a last resort, DOE does have authority under section 202(c) of the Federal Power Act to order generators to run.  Sandalow and another DOE representative, Rick Duke, explained:

• DOE will work collaboratively with all stakeholders to address any reliability concerns;
• DOE used the NIMS model to create their report; and
• The North American Electric Reliability Corporation’s (“NERC”) report on reliability did not use realistic scenarios, and even in the NERC report, the outlook for the next few years is similar to the DOE report.

McCarthy spoke second, and she emphasized that the EPA rules are a matter of public health, and the public health costs require these air quality rules be put in place.  McCarthy mimicked Sandalow’s comments and said the following:

• The technology to be compliant under the EPA rules is available and affordable;
• Reliability has never been an issue for the EPA in the past forty years, and McCarthy is confident the “lights will stay on” under the new air quality regime;
• McCarthy said EPA can address individual issues as they arise;
• When asked about several Texas issues, McCarthy reiterated that the current proposed timelines are all reasonable, and Texas had notice that the state would be included in the rules.  Further, she stated that EPA will work with regions to address concerns without jeopardizing reliability;
• EPA has given states the opportunity to add a fourth year of compliance if necessary;
• In regards to a NERC report that questions reliability under the EPA rules, McCarthy made even stronger statements that NERC used faulty scenarios and based their report on some rules that are not even proposed;
• McCarthy said she hopes Cross State Air Pollution Rule (“CSAPR”) will be finalized in early 2012;
• McCarthy acknowledged there may be localized reliability concerns, but she said EPA will work with the Federal Energy Regulatory Commission (“FERC”), DOE and the local planning authorities to address those issues; and
• McCarthy would not speculate as to whether the utility industry would need more time or if an executive order from the President is needed to provide more time for compliance.

A link to the full DOE report is available here.

WAPA financed $161 million of the transmission project’s original $213 million in estimated costs, with $52 million contributed from other sources, including subordinated non-federal loans.  Repayment of the WAPA financing was to begin after the Montana-Alberta Tie-Line (“MATL”) project became operational and was generating revenue.  Unfortunately, because of issues causing delays and cost overruns, the project has been at a standstill since May, and is estimated to be two years behind schedule and $70 million over budget.   According to Friedman, WAPA “had not implemented the necessary safeguards to ensure its commitment of funding was optimally protected.”  WAPA had failed to set in place standard safeguards, such as an earned value management system and set-aside risk reserves, before funding the project and only moved to create safeguards after the project had suffered serious delays. 

In the event of a project failure, WAPA’s MATL project financing arrangement could cause WAPA, and ultimately U.S. taxpayers, to bear the burden of a defaulted loan.  This is a particularly significant concern because WAPA has already committed $25 million in developmental funding to a different, and potential $3 billion project—a project that could ultimately require an investment of $1.5 billion in Recovery Act borrowing authority.  As a result of this Management Alert, future projects will be required to set up a system to make federal monitoring easier and to set aside risk reserves for cost overruns.  The DOE also plans to create a monitoring system to ensure WAPA is appropriately managing Program funds going forward, and to create a mechanism by which it will receive direct and regular reporting from WAPA to the Deputy Secretary. 

 A copy of the Management Alert is available here.

The DOE loan guarantee program has faced heightened scrutiny in the wake of the bankruptcy of Solyndra, Inc., the first renewable energy company to receive a loan guarantee of this kind.  See September 23, 2011 edition of the WER.  The White House has refused to turn over all its internal communication concerning Solyndra, despite requests from the House Energy and Commerce Committee.  On November 3, 2011, the House Energy and Commerce Committee moved to issue a subpoena to William Daley, or appropriate custodian of records, and Bruce Reed, Chief of Staff to the Vice President, or appropriate custodian of records concerning the loan guarantee made to Solyndra, Inc. by the DOE.  The news of an independent analysis and the subpoena comes as another loan guarantee recipient, Beacon Power Corp. (“Beacon”), filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware on October 30, 2011.

Beacon is a flywheel energy storage system manufacturer that received a $43 million loan guarantee from the DOE, $2 million from the New York State Energy Research and Development Authority and a $5 million grant from the Commonwealth of Pennsylvania.  In an October 31, 2011 filing with the Securities and Exchange Commission, Beacon cited a poor economic and political investment climate as the cause for its bankruptcy filing.  Beacon, however, unlike Solyndra, could benefit from an influx of revenue in the wake of the Federal Energy Regulatory Commission’s (“FERC” or the “Commission”) recent ruling concerning frequency regulation service. See October 31, 2011 edition of the WER.  Additionally, Beacon plans to reorganize and could regain its solvency due to FERC’s recent order. 

A copy of Beacon’s SEC filing is available here.

A copy of the subpoena is available here.

Recently, the DOE was considering whether to delegate its section 216 authority to FERC in an effort to expedite transmission projects.  This past July and August, a proposal to delegate authority to FERC was presented to a stakeholder group in order to provide comments to Secretary Chu.  The proposal was intended to allow for a more “efficient, directed process” for siting interstate transmission projects.  Many state public utility commissions and other parties filed comments, some expressing concern over the proposed delegation of authority to FERC.  Ultimately, Secretary Chu declined to delegate its authority, however, Secretary Chu and FERC Chairman Jon Wellinghoff announced that their two agencies will begin work on the following projects:

1.  Transmission congestion studies mandated by Congress;
2. Supplements to those congestion studies based on, among other things, the  transmission plans prepared pursuant to Orders 890 and 1000; and
3. The environmental analyses for any proposed NIETCs.

 A copy of the joint DOE and FERC announcement is available here.

A copy of the FERC Staff Preliminary and Conceptual Transmission Siting Proposal is available here.