In July 2009, NERC and DOE formed a steering committee and held a two-day workshop in November 2009.  The HILF report summarizes the findings and proposals that were discussed in the workshop.  The workshop focused primarily on the risks of a: 1) Coordinated Cyber/Physical Attack; 2) Pandemic Illness; and 3) Geomagnetic Disturbance/Electromagnetic Pulse (“GMD/EMP”).  The workshop attendees included representatives from the Department of Defense, Department of Homeland Security (“DHS”), Federal Energy Regulatory Commission (“FERC”), congressional staff, and Department of Health and Human Services (“HHS”).

A cyber, physical, or blended attack on the bulk power system is described in the HILF report as one that would target multiple nodes on the grid in order to take down the security provided by traditional operation and planning.  An attacker would be able to manipulate assets and provide false data to system operators attempting to remedy any system disruption.  The report details nine proposals for action in an effort to prepare for a coordinated attack:

1. A recommendation for more coordination and streamlined communication between DOE, DHS, and Canadian authorities;
2. A recommendation that NERC direct its technical committees to formalize the process for evaluating and protecting the bulk power system from attacks;
3. A proposal that NERC, DOE, and Canada work together to improve/create a spare equipment procurement effort and a consideration to re-launch the NERC Spare Equipment Database;
4. A recommendation that NERC create a task force to develop analytical tools and models  to predict different scenarios under a potential attack;
5. A proposal for NERC to direct its committees to develop operator training to handle physical or cyber attacks;
6. A proposal for NERC to coordinate with other agencies and Canada in an effort to create a lexicon to communicate during an attack;
7. A recommendation that NERC, DOE, and Canada develop a technology/software equipped with forensic and adaptive security controls to mitigate cyber attacks;
8. A recommendation to continue and expand education programs that train students on the planning, design, and operation of the bulk power system; and
9. A recommendation that DOE and Canada continue efforts to evaluate the supply chain for high impact system components.

A pandemic risk is described in the HILF report as a threat to the critical personnel that operate the system.  Without the critical personnel, inexperienced and lesser-qualified individuals would have to operate plants, address outages or mechanical failures, and operate the system.  During the 2009 A/H1N1 flu outbreak, the industry experienced a mild pandemic, and the electric sector is at the mercy of government health authorities regarding the spread and severity of the pandemic.   Thus, the report calls for clear triggers to the electric sector to make preparations for an outbreak.  The report also calls for the following actions:

1. The electric sector should incorporate into their business plans a section on lessons learned from the 2009 flu outbreak;
2. HHS and Canada should improve their timeliness, granularity, and quality of metrics used to report a pandemic;
3. NERC and DOE should work with HHS to ensure critical employees are given priority for vaccines;
4. NERC, DOE, and Canada should identify information needed to monitor workforce levels during an outbreak; and
5. NERC should work with FERC and state regulators to relax penalties during an outbreak.

The HILF report also states that geomagnetic disturbances, or the earthly effect of solar weather, are becoming a growing threat to the bulk power system.  A geomagnetic current has the power to cause irreparable damage to large transformers and the widespread tripping of major transmission lines.  In addition, the use of a nuclear weapon or other type of electromagnetic pulse weapon could result in prolonged outages due to the damage to certain system components that are not readily available.  The HILF report called for the following to prepare for a GMD/EMP risk:

1. NERC, DOE, and agencies in Canada should create a task force to evaluate and prioritize mitigation and restoration option in the case of a GMD/EMP event;
2. Another proposal asks for an executive order to give weight to addressing GMD/EMP events;
3. The creation of intergovernmental roadmap for long-term research, development, and deployment of mitigation options for GMD/EMP threats;
4. NERC, FERC, DOE, DHS, and other agencies should work to develop methods for giving system operators region-specific, timely, and accurate information on a geomagnetic disturbance; and
5. DOE, DHS, and Canada should work together to create an alert procedure that includes threat levels and an impending attack.

A copy of the full HILF report is available at http://www.nerc.com/files/HILF.pdf.

FERC Staff reported that forecasted 2010 demand is comparable to last summer’s actual demand.  Staff also reported that wind capacity for this summer is expected to increase nearly seven gigawatts since last summer, bringing the total nameplate wind capacity to 34 gigawatts. 

Along with lower overall expected demand, the report also found that changes in natural gas markets are affecting forward power prices in the electric markets this summer.  The FERC report stated that May 1, 2010 prices compared to May 1, 2009 are mixed, depending on the region.  Electric prices in the West were higher, but about the same in the East.  As of the same date, July and August forward electricity prices were 38 percent higher in the Northwest and 1 percent higher in PJM.  FERC said that the higher Northwest prices are a consequence of lower hydro-electric generation in that region.
 
NERC Summer Reliability Assessment Report

On May 26, 2010, NERC released its comprehensive “Summer 2010 Assessment” report.  The NERC report predicts an overall 2.2 percent reduction in forecasted summer peak demand from 2009 levels.  In addition, NERC reported that the total available capacity will be 7,500 MW, or 0.7 percent, higher than last summer.  NERC expects this to result in overall reserve power supplies in the U.S. and Canada of 28.6 percent over projected peak Summer 2010 demand.  This is 3.2 percent higher than reserve levels in 2009 and 7.9 higher than those in 2008.

Additionally, NERC reported that wind generation is increasing and demand response continues to be available for emergency procedures and to offset peak demand when needed.  However, demand response participation has dropped for the first time in four years, and NERC attributes this to the higher reserve margin and the economic recession.

New York ISO

NERC’s Summer 2010 Assessment reported a 4-percent drop in reserve margins in the New York ISO region due to recent generation retirements and a reduction in power imports.  However, the New York ISO expects generation capacity to be adequate, with an 18-percent reserve margin for the summer.  Although the New York ISO reports that generating capacity is expected to be 775 MW lower, due to recent generation retirements, demand is also expected to be lower than last summer.
 
California ISO

On May 17, 2010, the California ISO reported to its Board of Governors that the state will have enough electricity to meet the summer’s peak demand, largely because of three new gas-fired power plants in Southern California, a modest increase in demand, and higher participation in demand response programs.  Overall, a total of 1,760 MW of new generation has been added since last summer.  Additionally, the peak demand forecast for California ISO is only 2.9 percent above last summer’s actual peak demand.  The forecast also includes 2,403 MW of demand response and interruptible programs, which is 15 percent more than Summer 2009.  As a result, the California ISO has a planning reserve of 34.5 percent for Summer 2010. 

PJM

NERC projected the Summer 2010 peak demand in the PJM Interconnection to be 1.5 percent higher than last summer’s peak demand.  This is due in part to 1,500 MW of generation capacity that has been added in the past year.  NERC also forecasts a 1.5-percent increase in summer peak demand in PJM.  Overall, NERC projects a reserve margin for Summer 2010 of 26.7 percent.

ISO-NE

NERC’s Summer 2010 Assessment reported an additional 225 MW of new generation capacity in the ISO-New England (“ISO-NE”) region.  In addition, the new Forward Capacity Market is predicted to add demand-side resources and energy efficiency to the supply mix, accounting for more than six percent of the regional capacity to serve summer loads.  NERC also projects peak demand to be 2.5 percent lower than 2009 summer peak demand.  As a result, NERC reported a forecasted reserve margin this summer of 19.6 percent.

FERC’s Summer 2010 Energy Market and Reliability Assessment is available at:
http://www.ferc.gov/market-oversight/mkt-views/2010/05-20-10.pdf

NERC’s Summer 2010 Assessment is available at:
http://www.nerc.com/files/2010%20Summer%20Reliability%20Assessment.pdf

The Cal ISO report is available at: http://www.caiso.com/2793/2793ae47395f0.pdf

The 2010-2012 plan is an update of the 2008 Three-to-Five-Year Strategic Plan.  However, that plan focused on WECC transitioning from a voluntary and member-driven organization to a Regional Entity delegated by FERC and the North American Electric Reliability Corporation (“NERC”) to enforce mandatory reliability standards.  In December 2009, a strategic planning working group was selected to finalize the 2010-2012 plan. 

The four strategies that will guide WECC’s actions over the next few years are:

1. Transitioning operational authority away from the WECC Board of Directors to WECC management;
2. Establishing a regional leadership role by coordinating with and supporting organizations that impact WECC’s mission of assuring reliability in the Western Interconnection;
3. Producing and disseminating credible data, information, and analysis; and
4. Performing WECC’s role as Regional Entity under the NERC delegation agreement.

Each year the WECC’s CEO will report to WECC’s Board of Directors on accomplishments from its strategic plan.  If necessary, the CEO will make recommendations on how to refine action priorities. 

A copy of the WECC strategic plan is available at http://www.wecc.biz/committees/BOD/Shared%20Documents/2010-2012%20WECC%20Strategic%20Plan.pdf.

CIP Standards require operators of the Bulk-Power system to follow particular requirements to protect “critical cyber assets.”  Version 1 CIP Standards state that facilities regulated by the U.S. Nuclear Regulatory Commission (“NRC”) are exempt from CIP Standard compliance.  NRC regulations currently do not, however, cover all of the equipment within a nuclear power plant.  On March 19, 2009, FERC issued Order 706-B to clarify that CIP Standards should apply to the “balance of plant” equipment within a nuclear plant in the United States that is not subject to regulation by NRC.  FERC directed NERC to have a stakeholder process to come up with an applicable timeframe for nuclear power plants to comply with the Version 1 CIP Standards.

On September 15, 2009, NERC initially filed the Implementation Plan for Version 1 of CIP Standards.  On December 17, 2009, FERC requested additional information from NERC on the systems determination in order to evaluate the Implementation Plan.  FERC was specifically concerned with: (1) the anticipated date the systems framework would be finalized, (2) the status of the development of the exemption process, (3) whether the exemption process will include (a) an application deadline and (b) a deadline for determination on an exemption request, and (4) a description of any other time parameters that may be included in the exemption process. 

NERC’s January 19, 2010 Compliance Filing outlined their “Bright-Line Test” which details the ways in which NERC will identify the systems, structures and components that are subject to NERC and CIP Standards and those which are subject to NRC jurisdiction.  In an attempt to streamline this process, NERC and NRC executed a memorandum of understanding on December 30, 2009 in order to coordinate their responsibilities with cyber security.  NERC stated in its January 19, 2010 filing that it will conduct regional workshops and then gather information about licensees through the distribution of “Bright Line Surveys.”  NERC and NRC will verify the survey results to determine which systems and structures are within the CIP Standards. 

NERC hopes to finalize the scope of systems determinations within eights months of when the Implementation Plan becomes effective.  FERC accepted NERC’s compliance filing and approved their Implementation Plan for nuclear power plant generator owners’ and operators’ compliance with Version 1 of the CIP Standards.  Moving forward, FERC also approved NERC’s request to submit similar implementation plans for Versions 2 and 3 of the CIP Standards.

FERC’s full order can be found at www.ferc.gov under Docket No. RM06-22-011.

The Policy Statement (Docket No. PL10-4-000) seeks to address civil penalty assessment under the Commission’s enhanced penalty authority pursuant to the Energy Policy Act of 2005. The Commission reviewed its previous Policy Statements on Enforcement in order to develop an approach with the goal of creating greater fairness and proportionality to civil penalty determinations. FERC modeled its penalty guidelines on the United States Sentencing Guidelines and bases its penalty calculations on uniform factors with assigned weights. The Commission uses a five-step process to determine a final penalty range:

• Step One: Base Violation Level- there are three separate guidelines for violations of reliability standards, fraud or manipulation or misrepresentations and false statements to the Commission
• Step Two: Adjustments- applying adjustments for various items depending on the category of the violation, including risk of loss, monetary gain or loss and scope of the violation
• Step Three: Base Penalty- greater of dollar amount in a particular table corresponding to the violation level or the pecuniary gain to the organization or the pecuniary loss from the violation caused by the organization
• Step Four: Culpability Score- every organization starts with a score of five and is adjusted up or down based on different considerations, such as similar misconduct, obstruction of justice and self-reporting
• Step Five: Multiplication of Base Penalty by Minimum and Maximum Multipliers- produces the applicable penalty range.

The Commission also issued a NOPR (Docket No. RM09-18-000), proposing to direct the North American Electric Reliability Corporation (“NERC”) to update its definition of the term “bulk electric system” to include all transmission facilities with a rating of 100 kilovolts (“kV”) or above. The Commission also proposed to require NERC and Commission approval before a facility above 100 kV can be exempt from the mandatory reliability standards.

In March 2007, the Commission first approved NERC’s definition of the bulk electric system in Order No. 693. This definition provided discretion to define “bulk electric system” without any limitation and without NERC oversight. Since then, the Commission has found that the events which caused bulk electric system outages and disturbances demonstrate a need for updating and standardizing the definition of “bulk electric system” in the Commission-approved NERC Glossary in order to protect the reliability of the Bulk Power System in the United States. To eliminate inconsistencies, FERC proposed to limit Regional Reliability Entities from modifying the definition of “bulk electric system” within a region. Comments on FERC’s proposal are due 45 days after publication in the Federal Register.

The Commission also issued an order (Docket No. RR09-6-00) directing NERC to modify its Rules of Procedure with respect to developing Reliability Standards. The Commission is concerned that the voting process in the NERC rules of procedure can prevent compliance with reliability matters as directed by the Commission. Under Section 215(d)(5) of the Federal Power Act (“Federal Power Act”), NERC must comply with a Commission directive. The Commission expressed concern that the current NERC Standards of Development Process is in conflict with this statutory obligation because two-thirds of the stakeholder ballot body have to approve a new or modified Reliability Standard before it can be presented to the NERC board of trustees. The Commission directed NERC to propose notifications to the Rules of Procedure in order to be in compliance with Section 215 of the FPA. The Commission gave NERC discretion to propose the particular modifications and will issue a final order following a comment period on NERC’s proposed modifications.

Finally, the Commission issued two orders setting deadlines for compliance with certain reliability orders. In the first order (Docket No. RM06-16-09), the Commission directed NERC to comply with Order Number 693 by June 30, 2010. Order Number 693, issued on March 18, 2010, approved transmission planning reliability standards, including TPL-002-0, regarding system performance following the loss of a single bulk electric system element. The order directed NERC to clarify the “planned or controlled interruption of electric” supply where a single contingency occurs on a transmission system. This modification specifically addresses the loss of non-consequential load, including removal of any firm load. The Commission also ordered NERC to submit a modification to Table I, footnote b of TPL-002-0 in compliance with Order Number 693 by June 30, 2010. In the second order (Docket No. RM06-16-010), the Commission directed NERC to provide a modification to reliability standard BAL-003-0 by September 18, 2010. In order to comply with the Commission’s order, NERC must accomplish two items listed by the Commission: (1) determine an appropriate periodicity of frequency response surveys necessary to ensure that Requirement R2 and other requirements of the Reliability Standard are being met; and (2) define the necessary amount of frequency response needed for reliable operation for each balancing authority with methods of obtaining and measuring that the frequency response is achieved.