Proposed Criteria for Determining Scope of Section 215 Activities Request for Comments

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1 Daniel R. Simon Direct: Fax: December 21, 2012 By North Electric Reliability Corporation 3353 Peachtree Road, N.E. Suite 600, North Tower Atlanta, GA Re: Proposed Criteria for Determining Scope of Section 215 Activities Request for Comments Dear Sir or Madam: Attached please find the Comments of the ISO/RTO Council on NERC s Proposed Criteria for Determining Scope of Section 215 Activities, which NERC issued on November 20, If you have any questions concerning these comments, please do not hesitate to contact me. Very truly yours, /s/ Daniel R. Simon Daniel R. Simon Counsel for ISO New England Inc.

2 COMMENTS OF THE ISO/RTO COUNCIL ON NERC S PROPOSED CRITERIA FOR DETERMINING SCOPE OF SECTION 215 ACTIVITIES December 21, 2012 I. INTRODUCTION The ISO/RTO Council ( IRC ) 1 thanks NERC for the opportunity to comment on its Proposed Criteria for Determining Scope of Section 215 Activities Request for Comments (Nov. 20, 2012) ( Request for Comments ). (Attachment A to the Request for Comments is referred to herein as the Proposed Criteria ). The IRC believes that it is very useful, after several years of experience with NERC as the Electric Reliability Organization ( ERO ), to reevaluate its jurisdictional scope and to develop clear criteria that provide guidance as to what activities do and do not fall within Section 215 of the Federal Power Act ( Section 215 ). Because the IRC believes that the development of criteria that provide guidance as to what activities do or do not fall within Section 215 is a critical, necessary effort, it provides responses to the specific questions that NERC requested each entity to consider while preparing their comments, as well as some additional comments regarding the Proposed Criteria. More specifically, in its solicitation for comments, NERC requested that its stakeholders consider three (3) specific questions. These questions were: 1 The IRC is comprised of the Independent System Operators and Regional Transmission Organizations operating as the Alberta Electric System Operator ( AESO ), the California Independent System Operator ( CAISO ), Electric Reliability Council of Texas ( ERCOT ), the Independent Electricity System Operator of Ontario, Inc., ( IESO ), ISO New England, Inc. ( ISONE ), Midwest Independent Transmission System Operator, Inc., ( MISO ), New York Independent System Operator, Inc. ( NYISO ), PJM Interconnection, L.L.C. ( PJM ), and Southwest Power Pool, Inc. ( SPP ). The IRC s mission is to work collaboratively to develop effective processes, tools and standard methods for improving the competitive electricity markets across North America. In fulfilling this mission, it is the IRC s goal to provide a perspective that balances reliability standards with market practices so that each complements the other, thereby resulting in efficient, robust markets that provide competitive and reliable service to customers. The IESO does not join in these comments. 1

3 1. Do the proposed criteria include items that you believe are outside the scope of section 215? If, so please provide the reasoning that supports your conclusion. 2. Do the proposed criteria exclude items that you believe are within the scope of section 215? If so, please provide the reasoning that supports your conclusion. 3. What alternate or additional or substitute criteria would you propose? Please provide the justification for any alternatives that you propose. The IRC has considered each of the above questions as well as the purpose for which the Proposed Criteria was developed and the suitability of Attachment to fulfill that purpose. It provides a comprehensive response to each question and its additional comments on the suitability of the Proposed Criteria for its stated purpose below. II. THE PROPOSED CRITERIA ARE NOT WELL SUITED FOR THEIR INTENDED PURPOSE As an initial point, the IRC has concerns with the overall framework of the proposed criteria. More specifically, the Proposed Criteria enumerate the specific activities that NERC currently performs and those it hopes to perform in the future not criteria that could be used to vet a proposed activity and document its statutory status. The Proposed Criteria are problematic because they generally do not establish actual criteria by which a future, unenumerated, unplanned activity could be vetted and a determination of whether it falls under NERC s Section 215 statutory activities made. Additionally, it is notable that the form of the criteria provided by NERC does not comport with previous criteria developed and utilized by the Commission including the criteria set forth for the approval of reliability standards in Order See Chinook Power Transmission, LLC., 126 FERC 61, 134 (2009); NARUC/FERC Smart Grid Collaborative Proposed Funding Criteria (March 26, 2009); FERC Criteria for Study Requests; FERC Criteria for Approving Reliability Standards (Order 672) (2006). 2

4 More specifically, the Proposed Criteria are almost solely comprised of specific activities and, while these may be and often are identified as examples of particular criteria, they are not, in and of themselves, the applicable criteria. While examples are often provided as part of criteria or as a supplement to stated criteria, such is done in an effort to provide additional guidance to the user of the criteria regarding the application of the criteria. Further, such supplemental guidance cannot be effective without an explicit explanation of how the specified example activity fulfills the criteria it is intended to demonstrate. Therefore, the IRC recommends that the criteria utilize a format that can be utilized to assess whether current or future activities fall within the scope of Section 215, rather than a criteria that is largely comprised of enumerated activities. Additionally, the IRC respectfully submits that the finding to which NERC is responding is focused upon differentiating statutory activities from non-statutory activities. As Section 215 is the only authorizing statute that empowers the ERO to perform activities related to the reliability of bulk-power system, any criteria developed by NERC to identify and define statutory activities should be both informed and constrained by Section 215 itself. More specifically, NERC should look within the four corners of Section 215 to develop principles of general applicability that it, the Regional Entities, stakeholders, and FERC can apply to individual activities to determine if they fall within the scope of Section 215. At a minimum, NERC should: (1) revise its Proposed Criteria to address only criteria it believes will be useful in vetting whether an activity falls within the scope of Section 215; (2) explicitly state that enumerated activities are provided as examples of each criteria; and (3) provide explicit statements as to why each specified activity demonstrates a particular criterion and/or falls within or advances the ERO s obligations under Section

5 The IRC appreciates the opportunity to provide the above general comments regarding the Proposed Criteria. Specific comments in response to NERC s request for comments are provided below. III. RESPONSE TO NERC s QUESTIONS REQUESTED FOR STAKEHOLDER CONSIDERATION A. The Proposed Criteria include items that are outside the scope of section 215. Section 215 authorizes and requires the ERO to perform three overarching activities intended to fulfill the overall purpose of providing for the reliable operation of the bulk-power system. These three overarching activities are that the ERO must: establish reliability standards for the bulk-power system; 3 enforce reliability standards for the bulk-power system; 4 and conduct periodic assessments of the reliability and adequacy of the bulk-power system in North America. 5 Consequently, to be considered within the scope of the ERO s Section 215 authority, an activity must fall within the scope of one of the three above-enumerated activities. As currently drafted, the Proposed Criteria include sections enumerating Activities included within section 215 and Matters excluded from section 215. The inclusion of Matters excluded from section 215 are, as stated, outside the scope of Section 215 and should be removed from the Proposed Criteria. Further, this section is problematic because it creates the 3 See, e.g., FPA 215(a)(2) (defining ERO as the organization certified by the Commission under subsection (c) the purpose of which is to establish and enforce reliability standards for the bulk-power system, subject to Commission review ); FPA 215(d)(1) ( The Electric Reliability Organization shall file each reliability standard or modification to a reliability standard that it proposes to be made effective under this section with the Commission. ). 4 FPA 215(e)(1) ( The ERO may impose, subject to paragraph (2), a penalty on a user or owner or operator of the bulk power system for a violation of a reliability standard approved by the Commission. ); see also FPA 215(a)(2) (defining ERO as the organization certified by the Commission under subsection (c) the purpose of which is to establish and enforce reliability standards for the bulk-power system, subject to Commission review ). 5 FPA 215(g). 4

6 impression that this list of prohibited activities is exhaustive, which it clearly is not. More specifically, there are numerous activities that by definition are or should be excluded from the statutory activities performed by the ERO pursuant to its fulfillment of duties under Section 215. Additionally, the IRC notes that a list of excluded items is not an appropriate criterion for use in identifying whether an activity falls within the scope of Section 215. Hence, in accordance with the classification provided by NERC in the Proposed Criteria, all activities categorized as Matters excluded from section 215 are outside of the scope of Section 215, and the IRC respectfully suggests that NERC remove this section from the Proposed Criteria. Relative to the specific activities identified in the Section enumerating Activities included within section 215, the IRC has evaluated the enumerated activities in the context of the language of Section 215 as well as in the context of its belief that Congress created the concept of an enforceable reliability standard through Section 215 to advance a limited purpose. Specifically, Section 215 explains that a reliability standard is a requirement... to provide for reliable operation of the bulk-power system. 6 Section 215 indicates (at least indirectly) that the reliability standards are designed to provide an adequate level of reliability, 7 which can be viewed as maintaining then-current levels of reliability before the changing nature and usage of the bulk-power system leads to a degradation in quality. 8 Thus, the IRC believes that Section 6 FPA 215(a)(3). 7 Specifically, Section 215(c)(1) explains that FERC may certify an ERO if it demonstrates that it has the ability to develop and enforce... reliability standards that provide for an adequate level of reliability of the bulk-power system. See also NERC Proposed Criteria Request for Comments at 2. 8 A detailed discussion of similar legislation in the U.S. Senate in 2002 demonstrated this intent. Specifically, senators repeatedly stated that enforceable reliability standards were needed because of the changing nature of the electric power market. 148 Cong. Rec. S1885 (2002) (Murkowski). Otherwise, senators repeatedly stated that the purpose of the reliability standards was to maintain current level of reliability, to safeguard the integrity of our power grid, 148 Cong. Rec. S1873 (Thomas), to keep this system reliable, 148 Cong. Rec. S1874 (Bingaman), and to ensure[] our electric transmission grid will continue to be safe and reliable. 148 Cong. Rec. S1884 (Murkowski). 5

7 215 s requirement that the ERO establish reliability standards obligates the ERO to identify what constitutes an adequate level of reliability to ensure that the reliability standards fulfill their purpose as dictated by Section 215. Utilizing this construct, the IRC has identified the following activities discussed in the Proposed Criteria as activities that it believes are outside of the scope of Section 215: 1. Disseminating Alerts (Section I.A.d) Without further explanation or detail, the IRC cannot agree that this criterion falls within the scope of Section 215. The dissemination of alerts without further explanation of their purpose or function does not involve the establishment of reliability standards, the enforcement of reliability standards, or the periodic assessment of the adequacy of the bulk-power system. The issuance of alerts can be particularly troubling if they create an obligation not otherwise stated in a reliability standard with which registered entities must comply. Accordingly, without further explanation, this activity should be removed from the Proposed Criteria. 2. Assistance in Responding to Reliability Events (Section I.A.e) This criterion falls outside the scope of Section 215. The ERO does not have the statutory authority to respond to reliability events or otherwise become involved in real-time operational decision-making. Such activities are not directly related to or involved with the establishment of reliability standards, the enforcement of reliability standards, or the periodic assessment of the adequacy of the bulk-power system. Rather, Section 215 provides the ERO the authority to investigate reliability events as part of its enforcement of reliability standards as such reviews are often conducted to determine whether the event involves a violation of a NERC Reliability Standard. Accordingly, this activity should be removed from the Proposed Criteria. 6

8 3. Certification of System Operators (Section I.A.g) While system operator certification is a legacy activity performed by NERC prior to its certification as the ERO, Section 215 does not provide the ERO the authority to perform a certification function. Such activities are not directly related to or involved with the establishment of reliability standards, the enforcement of reliability standards, or the periodic assessment of the adequacy of the bulk-power system. Nonetheless, NERC currently charges individual entities directly for receiving training. Therefore, NERC s certification function appears to be accomplished outside of its role as the ERO and outside of its directives and funding under Section 215. Accordingly, this activity should be removed from the Proposed Criteria. 4. Situational Awareness (Section I.A.h) The IRC finds this activity particularly difficult to tie back to the grant of authority to the ERO through Section 215. Specifically, use of the word activities makes this activity so openended that its scope is unwieldy and indeterminate rendering it unusable as a criteria to determine whether activities would fall within the scope of Section 215. As described in the Proposed Criteria, the broad scope of this activity make it extremely difficult to define or otherwise limit the activities to be performed by the ERO under this section as legitimate Section 215 activities, i.e., it cannot be determined whether the activities would or would not be directly related to or involved with the establishment of reliability standards, the enforcement of reliability standards, or the periodic assessment of the adequacy of the bulk-power system. As written, certain references such as awareness of circumstances could be interpreted as finding that activities undertaken by NERC to obtain involvement in real-time operations are within the scope of Section 215 when such activities would be clearly outside the scope of 7

9 Section 215, as they do not directly relate to or involve the establishment of reliability standards, the enforcement of reliability standards, or the periodic assessment of the adequacy of the bulkpower system. References to the investigation of disturbances and near misses is also problematic. Activities geared toward enforcement of reliability standards are within NERC s purview under Section 215. However, by definition, near misses are just that. If NERC wants standards to be revised to reflect different requirements, the standard should be modified and a revised standard established. In short, the language set out in this provision of the Proposed Criteria seems to attempt to bestow upon NERC the authority to perform a range of investigative activities that are beyond or over and above the established reliability standards. These activities are clearly outside the scope of Section 215, and this activity should be removed from the Proposed Criteria. 5. Tools and Services to Provide Adequate Reliability The IRC does not object to NERC s performance of the administration of certain data services and tools. However, that function, like certification of system operators, appears to fall outside of the scope of Section 215 of the Federal Power Act as it is not directly related to or involved with the establishment of reliability standards, the enforcement of reliability standards, or the periodic assessment of the adequacy of the bulk-power system. Inclusion of specific activities here, regardless or the usefulness or legacy nature of the role, cannot serve to bring activities that are not contemplated within the enumerated functions of the ERO under Section 215 under that provision. While it may be appropriate for NERC to perform this role as an activity outside of Section 215, this activity should be removed from the Proposed Criteria. 8

10 B. The Proposed Criteria include items that are within the scope of section 215. As discussed above in Section III.A of these comments, Section 215 authorizes and requires the ERO to perform three overarching activities 9 intended to fulfill the overall purpose of providing for the reliable operation of the bulk-power system. Consequently, all activities engaged by the ERO that are considered statutory activities within the scope of Section 215 must fall within the scope of one of the three enumerated activities. As a general comment, the IRC believes that it is unnecessary to have the Proposed Criteria identify or distinguish activities performed pursuant to a FERC rule, order, or regulation adopted under Section 215. As currently drafted, the Proposed Criteria include a sub-section of the Section enumerating Activities included within section 215 that is entitled Activities performed pursuant to a FERC rule, order or regulation adopted under Section 215. It is unnecessary for the Proposed Criteria to include a list of activities the ERO might hypothetically perform pursuant to a FERC rule, order, or regulation adopted under Section 215. Further, it is important to note that FERC does not have the authority to alter the scope of Section 215 only Congress can do that. Hence, an activity either does or does not fall within the scope of Section 215, rendering this delineation unnecessary and increasing the likelihood for confusion regarding this activity. The subsection should be removed from the Proposed Criteria and the specific activities enumerated therein re-categorized as an Activit[y] included within section 215 where such categorization is applicable and justifiable as directly related to or involved with the 9 These are: 1) establish reliability standards for the bulk-power system; 2) enforce reliability standards for the bulk-power system; and 3) conduct periodic assessments of the reliability and adequacy of the bulk-power system in North America. 9

11 establishment of reliability standards, the enforcement of reliability standards, or the periodic assessment of the adequacy of the bulk-power system. Additionally, utilizing the same construct described above, the IRC has identified the following activities as activities that it believes are within the scope of Section 215: 1. Activities that (i) are expressly required by section 215 or (ii) are necessary and appropriate corollaries to carrying out the ERO s express statutory responsibilities (Section I.A(a)) The IRC believes that the specific activities enumerated here could and likely should fall within the scope of Section 215. However, the justification of these activities as part of a continuous cycle designed to achieve bulk power system reliability improvement 10 is not sufficient. Additionally, NERC does not explain how any of these activities are directly related to or involved with the establishment of reliability standards, the enforcement of reliability standards, or the periodic assessment of the adequacy of the bulk-power system. As stated, the list of activities is very broad and could encompass a range of activities not provided for as part of the ERO s duties under Section 215 of the Federal Power Act. Nonetheless, because Section 215 provides that the purpose of such activities is to maintain reliable operation 11 of the power system and to ensure an adequate level of reliability, these activities are likely within the scope of Section However, rather than be worded to identify continuous improvement, the Proposed Criteria should be reworded to tie the stated activity directly to the statutory provisions by providing that the goal of the activity is to achieve reliable operation of the bulk power 10 Proposed Criteria at I.A.a (emphasis added). 11 FPA 215(a)(2). 12 FPA 215(c)(1). 10

12 system and to revise the items listed that provide which is performed to accomplish the specific statutory role of the ERO. 2. Periodic Assessment Reliability Reporting (Section I.A.b) This criterion falls within the scope of Section 215, closely tracking the language of Section 215(g), which requires the ERO to conduct periodic assessments of the reliability and adequacy of the bulk-power system in North America. 3. Identification and Registration Function (Section I.A.c) This criterion reasonably falls within the ERO s Section 215 duties. This criterion, however, could be improved by explaining that the purpose of performing this identification and registration function is to determine the owners, users and operators of the bulk-power system that must comply with reliability standards established pursuant to Section 215, and that such identification is necessary for the ERO to fulfill its statutory obligation under Section 215 to enforce the reliability standards. 4. Education and Training (Section I.A.f) A reasonable reading of Section 215 includes allowing the ERO to train the regional entities on how to perform any statutory duties delegated to them by the ERO. Such an approach would tie directly to the statutory scope of Section 215 because the training of regional entities would directly relate to or the implementation of the establishment of reliability standards, the enforcement of reliability standards, or the periodic assessment of the adequacy of the bulkpower system. NERC should delete the phrase other reliability matters as too vague and open-ended. 11

13 5. Sharing Analysis with Industry and Government (Section I.A.j) The sharing of analyses under certain circumstances certainly can fall within the scope of Section 215 because these activities may be directly related to or involved with the establishment of reliability standards, the enforcement of reliability standards, or the periodic assessment of the adequacy of the bulk-power system. NERC, however, should modify this criterion to make clear that such sharing would be conducted specifically as part of the process for establishing or enforcing reliability standards or performing reliability adequacy assessments. 6. ERO Committee Support (Section I.A.j) NERC should modify this criterion to clarify that such support will be provided to perform a statutory function, i.e., to establish or enforce reliability standards or perform reliability adequacy assessments. 7. Activities Necessary or Appropriate to Maintain ERO Certification It is reasonable to read Section 215 as allowing an ERO to take necessary or appropriate steps to continue to satisfy the certification criteria enumerated in Section 215(c). IV. CONCLUSION While the Proposed Criteria include a number of activities that fall within the scope of Section 215, they are also drafted so broadly that NERC ultimately could argue a wide range of activities not contemplated by Section 215 would nevertheless be statutorily authorized. The IRC supports FERC s directive that NERC be required to identify the activities for which it seeks funding under Section 215 are statutory activities under Section 215. In order to accomplish this goal, it follows that, for each activity for which funding under Section 215 is sought, a detailed justification of scope, including references to specific sections of Section 215, FERC regulations, or FERC orders, should be documented. Because the Proposed Criteria are 12

14 not drafted as criteria and are instead - a list of activities already performed by NERC provided without explanation regarding how most of them fall within the scope of Section 215 and without a corresponding objective criteria, the Proposed Criteria do not provide to the most appropriate approach to achieve the goal of identification of statutory activities under Section 215. The IRC respectfully requests that NERC consider its comments and recommendations for revision of the Proposed Criteria. 13

15 /s/ Nancy Saracino Nancy Saracino General Counsel Anthony Ivancovich Deputy General Counsel, Regulatory Anna McKenna Assistant General Counsel, Regulatory California Independent System Operator Corporation 151 Blue Ravine Road Folsom, California Respectfully submitted, /s/ Carl F. Patka Carl F. Patka Assistant General Counsel Raymond Stalter Director of Regulatory Affairs New York Independent System Operator, Inc. 10 Krey Blvd Rensselaer, New York /s/ Matthew Morais Matthew Morais Assistant General Counsel Electric Reliability Council of Texas, Inc West Lake Drive Taylor, Texas /s/ Theodore J. Paradise Raymond W. Hepper Vice President, General Counsel, and Secretary Theodore J. Paradise* Assistant General Counsel, Operations and Planning Matthew F. Goldberg Director, Reliability and Operations Compliance ISO New England Inc. One Sullivan Road Holyoke, Massachusetts /s/ Craig Glazer Craig Glazer Vice President-Federal Government Policy PJM Interconnection, L.L.C. Suite G Street, N.W. Washington, D.C glazec@pjm.com /s/ Paul Suskie Paul Suskie Senior Vice President, Regulatory Policy and General Counsel Southwest Power Pool, Inc. 415 North McKinley, Suite 140 Little Rock, Arkansas psuskie@spp.org 14

16 /s/ Stephen G. Kozey Stephen G. Kozey Vice President, General Counsel, and Secretary Midwest Independent Transmission System Operator, Inc. P.O. Box 4202 Carmel, Indiana /s/ Diana D. Pommen Diana D. Pommen, MBA Director Interjurisdictional Affairs and Compliance Alberta Electric System Operator (AESO) 2500, 330-5th Avenue SW Calgary, AB T2P 0L Direct 15