NERC 2013-2015 Budget and Business Plan: Basic Assumptions
Comments of the Edison Electric Institute
March 9, 2012
SUMMARY
On behalf of our member companies, Edison Electric Institute (EEI) appreciates
the opportunity to provide the following brief comments on the NERC 2013-2015
budget assumptions. We offer the following comments with the following
observations on two critical budget drivers. EEI urges NERC management and the
Board of Trustees to move more aggressively to incorporate these considerations
into 2013 budget decisionmaking.
First, current activity moving through the standards development process,
including the number of projects and the apparent urgency to revise the process,
flows from three basic drivers. First, the ‘version 0’ catalog was moved ahead on
a very aggressive schedule and included a broad range of ambiguous terms and
requirements. Second, FERC Order No. 693 contained several hundred directives
that required revisions to the standards. Third, FERC Order No. 706 approved the
initial catalog of critical infrastructure protection standards (standards that also
contained many ambiguous terms and requirements) and over 50 directives for
changes. The demands on the standards development process are not driven by
a significant or critical reliability gap in the existing standards.
The second significant budget driver is the compliance and enforcement program.
Almost 50% of the consolidated NERC budget goes to this core program area. EEI
understands the budget assumptions document to imply that the compliance and
enforcement program will continue to grow in size. We disagree on this direction.
The program budget should assume zero growth or a decrease for 2013, and
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decreasing after 2013 as NERC implements additional program changes for more
flexible approaches.
The status quo is unsustainable. We believe that consideration of the NERC
strategic plan, and decisions on the business plans and budgets of NERC and the
regions, should begin with consideration of these basic realities and how to work
through the significant challenges that they present. In addition, our general
impression of the budget assumptions document is a prevailing bias to adding
resources and expanding various activities, where we believe that NERC should by
now be finding ways and means to reduce and eliminate.
Strategically, we ask that NERC move aggressively to develop a plan to move to
results-based standards, and to engage both the regulators and stakeholders in
considering how to realign the compliance and enforcement program to focus on
building strong performance incentives, and away from sole reliance on the
penalty-based enforcement model.
LEGAL AND OPERATING FRAMEWORK
EEI agrees that the basic legal regulatory framework of Section 215 will not
change in the foreseeable future.
EEI also agrees that NERC should examine the regional delegation agreements (or
during their scheduled periodic review) to ensure that responsibilities are
properly defined so the corporation can be managed efficiently and NERC can
continue to develop as a strong Electric Reliability Organization as set forth under
Section 215. While much of the working relationship between NERC and the
regions is not observable by stakeholders, we hold the view that considerable
gains are available in the compliance and enforcement program area for
improved communication and coordination, and process management. It is
unclear at this time whether this might suggest the need for new or revised
provisions in the regional delegation agreements.
Across the industry, the general pattern continues for a relentless pursuit of
efficiency and sensitivity to costs and rate impacts on customers. EEI sees this as
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an enduring trend and recommends that NERC do so as well. There is a
compelling need for NERC to continue pushing for clearly stated business goals
and objectives, setting appropriate priorities and measurable performance
metrics, incorporating risk-based process management systems, and increasing
the disciplined oversight of business and financial activity with strong feedback
loops for NERC management and the Board of Trustees to identify problems or
significant variances as soon as possible. Goals and expectations, and the
performance against them, needs continuous careful review and diligence.
EEI believes that a fundamental change from prescriptive, compliance and audit
driven standards to results based standards that are focused more on reliability of
the BES will have a dramatic impact on the number of standards development
projects and standard revisions proposals as well as a reduction in the compliance
and enforcement backlog.
STANDARDS DEVELOPMENT
EEI strongly urges NERC to work with the industry to devise a more defined and
comprehensive plan to facilitate a more rapid transition to results-based
standards. Following through on such a plan will require strong commitment and
execution throughout the NERC enterprise. EEI strongly believes that the
transition to results-based standards will cause a fundamental shift in resource
demands within NERC.
EEI disagrees that ‘significant increases in throughput’ is an intended outcome,
and therefore also disagrees that additional resources are needed to support
standards development in the long term. However, EEI strongly believes that
resources are needed to facilitate the transition to results-based standards and
related process changes in the short term, and to setting appropriate priorities for
standards development. Resource and other budgeting decisions should flow
from this starting point. EEI believes that this transition to results-based
standards will evolve into a controlled flow of projects over time.
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EEI supports the MRC/SPIG initiative and trusts that this working group will
provide a push for NERC and the industry to streamline its comment review
process and hopefully will allow NERC staff to focus on other, more important,
process issues rather than on the logistics of addressing a plethora of comments.
We also believe that NERC does not need to wait on formal process changes and
approvals to change its practices on reviewing comments.
A significant item that needs consideration for both 2012 and 2013, the design
and content of the filings made at FERC to propose new and revised standards,
should be included in the budget and business planning assumptions. The full
record of the proceeding can possibly be reduced to providing a simple link to the
NERC website. The description of the proposal needs to be significantly
expanded, including its benefit to reliability, key issues in the project
development, areas of disagreement (including why the drafting team did not
adopt some proposals), and if applicable how a proposal responds to a FERC
directive. These descriptions are needed to inform FERC commissioners and staff
who are otherwise overwhelmed with filings and paper and improve the quality
of the initial filing prior to FERC issuing a NOPR. In addition, pre-filing
conferences should become a routine matter in advance of any filings. This will
likely involve a small amount of additional resource requirements, and add to the
work performed by standards drafting teams, however, EEI believes that such
work is critical in successful regulatory advocacy and for NERC to demonstrate
strong leadership in its role as the Electric Reliability Organization.
COMPLIANCE AND ENFORCEMENT
EEI envisions that increased commitment to risk-based compliance and
enforcement activities will produce significant cost reductions going forward. As
part of this long-term process, EEI welcomes any opportunities to discuss with
NERC how to begin more actively considering compliance and enforcement as
tools for providing strong incentives to improve performance, and not simply to
manage or avoid compliance risks.
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We expect that risk-based compliance processes with include greater reliance on
spot checks, relieving demands on personnel presently engaged in compliance
auditing. Greater forbearance by regional enforcement will reduce the processing
of irrelevant violations through the lengthy bureaucracy of full notices of penalty.
In addition, compliance and enforcement personnel training is a high priority that
NERC must address this year and in 2013.
A move to embrace enterprise-wide management support Information
Technology (IT) tools will assist in moving and maintaining casework and project
work in a more streamlined fashion. EEI believes that both economies of scope
and scale can be achieved by assertive adoption of enterprise-wide IT systems
and processes.
CRITICAL INFRASTRUCTURE PROTECTION
The EEI notes that almost all “top ten” violated standards are now in the CIP
category, and that CIP audits are extremely lengthy and often contentious
activities that absorb considerable company resources. Prior to committing to
additional resources, NERC management should seek to understand the specific
goals that additional resources will seek to address, and whether such resources
will cause efficiency gains or address possible CIP audit process problems. In
addition, significant cost reductions in NERC compliance and enforcement should
serve as the source for any additional “training and credentialing” for CIP
compliance and enforcement.
EEI believes that FERC approval of the CIP v.4 standards and ongoing
development of CIP v.5 standards will guarantee that a new version of CIP
standards will become effective during this budget period. As noted the record
indicates that implementation of a new version of CIP standards will most likey
spur additional violations as well as new requests for interpretation. In addition,
additional training will be needed for audit teams. EEI anticipates that NERC staff
dedicated to the CIP standards will remain constant over this period, however it is
not clear why NERC may need to hire additional auditors.
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EVENTS ANALYSIS / SITUATIONAL AWARENESS
EEI challenges the assumption that the number of events requiring review and
detailed forensic analysis will increase. NERC staff has provided no analysis or
evidence of this need. To the extent that the NERC Events Analysis process will
conduct extensive forensic analyses in the future only in large-scale events, it
seems that NERC is suggesting both a more limited NERC role and a decline in bulk
power system reliability. EEI envisions improvement in bulk power system
reliability. In addition, EEI continues to encourage NERC to seek to coordinate
with the North American Transmission Forum (NATF) in order to leverage NERC
and NATF resources and activities, especially regarding timely and candid
discussion and development of best practices and lessons learned out of system
events.
FINANCE AND ADMINISTRATIVE
EEI appreciates that NERC makes a commitment to seek cost savings in the broad
range of administrative and general expense areas, and that these efforts will be
made more transparent to stakeholders. Companies across the country continue
to experience aggressive limits on travel and other overhead costs, where
facilities such as webinars, conference calls, and posted content on the website
can help in discussions on issues without requiring time and expense out of the
office, and also help to more efficiently communicate various types of information
broadly to stakeholders. Along this line, EEI also looks forward to continuing
improvement in the NERC website, methods for “mining” information from the
site, and to having information posted timely. We appreciate that this is a
daunting challenge given the scale and scope of content on the site.
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