Michehl Gent, CEO of the North American Electric Reliability Council (NERC), last Thursday said that rather than immediately start tossing out financial penalties to utilities that violate reliability standards, the industry should instead rely upon a system of “peer pressure” in order to get power companies up to snuff on reliability performance.

“The contention really has to do with the money and most of us believe that we should not allow the offending party to buy its way through a violation,” Gent told the Transmission Summit 2004, which is being sponsored by Infocast Inc. and is taking place in Washington, DC. “We’re really depending on peer pressure to work here,” Gent said.

“I’m hoping that before we have to start charging money…I’m hoping that before we get to that, the peer pressure — the rigorous peer pressure — will work,” Gent said. “We’re not in the business of collecting money. We’re in the business of running a reliable system.

“We’re getting a lot of resistance on the penalty stuff,” Gent told reporters following his appearance at the conference. “It’s not because people don’t want to pay.”

By way of example, he noted that in New England, the Northeast Power Coordinating Council has “a compliance program that works very well and they don’t have financial penalties. They just have the letters that go to a CEO and so they steadfastly believe that the money here is not the issue, it’s the peer pressure that’s more valuable than the money.”

Gent also expressed concern about the possibility that FERC may face legal challenges if NERC files its reliability standards at the federal regulatory agency. “I think that there are plenty of entities around the country that would…take the chance to test whether FERC has this statutory authority or not.”

Gent said “there’s a question” as to the range of FERC’s authority as it relates to reliability. “If you read Pat Wood’s comments, that he’s willing to stretch out and just grab the authority and then challenge people to challenge him, we’re certain that will happen,” he said in reference to FERC facing lawsuits.

Passage of pending comprehensive energy legislation in Congress would presumably help to flesh out FERC’s authority in the area of reliability. Under the comprehensive energy bill, FERC would be given the responsibility of certifying an electric reliability organization. But the survivability of the massive energy bill remains in doubt, at least in 2004, an election year.

Several U.S. senators recently unveiled legislation that would give FERC the authority to devise a system of mandatory and enforceable standards for the reliable operation of the nation’s electricity grid. The Electric Reliability Act of 2004 was introduced by Sens. Maria Cantwell (D-WA), Hillary Clinton (D-NY), Jim Jeffords (I-VT) and Russ Feingold (D-WI). In the House of Representatives, Rep. John Dingell (D-MI) has also introduced stand-alone electric reliability legislation.

FERC Chairman Pat Wood last month said that electric reliability tops his agency’s agenda in 2004, and to that end, the Commission is moving to establish a new reliability unit that will be responsible for reliability-related audits. FERC last month directed its staff to proceed with an order to direct transmission operators to report violations of the currently voluntary NERC reliability standards.

Meanwhile, NERC recently posted to its web site (https://www.nerc.com/) draft recommendations related to the Aug. 14 blackout. Among other things, NERC recommends the initiation of control area and reliability coordinator reliability readiness audits.

Under this recommendation, the NERC compliance enforcement program and the regional reliability councils will jointly establish a program to audit the reliability readiness of all reliability coordinators and control areas, with immediate attention given to addressing the deficiencies identified in the blackout investigation.

Audits of all control areas and reliability coordinators will be completed within three years and continue in a three-year cycle. The highest priority audits, as determined by the compliance enforcement program, will be completed by June 30, 2004.

Under this approach, NERC would establish a set of baseline audit criteria to which regional criteria may be added. Under the draft recommendations, the control area requirements will be based on the existing NERC control area certification procedure.

Reliability coordinator audits will include evaluation of reliability plans, procedures, processes, tools, personnel qualifications and training. Along with reviewing written documents, the audits will carefully examine the actual practices and preparedness of control areas and reliability coordinators.

Also, the reliability regions, with the oversight and direct participation of NERC, will audit each control area’s and reliability coordinator’s readiness to meet these audit criteria. FERC and other relevant regulatory agencies will be invited to participate in the audits, subject to the same confidentiality conditions as the other members of the audit teams.

But John Anderson, executive director of the Electricity Consumers Resource Council (ELCON), on Friday expressed concern that the recommendations developed by NERC in response to the blackout have been “watered down.”

“I commend Dave [Nevius] and the NERC recommendations very highly,” Anderson said in a conference call sponsored by Restructuring Today. Along with Anderson, the call’s participants included Nevius, a NERC senior vice president, Tom Kuhn, president of the Edison Electric Institute (EEI) and Jimmy Glotfelty, a top official at the Department of Energy.

Anderson said that he liked the first version of the recommendations “much better than the second version, when they got watered down some after they went before the committees and some very large investor-owned utilities just didn’t want to have these requirements as stiff as they are.”

Nevius urged Anderson to “read more closely” the NERC recommendations. “The one that talks specifically about strengthening the NERC compliance enforcement program talks about doing reliability audits, monitoring compliance, reporting to our board.” That recommendation goes on to say that “if the board determines that an offending organization is non-responsive and continues to cause a risk to reliability of the interconnected systems, the board will seek to remedy the violation by requesting assistance of the appropriate regulatory authorities in the United States and Canada,” Nevius pointed out.

“I think the words that I’ve heard used are trust and verify and I think that’s sort of the watchword for a lot of these recommendations,” the NERC official said. “It’s not a system where in the first instance, all of the data or results of audits and compliance reviews are reported to the New York Times…However, we are taking this very seriously, as are all the executives in the industry, to get after this issue and to see that reliability standards, NERC reliability standards, are followed and I think there will be verification.”

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